of 13
nternational BusinessSIXTH EDITION
Ricky W. GriffinTexas A&M University
Michael W. PustayTexas A&M University
Prentice HallUpper Saddle River, NJ 07458
Contents
Maps xxPreface xxiAcknowledgments xxiiiAbout the Authors xxv
PART 1 The World's Marketplaces 2
Chapter 1 An Overview of International Business 2 CASE: The Business of the Olympics 3
What Is International Business? 5Why Study International Business? 5
BRINGING THE WORLD INTO FOCUS: A Rose by Any OtherName... 7
International Business Activities 7Exporting and Importing 7 BRINGING THE WORLD INTO FOCUS: The Early Era of International
Business 8International Investments 9Other Forms of International Business Activity 10
The Era of Globalization 11The Contemporary Causes of Globalization 13
Strategic Imperatives 13The Environmental Causes of Globalization 14Globalization and Emerging Markets 14 EMERGING OPPORTUNITIES: Is Globalization Good for Us? 15
An Overview of the Contents of This Book 17Chapter Review 18 Summary 18 Questions for Discussion 19Building Global Skills 19
CLOSING CASE: A Boom in Bangalore 19
Chapter 2 Global Marketplaces and Business Centers 22 CASE: Mining the Boom 23
The Marketplaces of North America 25The United States 26Canada 26 EMERGING OPPORTUNITIES: Classifying Countries by Income
Levels 28Mexico 29Central America and the Caribbean 29
The Marketplaces of Western Europe 30The Marketplaces of Eastern Europe and Central Asia 32The Marketplaces of Asia 34
vi i i
CONTENTS i x
Japan 34Australia and New Zealand 36The Four Tigers 37China 39India 40Southeast Asian Countries 41
The Marketplaces of Africa and the Middle East 41Africa 41Middle East 43
The Marketplaces of South America 43B VENTURING ABROAD: The New Player in Global Capital Markets:
Sovereign Wealth Funds 44Chapter Review 47 Summary 47 Questions for Discussion 48 Building Global Skills 48
CLOSING CASE: Demography Is Destiny 49
Chapter 3 Legal, Technological, Accounting, and PoliticalEnvironments 52
CASE: Harry Potter Goes to China 53The Legal Environment 54
Differences in Legal Systems 54 j
M E-WORLD: Law and the Internet 56Domestically Oriented Laws 57Laws Directly Affecting International Business Transactions 58H VENTURING ABROAD: Where Do Old Toyotas Go? Siberia, ofCourse 58Laws Directed Against Foreign Firms 60The Impacts of MNCs on Host Countries 61Dispute Resolution in International Business 62
The Technological Environment 63 BRINGING THE WORLD INTO FOCUS: The Real Problem with
Counterfeiting 66The Accounting Environment 67
The Roots of National Differences 67 BRINGING THE WORLD INTO FOCUS: The Sarbanes-Oxley Act 69Differences in Accounting Practices 70Impact on Capital Markets 72
The Political Environment 73Political Risk 73 EMERGING OPPORTUNITIES: Piracy on the High Seas 75
Chapter Review 78 Summary 78 Questions for Discussion 79 Building Global Skills 79
CLOSING CASE; Sour Oil, Soured Deal 79
Chapter 4 The Role of Culture 82 CASE: Hollywood Abroad 83
Characteristics of Culture 84 E-WORLD: The Internet, National Competitiveness,
and Culture 85Elements of Culture 85
Social Structure 86
CONTENTS
BRINGING THE WORLD INTO FOCUS: The Impact of Japanese Cultureon Business 87
Language 89Communication 93Religion 95 BRINGING THE WORLD INTO FOCUS: When Interest Is Forbidden by
Religion 97Values and Attitudes 99
Seeing the Forest, Not the Trees 100Hall's Low-Context-High-Context Approach 100The Cultural Cluster Approach 101Hofstede's Five Dimensions 102Social Orientation 102Power Orientation 106Uncertainty Orientation 107 EMERGING OPPORTUNITIES: Pulling Rank Gets Harder at One Korean
Company 108Goal Orientation 111Time Orientation 113
International Management and Cultural Differences 113Understanding New Cultures 113
Chapter Review 114 Summary 114 Questions for Discussion 114 Building Global Skills 115
CLOSING CASE: Quacking Up a Storm of Business 115
Chapter 5 Ethics and Social Responsibility in InternationalBusiness 118
CASE: The Power of Microfinance: The Grameen Bank 119 EMERGING OPPORTUNITIES: The Outsourcing Dilemma 120
The Nature of Ethics and Social Responsibility in InternationalBusiness 122Ethics in Cross-Cultural and International Contexts 124
