International business myke peng and meyer

7 EXCHANGE RATES 199Markets for Currencies 203 Institutions of the International Monetary System 209 Managing Exchange Risks 213 Debates and Extensions 217 Implications for Practice 219

International Business

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

Mike W Peng and Klaus E Meyer

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1 2 3 4 5 6 7 8 9 10 – 13 12 11

past, present and future.

BRIEF CONTENTS

PART ONE FOUNDATIONS 1

1 Globalizing Business 3

2 Formal Institutions: Economic, Political and Legal Systems 35

3 Informal Institutions: Culture, Religion and Languages 65

4 Firm Resources: Competitiveness and Growth 97

PART TWO BUSINESS ACROSS BORDERS 127

9 Global Integration and Multilateral Organizations 261

10 Corporate Social Responsibility 295

PART FOUR THE FIRM ON THE GLOBAL STAGE 327

11 Starting International Business 329

12 Foreign Entry Strategies 359

13 Competitive Dynamics 389

14 Building Global Strategies 421

PART FIVE OPERATIONS IN THE GLOBAL MNE 453

15 Structuring and Organizing MNEs 455

16 International Human Resource Management 487

17 International Marketing and Supply Chain Management 519

PART SIX INTEGRATIVE CASES 545

Integrative Cases 1-10

Glossary 629

Index 640

List of boxed features xi

Preface xvii

Acknowledgements xxii

Scholarly journals xxiv

About the authors xxvi

Guided tour xxviii

About the website xxx

1 GLOBALIZING BUSINESS 3

European and Global Business 6

Why Study International Business? 8

A Unified Framework 10

Understanding Globalization 13

A Glance at the Global Economy 21

Implications for Practice 24

Debates and Extensions 54

Implications for Practice 57

Debates and Extensions 85

Implications for Practice 88

4 FIRM RESOURCES:

COMPETITIVENESS AND GROWTH 97

Identifying Resources 100

Appraising Resources: The VRIO Framework 106

Applying Resource Analysis: Benchmarking 112

Debates and Extensions 116

Implications for Practice 119

5 TRADING INTERNATIONALLY 129

Why do Nations Trade? 132

Theories of International Trade 134

National Institutions and International Trade 147

Debates and Extensions 153

Implications for Practice 156

6 INVESTING ABROAD DIRECTLY 163

The FDI Vocabulary 166

Why do Firms Become MNEs by Engaging

in FDI? 171

Ownership Advantages 173

Location Advantages 173

Internalization Advantages 179

National Institutions and FDI 183

Benefits and Costs of FDI 185

Debates and Extensions 187

Implications for Practice 190

7 EXCHANGE RATES 199

Markets for Currencies 203

Institutions of the International Monetary

System 209

Managing Exchange Risks 213

Debates and Extensions 217

Implications for Practice 219

The Political System of the EU 248

Debates and Extensions 251

Implications for Practice 253

9 GLOBAL INTEGRATION

AND MULTILATERAL

ORGANIZATIONS 261

The Multilateral Trade System 266

Regional and Bilateral Economic

Integration 273

Debates and Extensions 282

Implications for Practice 296

10 CORPORATE SOCIAL

RESPONSIBILITY 295

Stakeholders of the Firm 298

CSR in the Global Economy 304

Institutions, Stakeholders

and CSR 310

Debates and Extensions 315

Implications for Practice 318

11 STARTING INTERNATIONAL BUSINESS 329

Going International 332

Resources Supporting Internationalization 343

Institutions and Internationalization 346

Debates and Extensions 347

Implications for Practice 349

12 FOREIGN ENTRY STRATEGIES 359

Strategic Objectives of Establishing Foreign Subsidiaries 362

Where to Enter? 363

When to Enter? 366

How to Enter? 368

How to Organize Your Operations? 376

Institutions and Foreign Entry Strategies 377

Debates and Extensions 379

Implications for Practice 381

13 COMPETITIVE DYNAMICS 389

Dynamics of Competition 392

Competition and Collusion 394

Institutions Governing Competition 398

Resources Influencing Competition 405

Competing in a Global Recession 407

Debates and Extensions 408

Implications for Practice 413

14 BUILDING GLOBAL STRATEGIES 421

Competitive Advantages of the Global Firm 424

Global Business Models 426

Growth by Acquisitions 430

Institutions Governing Acquisitions 435

Resources Influencing Acquistion

Performance 437

Debates and Extensions 440

Implications for Practice 444

15 STRUCTURING AND

ORGANIZING MNEs 455

Organizational Structures in MNEs 457

Managing Knowledge in Global Firms 464

Institutions and the Choice of Organizational

Structure 473

Resource-Based Considerations 474

Debates and Extensions 475

Implications for Practice 478

Managing People Abroad 499

Institutions and Human Resource

Management 502

Resources and Human Resource

Management 504

Debates and Extensions 505

Implications for Practice 507

17 INTERNATIONAL MARKETING AND SUPPLY CHAIN MANAGEMENT 519

Understanding Consumers 522

The Marketing Mix 523

Supply Chain Management 530

Institutions, Marketing and Supply Chain Management 534

Resources, Marketing and Supply Chain Management 536

Debates and Extensions 537

Implications for Practice 539

1 A Few Tips About Corruption in the US 546

2 From Insolvency to World Leadership:

Rolls Royce is Developing and Exploiting Capabilities 554

3 Vanguard Security Corporation: International Transaction Dilemma 563

4 AGRANA: From a Local Supplier to a Global Player 571

5 Ethics of Offshoring: Novo Nordisk and Clinical Trials in Emerging Economies 578

6 Dentek ’s UK Decision 592

7 The LG-Nortel Joint Venture 598

8 Managing a Dutch —Chinese Joint Venture: Where

LIST OF IN-TEXT CASES

Chapter 1

Opening Case Thomas Friedman ’s Notebook IT (hardware) USA

In Focus 1.1 Setting the Terms Straight — —

In Focus 1.2 Globalization in the Year 1900 — —

In Focus 1.3 The Base of the Pyramid is Calling — Developing countries Closing Case GE Innovates at the Base of the Pyramid Medical instruments India, USA

Chapter 2

Opening Case Managing Risks in the New South Africa — South Africa

In Focus 2.1 Elections around the Globe — France, Germany,

India, UK, USA

In Focus 2.2 Spaniards Heading across the Atlantic Green energy Spain, USA

In Focus 2.3 Protecting Intellectual Property

Closing Case The Russia Puzzle — Russia

Chapter 3

Opening Case Cartoons that Exploded — Denmark

In Focus 3.1 Limitations of Hofstede ’s Framework — —

In Focus 3.2 Languages Skills Lifting Careers in Kone

In Focus 3.4 The OECD Anti-Corruption Convention — —

Closing Case ALSTOM: Party Invitations in Saudi Arabia,

and in China

Civil engineering Arabia, China, Saudi,

Switzerland

Chapter 4

Opening Case SAP Runs Businesses Worldwide IT (software) Germany

In Focus 4.1 Capabilities in Low Cost Operations: Hainan

Airlines

Airline China

In Focus 4.2 Capabilities in Distribution : Wal-Mart Retail USA

In Focus 4.3 Hyundai ’s Uphill Battle Cars Korea, USA

Case Industry Locations

In Focus 4.4 How Much Does China Benefit from

Outsourcing?

