International business the new realities 2e cavusgil knight 1

International business the new realities 2e cavusgil knight 1 International business the new realities 2e cavusgil knight 1 International business the new realities 2e cavusgil knight 1 International business the new realities 2e cavusgil knight 1 International business the new realities 2e cavusgil knight 1 International business the new realities 2e cavusgil knight 1 International business the new realities 2e cavusgil knight 1

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International Business

S Tamer Cavusgil Georgia State University

Gary Knight Florida State University John R Riesenberger Thunderbird School of Global Management, Clinical Professor of Executive Development, Corporate Learning Group

Prentice Hall

Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

The New Realities

S e c o n d E d i t i o n

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Library of Congress Cataloging-in-Publication Data:

Cavusgil, S Tamer.

International business : the new realities / S Tamer Cavusgil, Gary

Knight, John R Riesenberger — 2nd ed.

p cm.

Includes bibliographical references and index.

ISBN 978-0-13-609098-4 (alk paper)

1 International business enterprises—Management I Knight, Gary A II Riesenberger, John R.,

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Dedicated to .

This book is dedicated to my parents, Mehmet and Naciye Cavusgil, who never received much formal education but passed on a deep sense of appreciation for knowledge to their children; my wife, Judy, and my children, Erin and Emre

Cavusgil, who graciously provided much-needed understanding, support, and encouragement; and my students whom I had the opportunity to mentor over the years.

S Tamer Cavusgil Atlanta, Georgia

This book is dedicated to my wife, Mari, for her patience, intellect, and adventurous spirit; to Bill and Audrey, for being great parents and role models; and to the numerous students I have had the good fortune to influence over the years.

Gary Knight Tallahassee, Florida

This book is dedicated to my parents, Richard and Marie Riesenberger, for their example, many sacrifices, and love To

my wife and best friend, Pat, for her enthusiasm and loving support To my daughters, Chris and Jen, and their husbands, Byron and Martijn, of whom I am so very proud and thankful.

To my amazing grandchildren, Ryan, Paige, and Ethan—the future of the New Realities.

John R Riesenberger Basking Ridge, New Jersey

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About the Authors

S Tamer Cavusgil

Georgia State University, Fuller E Callaway Professorial Chair Executive Director, Center for International Business Education and Research, J Mack Robinson College of Business

Professor Cavusgil has been mentoring students, executives, and educators in national business for the past three decades A native of Turkey, Professor Cavusgil’sprofessional work has taken him to numerous other emerging markets

inter-Professor Cavusgil has authored more than 190 refereed journal articles and three

dozen books, including Doing Business in the Emerging Markets (Sage) His work is

among the most cited contributions in international business He is the founding

ed-itor of the Journal of International Marketing and Advances in International Marketing.

He serves on the editorial review boards of professional journals

Professor Cavusgil is an elected Fellow of the Academy of International Business, a

dis-tinction earned by a select group of intellectual leaders in international business He

also served as Vice President of the AIB, and on the Board of Directors of the American

Marketing Association Michigan State University bestowed him with its highest

recognition for contributions to the international mission: the Ralph H SmucklerAward for Advancing International Studies He was named International TradeEducator of the Year in 1996 by the National Association of Small Business Interna-tional Trade Educators (NASBITE) At Michigan State University, he also earned thedistinction of University Distinguished Faculty, the highest award given to a facultymember In 2007, he was named an Honorary Fellow of the Sidney Sussex College atthe University of Cambridge

Professor Cavusgil holds MBA and PhD degrees in business from the University ofWisconsin Previously, he held positions at the Middle East Technical University inTurkey, University of Wisconsin-Whitewater, Bradley University, and Michigan StateUniversity He also served as Senior Fulbright Scholar to Australia and taught atMonash University and other Australian institutions He serves as a visiting Profes-sor at Manchester Business School and was Gianni and Joan Montezemolo VisitingChair at the University of Cambridge, the United Kingdom

At Florida State University, Professor Knight developed the study abroad programs

in business in Britain, France, Japan, and Spain, as well as FSU’s online courses in ternational business He has been an invited speaker at numerous institutions world-wide He has won several awards for research and teaching, including best teacher

in-in the MBA program and the Hans Thorelli Best Paper Award for his article preneurship and Strategy: The SME Under Globalization.” His research emphasizesinternational business strategy, international services, emerging markets, and inter-nationalization of small and medium-sized firms

