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International Management culture - strategy - behaviour

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  2. 2. International ManagementCulture, Strategy, and BehaviorEighth EditionFred LuthansUniversity of Nebraska–LincolnJonathan P. DohVillanova UniversityLut12575_fm_i-xxvi.indd Page i 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page i 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  3. 3. INTERNATIONAL MANAGEMENT: CULTURE, STRATEGY, AND BEHAVIOR, EIGHTH EDITIONPublished by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of theAmericas, New York, NY 10020. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rightsreserved. Previous editions © 2009, 2006, and 2003. No part of this publication may be reproduced ordistributed in any form or by any means, or stored in a database or retrieval system, without the priorwritten consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network orother electronic storage or transmission, or broadcast for distance learning.Some ancillaries, including electronic and print components, may not be available to customers outside theUnited States.This book is printed on recycled, acid-free paper containing 10% postconsumer waste.1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4 3 2 1ISBN 978-0-07-811257-7MHID 0-07-811257-5Vice President & Editor-in-Chief: Brent GordonVice President, EDP/Central Publishing Services: Kimberly Meriwether-DavidEditorial Director: Paul DuchamManaging Developmental Editor: Laura Hurst SpellDevelopmental Editor: Jane BeckAssociate Marketing Manager: Jaime HaltemanProject Manager: Erin MelloyBuyer: Kara KudronowiczDesign Coordinator: Margarite ReynoldsCover Designer: Studio Montage, St. Louis, MissouriCover Images: Top to bottom, © Mark Downey/Getty Images; Jacobs Stock Photography/Getty Images;© Goodshoot/PunchStockMedia Project Manager: Balaji SundararamanCompositor: Aptara®, Inc.Typeface: 10/12 Times RomanPrinter: Quad/GraphicsAll credits appearing on page or at the end of the book are considered to be an extension of the copyrightpage.Library of Congress Cataloging-in-Publication DataLuthans, Fred.International management : culture, strategy, and behavior / Fred Luthans,Jonathan P. Doh.—8th ed.p. cm.Rev. ed. of: International management / Richard M. Hodgetts, Fred Luthans,Jonathan Doh. 6th ed. 2006.Includes bibliographical references and index.ISBN-13: 978-0-07-811257-7ISBN-10: 0-07-811257-51. International business enterprises—Management. 2. International businessenterprises—Management—Case studies. I. Doh, Jonathan P. II. Hodgetts,Richard M. International management. III. Title.HD62.4.H63 2012658.049—dc222011002070www.mhhe.comLut12575_fm_i-xxvi.indd Page ii 2/11/11 2:35 PM user-f494Lut12575_fm_i-xxvi.indd Page ii 2/11/11 2:35 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  4. 4. iiiDedicated in Memory ofRichard M. HodgettsA Pioneer in International Management EducationLut12575_fm_i-xxvi.indd Page iii 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page iii 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
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  6. 6. vPrefaceChanges in the global business environment continue unabated. The global finan-cial crisis and economic recession have challenged some assumptions about glo-balization and economic integration, but they have also underscored the interconnectednature of global economies. Most countries and regions around the world are inextrica-bly linked, yet profound differences in institutional and cultural environments persist.The challenges for international management reflect this dynamism and the increasingunpredictability of global economic and political events. Continued growth of the emerg-ing markets is reshaping the global balance of economic power. Many emerging marketscontinued to experience growth during a period in which developed countries saw theireconomies stagnate or decline. The global political environment remains volatile anduncertain, with ongoing conflicts in the Middle East and Africa and continuing tensionsin Iran, North Korea, Iraq, and Afghanistan, especially as the U.S. role in these lattertwo countries evolves. On the economic front, failure to conclude important trade agree-ments, including the so-called “Development” Round of multilateral trade negotiationsunder the World Trade Organization, and the lagging support for some bilateral tradeagreements pose additional challenges to global managers and multinational companies.In addition, the BP oil spill in the Gulf of Mexico has renewed calls for corporations todo more to protect the planet and governments to get tougher with companies in termsof oversight and accountability. The advent of social networking and other media hastransformed the way citizens interact and how businesses market, promote, and distributetheir products globally. The same can be said for mass collaboration efforts occurringthrough digital, online technology for the development of new and innovative systems,products, and ideas. Both social networking and mass collaboration bring new power andinfluence to individuals across borders and transform the nature of their relationshipswith global organizations. As in the past, these developments underscore and reinforcethe importance of understanding different cultures, national systems, and corporate