Electronic consumer goods

China

Closing Case Avon Perfects Direct Selling Cosmetics UK, USA

Chapter 5

Opening Case Port of Rotterdam: Gateway to the World Trading and shipping Netherlands

In Focus 5.1 Comparative advantage and YOU — —

In Focus 5.2 Brazil’s Comparative Advantage in

Agriculture

Agriculture Brazil

In Focus 5.3 US Anti-dumping against Chinese Apple

Juice Concentrate Producers

Processed Foods China, USA

Closing Case Canada and the USA Fight over Pigs Agriculture: husbandry Canada, USA

Chapter 6

Opening Case Spanish MNEs Enter the Global Stage — Spain

In Focus 6.1 Grupo Antolin Pursues OLI Advantages Automotive supplier Spain

In Focus 6.2 Haier Invests in the USA White goods China, USA

In Focus 6.3 Land Rush in Africa Agriculture: farmland Africa

In Focus 6.4 Car Manufacturers Cluster in Central Europe Cars Central Europe

Closing Case Bharti Airtel Acquires Resources and

Companies

Telecommunications India, South Africa

Chapter 7

Opening Case The Economic Crisis Upsets Exchange

Rates — Hungary, Latvia,Poland, Slovakia

In Focus 7.1 Hong Kong and Argentina: A Tale of Two

Currency Boards — Argentina, Hong Kong

In Focus 7.2 Irish Exporters Cope with Currency

USA, China, Hong Kong

Chapter 8

Opening Case A Day in European Business IT (software) Germany, Poland

In Focus 8.1 Common Agricultural Policy Agriculture EU

In Focus 8.2 Privatization in Central and Eastern Europe — Central and Eastern

Europe

In Focus 8.3 Mobile Students: The Bologna Process Education EU

Case Industry Locations

In Focus 8.4 Boom and Bust in Spain — Spain

Closing Case The Eco-Design Directive: Nokia Goes to

Brussels

Mobile phones EU, Finland

Chapter 9

Opening Case WTO Mediates Between Airbus and Boeing Aircraft manufacturing EU, USA

In Focus 9.1 China ’s First Years in the WTO — China

In Focus 9.2 The WTO ’s ‘Shrimp-Turtle’ Case Aquaculture USA, Asian countries

In Focus 9.3 The IMF ’s Actions and Criticisms — —

In Focus 9.4 Is Japan Being Left Out? — Japan

Closing Case The Future of Globalization: Wärtsilä Power

Scenarios

Energy Finland

Chapter 10

Opening Case Starbucks: Standards in the Spotlight Restaurants USA

In Focus 10.1 Salmon: Chicken of the Sea Aquaculture Norway

In Focus 10.2 Dow Chemical Company in China Chemicals USA, China

In Focus 10.3 Working Poor Garments Central America

In Focus 10.4 Implementing Standards at Adidas Garments Germany

Closing Case Different Ethics: Naming Your School Higher Education Hong Kong, Germany,

UK

Chapter 11

Opening Case Kapersky Lab is Scaling the Globe Software Russia

In Focus 11.1 Tourism: Exporting Experiences Tourism —

In Focus 11.2 Building Bridges Construction Bahrain, Qatar

In Focus 11.3 Skandinavia A/S: A Small Publisher for Small

Opening Case Pearl River Piano Enters Foreign Markets Musical instruments China, USA, Germany

In Focus 12.1 Jumping Tariffs: Ford in Vietnam Cars Vietnam, USA

In Focus 12.2 Joint Venture ZF Kama in Russia Automotive supplier Russia, Germany

In Focus 12.3 Relocating and Growing: Cadbury Invests in

Poland

Confectionary Poland, UK

‘Failed’ Joint Ventures

Case Industry Locations

Chapter 13

Opening Case Huawei Challenges a World Leader IT hardware China, USA

In Focus 13.1 Lev Leviev Fights De Beers Diamonds Israel, South Africa

In Focus 13.2 The Global Vitamin Cartel Vitamins Germany, Switzerland,

USA

In Focus 13.3 Brussels Fight Anti-Competitive Practices in

the IT Sector

IT (software and hardware)

Food ingredients Denmark

In Focus 14.1 Embraer Grows by Acquisitions Aircraft manufacturing Brazil

In Focus 14.2 The Transformation of Nokia Mobile phones Finland

In Focus 14.3 Making M&As Fly in China — China

Closing Case Kärcher Cleans Up – Worldwide Specialist machinery Germany

In Focus 15.2 A Subsidiary Initiative at Honeywell Canada Electronics Canada

In Focus 15.3 Foreign-born Bosses Cars France, Japan

Closing Case Growing Subsidiaries: AKZO Nobel

Decorative Coating in China

Paints China, Sweden

In Focus 16.1 Getting Started in Asia — Hong Kong, Taiwan

In Focus 16.2 Competing for Talent in China — China

In Focus 16.3 Manpower Employment agency USA

Closing Case Dallas versus Delhi — India, USA

Case Industry Locations

Chapter 17

Opening Case Zara: Rewriting Rules on Marketing and

Supply Chain Management

Fashion retail Spain

In Focus 17.1 Honest Film Marketing services China, UK

In Focus 17.2 C&A: Failed European Standardization Fashion retail Germany, Netherlands,

Spain

In Focus 17.3 Ocean Shipping: Maxing Out? Shipping —

In Focus 17.4 India: Forthcoming Retail Revolution Retail India

Closing Case Li & Fung: From Trading Company to

Supply Chain Manager

Logistics services Hong Kong

LIST OF INTERGRATIVE CASES

IC1 A Few Tips about Corruption in

IC2 From Insolvency to World

Leadership: Rolls Royce is Developing and Exploiting Capabilities

Klaus Meyer, University of Bath UK

IC3 Vanguard Security

Cor-poration: International Transaction Dilemma

F John Mathis and Paul G.

Keat, Thunderbird School of Global Management

Portugal, USA

IC4 Agrana: From a Local Supplier

to a Global Player

Erin Pleggenkuhle-Miles, University of Texas at Dallas

Austria, Central and Eastern Europe

IC5 Ethics of Offshoring: Novo

Nordisk and Clinical Trials in Emerging Economies

Klaus Meyer, University of Bath Denmark, Global

IC6 Dentek ’s UK Decision Anne D Smith and Amber

Galbraith Quinn, University

of Tennessee

UK, USA

IC7 The LG-Nortel Joint Venture Bill Turner, Joe Bentz,

Steve Caudill, Christine Pepermintwalla and Ken Williamson, University of Texas at Dallas

Canada, Korea, USA

IC8 Managing a Dutch – Chinese

Joint Venture: Where to Start?

