About the Authors v

Preface vi

1 Globalization 1

Introduction 1

1.1 What Is Globalization? 1

Globalization of Markets 3

Globalization of Production 5

1.2 The Flat World, Round World Globalization Debate 6

Two Sides of the Globalization Coin 8

1.3 Governing Globalization 9

1.4 Managing Globalization 11

Emerging Markets 12

Multinational Corporations 13

Summary 14

Case Study: Trade Wars and Tofu 15

2 Analytical Tools for International Business 18

Introduction 18

2.1 Why International Business? 19

Increased Sales 20

New Resources 21

Reduced Risk 21

2.2 External Environment 23

Political Factors 23

Economic Factors 23

Sociocultural Factors 24

Technological Factors 24

Conducting a PEST Analysis 25

2.3 Internal Environment 26

Country Entry 26

Strategy 28

Organization 29

Leadership 29

Summary 30

Case Study: AI in Amazon 30

3 Political Systems 33

Introduction 33

3.1 The Political Spectrum 33

Individualism 34

Collectivism 34

Democratic Political Systems 34

Autocratic Political Systems 35

Communism and Socialism 37

Categorizing Political Systems 37

Mixed Political Systems 37

3.2 Political Risks 38

Macro Political Risk 39

Micro Political Risk 40

Direct and Indirect Effects of Political Risk 40

The Constant Challenge of Managing Political Risk 42

3.3 Measures of Political Freedom 42

The Freedom House and Heritage Foundation Measures 43

Implications of Political Freedom for International Business 43

Recent Political Trends that Affect Multinational Corporations 45

3.4 Government’s Involvement in Business 48

When Governments Relax their Policies 49

Summary 50

Case Study: Background on the Banana Industry 50

4 The Legal Environment 54

Introduction 54

4.1 Differing Legal Systems 54

The Rule of Law 55

Three Different Levels of Law 56

Types of Legal Systems 56

International Law 58

The Effect of the Enforcement of Laws on International Business 60

4.2 Common Legal Issues for International Business 62

Increasing Wealth through Regulatory Changes 62

Product Liability 62

Property Rights and Intellectual Property 63

4.3 Illegal versus Unethical Conduct 64

Ethics 65

International Business and a Reactive versus Proactive Response to Ethical Dilemmas 65

4.4 Important International Laws 67

The Foreign Corrupt Practices Act 67

e-Commerce and Data Privacy 68

Summary 70

Case Study: Nestlé—Illegal vs. Unethical 70

5 Economic Systems 74

Introduction 74

5.1 Understanding Economic Systems 74

5.2 Measuring Output 77

Gross Domestic Product 78

Gross National Product 79

Other Measures of Prosperity and Opportunity 79

The Components of GDP 81

5.3 Governmental Economic Controls 83

Fiscal Policy 84

Monetary Policy 85

5.4 Currency Fluctuation and Concentration Effects 87

Purchasing Power Parity and the Law of One Price 87

The Gini Coefficient 88

Summary 92

Case Study: President Trump’s Attempts to Direct Monetary Policy for the United States 92