“Entre->

iv

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Professor Knight is a member of the Academy of International Business He has

authored six books and more than 100 refereed articles in academic journals and

conference proceedings, including Journal of International Business Studies, Journal of

World Business, International Executive, and Management International Review

Re-cently, he was ranked one of the top fifteen most prolific scholars in the United

States, and one of the top thirty worldwide, in the six leading international

busi-ness journals He is on the editorial review boards of several international journals

The U.S House of Representatives’ Committee on Small Business invited

Profes-sor Knight to provide expert testimony on international business topics

Professor Knight earned his MBA at the University of Washington and PhD at

Michigan State University, both in international business Earlier degrees were in

Finance and Modern Languages He also attended the University of Paris in France

and Sophia University in Japan and is fluent in French, Japanese, and Spanish

John R Riesenberger

Thunderbird School of Global Management, Clinical Professor

of Executive Development, Corporate Learning Group

Mr Riesenberger’s international business career spans over three decades in the

global pharmaceutical industry He has conducted business transactions in

twenty-one countries His passion is to help students develop the managerial skills

frequently required of new graduates entering careers in international business

Currently, Mr Riesenberger is the President of Consilium Partners, Inc., a

pharma-ceutical consulting firm with clients in pharmapharma-ceutical, biotechnology, and

phar-maceutical agency firms

He worked for 30 years with Pharmacia & Upjohn and The Upjohn Company as a

senior executive His experience covered a diverse range of divisional, geographic,

and functional accountabilities His most recent position was Vice President,

Global Business Management Mr Riesenberger also served as Corporate Vice

President and Chief Commercialization Officer for a biotechnology firm and as the

Executive Vice President of a pharmaceutical science agency

Mr Riesenberger served as a member of the Global Advisory Board of the

Ameri-can Marketing Association He serves as an Executive in Residence at the Michigan

State University Center for International Business Education and Research He

served on the Editorial Review Board of The Journal of International Marketing He

served as Chairman, Industry Advisory Board, “Value of Marketing Program,” SEI

Center for the Advanced Studies in Management, The Wharton School of the

Uni-versity of Pennsylvania He is the former Chairman of the Pharmaceutical

Manu-facturing Association Marketing Practices Committee John is the coauthor, with

Robert T Moran, of The Global Challenge: Building the New Worldwide Enterprise

(McGraw-Hill, London)

John holds a Bachelor of Science degree in Economics-Business and an MBA in

Management from Hofstra University He attended the Harvard Business School’s

International Senior Management Program

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Brief Contents

>

Preface xxv

Part 1 Foundation Concepts 2

Part 2 The Environment of International Business 86

Part 3 Strategy and Opportunity Assessment 306

Part 4 Entering and Operating in International Markets 364

Part 5 Functional Area Excellence 478

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Preface xxv

> A Typical Day in the Global Economy 3What Is International Business? 4What Are the Key Concepts in International Trade and Investment? 5

The Nature of International Trade 5The Nature of International Investment 7Services as Well as Products 8

The International Financial Services Sector 9

How Does International Business Differ from Domestic Business? 10

The Four Risks in Internationalization 10

Who Participates in International Business? 12

Multinational Enterprise (MNE) 12

■ Global Trend:DIESEL: A Smaller Firm’s Smashing International Success 15

Non-governmental Organizations (NGOs) 15

Why Do Firms Internationalize? 16Why Study International Business? 18

Facilitator of the Global Economy and Interconnectedness 18Contributor to National Economic Well-Being 18

A Competitive Advantage for the Firm 19

A Competitive Advantage for You 19

■ Recent Grad in IB:Ashley Lumb 20

An Opportunity for Global Corporate Citizenship 21

■ Closing Case: Internationalization at Harley-Davidson 21

■ Chapter Essentials: Key Terms 24 Summary 24 Test Your

globalEDGE™ Internet Exercises 26

2 Globalization of Markets and the Internationalization

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Information Technology 41Communications 41Manufacturing 42Transportation 42