Christoph Nedopil and Ulrich Steger, IMD

China, Netherlands

IC9 Baosteel Europe Bernd Michael Linke, Friedrich

Schiller University of Jena and Andreas Klossek, Technical University of Freiberg

China, Germany

IC10 Ribe Maskinfabrik A/S –

Developing New Business Areas

Bernhard Bo Nielsen, Torben Pedersen and Jakob Pyndt, Copenhagen Business School

Denmark, Central and Eastern Europe

A EUROPEAN VIEW ON INTERNATIONAL BUSINESS

This book offers a European perspective on international business In the age of

globalization, isn’t that a contradiction? Why did we set out to write a textbook

spe-cifically for you as students in Europe? There are five considerations why we have

been writing this book:

● Students learn best from cases and examples that they can relate to Thus, we

have developed a number of cases and examples specifically for this book that

tell the experiences of European businesses At the same time, we wish to

broaden your horizon and equip you with an understanding of businesses in

different parts of the world As an international manager you will need to

understand both, the regional and the global dimensions of business Thus, we

also include a large number of cases and examples from all over the world

● In Europe, international business (IB) is relevant for (almost) every business

Most textbooks in this field have been written primarily for American

students, and thus treat global business primarily as a phenomenon that big

companies have to deal with, with internationally operating entrepreneurs

being an exception That is understandable given the vast size of the domestic

market of the USA However, in Europe, where national markets are much

smaller, even small- and medium-sized firms soon hit the limits of their

domestic markets, and IB becomes a natural part of everything they do Thus,

we relate much more to the needs and challenges faced by smaller firms,

especially in a European context

● Textbooks written by American authors typically draw primarily on scholarly

work by US-based authors However, there is important work by European

scholars that is, in our view, not sufficiently appreciated in these textbooks

Thus, we pay special attention to work by European scholars, for example the

work by Hall and Soskice on varieties of capitalism, and by Zweigert and Kötz

on legal systems (Chapter 2), by Hofstede and other Dutch authors on culture

and by Marschan-Piekkari on languages (Chapter 3), by Dunning, Buckley and

Casson on foreign direct investment (Chapter 6), by Matten, Moon and others

on corporate social responsibility (Chapter 10), by Nordic scholars in the

tradition of Johansen and Vahlne on internationalization processes (Chapter

11), and by scholars across Europe on knowledge management and

governance (Chapter 15) and on expatriate management (Chapter 16)

● European businesses deal with a variety of subtle differences when engaging in

neighbouring countries as well as with big differences when going to, for

example, China This contrasts with US businesses for whom IB is a big

strategic change from domestic operations (unless they go to Canada), and

thus involves substantial differences Thus, we treat IB as a natural and

integrated part of business activity, but subject to a range of subtle differences

when dealing with nearby yet still foreign institutions and businesses

● European businesses do most of their IB elsewhere in the Europe, where they

operate within the institutional framework of the European Union (EU)

Understanding this framework is thus essential Therefore, we devote oneentire chapter specifically to the institutional framework of the EU (Chapter8), and we relate to the EU regulatory framework in later chapters of thebook, for example EU competition policy in Chapters 13 and 14.

Of course, as an alternative to using an English-language ‘European’ textbooksuch as ours, instructors may consider adapting a textbook in local languages, forexample in German or French This approach has advantages – students may bemore at ease with their own language, and examples are even more local However,

we would encourage instructors to adopt our textbook as a core or recommendedreading because:

● Engaging in global business in most parts of the world requires competences inEnglish, and the classroom is an ideal place to acquire and polish Englishlanguage skills

● An important aspect of building competences for IB is to put oneself in theposition of a business partner or competitor in order to understand how theywould handle a certain situation Successful international managers are alsoable to critically reflect on the merits and demerits of their own country, itsinstitutions and its businesses The development of these capabilities requireslooking‘beyond the horizon’ of your national economy, and engaging withindividuals and businesses in other countries Our European view encouragesstudents to broaden their horizon beyond national boundaries

● Both authors being non-native speakers of English, we remember how hard it

is to start using English in a classroom setting Thus, we have written the textavoiding unnecessarily complex or colloquial expressions that may be

inaccessible to students whose first language is not English

OUR PERSPECTIVE AS AUTHORS

We, your authors, have studied, worked and taught global business throughout ourcareers This personal experience and expertise gives us our foundation for writingthis book, and enables us to offer you diverse yet complementary perspectives oninternational business:

● We have conducted research ourselves on many of the issues discussed in thistext Mike Peng has investigated, for example, the institutions-based view ofbusiness (Chapters 2 and 3), the resource-based view (Chapter 4) and strategies

of global firms (Chapters 13 and 14) Klaus Meyer has also contributed to theinstitution-based view (Chapter 2), and investigated in particular foreign directinvestment (Chapter 6) and foreign entry strategies (Chapters 11 and 12) Thiswork has been published in leading scholarly journals in the field, such as theJournal of International Business Studies, Strategic Management Journal andJournal of Management Studies

● In our research, we have investigated a wide range of different contexts,including in particular emerging economies Mike Peng’s research has focused

on contemporary management research in China and other transitioneconomies, while Klaus Meyer has studied businesses in the countries ofCentral and Eastern Europe as well as Asian economies such as Vietnam andTaiwan, and multinational firms from Germany, Denmark and the UK

● We have taught at universities quite literally around the globe, and thus learned

from discussions with students offering a wide variety of perspectives and

experiences Mike Peng has taught at the University of Hawaii at Manoa, Ohio

State University and University of Texas at Dallas (all USA) as well as at Chinese

University of Hong Kong and a number of universities in mainland China Klaus

Meyer has taught at Copenhagen Business School (Denmark), Hong Kong

University of Science and Technology (Hong Kong), National Cheng-Chi

University (Taiwan) as well as the University of Reading and the University of

Bath (both UK) In addition, both of us have given numerous guest lectures at

other universities throughout Europe, Asia and North America

● Last but not least, we have lived in different countries, and thus complement

each others’ personal experiences Mike Peng grew up in China and has spent

most of his professional life in the USA, while Klaus Meyer grew up in

Germany and has spent most of his professional life in Denmark and the UK

These personal experiences help us in linking theory to practice, notably on

cross-cultural matters

PEDAGOGICAL FEATURES OF THIS BOOK

In designing this book, we have been guided by three main pedagogical ideas:

1 We want to provide a comprehensive yet solidly research-grounded overview

of the field

2 We want to facilitate learning of the essential concepts and analytical

framework

3 We want to stimulate students’ own critical reflection and discussions that go

beyond rote learning of the material presented in the text

COMPREHENSIVE, RESEARCH-GROUNDED

International business is a very broad topic that integrates many scholarly

disci-plines In selecting and presenting the material, we have been guided by two

objec-tives: to integrate complex materials in an accessible style and to build on

contemporary research First, to provide a consistent structure that helps to analyze

this complex subject, we organize the book around a unified framework that

inte-grates all chapters Given the wide range of topics in IB, many textbooks present

the discipline item by item: ‘This is how MNEs manage X’ Rarely do authors

ad-dress:‘Why do MNEs manage X in this way?’ More importantly, What are the big

questions that the field is trying to address? Our framework suggests that the

disci-pline can be united by one big question and two core perspectives The big question

is: What determines the success and failure of firms around the globe? To address

this question, we introduce two core perspectives: (1) an institution-based view and