How an Organization Treats Its Employees 124How Employees Treat the Organization 125How Employees and the Organization Treat Other Economic Agents 126
Managing Ethical Behavior Across Borders 127Guidelines and Codes of Ethics 127Ethics Training 127Organizational Practices and the Corporate Culture 127
Social Responsibility in Cross-Cultural and InternationalContexts 128
VENTURING ABROAD: Siemen Pays-and Pays and Pays 129Areas of Social Responsibility 130
Organizational Stakeholders 130The Natural Environment 130General Social Welfare 131
Managing Social Responsibility Across Borders 131 BRINGING THE WORLD INTO FOCUS: Should Firms Practice Corporate
Social Responsibility? 133Approaches to Social Responsibility 133Managing Compliance 135Informal Dimensions of Social Responsibility 136Evaluating Social Responsibility 137
CONTENTS Xi
Difficulties of Managing CSR Across Borders 137The Anglo-Saxon Approach 137The Asian Approach 138The Continental European Approach 138
Regulating International Ethics and Social Responsibility 138 EMERGING OPPORTUNITIES: Conflict Diamonds 139
Chapter Review 140 Summary 140 Questions for Discussion 141 Building Global Skills 141
CLOSING CASE: A Pipeline of Good Intentions 142 PART 1: Closing Cases 144 PART 1 : Market Entry Strategy Project Exercises 147
PART 2 The International Environment 148
Chapter 6 International Trade and Investment 1480 CASE: Caterpillar: Making Money by Moving Mountains 149
International Trade and the World Economy 150Classical Country-Based Trade Theories 152
Mercantilism 152Absolute Advantage 153Comparative Advantage 154 BRINGING THE WORLD INTO FOCUS: The Lincoln Fallacy 155Comparative Advantage with Money 156Relative Factor Endowments 158
Modern Firm-Based Trade Theories 159Country Similarity Theory 159
' Product Life Cycle Theory 160Global Strategic Rivalry Theory 162 E-WORLD: Blossoming E-Commerce 163Porter's Theory of National Competitive Advantage 164 E-WORLD: Nokia's Incredible Transformation 167
An Overview of International Investment 168Types of International Investments 168The Growth of Foreign Direct Investment 168Foreign Direct Investment and the United States 169
International Investment Theories 170Ownership Advantages 170Internalization Theory 172Dunning's Eclectic Theory 172
Factors Influencing Foreign Direct Investment 172Supply Factors 173Demand Factors 174Political Factors 175
Chapter Review 176 Summary 176 Questions for Discussion 177 Building Global Skills 177
D CLOSING CASE: Twenty-First Century Pirates 177
Chapter 7 The International Monetary System and the Balance ofPayments 180
CASE: Will the Stars Shine on Astra Again? 181History of the International Monetary System 183
The Gold Standard 183The Collapse of the Gold Standard 184
Xii CONTENTS
The Bretton Woods Era 186B EMERGING OPPORTUNITIES: Frog Ranching in Peru 189The End of the Bretton Woods System 191Performance of the International Monetary System Since 1971 192 BRINGING THE WORLD INTO FOCUS: Fixed Versus Flexible Exchange
Rates 193M BRINGING THE WORLD INTO FOCUS: Should Bretton Woods BeRestored? 197
The Balance of Payments Accounting System 198The Major Components of the Balance of Payments Accounting System 199 BRINGING THE WORLD INTO FOCUS: Ben Franklin, World
Traveler 204The U.S. Balance of Payments in 2007 204Defining Balance of Payments Surpluses and Deficits 207
Chapter Review 208 Summary 208 Questions for Discussion 209 Building Global Skills 209
CLOSING CASE: Recent U.S. BOP Performance: Is the Sky Falling? 211
Chapter 8 Foreign Exchange and International FinancialMarkets 212
CASE: The Loonie Takes Flight 213The Economics of Foreign Exchange 215The Structure of the Foreign-Exchange Market 217
B BRINGING THE WORLD INTO FOCUS: A Brief Hint 217The Role of Banks 218m E-WORLD: The Biggest Online Market 220Spot and Forward Markets 221Arbitrage and the Currency Market 223B BRINGING THE WORLD INTO FOCUS: The Big Mac Index:
Sandwiched 225B VENTURING ABROAD: The Carry Trade 230
The International Capital Market 231Major International Banks 231The Eurocurrency Market 233The International Bond Market 234Global Equity Markets 234Offshore Financial Centers 235