■ Global Trend:Globalization and E-Business in the Online World 43

Societal Consequences of Market Globalization 43

Contagion: Rapid Spread of Monetary or Financial Crises 44Loss of National Sovereignty 45

Offshoring and the Flight of Jobs 46Effect on the Poor 47

Effect on the Natural Environment 50Effect on National Culture 50

Globalization and Africa 51

Firm-Level Consequences of Market Globalization: Internationalization

of the Firm’s Value Chain 52

■ Closing Case:Debating the Merits of Globalization 53

3 Organizational Participants That Make International

> The Emergence of Born Global Firms 59Four Types of Participants in International Business 60Participants Arranged by Value-Chain Activity 61

Illustrating the International Value Chain Using Dell Inc 62

Focal Firms in International Business 63

The Multinational Enterprise 64Small and Medium-Sized Enterprises 65Born Global Firms 66

International Entry Strategies of Focal Firms 67

A Framework for Classifying International Entry Strategies 67Other Types of International Entry Strategies 68

Distribution Channel Intermediaries in International Business 70

Intermediaries Based in the Foreign Market 71Intermediaries Based in the Home Country 72Online Intermediaries 74

■ Global Trend: Online Retailers Surge Ahead 75

Facilitators in International Business 75

■ Recent Grad in IB: Cynthia Asoka 77

Governments in International Business 79

■ Closing Case:DHL, FedEx, and UPS: Shifting Fortunes in the Global

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Part 2 The Environment of International Business 86

> Japan’s Unique Toilet Culture 87Culture and Cross-Cultural Risk 88Key Concepts of Culture 91

What Culture Is Not 91Socialization and Acculturation 91The Many Dimensions of Culture 92National, Professional, and Corporate Culture 93

The Role of Culture in International Business 94

■ Recent Grad in IB: Zhibo (Lawrence) Yu 96

Cultural Metaphors, Stereotypes, and Idioms 97

Cultural Metaphors 97Stereotypes 97

Idioms 98

Interpretations of Culture 98

High- and Low-Context Cultures 98Hofstede’s Research on National Culture 99

Subjective versus Objective Dimensions of Culture 101

Values and Attitudes 101Deal versus Relationship Orientation 101Manners and Customs 102

Perceptions of Time 102Perceptions of Space 103Religion 103

Symbolic Productions 106Material Productions and Creative Expressions of Culture 106

Language as a Key Dimension of Culture 106Contemporary Issues in Culture 108

Culture and the Services Sector 108Technology, the Internet, and Culture 108Globalization’s Effect on Culture: Are Cultures Converging? 109

Overcoming Cross-Cultural Risk: Managerial Guidelines 109

■ Global Trend:Minimizing Cross-Cultural Bias with Critical Incident

■ Closing Case:Hollywood’s Influence on Global Culture 112

> The Challenge of Corruption Around the World 119Ethics in International Business 121

The Value of Ethical Behavior 124Variation in Ethical Standards among Countries 124

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An Ethical Dilemma 126Linking Ethics, Corruption, and Responsible Behavior 126

Corporate Social Responsibility 127

The Value of CSR 128

■ Global Trend: Global Corporate Social Responsibility Rises to the Top

The Role of Sustainability in International Operations 129Corporate Governance and Its Implications for Managers 131

A Framework for Making Ethical Decisions 132

Embracing CSR and Sustainability 133

A Global Consensus 133Ethics, CSR, and Sustainability in Practice 134

■ Closing Case: Corruption at Siemens 135

> Dubai: The Path to Creating a Knowledge-Based Economy 141Theories of International Trade and Investment 142

Why Do Nations Trade? 144

■ Closing Case:Hyundai: Leading the Way in the Global Auto Industry 165

■ Chapter Essentials:Key Terms 168 Summary 168 Test Your

> The Political and Legal Realities of Doing Business in Russia 173The Nature of Country Risk 174

How Prevalent Is Country Risk? 175

Political and Legal Environments in International Business 176Political Systems 177

Totalitarianism 177Socialism 178

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Democracy 179Democracy’s Link to Economic Freedom and Openness 179The Relationship between Political Systems and Economic Systems 180

Legal Systems 181

Common Law 182Civil Law 182Religious Law 183Mixed Systems 184

Participants in Political and Legal Systems 184

Government 184International Organizations 185Regional Economic Blocs 185Special Interest Groups 185Competing Firms 186