(2) a resource-based view The unified framework presents an extension of our own

research that investigates international business topics using these two perspectives

This focus on one big question and two core perspectives enables this book to

ana-lyze a variety of IB topics in a coherent fashion

Second, this book engages leaders through an evidence-based approach We have

endeavoured to draw on the latest research, as opposed to the latest fads The

comprehensive yet research-grounded coverage is made possible by drawing on themost comprehensive range of the literature Specifically, we have read and consid-ered every article over the past ten years in the Journal of International BusinessStudies and other leading IB and general management journals In addition, wehave consulted numerous specialty journals for specific chapters As research forthe book progressed, our respect and admiration for the diversity of insights of ourfield and the relevance of neighbouring disciplines grew substantially The result is acomprehensive set of evidence-based insights on IB While citing every article is notpossible, we cover work from a wide range of relevant scholars Feel free to checkthe authors found in the Name Index to verify this claim.

Furthermore, we provide evidence through contemporary examples that illustratetheoretical concepts in practice These up-to-date examples are found all over theworld, with an emphasis on European business They not only encourage students

to build bridges between theoretical frameworks and the contemporary world ofbusiness, but also encourage them to find further examples in newspapers and ma-gazines, such as Financial Times and The Economist Many of the cases have beencontributed by scholars from around the world who have first hand knowledge ofthe companies and contexts concerned, including Finland, Italy, France, Germany,the UK and the USA

SUPPORTING LEARNING

The comprehensive nature of IB means that students of the subject have to engagewith a wide range of concepts and frameworks based on current research To facili-tate the accessibility of this material, we use a clear, engaging, conversational style totell the ‘story’ Relative to other books, our chapters are generally more lively.Moreover, we have introduced a number of features aimed to facilitate the learning

of key concepts, facts and frameworks:

● We explicitly state learning objectives at the outset and in the marginthroughout each chapter These learning objectives are the basis for a briefchapter summary at the end of each chapter

● An opening case about a firm or country provides a taster of the issues from a realworld perspective, and a basis to reflect over issues introduced in the Chapter

● Engaging in international business requires knowledge of many concepts Wetherefore state the definitions of key concepts as margin notes when they arefirst introduced, and we include a Glossary at the end of the book containingall key concepts in alphabetical order

● ‘In Focus’ boxes illustrate key concepts on the basis of shorter, real worldexamples

● So what? We conclude every chapter with‘Implications for practice’ thatclearly summarizes the key learning points from a practical standpoint in one

or more tables

CRITICAL REFLECTION AND DISCUSSION

The field of IB is subject to many debates, and many broader debates on tion affect internationally operating MNEs While it is important to‘learn’ conceptsand frameworks, we strongly believe that, it is also important to critically engage

globaliza-with the‘how’ and ‘why’ questions surrounding the field It is debates that drive the

field of practice and research forward We therefore aim to encourage students to

critically reflect over the material presented (We expect most students to find at

least one argument where they disagree with us) and to engage in cutting-edge

de-bates Several features aim to provoke discussion and critical reflections in each

chapter:

● ‘Debates and Extensions’ section for every chapter (except Chapter 1, which is

a big debate in itself)

● Photo questions challenge you to think about the consequences of the material

presented We use photos not only to illustrate the text, but as a stimulus for

developing your own ideas and arguments

● Recommended readings provide a basis for further study, for example when

you want to prepare a class assignment of a dissertation on a topic

● Critical discussion questions at the end of each chapter provide a basis for

group discussions or individual work on the issues in the chapter, and their

broader implications for society Many of these questions concern ethical

issues that have increasingly come to the forefront of public debates on

international business

● Closing cases to each chapter provide the story of a specific company engaged

in international business Analysis of this case along the questions provided will

help gain deeper insights on the topic of the chapter, and help relating

concepts to the real world of business

● A set of Integrative Cases provide further opportunities to deepen the study

material, and to discuss how firms may handle specific challenges they

encounter in international business

Our ambitions in writing this book have been quite high, aiming to provide a

teaching and learning foundation for students in Europe and beyond that is

compre-hensive and specific, theoretically grounded and hands-on, and explaining concepts

while stimulating critical thought The writing process has been challenging, but

with the support of numerous colleagues we believe we have produced a solid and

innovative book We hope you enjoy studying and working with this book and, in

the process, become as enthusiastic about international business as we are Happy

reading!

Mike W Peng and Klaus E Meyer

Dallas, Texas and Bath, Somerset

June 2010

Undertaking a project of this magnitude makes us owe a great deal of debt– lectual, professional, and personal– to many people, whose contributions we wouldlike to acknowledge Intellectually, we are indebted to our teachers as well as ourcolleagues at the institutions where we have studied and worked over the past twodecades Numerous people, too many to mention individually, have contributed

intel-in small and large ways to our understandintel-ing of intel-international busintel-iness, and thetheoretical perspectives and empirical techniques to analyze international businessphenomena

In the preparation of this book, the following colleagues and friends for haveprovided helpful comments on drafts of specific chapters, for which we wish to ex-press special thanks:

● David Ahlstrom (Chinese University of Hong Kong, China)

● Gabriel Benito (BI Oslo, Norway)

● Alan Butt-Philip (University of Bath, England)

● Alvaro Cuervo-Cazurra (University of South Carolina, USA)

● Felicia Fai (University of Bath, England)

● Irina Jormanainen (Aalto University, Finland)

● Amit Karna (European Business School, Germany)

● Andreas Klossek (Technical University of Freiberg, Germany)

● Jette Steen Knudsen (Copenhagen Business School, Denmark)

● Johan Lindeque (Queens University Belfast, Northern Ireland)

● Steven McGuire (University of Aberystwyth, Wales)

● Horst Meyer (corporate lawyer Germany)

● Eleanor Morgan (University of Bath, England)

● D Mario Nuti (University La Sapienza, Italy)

● Niels Mygind (Copenhagen Business School, Denmark)

● Can-Seng Ooi (Copenhagen Business School, Denmark)

● Magdolna Sass (Corvinus University, Hungary)

● Evis Sinani (Copenhagen Business School, Denmark)

● Gabriele Suder (SKEMA Business School, France)

● Phil Tomlinson (University of Bath, England)

● Leon Zucchini (University of Munich, Germany)

In addition, we thank numerous colleagues that have supported Mike Peng’s work

on his earlier textbooks, and whose comments indirectly have benefited this book.The following colleagues have contributed original case material to this book,thus greatly enhancing its practical relevance and its Europe-wide reach:

● Christoph Barmeyer (University of Passau, Germany) and Ulrike Mayerhofer(University of Lyon, France)– Opening Case to Chapter 16