Chapter Review 235 Summary 235 Questions for Discussion 236 Building Global Skills 236
CLOSING CASE: The Subprime Meltdown 237
Chapter 9 Formulation of National Trade Policies 240 CASE: Jumbo Battle over Jumbo Jets 241
Rationales for Trade Intervention 242Industry-Level Arguments 243National Trade Policies 246B VENTURING ABROAD: Toyota's Politics Is Local 249
Barriers to International Trade 250Tariffs 250B BRINGING THE WORLD INTO FOCUS: X-Men: Menor Beasts? 251Nontariff Barriers 252
CONTENTS xi i i
Promotion of International Trade 258Subsidies 258 EMERGING OPPORTUNITIES: Cotton Subsidies and World
Poverty 259Foreign Trade Zones 260Export Financing Programs 261
Controlling Unfair Trade Practices 262Countervailing Duties 262Antidumping Regulations 263Should Countries Enforce Their Unfair Trade Practice Laws? 263Safeguards 264
Chapter Review 264 Summary 264 Questions for Discussion 265 Building Global Skills 265
CLOSING CASE: The Long and Winding Road to Free Trade 265
Chapter 10 International Cooperation Among Nations 268D CASE: Trade and Prosperity: The Case of Mexico 269
The General Agreement on Tariffs and Trade and the World TradeOrganization 270
The Role of the General Agreement on Tariffs and Trade 271 BRINGING THE WORLD INTO FOCUS: Most Nations Are Favored 272The World Trade Organization 273
Regional Economic Integration 275Forms of Economic Integration 275The Impact of Economic Integration on Firms 276
The European Union 277Governing the European Union 278 BRINGING THE WORLD INTO FOCUS: Three Majorities Are Better
Than One 281The Struggle to Create a Common Market 283 VENTURING ABROAD: Lobbying the European Union 283From Common Market to European Union 285
Other Regional Trading Blocs 288The North American Free Trade Agreement 288Other Free Trade Agreements in the Americas 289Trade Arrangements in the Asia-Pacific Region 292African Initiatives 293
Chapter Review 295 Summary 295 Questions for Discussion 295 Building Global Skills 296
D CLOSING CASE: Will Whirlpool Clean Up in Europe? 296@ PART 2: Closing Cases 298H PART 2: Market Entry Strategy Project 301
PART 3 Managing International Business 302Chapter 11 International Strategic Management 302
D CASE: Global Mickey 303The Challenges of International Strategic Management 306
EMERGING OPPORTUNITIES: How Does a Japanese Firm Competein China?... Act More American 308
Strategic Alternatives 310m BRINGING THE WORLD INTO FOCUS: Master of the Furniture
Universe 311
Xiv CONTENTS
Components of an International Strategy 314Distinctive Competence 314Scope of Operations 314B EMERGING OPPORTUNITIES: The Bottom of the Pyramid 315Resource Deployment 316Synergy 316
Developing International Strategies 317Mission Statement 317Environmental Scanning and the SWOT Analysis 317Strategic Goals 320Tactics 320Control Framework 320
Levels of International Strategy 321Corporate Strategy 321Business Strategy 323Functional Strategies 325
Chapter Review 325 Summary 325 Questions for Discussion 326 Building Global Skills 326
CLOSING CASE: The New Conquistador 327
Chapter 12 Strategies for Analyzing and Entering ForeignMarkets 330
D CASE: Starbucks Brews Up a Global Strategy 331Foreign Market Analysis 332
Assessing Alternative Foreign Markets 333Evaluating Costs, Benefits, and Risks 336
Choosing a Mode of Entry 337Exporting to Foreign Markets 340
Forms of Exporting 342B EMERGING OPPORTUNITIES: Internet Turns Firms into Overseas
Businesses 343Additional Considerations 345Export Intermediaries 347
International Licensing 348Basic Issues in International Licensing 350Advantages and Disadvantages of International Licensing 351
International Franchising 352Basic Issues in International Franchising 352Advantages and Disadvantages of International Franchising 353
Specialized Entry Modes for International Business 353Contract Manufacturing 353Management Contract 354Turnkey Project 355fl EMERGING OPPORTUNITIES: Business Process Outsourcing 355
Foreign Direct Investment 356The Greenfield Strategy 357The Acquisition Strategy 357Joint Ventures 358B EMERGING OPPORTUNITIES: Merger, Indian Style: Buy a Brand, Leave