Types of Country Risk Produced by Political Systems 186

Government Takeover of Corporate Assets 186Embargoes and Sanctions 187

Boycotts against Firms or Nations 187War, Insurrection, and Violence 188Terrorism 188

Types of Country Risk Produced by Legal Systems 188

Country Risk Arising from the Host Country Legal Environment 188Country Risk Arising from the Home Country Legal Environment 191

■ Global Trend: Evolving Legal Aspects of E-Commerce 192

Managing Country Risk 193

Proactive Environmental Scanning 193Strict Adherence to Ethical Standards 194Alliances with Qualified Local Partners 194Protection through Legal Contracts 194

■ Closing Case: Political, Legal, and Ethical Dilemmas in the Global

> India’s Transition to a Liberal Economy 201The Nature of Government Intervention 202Rationale for Government Intervention 204

Defensive Rationale 204Offensive Rationale 205

Instruments of Government Intervention 206

Tariffs 207Nontariff Trade Barriers 208Investment Barriers 210Subsidies and Other Government Support Programs 211

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Consequences of Government Intervention 213Evolution of Government Intervention 216

■ Global Trend: The World Trade Organization and Collapse

Intervention and the Global Financial Crisis 218How Firms Can Respond to Government Intervention 219

Strategies for Managers 219

■ Closing Case: Government Intervention at Airbus and Boeing 221

> Evolution of the European Union 227Regional Integration and Economic Blocs 228Levels of Regional Integration 229

The Leading Economic Blocs 231

The European Union (EU) 231European Free Trade Association (EFTA) 236North American Free Trade Agreement (NAFTA) 236

■ Global Trend: Integrating Eastern Europe and Turkey into the EU 237

El Mercado Comun del Sur (MERCOSUR) 238The Caribbean Community (CARICOM) 239Comunidad Andina de Naciones (CAN) 239Association of Southeast Asian Nations (ASEAN) 239Asia Pacific Economic Cooperation (APEC) 240Australia and New Zealand Closer Economic Relations Agreement (CER) 240Economic Integration in the Middle East and Africa 241

Advantages of Regional Integration 241Success Factors for Regional Integration 242Ethical Dilemmas and Drawbacks of Regional Integration 243Management Implications of Regional Integration 245

■ Closing Case: Russell Corporation: Choosing between Global and Regional

10 Emerging Markets, Developing Economies,

> The New Global Challengers: MNEs from Emerging Markets 253Advanced Economies, Developing Economies, and Emerging Markets 254

Advanced Economies 255Developing Economies 255

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Emerging Market Economies 258

■ Global Trend: China’s Evolving Challenges and Opportunities 262

What Makes Emerging Markets Attractive for International Business 262

Emerging Markets as Target Markets 263Emerging Markets as Manufacturing Bases 263Emerging Markets as Sourcing Destinations 264

Assessing the True Potential of Emerging Markets 264

Per-Capita Income as an Indicator of Market Potential 264Middle Class as an Indicator of Market Potential 266

Risks and Challenges of Emerging Markets 267

Political Instability 267Weak Intellectual Property Protection 268Bureaucracy, Red Tape, and Lack of Transparency 268Poor Physical Infrastructure 268

Partner Availability and Qualifications 268Dominance of Family Conglomerates 269

Strategies for Emerging Markets 270

Customize Offerings to Unique Emerging Market Needs 270Partner with Family Conglomerates 271

Target Governments in Emerging Markets 271

■ Recent Grads in IB: Andrew & Jamie Waskey 272

Skillfully Challenge Emerging Market Competitors 273

Corporate Social Responsibility in Emerging Markets and DevelopingEconomies 274

Foster Economic Development with Profitable Projects 274Microfinance to Facilitate Entrepreneurship 275

The Special Case of Africa 275

■ Closing Case: Tata Group: India’s New Global Challenger 277

> The European Union and the Euro 283Exchange Rates and Currencies in International Business 284