● Mehdi Bousseebaa (University of Bath, England)– Opening Case to Chapter 15

● Jens Gammelgaard (Copenhagen Business School, Denmark)– Closing Case toChapter 15

● Anna Gryaznova (Moscow State University, Russia) and Olga Annushkina

(Bocconi School of Management, Italy)– Opening Case to Chapter 11

● Amber Guan (MBA Graduate, University of Bath, England)– Closing Case to

Chapter 11

● Irina Jormanainen (Aalto University, Finland)– In Focus 12.2

● Lianlian Lin (California State Polytechnic University, USA)– In Focus 5.3

● Bernd Michael Linke (University of Jena, Germany) and Andreas Klossek

(University of Freiberg, Germany)– Integrative Case 9

● Ajit Nayak (University of Exeter, UK)– Closing Case to Chapter 5

● Sunny Li Sun and Hao Chen (both University of Texas Dallas, USA)– Closing

● Ursula Ott– (Loughborough University, England)

● Robert Read– (Lancaster University, England)

● Sangeeta Khorana– (University of Wales, Aberystwyth, Wales)

● Saleema Kauser– (Manchester Metropolitan University, England)

● Gabriel R.G Benito– (BI Norwegian School of Management, Norway)

● Erik de Bruijn– (University of Twente, the Netherland)

● Camilla Jensen– (Kadir Has University, Turkey)

In addition, special thanks go to Tom Rennie, Charlotte Green, Anna Carter and

their team at Cengage Learning for initiating and supporting the writing of the

book, and for managing the production process

JOURNAL ACRONYMS

The most frequently cited journals are set in bold

AE– Applied Economics; AER – American Economic Review; AIM – Advances inInternational Marketing; AJS– American Journal of Sociology; AME – Academy ofManagement Executive; AMJ – Academy of Management Journal; AMLE –Academy of Management Learning & Education; AMR– Academy of ManagementReview; APJM– Asia Pacific Journal of Management; ASR – American SociologicalReview; ASQ – Administrative Science Quarterly; ARS – Annual Review of Sociol-ogy; BEQ– Business Ethics Quarterly; BH – Business History; BSR – Business Strat-egy Review; CBR – China Business Review; CEP – Comparative European Politics;CES– Comparative Economic Studies; CH – Current History; CIEF – Current Issues

in Economics and Finance (Federal Reserve Bank of New York); CJAS – CanadianJournal of Administrative Studies; CJE – Canadian Journal of Economics; CJWB –Columbia Journal of World Business; CMR – California Management Review;EAIQ – East Asia: An International Quarterly; ECLR – European CompetitionLaw Review; EE – Ecological Economics; EER – European Economic Review; EJ –Economic Journal; EJE – European Journal of Education; EJM – European Journal

of Marketing; EJPE– European Journal of Political Economy; ELJ – European LawJournal; EMJ – European Management Journal; EMR – European Management Re-view; EoT– Economics of Transition; ETP – Entrepreneurship Theory and Practice;

FA – Foreign Affairs; GP – German Politics; HJE – Hitotsubashi Journal ofEconomics; HBR – Harvard Business Review; HR – Human Relations; HRM –Human Resource Management; HRMR – Human Resource Management Review;

IA – International Affairs; IBR – International Business Review; ICC – Industrialand Corporate Change; IE– International Economy; IJCCR – International Journal

of Cross-Cultural Management; IJHRM– International Journal of Human ResourceManagement; IJKM– International Journal of Knowledge Management; IJMR – In-ternational Journal of Management Reviews; IJPE– International Journal of Produc-tion Economics; ILR– International Labour Review; IMR – International MarketingReview; IPSR – International Political Science Review; JAMS – Journal of the Acad-emy of Marketing Science; JAP – Journal of Applied Psychology; JB – Journal ofBusiness; JBE – Journal of Business Ethics; JBF – Journal of Banking and Finance;JBR – Journal of Business Research; JBV – Journal of Business Venturing; JCMS –Journal of Common Market Studies; JCR– Journal of Consumer Research; JEBO –Journal of Economic Behavior and Organization; JEI – Journal of Economic Issues;

JEL – Journal of Economic Literature; JEP – Journal of Economic Perspectives;

JEPP – Journal of European Public Policy; JES – Journal of Economic Surveys; JFE

– Journal of Financial Economics; JHE – Journal of Health Economics; JIA –

Jour-nal of InternatioJour-nal Affairs; JIBS– Journal of International Business Studies; JID –

Journal of International Development; JIE – Journal of International Economics;

JIM – Journal of International Management; JIMktg – Journal of International

Marketing; JKM – Journal of Knowledge Management; JLAS – Journal of Latin

American Studies; JM– Journal of Management; JMM – Journal of Marketing

Man-agement; JMS– Journal of Management Studies; JMR – Journal of Marketing

Re-search; JOB – Journal of Organizational Behavior; JOM – Journal of Operations

Management; JPA – Journal of Public Affairs; JPE – Journal of Political Economy;

JSM– Journal of Strategic Management; JWB – Journal of World Business; JWT –

Journal of World Trade; LODJ– Leadership and Organizational Development

Jour-nal; LRP – Long Range Planning; MI/IM/GI – Management International /

Interna-tional Management / Gestiòn Internacional; MIR – Management International

Review; MQ – McKinsey Quarterly; MS – Management Science; OBES – Oxford

Bulletin of Economics and Statistics; OD – Organizational Dynamics; ODS –

Ox-ford Development Studies; OEP – Oxford Economic Papers; OSc – Organization

Science; OSt – Organization Studies; PB – Psychological Bulletin; POM –

Produc-tion and OperaProduc-tions Management; PoP– Perspectives on Politics; PSJ – Policy

Stud-ies Journal; QJE – Quarterly Journal of Economics; RDM – R&D Management;

RegP– Regional Policy; RES – Review of Economics and Statistics; RIE – Review of

International Economics; RIO – Review of Industrial Organization; RP – Research

Policy; SC – Strategic Change; SJM – Scandinavian Journal of Management;

SMJ – Strategic Management Journal; SMR – MIT Sloan Management Review;

S&P – Society and Politics; TFSC – Technological Forecasting and Social Change;

TIBR– Thunderbird International Business Review; TNC – Transnational

Corpora-tions (United NaCorpora-tions); WD – World Development; WE – World Economy; YLJ –

Yale Law Journal; ZfS– Zeitschrift für Soziology

ABOUT THE AUTHORS

MIKE W PENG

Mike W Peng is the Provost’s Distinguished Professor of Global Business Strategy atthe University of Texas at Dallas He holds a bachelor’s degree from Winona StateUniversity, Minnesota and a PhD degree from the University of Washington, Seattle,where he was advised by Professor Charles Hill Prior to joining UTD, ProfessorPeng had been on the faculty at the Ohio State University, Chinese University ofHong Kong, and University of Hawaii In addition, he has served as a visitingscholar in Australia (University of Sydney and Queensland University of Technol-ogy), Britain (University of Nottingham), China (Xi’an Jiaotong University, SunYat-sen University, and Cheung Kong Graduate School of Business), Denmark (Co-penhagen Business School), Hong Kong (Chinese University of Hong Kong andHong Kong Polytechnic University), Vietnam (Foreign Trade University), and theUnited States (University of Memphis, University of Michigan and Seattle PacificUniversity)