It Alone 359Chapter Review 360 Summary 360 Questions for Discussion 361 Building Global Skills 361
D CLOSING CASE: Heineken's Global Reach 362
CONTENTS XV
Chapter 13 International Strategic Alliances 364 CASE: Slimline; Marching to a Different Drummer 365
International Corporate Cooperation 367Benefits of Strategic Alliances 369
Ease of Market Entry 369Shared Risk 370fl EMERGING OPPORTUNITIES: The Ups and Downs of Market Entry 371Shared Knowledge and Expertise 372Synergy and Competitive Advantage 373 VENTURING ABROAD: Sea Launch: A Match Made in the
Heavens 373Scope of Strategic Alliances 374
Comprehensive Alliances 375Functional Alliances 375B VENTURING ABROAD: Alliances in the Sky 376
Implementation of Strategic Alliances 378Selection of Partners 378Form of Ownership 379Joint Management Considerations 381
Pitfalls of Strategic Alliances 382Incompatibility of Partners 382Access to Information 383Conflicts over Distributing Earnings 383Loss of Autonomy 382Changing Circumstances 384
Chapter Review 384 Summary 384 Questions for Discussion 385 Building Global Skills 385
CLOSING CASE: Look Before You Leap 386
Chapter 14 International Organization Design and Control 388 CASE: Unilever Matches Strategy and Structure 389
The Nature of International Organizational Design 391Global Organization Designs 392
Global Product Design 393Global Area Design 394B EMERGING OPPORTUNITIES: Flying Solo in China 395Global Functional Design 395Global Customer Design 396Global Matrix Design 398Hybrid Global Designs 399
Related Issues in Global Organization Design 400Centralization Versus Decentralization 400Role of Subsidiary Boards of Directors 400Coordination in the Global Organization 402
The Control Function in International Business 403Strategic Control 403Organizational Control 405Operations Control 407
Managing the Control Function in International Business 408Establishing International Control Systems 409B E-WORLD: Reel Time Information 410Essential Control Techniques 412
XVi CONTENTS
B BRINGING THE WORLD INTO FOCUS: Getting Back to Basics 413Behavioral Aspects of International Control 415
Chapter Review 416 Summary 416 Questions for Discussion 417Building Global Skills 417
CLOSING CASE: Daimler and Chrysler: The Dream and theNightmare 418
Chapter 15 Leadership and Employee Behavior in InternationalBusiness 420
CASE: Making Risky Decisions at Porsche 421Individual Behavior in International Business 422
Personality Differences across Cultures 423Attitudes across Cultures 425Perception across Cultures 427 EMERGING OPPORTUNITIES: The U.S. Is Crowded with Liars Who
Prefer Pets to Kids 427Stress across Cultures 429
Motivation in International Business 430Needs and Values across Cultures 430Motivational Processes across Cultures 430Need-Based Models across Cultures 430 BRINGING THE WORLD INTO FOCUS: Mixing and Matching in a Joint
Venture 431 ,Process-Based Models across Cultures 433The Reinforcement Model across Cultures 433
Leadership in International Business 433Decision Making in International Business 437
Models of Decision Making 437The Normative Model across Cultures 438The Descriptive Model across Cultures 440
Groups and Teams in International Business 440The Nature of Group Dynamics 440Managing Cross-Cultural Teams 441 BRINGING THE WORLD INTO FOCUS: They May Speak the Same
Language, but . . . 441Chapter Review 442 Summary 442 Questions for Discussion 443Building Global Skills 443
O CLOSING CASE: IKEA's Transformational Leader 444B PART 3: Closing Cases 445 PART 3: Market Entry Strategy Project 454
PART 4 Managing International Business Operations 456Chapter 16 International Marketing 456
CASE: Novica Opens Doors Across National Boundaries 457International Marketing Management 459
International Marketing and Business Strategies 459 EMERGING OPPORTUNITIES: Pretty Garlic 461The Marketing Mix 462Standardization versus Customization 462
Product Policy 465Standardized Products or Customized Products? 465Legal Forces 466
CONTENTS xvi i
Cultural Influences 466m E-WORLD: E-Translation 467Economic Factors 468Brand Names 468
Pricing Issues and Decisions 469Pricing Policies 468Market Pricing 470