6 Currency and Foreign Exchange 95

Introduction 95

6.1 What Is Money? 96

6.2 Understanding Exchange Rates 97

What Institutions Make Foreign Exchange Happen? 99

Determining Exchange Rates 101

Under- or Overvalued Currency 102

6.3 The Consequences of Under- or Overvalued Currencies for International Businesses 103

Undervalued Currency 103

Overvalued Currency 105

6.4 Understanding and Managing Exchange Rate Risk 105

Managing Exchange Rate Risks 107

Predicting Exchange Rate Shifts 108

Summary 109

Case Study: Libra—The Next Bitcoin? 110

7 Trade 112

Introduction 112

7.1 Theories of Trade 113

Interventionist Theories 113

Free-Trade Theories 114

Trade Pattern Theories 115

Using Trade Theory as a Global Manager 119

7.2 Trade Imbalances and their Consequences 120

The Balance of Trade 120

Why Trade Imbalances Exist and Persist 121

What about the US Dollar and International Trade? 122

7.3 Patterns of Trade: Increased Regionalization 123

Global Integration 124

Policy Implications of the WTO 125

Bilateral Trade Agreements 125

Regional Trade Agreements 126

Other Forms of Trade Agreements 128

7.4 Government Policies Directed at Trade 128

Summary 131

Case Study: USMCA and Polaris 132

8 Culture 135

Introduction 135

8.1 What Is Culture? 135

What Is Culture? 136

Determinants of Culture 138

8.2 What Does Culture Mean for Business? 142

Social Stratification 142

Work Motivation 143

Relationship Preferences 143

Risk-Taking Behavior 144

Information 145

8.3 Managing Cultural Differences 146

Recognize Differences 146

Respect Differences 146

Reconcile Differences 147

8.4 Building Cultural Intelligence 148

Assessing Cultural Intelligence 148

Improving Cultural Intelligence 149

Summary 150

Case Study: Cultural Misunderstanding in Bulgaria 151

9 Sustainability 154

Introduction 154

9.1 What Is Sustainability? 154

Climate Change 156

Resource Constraints 159

9.2 Fighting Short-Termism 160

Sources of Short-Termism 161

Fighting Short-Termism 161

9.3 Collaborating for Sustainability 163

Why Companies Want to Collaborate 163

How to Collaborate Successfully 165

9.4 Sustainability and Innovation 167

Stage 1: View Compliance as Opportunity 167

Stage 2: Make Value Chains Sustainable 167

Stage 3: Design Sustainable Products and Services 168

Stage 4: Develop New Business Models 169

Summary 170

Case Study: Sustainable Fashion at H&M 170

10 Poverty 174

Introduction 174

10.1 Causes and Consequences of Global Poverty 175

The Poverty Trap 176

Risks of Poverty 177

10.2 Traditional Responses to Poverty 179

Poverty Programs 179

Other Types of Organizations that Fight Poverty 181

Poverty Science 182

10.3 A Business Response to Poverty 182

The Poor as a Social Responsibility 183

The Poor as Profitable Clients 183

Base of the Pyramid Strategies 184

Reverse Innovation 185

The Poor as Entrepreneurial Producers 187

10.4 Doing Well and Doing Good 187

Summary 189

Case Study: Solving Poverty in China 189

11 Technological Change and Infrastructure 193

Introduction 193

11.1 Technology as Physical Infrastructure 194

Raw Materials 195

Manufacturing Equipment 195

Transportation Networks 196

Energy Resources 197

11.2 Technology of Information Infrastructure 200

Communication Technologies 201

Speed of the Internet 202

Peer-to-Peer and the Shared Economy 203

Data Storage and Processing Technologies 204

11.3 Technology of Human Infrastructure 206

Education 206

Corporate Training and Development 207

Industry, Education, and Government 208

11.4 Technology Trends in International Business 208

The Globalization of Research and Development 210

Summary 211

Case Study: Mobileye Driverless Tech and Global Partnerships 212

12 Global Innovation and Intellectual Property 218

Introduction 218

12.1 Innovation as a Tool for Global Growth 219

Three Kinds of Innovation 219

Risks of Market-Creating Innovation 221

12.2 Investing in Innovation 222

From Local to Global Innovation 224

Innovation as a Human Capital Endeavor 225

12.3 Driving a Culture of Innovation 226

Foundations of Culture 226

The Innovator’s Imperative 227

12.4 Protecting Intellectual Property 229

Patents 230

Advantages of Patents 231

Copyrights 232

Trademarks 232

Trade Secrets 233

International Bodies and Laws Governing IP 234

The Difficulty of Enforcement 234

Summary 235

Case Study: How China Innovates 235

13 Country Selection and Entry Modes 239

Introduction 239

13.1 Deciding which Foreign Markets to Enter 240

The Liability of Foreignness 240

First-Mover Advantage 241

Following Clients Globally 242

13.2 Entry Modes 243

Exporting 243

Turnkey Operations 245

Licensing 246

Franchising 248

Joint Ventures 249

Wholly Owned Subsidiary 250