Professor Peng’s research focuses on firm strategies in countries such as China,Hong Kong, Japan, Russia, South Korea, Thailand and the United States He haspublished over 80 articles in leading academic journals such as the Academy of Man-agement Review, Strategic Management Journal and Journal of International BusinessStudies He published two textbooks with Cengage Learning, Global Strategic Man-agement (2nd edition 2009) and Global Business (2ndedition 2010), which have be-come best sellers around the world, and have been translated into other languagessuch as Chinese, Portuguese, and Spanish

Professor Peng is active in leadership positions in his scholarly associations such asthe Academy of International Business (Co-Program Chair for the Research FrontiersConference, San Diego, 2006 and Track Chair for the 2011 conference in Nagoya)and the Strategic Management Society (Program Chair of the Global Strategy InterestGroup, 2005–07) He co-edited a special issue of the Journal of International BusinessStudies published in 2010, and from 2007 to 2009, he served as the Editor-in-Chief

of the Asia Pacific Journal of Management Professor Peng’s personal website is able at: www.utdallas.edu/~mikepeng/

avail-KLAUS E MEYER

Klaus E Meyer is Professor of Strategy and International Business at the University

of Bath, where he also serves in the role of Director of Research in the School ofManagement He is also an Adjunct professor in the Department of InternationalEconomics and Management at the Copenhagen Business School He holds aDiplom-Volkswirt degree (MSc Economics) from the University of Göttingen, Ger-many and has been an exchange student at the University of California, Santa Bar-bara, USA He obtained his PhD at the London Business School with a study onforeign direct investment in Central and Eastern Europe Prior to his appointment

at the University of Bath, he has been a Professor at the University of Readingand at the Copenhagen Business School Moreover, he spent a semester each teach-ing at the Hong Kong University of Science and Technology and at the National

Cheng-Chi University in Taipei He is teaching at CEIBS in Shanghai China from

September 2010

Professor Meyer’s research focuses on strategies of multinational enterprises in

emerging economies He is particularly interested in how firms adapt their business

strategies to the specific conditions prevailing in each emerging economy His work

also extends to the impact of foreign investors on the economic transition and

de-velopment of the host economies Another stream of research focuses on the global

strategies that may bring multinational enterprises into emerging economies in the

first place, considering in particular firms originating from emerging economies

This work has led to four books and about 50 articles in leading scholarly journals

such as the Journal of International Business Studies, Journal of Management Studies,

and Strategic Management Journal

Related to research, Professor Meyer holds responsibilities in scholarly journals,

including the role of Senior Editor of the Asia Pacific Journal of Management, and

Consulting Editor of the Journal of International Business Studies He also served in

numerous roles in the Academy of International Business, most notably as Track

Chair for its conferences in Beijing (2006), Rio de Janeiro (2010) and Nagoya

(2011) Professor Meyer maintains a personal website at www.klausmeyer.co.uk

that includes a blog on contemporary matters related to International Business

(www.klausmeyer.co.uk/blog)

GUIDED TOUR

In Focus Illustrates key concepts on the basis of shorter real world examples throughout the text.

Opening Case Appears at the start of each chapter to provide a taster of the topics discussed later in the chapter from a real world perspective.

Chapter Summary Provides a recap of the key information covered in each chapter and

a summary of the chapter content for each learning objective.

Learning Objectives Each chapter starts

with a list of objectives to help you identify the

main topics and monitor your understanding

as you progress through the book They are

repeated at the heading of the relevant

sec-tion within the Chapter

Margin Notes Highlight key concepts

throughout the text and state the definitions

in the margin when they are first introduced.

Glossary Provides all key concepts and their definitions in alphabetical order.

provide a basis for group discussions and activities.

Integrative Case Offer further opportunity for analyses and discussion of the main issues and concepts covered in the book, applied to a variety of real life international business situations.

Closing Case Offers opportunities for

anal-yses and discussion of the chapter ’s main

issues applied in real life business situations.

Each case is accompanied by questions

to help test the reader and extend their

understanding of the key issues.

Recommended Reading with brief annotations provide students with starting points for further study, for example when preparing a course assignment.

All of our Higher Education textbooks are accompanied by a range of digital support resources Each

title ’s resources are carefully tailored to the specific needs of the particular book’s readers Examples

of the kind of resources provided include:

■ A password protected area for instructors with, for example, a Testbank, PowerPoint Slides and an

Instructor ’s Manual.

■ An area for students including, for example, Multiple Choice Questions and Web-links.

To discover the dedicated digital support resources accompanying this textbook please go to:

Designed by lecturers for lecturers, CengageNOW ™ for Peng & Meyer’s International Business mirrors

the natural teaching workflow with an easy-to-use online suite of services and resources, all in one

pro-gram With this system, lecturers can easily plan their courses, manage student assignments,

automati-cally grade, teach with dynamic technology, and assess student progress CengageNOW ™ operates

seamlessly with Blackboard/WebCT, Moodle and other virtual learning environments Ask your Cengage

Learning sales representative for a demonstration of what CengageNOW ™ for Peng & Meyer’s

Interna-tional Business can bring to your courses (http:/edu.cengage.co.uk/contact_us.aspx).

Global Economic Watch

Cengage Learning ’s Global Economic Watch is a powerful, continuously updated online resource which

stimulates discussion and understanding of the global downturn through articles from leading

publica-tions, a real-time database of videos, podcasts and much more For more information about these

digital resources, please contact your local Cengage Learning representative.

FOUNDATIONS

CHAPTER ONE

GLOBALIZING

BUSINESS

LEARNING OBJECTIVES

After studying this chapter you should be able to:

1 Explain the concepts of international business (IB) and global business

2 Articulate what you hope to learn by reading this book and taking this course

3 Identify one fundamental question and two core perspectives that provide a

framework for this field

4 Participate in the debate on globalization with a reasonably balanced and

realistic view

5 Have a basic understanding of the global economy and its broad trends

6 Draw implications for action around the world and recognize your own likely

biases

O P E N I N G C A S E

Thomas Friedman ’s notebook

My computer was conceived when I phoned Dell …

on April 2, 2004, and was connected to sales

repre-sentative Mujteba Naqvi, who immediately entered my

order into Dell ’s order management system He typed

in both the type of notebook I ordered as well as the

special features I wanted, along with my personal

in-formation, shipping address, billing address and

credit card information My credit card was verified

by Dell through its work flow connection with Visa,

and my order was then released to Dell ’s production

system Dell has six factories around the world – in

Limerick, Ireland; Xiamen, China; Eldorado do Sul,

Brazil; Nashville, Tennessee; Austin, Texas [both

USA]; and Penang, Malaysia, where the parts for the

computer were immediately ordered from the supplier

logistics centres (SLCs) next to the Penang factory.