Promotion Issues and Decisions 472Advertising 472 BRINGING THE WORLD INTO FOCUS: Sailing for Sales 473Personal Selling 474Sales Promotion 475Public Relations 476
Distribution Issues and Decisions 476International Distribution 477Channels of Distribution 478
Chapter Review 481 l Summary 481 Questions for Discussion 481 Building Global Skills 482
CLOSING CASE: A Call for Progress 482
Chapter 17 International Operations Management 484 CASE: Racing to Market 485
The Nature of International Operations Management 487The Strategic Context of International Operations Management 488Complexities of International Operations Management 488
Production Management 489Supply Chain Management and Vertical Integration 489 BRINGING THE WORLD INTO FOCUS: Suppliers: Friend or Foe? 492Location Decisions 494International Logistics and Materials Management 498 BRINGING THE WORLD INTO FOCUS: Cutting Costs to
the Bone 499International Service Operations 500
Characteristics of International Services 501The Role of Government in International Services Trade 501Managing Service Operations 502
Managing Productivity in International Business 502Managing Quality in International Business 503Managing Information in International Business 505Chapter Review 507 Summary 507 Questions for Discussion 508 Building Global Skills 508
CLOSING CASE: The Weakest Link 510
Chapter 18 International Financial Management 512D CASE: Singapore Airlines's Worldwide Financial Management 513
Financial Issues in International Trade 514Choice of Currency 514Credit Checking 515Method of Payment 515Financing Trade 522 EMERGING OPPORTUNITIES: The Three Gorges Dam: It's Not a Feast
for U.S. Firms 524
xvi i i CONTENTS
Managing Foreign Exchange Risk 525Transaction Exposure 525Translation Exposure 528Economic Exposure 528
Management of Working Capital 531Minimizing Working Capital Balances 531B VENTURING ABROAD: Colefax and Fowler's Cash Flow Solution 532Minimizing Currency Conversion Costs 532Minimizing Foreign-Exchange Risk 534
International Capital Budgeting 534Net Present Value 534Internal Rate of Return 536Payback Period 536
Sources of International Investment Capital 536External Sources of Investment Capital 536Internal Sources of Investment Capital 537Strategic Use of Transfer Pricing 538Tax Havens 540M VENTURING ABROAD: Taxation of Subsidiary Income by the U.S.
Government 541Chapter Review 542 Summary 542 Questions for Discussion 543 Building Global Skills 543
CLOSING CASE: Everything's Green in Ireland 544
Chapter 19 International Human Resource Management and LaborRelations 548
CASE: Training for the World 549The Nature of International Human Resource Management 550
Strategic Significance of HRM 551International Managerial Staffing Needs 552
Scope of Internationalization 552Centralization versus Decentralization of Control 553Staffing Philosophy 554 EMERGING OPPORTUNITIES: Thinking Globally but Hiring Locally 555 BRINGING THE WORLD INTO FOCUS: Schlumberger Profits from
Geocentric Staffing 556Recruitment and Selection 557
Recruitment of Managers 557Selection of Managers 559Expatriation and Repatriation Issues 560
Training and Development 562Assessing Training Needs 562Basic Training Methods and Procedures 563Developing Younger International Managers 564
Performance Appraisal and Compensation 564Assessing Performance in International Business 564Determining Compensation in International Business 565 BRINGING THE WORLD INTO FOCUS: Seeing Opportunity in
Security 566Retention and Turnover 569Human Resource Issues for Nonmanagerial Employees 570
Recruitment and Selection 570Training and Development 571
CONTENTS Xix
Compensation and Performance Appraisal 571M BRINGING THE WORLD INTO FOCUS: American-Style Management
Comes to Global Dining 572Labor Relations 573
Comparative Labor Relations 573Collective Bargaining 573Union Influence and Codetermination 574
Chapter Review 574 Summary 574 Questions for Discussion 575 Building Global Skills 575
Q CLOSING CASE: "You Americans Work Too Hard" 576fl PART 4: Closing Cases 577fl PART 4: Market Entry Strategy Project 583
Endnotes 584Glossary 601Name Index 614Company Index 618Subject Index 623