man-agement practices around the world. Students and managers now recognize that all busi-ness is global and that the world is now interconnected not only geographically but alsoelectronically and psychologically; it is hard to imagine any business or nonbusinessorganization that is not directly affected by globalization. Yet, as cultural, political, andeconomic differences persist, savvy international managers must be able to develop aglobal mindset in order to effectively adjust, adapt, and navigate the changing landscapethey face on a day-to-day basis.In this new eighth edition of International Management, we have taken care toretain the effective foundation gained from research and practice over the past decades.At the same time, we have fully incorporated important new and emerging developmentsthat have changed what international managers are currently facing and likely to facein the coming years. Of special importance is that students of international managementunderstand what will be expected of them from the range of stakeholders with whomthey interact and the ways in which technology and social media change the nature ofglobal connections. Although we have extensive new, evidence-based material in thisedition, as described below, we continue to strive to make the book even more user-friendly and applicable to practice. We continue to take a balanced approach in theeighth edition of International Management: Culture, Strategy, and Behavior. Whereasother texts stress culture, strategy, or behavior, we feel that our emphasis on all threecritical dimensions and the resulting synergy has been a primary reason why the previ-ous editions have been the market-leading international management text. Specifically,Lut12575_fm_i-xxvi.indd Page v 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page v 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  7. 7. vi Prefacethis edition has the following chapter distribution: environment (three chapters), culture(four chapters), strategy (four chapters), and organizational behavior/human resourcemanagement (three chapters). Because international management is such a dramaticallychanging field, all the chapters have been updated and improved. New real-world exam-ples and research results are integrated throughout the book, accentuating the experien-tial relevance of the straightforward content. As always, we emphasize a balance ofresearch and application.In particular for the new eighth edition we have incorporated important new con-tent in the areas of ethics and social responsibility, offshoring and outsourcing, theemergence of social media as a means of transacting business around the world, man-agement practices in and for emerging and developing countries, and other importantdevelopments in the international management field. Given the changing nature of globalwork, and the interconnected nature of the geographic, thematic, and functional chal-lenges of global management, we have integrated many topical areas—such as offshor-ing and outsourcing—throughout the book to emphasize these trends as they pertain totoday’s and tomorrow’s international managers. For example, we continue to increaseemphasis on emerging markets and the importance of now recognized global leaderssuch as Brazil, Russia, India, and China—the so-called “BRIC” economies—as well asthe “second wave” emerging markets, such as Indonesia, Vietnam, and other countriesin Africa, Asia, Central and Eastern Europe, Latin America, and the Middle East. Wehave also included the most current insights on the role of technology in global businessand the increasing importance of corporate social responsibility and sustainability inglobal management. We have incorporated the latest research on the increasing pressurefor MNCs to adopt more “green” management practices, including Chapter 3’s openingWorld of International Management which includes discussion of GE’s “ecomagination”initiative and a boxed feature in that chapter on the BP oil spill in the Gulf of Mexico.We have updated discussion of and provided additional emphasis on the “emerging giant”multinationals from China and India and the increasing relevance and effectiveness ofmarketing efforts to “base of the pyramid” economies, with examples from telecommu-nications, consumer products, and others. On a more cross-cultural and behavioral level,we have incorporated additional findings of the comprehensive GLOBE study on cross-cultural leadership.A continuing and relevant end-of-chapter feature in this edition is the “InternetExercise.” The purpose of each exercise is to encourage students to use the Internet tofind information from the websites of prominent MNCs to answer relevant questionsabout the chapter topic. An end-of-book feature is a series of Skill-Building and Expe-riential Exercises for aspiring international managers. These in-class exercises representthe various parts of the text (culture, strategy, and behavior) and provide hands-onexperience.A new dimension of the eighth edition of International Management is the all-newchapter-opening discussions called “The World of International Management” (WIM)based on very recent, relevant news stories to grab readers’ interest and attention. Thesetimely opening discussions transition the reader into the chapter topic. At the end of eachchapter, there is a pedagogical feature that recapitulates the chapter’s