Surrounding every Dell factory in the world are these

SLCs, owned by the different suppliers of Dell parts.

These SLCs are like staging areas If you are a Dell

supplier anywhere in the world, your job is to keep

your SLC full of your specific parts so they can

con-stantly be trucked over to the Dell factory for

just-in-time manufacturing ‘In an average day, we sell

140 000 to 150 000 computers ’, explained Dick

Hunter, one of Dell ’s three global production

managers …

So, where did the parts for my notebook come

from? I asked Hunter To begin with, he said, the

notebook was codesigned in Austin, Texas, and in

Taiwan by a team of Dell engineers and a team of

Taiwanese notebook designers ‘The customer’s

needs, required technologies and Dell ’s design

inno-vations were all determined by Dell through our direct

relationship with customers ’, he explained ‘The basic

design of the motherboard and case – the basic

func-tionality of your machine – was designed to those

spe-cifications by an ODM (original design manufacturer) in

Taiwan We put our engineers in their facilities and

they come to Austin and we actually codesign these

systems This global teamwork brings an added

ben-efit – a globally distributed virtually 24-hour-per-day

development cycle Our partners do the basic

elec-tronics and we help them design customer and

reli-ability features that we know our customers want.

We know the customer better than our suppliers and

our competition, because we are dealing directly with them every day ’ Dell notebooks are completely rede- signed roughly every 12 months, but new features are constantly added during the year – through the supply chain – as the hardware and software components advance.

It happened that when my notebook order hit the Dell factory in Penang, one part was not available – the wireless card – due to a quality control issue, so the assembly of the notebook was delayed for a few days Then the truck full of good wireless cards arrived On April 13, at 10:15 a.m., a Dell Malaysia em- ployee then took out a ‘traveller’ – a special carrying tote designed to hold and protect parts – and started plucking all the parts that went into my notebook.

Where did those parts come from? Dell uses ple suppliers for most of the 30 key components that

multi-go into its notebooks That way if one supplier breaks down or cannot meet a surge in demand, Dell is not left in the lurch So here are the key suppliers for my Inspiron 600m notebook: The Intel microprocessor came from an Intel factory either in the Philippines, Costa Rica, Malaysia or China The memory came from either a Korean-owned factory in Korea (Sam- sung), a Taiwanese-owned factory in Taiwan (Nanya),

a German-owned factory in Germany (Infineon) or a Japanese-owned factory in Japan (Elpida) My gra- phics card was shipped from either a Taiwanese- owned factory in China (MSI) or a Chinese-run factory

in China (Foxconn) The cooling fan came from a Taiwanese-owned factory in Shanghai (Quanta), or a Taiwanese-owned factory in Taiwan (Compal or Wis- tron) The keyboard came from either a Japanese- owned company in Tianjin, China (Alps), a Taiwanese-owned factory in Shenzhen, China (Sun- rex) or a Taiwanese-owned factory in Suzhou, China (Darfon) The LCD was made in either South Korea (Samsung or LG Philips LCD), Japan (Toshiba or Sharp) or Taiwan (Chi Meu Optoelectronics, Hannstar Display or AU Optronics) The wireless card came from either an American-owned factory in China (Agere) or Malaysia (Arrow), or a Taiwanese-owned factory in Taiwan (Askey or Gemtek) or China (USI) The modem was made by either a Taiwanese-owned company in China (Austek or Liteon) or a Chinese-run company in China (Foxconn) The battery came from

Were you surprised to learn how international your computer has been, even before it

reached you? Did you expect so many companies to be involved in the creation of your

work companion? International business has become an integral part of many

businesses – and products Yet, managing international business activities – for

example coordinating multiple suppliers of 30 major components – is challenging

an American-owned factory in Malaysia (Motorola), a

Japanese-owned factory in Mexico or China (Sanyo)

or a South Korean or Taiwanese factory in either of

those countries (SDO or Simplo) The hard disk drive

was made by either an American-owned factory in

Singapore (Seagate), a Japanese-owned company in

Thailand (Hitachi or Fujitsu) or a Japanese-owned

factory in the Philippines (Toshiba) The CD/DVD drive

came from either a South Korean-owned factory in

China or Malaysia (NEC); a Japanese-owned factory

in Indonesia, China, or Malaysia (NEC); a

Japanese-owned factory in Indonesia, China or Malaysia (Teac);

or a Japanese-owned factory in China (Sony) The

notebook carrybag was made by either an

Irish-owned company in China (Tenba) or an

American-owned factory in China (Targus, Samsonite,

or Pacific Design) The power adaptor was made by

either a Thai-owned factory in Thailand (Delta), or a Korean-, Taiwanese- or an American-owned factory

in China (Liteon, Samsung or Mobility) The power cord was made by a British-owned company with factories in China, Malaysia and India (Volex) The removable memory stick was made by either an Israeli-owned company in Israel (M-System) or an American-owned company with a factory in Malaysia (Smart Modular) …

‘We have to do a lot of collaborating’, said Hunter.

‘Michael [Dell] personally knows the CEOs of these companies, and we are constantly working with them on process improvements and real-time de- mand/supply balancing ’

Source: T L Friedman, 2007, The World is Flat, 3 rd

ed., New York: Picador (pp 580–583).

How does Dell manage to deliver its computers fast and at low costs?

even for experienced managers This book is about these sorts of challenges faced bymanagers of firms operating around the globe In particular, we will be exploring, whatdetermines the success and failure of firms engaged in international business.

EUROPEAN AND GLOBAL BUSINESS

International business (IB) is about (1) businesses (firms) engaging in international(cross-border) economic activities and/or (2) the activity of doing business abroad.The IB course thus adds an explicitly international dimension to the curriculum ofyour business education Traditionally, IB textbooks have focused on the foreignentrant’s perspective, often focusing on issues such as how to enter foreign marketsand how to select alliance partners The most frequently discussed foreign entrant isthemultinational enterprise (MNE), defined as a firm that engages inforeign directinvestment (FDI)by directly investing in, controlling and managing value-added ac-tivities in other countries.1For example, Dell, an MNE, has under taken many FDIprojects, such as a plant in Ireland, where most of its computers sold in Europe areassembled In addition it has a variety of relationships with other businesses, fromthe suppliers outlined in the Opening Case to distributors, marketers and custo-mers These other firms may not be MNEs themselves, but they engage in interna-tional business too Facing foreign entrants, domestic firms actively compete and/orcollaborate with them They are the other side of the coin of internationalcompetition.2

There are two key words in IB: international (I) and business (B) The IB course

is probably the only business school course with the word business in its title Allother courses are labelled as management, marketing, finance and so on, represent-ing one function but not the overall picture of business Does it matter? Of course!