Convertible and Nonconvertible Currencies 285Foreign Exchange Markets 286

Exchange Rates Fluctuate Constantly 286

How Exchange Rates Are Determined 288

Economic Growth 288Inflation and Interest Rates 289Market Psychology 289

Government Action 290

Emergence of the Modern Exchange Rate System 290

The Bretton Woods Agreement 291

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IMF and the World Bank 291The Modern Exchange Rate System 291

The Monetary and Financial Systems 292

International Monetary System 292Global Financial System 293

■ Global Trend: Global Financial Crisis 294

Key Players in the Monetary and Financial Systems 295

The Firm 295National Stock Exchanges and Bond Markets 296Commercial Banks 296

■ Recent Grad in IB: Maria Keeley 297

Central Banks 299The Bank for International Settlements 299International Monetary Fund 299

The World Bank 300

■ Closing Case: AIG and Global Financial Contagion 301

> IKEA’s Global Strategy 307Strategy in International Business 309Building the Global Firm 310

Visionary Leadership 310Organizational Culture 312Organizational Processes 312The Distinction between Multidomestic and Global Industries 313

The Integration-Responsiveness Framework 314

Pressures for Global Integration 315Pressures for Local Responsiveness 315

Strategies Based on the Integration-Responsiveness Framework 316Organizational Structure 319

Centralized or Decentralized Structure? 320

Organizational Structures for International Operations 321

Export Department 321International Division Structure 321Geographic Area Structure (Decentralized Structure) 323Product Structure (Centralized Structure) 324

Functional Structure (Centralized Structure) 325Global Matrix Structure 325

■ Closing Case: Carlos Ghosn: Leading for Global Success

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> Estimating Demand in Emerging Markets 335Assessing Global Market Opportunities 336Task One: Analyze Organizational Readiness to Internationalize 338Task Two: Assess the Suitability of Products and Services for ForeignMarkets 340

Factors Contributing to Product Suitability for International Markets 340Key Issues to Resolve in Measuring Product Potential 341

Task Three: Screen Countries to Identify Target Markets 341

Screening Countries for Exporting 341

■ Global Trend: Global Macro Trends That Affect International Business 343

Country Screening for Foreign Direct Investment 347Country Screening for Sourcing 348

Task Four: Assess Industry Market Potential 349

Practical Methods for Managers to Assess Industry Market Potential 350Data Sources for Estimating Industry Market Potential 350

■ Recent Grad in IB: Javier Estrada 352

Task Five: Choosing Foreign Business Partners 353

Criteria for Choosing a Partner 353Searching for Prospective Partners 354

Task Six: Estimate Company Sales Potential 354

Determinants of Company Sales Potential 354Practical Approaches to Estimating Company Sales Potential 355

In Conclusion 357

■ Closing Case: Advanced Biomedical Devices: Assessing Readiness

globalEDGE™ Internet Exercises 363Part 4 Entering and Operating

> Exporter’s Dogged Pursuit of International Customers 365

An Overview of Foreign Market Entry Strategies 366Internationalization of the Firm 368

Diverse Motives for Pursuing Internationalization 368Characteristics of Firm Internationalization 369

Exporting as a Foreign Market Entry Strategy 370

Exporting and the Global Economy 371

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Exporting: A Popular Entry Strategy 371Service Sector Exports 372

Advantages of Exporting 373Limitations of Exporting 373

■ Global Trend: The Emergence of SME Exporters 374

A Systematic Approach to Exporting 374Importing 377

Managing Export-Import Transactions 378

Documentation 378Shipping and Incoterms 379

Payment Methods in Exporting and Importing 380

Cash in Advance 380Letter of Credit 381Open Account 382

Export-Import Financing 382

Commercial Banks 383Factoring, Forfaiting, and Confirming 383Distribution Channel Intermediaries 383Buyers and Suppliers 383

Intracorporate Financing 383Government Assistance Programs 384Multilateral Development Banks (MDBs) 384

Identifying and Working with Foreign Intermediaries 384

Working with Foreign Intermediaries 385When Intermediary Relations Go Bad 386

Countertrade: A Popular Approach for Emerging Markets and DevelopingEconomies 387

Magnitude and Drivers of Countertrade 388Types of Countertrade 388

Risks of Countertrade 389Why Consider Countertrade? 389

■ Closing Case: Barrett Farm Foods: A Small Firm’s International Launch 390

> Deutsche Post DHL’s Rapid International Expansion 397International Investment and Collaboration 398