subject matter: “TheWorld of International Management—Revisited.” Here we pose several discussion ques-tions based on the topic of the opening feature in light of the student’s entire reading ofthe chapter. Answering these questions requires readers to reconsider and to draw fromthe chapter material. Suggested answers to these “WIM—Revisited” discussion questionsappear in the completely updated Instructor’s Manual, where we also provide somemultiple-choice and true-false questions that draw directly from the chapters’ World ofInternational Management topic matter for instructors who want to include this materialin their tests.The featured use of cases is further enhanced in this edition. All cases have beenupdated and several new ones have been added for this edition. The short within-chapterLut12575_fm_i-xxvi.indd Page vi 2/15/11 7:19 PM user-f494Lut12575_fm_i-xxvi.indd Page vi 2/15/11 7:19 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  8. 8. Preface viicase illustrations—“In the International Spotlight” and “You Be the International Man-agement Consultant”—can be read and discussed in class. The revised or newly added“Integrative Cases” positioned at the end of each main part of the text were createdexclusively for this edition and provide opportunities for reading and analysis outsideof class. Review questions provided for each case are intended to facilitate lively andproductive written analysis or in-class discussion. Our “Brief Integrative Cases” typi-cally explore a specific situation or challenge facing an individual or team. Our longerand more detailed “In-Depth Integrative Cases” provide a broader discussion of thechallenges facing a company. These two formats allow maximum flexibility so thatinstructors can use the cases in a tailored and customized fashion. Accompanying manyof the in-depth cases are short exercises that can be used in class to reinforce both thesubstantive topic and students’ skills in negotiation, presentation, and analysis. Thecases have been extensively updated and several are new to this edition. Cases concern-ing the global AIDS epidemic, HSBC, Nike, Walmart, Tata, AirAsia, Sony, Danone,Chiquita, Coca-Cola, Microsoft, and others are unique to this book and specifically tothis edition. Of course, instructors also have access to Create (, McGraw-Hill’s extensive content database, which includes thousands of casesfrom major sources such as Harvard Business School, Ivey, Darden, and NACRA casedatabases.Along with the new or updated “International Management in Action” boxed appli-cation examples within each chapter and other pedagogical features at the end of eachchapter (i.e., “Key Terms,” “Review and Discussion Questions,” “The World of Interna-tional Management—Revisited,” and “Internet Exercise”), the end-of-part brief and in-depth cases and the end-of-book skill-building exercises and simulations on the OnlineLearning Center complete the package.To help instructors teach international management, this text is accompanied by arevised and expanded Instructor’s Resource Manual, Test Bank, and PowerPoint Slides, allof which are available password protected on the Online Learning Center at other innovations new to the eighth edition are an additional case, NokiaTargets the Base of the Pyramid, available on the Online Learning Center (, for instructors looking for an additional, original case to use with thebook. And we have provided instructors with a guide to online publicly availablevideos, many available on YouTube, that link directly to chapter themes. These shortclips give instructors an opportunity to use online visual media in conjunction withtraditional lecture, discussion, and PowerPoint presentations. Our guide includes thename, short description, and link for the videos, which we will keep updated on thebook website.International Management is generally recognized to be the first “mainline” textof its kind. Strategy casebooks and specialized books in organizational behavior,human resources, and, of course, international business, finance, marketing, andeconomics preceded it, but there were no international management texts before thisone, and it remains the market leader. We have had sustainability because of theeffort  and care put into the revisions. We hope you agree that this eighth editioncontinues the tradition and remains the “world-class” text for the study of interna-tional management.We would like to acknowledge those who have helped to make this book a real-ity. We will never forget the legacy of international management education in generaland for this text in particular provided by our departed colleague Richard M. Hodgetts.Special thanks also go to our growing number of colleagues throughout the worldwho have given us many ideas and inspired us to think internationally. Closer to home,Fred Luthans would like to give special recognition to two international managementscholars: Henry H. Albers, former Chair of the Management Department at the Uni-versity of Nebraska and former Dean at the University of Petroleum and Minerals,Lut12575_fm_i-xxvi.indd Page vii 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page vii 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  9. 