13.3 Make, Ally, or Buy 251

Make 252

Ally 253

Buy 254

Summary 255

Case Study: Coke vs. Pepsi in the Global Arena 255

14 International Strategy 259

Introduction 259

14.1 What Is Strategy? 259

Value Creation and Capture 260

Strategic Positioning 260

Value Chain Analysis 262

14.2 Becoming Locally Responsive 264

Disadvantages of Being Locally Responsive 267

14.3 Achieving Global Integration 267

Advantages of Being Globally Integrated 268

Disadvantages of Being Globally Integrated 270

14.4 Choosing an International Strategy 271

Multidomestic Strategy 272

Meganational Strategy 272

Transnational Strategy 273

Summary 274

Case Study: Qualtrics’ Strategy to Shape the Future of Employee Experience 274

15 International Organizational Structures 278

Introduction 278

15.1 Types of Organizational Structures 279

Functional Structure 280

Divisional Structure 281

Matrix Structure 282

Network Structure 283

15.2 Informal Organizational Controls 285

Company Culture 285

Control Systems 286

Incentives as Control 289

15.3 Reducing the Need for Coordination among Subsidiaries: Virtual Organizations, Standards, and Modularity 290

Virtual Organizations 290

Technology Standards 291

Modularity 291

15.4 Horizontal Subsidiary Coordination 293

Summary 294

Case Study: Should Tesla Keep its Partnership with Panasonic? 295

16 Global Leadership 298

Introduction 298

16.1 What Is Global Leadership? 298

The Global Context of Leadership 299

The Need for Global Leadership 299

16.2 Global Leadership Competencies 301

General Competencies 302

Company-Related Competencies 304

Location-Related Competencies 305

16.3 Building Global Leadership Competencies in Others 306

16.4 Building Global Leadership Competencies in Yourself 308

Find Academic Environments that Encourage Global Development 308

Seek Opportunities at Work and Ask for Help 308

Be Patient and Flexible 310

Summary 310

Case Study: Silvio Napoli in India 311

17 Global Marketing 314

Introduction 314

17.1 Global Market Segmentation 314

17.2 Standardization versus Differentiation in International Marketing 316

Standardization of the Marketing Mix 317

Differentiation of the Marketing Mix 318

Glocalization 319

17.3 Global Branding 320

Building Brand Awareness 320

Brand Image 322

Brand Loyalty 323

Brand Equity 323

Benefits of a Global Brand 323

Downsides of a Global Brand 323

17.4 Global Pricing and Distribution 324

General Pricing Strategies 324

Other Factors Affecting Global Pricing 325

Distribution Strategies 327

Summary 329

Case Study: The Growth of Domino’s through International Marketing 329

18 Global Operations and Supply-Chain Management 333

Introduction 333

18.1 Global Procurement 333

Advantages of Global Procurement 335

Disadvantages of Global Procurement 336

Outsourcing and Offshoring 337

18.2 Global Production 338

Advantages of Making 338

Disadvantages of Making 339

Location 340

Relocation 343

18.3 Global Supply Chains 344

Improving Global Supply-Chain Management 344

Information Technologies 347

18.4 Using Data Analytics to Improve Supply Chains 348

Applications of Data Analytics 349

Improving Performance 349

Summary 351

Case Study: Altra Running: Racing with or against your Suppliers? 351

19 Global Human Resource Management 356

Introduction 356

19.1 The Global HR Wheel 356

Human Capital Portfolios 357

HR Practices 358

Focusing on Organizational Outcomes 360

19.2 Human Capital in the Global Context 361

Local Human Capital 361

Subsidiary Human Capital 362

Corporate Human Capital 363

International Human Capital 364

19.3 Meeting Strategic Objectives through Human Capital 364

The Multidomestic Strategy 365

The Meganational Strategy 366

The Transnational Strategy 367

19.4 Tasks of the Global HR Function 368

Contributing to Business Decision Making 369

Providing HR Expertise 369

Delivering HR Services 371

Summary 371

Case Study: Time for Realignment: Developing a Culture of Transparency at MX across the Pond 372

20 Global Finance and Accounting 376

Introduction 376

20.1 Financing International Trade and Investment 376

International Banking 377

International Bond Markets 380

International Stock Markets 381

20.2 Capital Budgeting for Multinational Companies 384

The Parent Firm’s Capital Budgeting Decisions 384

The Cost of Capital: Domestic versus Global 385

20.3 International Accounting Standards 386

Generally Accepted Accounting Principles 386

International Financial Reporting Standards 387

20.4 Global Tax Matters 387

Corporate Income Tax 388

Transfer Pricing 389

Summary 390

Case Study: Microsoft’s Failed Acquisition of Nokia 391

Glossary 395

Index 401

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