Trends in Foreign Direct Investment and Collaborative Ventures 399

Motives for FDI and Collaborative Ventures 400

Market-Seeking Motives 400Resource- or Asset-Seeking Motives 401Efficiency-Seeking Motives 401

Characteristics of Foreign Direct Investment 402

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■ Recent Grad in IB: Jennifer Knippen 403

Key Features of Foreign Direct Investment 403Corporate Social Responsibility and FDI 405Most Active Firms in FDI 405

Service Firms and FDI 405Leading Destinations for FDI 407Factors to Consider in Choosing FDI Locations 407

Types of Foreign Direct Investment 408

Greenfield Investment versus Mergers and Acquisitions 408The Nature of Ownership in FDI 409

Vertical versus Horizontal Integration 409

■ Global Trend: FDI in the Global Financial Crisis 411

International Collaborative Ventures 411

Equity Joint Ventures 412Project-Based, Nonequity Ventures 412Differences between Equity and Project-Based, Nonequity Ventures 412Consortium 413

Cross-Licensing Agreements 413

Managing Collaborative Ventures 414

Understand Potential Risks in Collaboration 414Pursue a Systematic Process for Partnering 414Ensure Success with Collaborative Ventures 415

The Experience of Retailers in Foreign Markets 416

Challenges of International Retailing 417International Retailing Success Factors 418

■ Closing Case: AUTOLATINA: A Failed International Partnership 419

16 Licensing, Franchising, and Other Contractual

Licensing as an Entry Strategy 430

Trademark and Copyright Licensing 431Know-How Licensing 432

The World’s Top Licensing Firms 433

Advantages and Disadvantages of Licensing 433

Advantages of Licensing 434Disadvantages of Licensing 434

Franchising as an Entry Strategy 435

Who Are the Top Global Franchisors? 437

■ Global Trend: Internationalization of Franchising: Emerging Markets 437

Advantages and Disadvantages of Franchising 439

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The Franchisor Perspective 439The Franchisee Perspective 440Managerial Guidelines for Licensing and Franchising 440

Other Contractual Entry Strategies 441

Turnkey Contracting 441Build-Operate-Transfer Arrangements (BOT) 442Management Contracts 442

Leasing 442The Special Case of Internationalization by Professional Service Firms 443

Guidelines for Protecting Intellectual Property 443

■ Closing Case: Subway and the Challenges of Franchising in China 446

Global Sourcing 456Offshoring 458Scope of Global Sourcing 459Diversity of Countries That Initiate and Receive Outsourced Work 459

■ Global Trend: China and India: Chief Rivals in the Global Sourcing

Strategic Choices in Global Sourcing 461

Benefits of Global Sourcing 462

Cost Efficiency 462Ability to Achieve Strategic Goals 462

Risks of Global Sourcing 465Strategies for Minimizing the Risks of Global Sourcing 466Implementing Global Sourcing Through Supply-Chain Management 467

Information and Communications Technology 469Logistics and Transportation 470

Transportation Modes 470

Global Sourcing and Corporate Social Responsibility 471

Potential Harm to Local and National Economy from Global Sourcing 471Public Policy on Global Sourcing 472

■ Closing Case: Wolverine World Wide 473

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Part 5 Functional Area Excellence 478

> MTV India: Balancing Global and Local Marketing 479Global Marketing Strategy 480

Targeting Customer Segments and Positioning 481

Standardization and Adaptation of International Marketing 482

Standardization 482Adaptation 484

■ Recent Grad in IB: John Dykhouse: Trade Development Manager 485

Standardization and Adaptation: A Balancing Act 486

Global Branding and Product Development 487

Global Branding 487Global Product Development 489

■ Global Trend: Growing Role for Marketing in Developing Economies 490

International Pricing 491

Factors That Affect International Pricing 491

A Framework for Setting International Prices 492Managing International Price Escalation 494Managing Pricing under Varying Currency Conditions 494Transfer Pricing 495

Gray Market Activity (Parallel Imports) 496

International Marketing Communications 498

International Advertising 498International Promotional Activities 500

International Distribution 501

Global Account Management 501

■ Closing Case: H&M: International Marketing Success Story 502

> Johnson & Johnson: A Leader in International Human ResourceManagement 509

The Strategic Role of Human Resources in International Business 510

Three Employee Categories 510Differences between Domestic and International HRM 511Key Tasks in International Human Resource Management 512