9. viii PrefaceSaudi Arabia, to whom previous editions of this book were dedicated; and Sang M.Lee, currently Chair of the Management Department at Nebraska and President of thePan Pacific Business Association. Jonathan Doh would like to thank the VillanovaSchool of Business and its leadership, especially Dean Jim Danko, Senior AssociateDean Kevin Clark, and Herb Rammrath who generously endowed the Chair in Inter-national Business Jonathan now holds. Also, for this new eighth edition we wouldlike to thank Kelley Bergsma, who did much of the research and drafting of thechapter opening World of International Management features, Meredith Altenhofen,for research support in the revision of the chapters, Tetyana Azarova, for researchassistance in and preparation of the new and revised cases, Matthew Reitzle, for helpwith the In the International Spotlight inserts, and Deborah Zachar, with reviewingand fact-checking.In addition, we would like to acknowledge the help that we received from themany reviewers from around the globe, whose feedback guided us in preparing theeighth edition of the text. These include: M. Suzanne Clinton, University of CentralOklahoma; Zhe Zhang, University of Central Florida–Orlando; Owen Sevier, Univer-sity of Central Oklahoma; Jerry Haar, Florida International University–Miami; LiWeixing, University of Nebraska–Lincoln; David Turnipseed, University of SouthAlabama–Mobile; Curtis Matherne III, East Tennessee State University; Ann Langlois,Palm Beach Atlantic University; George Yacus, Old Dominion University; Steve Jenner,California State University–Dominguez Hills; Ben Lever III, College of Charleston; DaveFlynn, Hofstra University; Annette Gunter, University of Central Oklahoma; MarjorieJones, Nova Southeastern University; and Koren Borges, University of North Florida.Our thanks, too, to the reviewers of previous editions of the text: Chi Anyansi-Archibong, North Carolina A&T State University; Lauryn Migenes, University of CentralFlorida; Jan Flynn, Georgia College and State University; Valerie S. Perotti, RochesterInstitute of Technology; Joseph Richard Goldman, University of Minnesota; James P.Johnson, Rollins College; Juan F. Ramirez, Nova Southeastern University; Lawrence A.Beer, Arizona State University; Tope A. Bello, East Carolina University; Irfan Ahmed,Sam Houston State University; Alan N. Miller, University of Nevada, Las Vegas;Lawrence A. Beer, Arizona State University; Constance Campbell, Georgia SouthernUniversity; Timothy Wilkinson, University of Akron; Scott Kenneth Campbell, GeorgiaCollege & State University; Janet S. Adams, Kennesaw State University; WilliamNewburry, Rutgers Business School; Dr. Dharma deSilva, Center for International Busi-ness Advancement (CIBA); Christine Lentz, Rider University; Yohannan T. Abraham,Southwest Missouri State University; Kibok Baik, James Madison University; R. B.Barton, Murray State University; Mauritz Blonder, Hofstra University; Gunther S.Boroschek, University of Massachusetts–Boston; Charles M. Byles, Virginia Common-wealth University; Helen Deresky, SUNY Plattsburgh; Val Finnigan, Leeds–Metropolitan University; David M. Flynn, Hofstra University; Robert T. Green, Uni-versity of Texas at Austin; Jean M. Hanebury, Salisbury State University; Richard C.Hoffman, Salisbury State University; Johan Hough, University of South Africa; MohdNazari Ismail, University of Malaya; Robert Kuhne, Hofstra University; Robert C.Maddox, University of Tennessee; Douglas M. McCabe, Georgetown University;Jeanne M. McNett, Assumption College; Ray Montagno, Ball State University; RebeccaJ. Morris, University of Nebraska–Omaha; Ernst W. Neuland, University of Pretoria;Yongsun Paik, Loyola Marymount University; Richard B. Peterson, University ofWashington; Suzanne J. Peterson, University of Nebraska–Lincoln; Joseph A. Petrick,Wright State University; Richard David Ramsey, Southeastern Louisiana University;Mansour Sharif-Zadeh, California State Polytechnic University, Pomona; Jane H.Standford, Texas A&M–Kingsville University; Dale V. Steinmann, San Francisco StateUniversity; Randall Stross, San Jose State University; George Sutija, Florida Interna-tional University; Katheryn H. Ward, Chicago State University; Aimee Wheaton, RegisCollege; Marion M. White, James Madison University; Corinne Young, University ofTampa; and Anatoly Zhuplev, Loyola Marymount University.Lut12575_fm_i-xxvi.indd Page viii 2/10/11 6:02 PM user-f494Lut12575_fm_i-xxvi.indd Page viii 2/10/11 6:02 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  10. 10. Preface ixFinally, thanks to the team at McGraw-Hill who worked on this book: PaulDucham, Editorial Director; Laura Spell, Managing Developmental Editor; Jane Beck,Editorial Coordinator; Jaime Halteman, Marketing Manager; and Erin Melloy, ProjectManager. Last but by no means least, we greatly appreciate the love and support pro-vided by our families.Fred Luthans and Jonathan P. DohLut12575_fm_i-xxvi.indd Page ix 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page ix 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  11. 11. New and Enhanced Themes and Structure• Thoroughly revised and updated chapters to reflect themost critical issues for international managers.• Greater attention to and focus on a global and ethicalperspective on international management.• All new opening World of International Managementfeatures written by the authors on current internationalmanagement challenges; these mini-cases were pre-pared expressly for this edition and are not availableelsewhere.