It means that your IB course is an integrative course that has the potential to vide you with an overall business perspective (as opposed to a functional view)grounded in a global environment Consequently, this textbook aims to give youboth the I and B parts

pro-The realities of international and domestic business are increasingly blurred becausemany previously national (domestic) markets have opened to international competi-tion For example, suppliers of computer parts need to be able and willing to cooperatewith Dell at multiple sites around the world if they want to sell to Dell Moreover, withcreation of the single market in the European Union (EU), the definition of a homemarket is increasingly ambiguous Especially in business-to-business markets, such ascomputer parts, customers are often operating internationally as well, such that com-petition in a single country would hardly be sustainable Thus, it becomes difficult totell what is international and what is domestic

This book goes beyond traditional IB textbooks in two important ways First, wediscuss issues worldwide as they are relevant to European businesses and managers

In Europe, domestic markets are smaller than for example in the USA and China.Hence, international business is an important element of business for almost allfirms – large and small This international business activity by European firms isprimarily conducted within Europe Even UK exporters earn 57 per cent of theiroverseas sales within the EU, while their Czech counterparts sell 85 per cent withinthe EU (see Figure 1.1) That is like working Monday to Saturday on EU marketsand Sunday on the rest of the world Even the biggest MNEs do most of their busi-ness in their home region,3and even those that do business in all parts of the worldoften have a organizational structure divided by regions.4 Within their own region,however, businesses face different kinds of challenges than when expanding beyond

LEARNING OBJECTIVE

1 Explain the concepts of

international business

(IB) and global business

International business (IB)

(1) A business (firm) that

engages in international

(cross-border) economic

activities and/or (2) the

action of doing business

abroad.

Multinational enterprise

(MNE)

A firm that engages in

foreign direct investments

and operates in multiple

countries.

Foreign direct investment

(FDI)

Investments in, controlling

and managing value-added

activities in other countries.

their home region Notably, they operate under the auspices of the EU and the rules

that the EU has established for business (see Chapter 8) Moreover, a lot of business

is conducted in neighbouring countries where differences are relatively small, yet

nonetheless important On the other hand, the rest of the world presents some of

the most attractive (profitable) business opportunities Hence, as an IB executive

you need competences for both, Europe and beyond

This books aims to give you both, which distinguishes it from most

English-language textbooks, which have been written by leading scholars based in the

USA, and thus focus on the issues of interest to Americans going international:

Typ-ically, these are large companies dealing with distant markets because the home

market in the USA is so big Thus, our European focus implies that we are paying

more attention than other textbooks to (1) business in nearby countries, (2)

institu-tions of the EU, (3) small and medium-sized enterprises (SMEs) and (4) research by

European scholars on these issues

Second, this book is going beyond developed economies by devoting extensive

space to emerging economies(also known as emerging markets) These are

econo-mies that only recently established institutional frameworks that facilitate

interna-tional trade and investment, typically with low or middle level income and above

average economic growth, for example Brazil, Russia, India and China (BRIC) (see

Closing Case) How important are emerging economies? Shown in Figure 1.2,

col-lectively, they contribute about 26 per cent of the global gross domestic product

(GDP)at market prices.5This share increases to 45 per cent when adjusted to

pur-chasing power parity (PPP), an adjustment that reflects the differences in cost of

liv-ing (see In Focus 1.1) Why is there such a huge difference between the two

measures? This is because cost of living in emerging economies, especially services

such as housing and haircuts, tends to be lower than that in developed economies

For example,€1 spent in Łodz, Poland can buy a lot more than €1 spent in Munich,

Germany The rapid growth of some emerging economies is evident.6 Today’s

students– and tomorrow’s business leaders – will find rich opportunities in

emerg-ing economies This book will help you to recognize them

Figure 1.1 International trade in Europe

0 10 20 30 40 50 60 70 80 90 100 United Kingdom

Italy France Germany

Spain Denmark

Poland Netherlands

Czech Republic

Note: Share of intra-EU exports and imports in the countries’ total exports and imports, in percent.

Imports Exports

Source: ‘International Trade in Europe’ from the Eurostat database, epp.eurostat.ec.europa.eu accessed

August 18, 2009 Copyright © European Communities 2009 –2010 Reproduced with permission.

Emerging economies (emerging markets)

Economies that only recently established institutional frameworks that facilitate international trade and investment, typically with low or middle level income and above average economic growth.

Gross domestic product (GDP)

The sum of value added by resident firms, households and governments operating

in an economy.

Purchasing power parity (PPP)

A conversion that determines the equivalent amount of goods and services different currencies can purchase This conversion is usually used to capture the differences in

WHY STUDY INTERNATIONAL BUSINESS?

International business is one of the most exciting, challenging, and relevant subjectsoffered by business schools In addition to the requirements at your university orbusiness school that usually classify this course as a core or recommended course,there are at least two compelling reasons you should study it

First, for many ambitious students who aspire to lead a business unit or an entirefirm, expertise in global business is normally a prerequisite It is increasingly diffi-cult, if not impossible, to find top managers without significant international com-petences, even in medium-sized firms Of course, eventually, hands-on globalexperience, not merely knowledge acquired from this course, will be required.7However, mastery of the knowledge of, and demonstration of interest in, interna-tional business during your education will set you apart as a more ideal candidatefor fast-track career development that involvesexpatriate assignments– job assign-ments located abroad – where you can gain such experience (see Chapter 16)

Thanks to globalization, low-skill jobs not only command lower salaries but arealso more vulnerable to international competition However, top managementcapabilities, especially those that create connections across the world, are bothpaid more handsomely and are in demand even during a recession To put itbluntly, if a factory in Europe is shut down and the MNE sets up a similar factory

in China, only a few dozen people may keep their jobs Yes, you guessed it: Thesejobs are top-level positions such as the chief executive, chief financial officer, fac-tory director and chief engineer They may be sent by the MNE as expats to China

to start up operations there To motivate their best people to take such challengingassignments, MNEs typically offer them a higher salary and extra perks during thestay in China Moreover, when these expats return after a tour of duty, if their cur-rent employer does not provide attractive career opportunities, they are often hired

by competing firms This is because competing firms are also interested in globalizingtheir business by tapping into the expertise and experience of these former expats Andyes, to hire away these internationally experienced managers, competing firms willhave to pay them an even larger premium This indeed is a virtuous cycle for thosewith sought-after skills and capabilities

Figure 1.2 The contributions of emerging economies

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

FDI outflows GDP (nominal exchange rates) Exports of goods and services

FDI inflows GDP (purchasing power parity)

Population

Emerging economies excluding BRIC BRIC Developed economies

Sources: Data extracted from (1) International Monetary Fund, 2009, World Economic Outlook: Sustaining the Recovery (p 162), Washington: IMF; (2) United Nations, 2009, World Investment Report 2009 (p 247), New York and Geneva: UN; (3) World Bank, 2009, World Development Indicators database, Washington: World Bank All data refer to 2008.

LEARNING OBJECTIVE

2 Articulate what you

hope to learn by

reading this book and

taking this course

Expatriate assignments

A temporary job abroad with

a multinational company.