International Staffing Policy 513

Recruiting, Selecting, and Developing Talent 514Cultivating Global Mind-sets 514

Cultural Intelligence 515

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Expatriate Assignment Failure and Culture Shock 516

Preparation and Training of International Employees 516

Preparing Employees for Repatriation 517Charting Global Careers for Employees 517

International Performance Appraisal 518Compensation of Employees 518International Labor Relations 520

Distinctive Features of Labor around the World 521Cost, Quality, and Productivity of Labor 522Workforce Reduction 522

Trends in International Labor 523Firm Strategy in International Labor Relations 524

Diversity in the International Workforce 524

Women in International Business 524

■ Global Trend: Global Corporate Social Responsibility and the Role of

Success Strategies for Women Managers in International Business 527

■ Closing Case: Evolving Human Resource Challenges at Sony 528

20 Financial Management and Accounting

> A Small Firm Rides the Waves of Foreign Exchange 535Key Tasks in International Financial Management 536Task One: Decide on the Capital Structure 537Task Two: Raise Funds for the Firm’s International Activities 538

Financial Centers 538Sources of Funds for International Operations 539Debt Financing 541

■ Global Trend: Emerging Markets as International Investment

Intracorporate Financing 543

Task Three: Manage Working Capital and Cash Flow 543

Methods for Transferring Funds within the MNE 543Multilateral Netting 544

Task Four: Perform Capital Budgeting 545

Net Present Value Analysis of Capital Investment Projects 545

Task Five: Manage Currency Risk 546

Three Types of Currency Exposure 546

■ Recent Grad in IB:Chip Besse 547

Foreign Exchange Trading 548Types of Currency Traders 549Exchange Rate Forecasting 550

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Managing Exposure to Currency Risk through Hedging 551Best Practice in Minimizing Currency Exposure 552

Task Six: Manage the Diversity of International Accounting and TaxPractices 553

Transparency in Financial Reporting 553Trends toward Harmonization 554Consolidating the Financial Statements of Subsidiaries 555International Taxation 555

■ Closing Case: International Financial Operations at Tektronix 558

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What’s New in This Edition

The authors have received an overwhelmingly positive response and many comments

regarding the first edition of International Business Since the last edition, the

interna-tional business environment has experienced radical change with the impact of the

global financial crisis and the rapidly changing dynamics among firms conducting

ness in advanced economies, emerging markets, and developing economies Many

busi-ness practices have experienced significant change in focus and direction This new

edition has undergone significant revision to capture these changes and priorities

Ethics

We have added a new chapter devoted entirely to ethical conduct in international

busi-ness This chapter focuses on the most current and relevant topics associated with five

critical topics: (1) ethics, (2) corruption, (3) corporate social responsibility, (4)

sustainabil-ity, and (5) corporate governance We have developed an ethical decision-making

frame-work for analyzing questionable occurrences and practices in international business and

created new Apply Your Understanding exercises for each chapter

Case Studies

The second edition features six new case studies that address contemporary dynamics

and the latest trends in international business The new cases feature Harley Davidson,

Siemens, Tata, AIG, Wolverine, and H&M We have also substantially revised existing

cases featuring Hyundai and DHL, FedEx, and UPS All other existing cases have been

updated as well

Opening Vignettes

We have developed a number of new opening vignettes that emphasize such themes as

corruption, the EU, the euro, and cultural differences between Western and Japanese

consumers All remaining opening vignettes have been updated to reflect the current

environment

Exhibits

The new edition contains more than 150 new and updated exhibits A major graphical

redesign has been incorporated in a large number of the exhibits in this edition to

en-hance reading and retention

Balanced Geographical Coverage

Geographical coverage of companies and issues affecting African and Latin American

countries has been significantly expanded

Videos

Fifteen new customized videos have been developed to support the specific major

themes of International Business: The New Realities Topics include: Globalization and

the Growth of International Business, Internationalization of Born Globals and Other

Small and Medium Enterprises, Impact of Culture on International Business, Ethics

> Preface

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