• Discussions of the impact of the global economicrecession on international management in the openingchapter and throughout the book.• New and updated discussions of offshoring and out-sourcing and the globalization of human capital(Chapters 1, 2, 3, 14 and throughout cases and inserts)including a box insert (Chapter 3) on “the ethics ofoffshoring.”• Greater emphasis on emerging markets and developingcountries, including the “BRIC” (Brazil, Russia, India,China) countries but also the “next wave” emergingcountries.Thoroughly Revised and UpdatedChapter Content• All new opening WIM discussions on topics includingthe globalization of social networking, Google’s chal-lenges in China, General Electric’s strategic corporatesocial responsibility and sustainability strategies, globaltrends in the automotive and pharmaceutical industries,managing global teams, offshoring and culture, IKEA’schallenges in Russia, and many other subjects. Thesenew features were written expressly for this editionand are not available elsewhere.• Updated chapter on ethics and social responsibilitywith more extensive discussion of core ethical theoriesand how they relate to international management prac-tices and the global sustainability movement.• Extensive coverage of Project GLOBE and its com-parison to Hofstede’s classic description of nationalcultural dimensions (Chapters 4, 13).xThe eighth editionof InternationalManagement:Culture, Strategy, andBehavior is stillsetting the standard.Current authorsFred Luthans andJonathan P. Dohhave taken care toretain the effectivefoundation gainedfrom research andpractice over thepast decades. At thesame time, they havefully incorporatedimportant newand emergingdevelopments thathave changed whatinternationalmanagers arecurrently facing andlikely to face in thecoming years.LUTHANS DOHLut12575_fm_i-xxvi.indd Page x 2/15/11 7:19 PM user-f494Lut12575_fm_i-xxvi.indd Page x 2/15/11 7:19 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  12. 12. xiSTILL SETTING THE STANDARD. . .• Revised or new “In the International Spotlight” inserts which profilethe key economic and political issues relevant to managers in specificcountries, including new spotlights on South Africa and Denmark.• Greater coverage of the challenges and opportunities for interna-tional strategy targeted to the developing “base of the pyramid”economies (Chapter 8, and Tata and Nokia cases).Thoroughly Updated and/or New Cases, Inserts,Exercises, and Supplements• New and/or updated country spotlights, “International Managementin Action” features, and “You Be the International ManagementConsultant” sections.• Thoroughly updated cases (not available elsewhere): PharmaceuticalCompanies, Intellectual Property, and the Global AIDS Epidemic;Advertising or Free Speech? The Case of Nike and Human Rights;Beyond Tokyo: Disney’s Expansion In Asia; HSBC in China; CocaCola in India; Microsoft Opens the Gates: Patent, Piracy, and Polit-ical Challenges in China; and Chiquita’s Global Turnaround.• Brand new end-of-part cases developed exclusively for this edition(most not available elsewhere): Student Advocacy and “Sweatshop”Labor: The Case of Russell Athletics; Danone’s Wrangle withWahaha; Walmart’s Global Strategies; Can Sony Regain its Innova-tive Edge? The OLED Project; Tata “Nano”: The People’s Car; andThe Ascendance of AirAsia: Building a Successful Budget Airlinein Asia.• Totally revised PowerPoint slides, Instructor’s Manual, and test bank.• A guide to videos available online, with title, short description,and url.• An original case prepared for this edition, Nokia Targets the Base ofthe Pyramid, available online to instructors who wish to incorporatean additional case on a current, relevant topic.Lut12575_fm_i-xxvi.indd Page xi 2/10/11 6:02 PM user-f494Lut12575_fm_i-xxvi.indd Page xi 2/10/11 6:02 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  13. 13. About the AuthorsFRED LUTHANS is the George Holmes Distinguished Professor of Management at theUniversity of Nebraska–Lincoln. He is also a senior research scientist with Gallup Inc.He received his BA, MBA, and PhD from the University of Iowa, where he received theDistinguished Alumni Award in 2002. While serving as an officer in the U.S. Army from1965–1967, he taught leadership at the U.S. Military Academy at West Point. He hasbeen a visiting scholar at a number of colleges and universities and has lectured in mostEuropean and Pacific Rim countries. He has taught international management as a visit-ing faculty member at the universities of Bangkok, Hawaii, Henley in England, Norwe-gian Management School, Monash in Australia, Macau, Chemnitz in the former EastGermany, and Tirana in Albania. A past president of the Academy of Management, in1997 he received the Academy’s Distinguished Educator Award. In 2000 he became aninaugural member of the Academy’s Hall of Fame for being one of the “Top Five” all-time published authors in the prestigious Academy journals. Currently, he is co-editor-in-chief of the Journal of World Business, editor of Organizational Dynamics, co-editorof Journal of Leadership and Organization Studies, and the author of numerous books.His book Organizational Behavior (Irwin/McGraw-Hill) is now in its 12th edition. Heis one of very few management scholars who is a Fellow of the Academy of Manage-ment, the Decision Sciences Institute, and the Pan Pacific Business Association, and hehas been a member of the Executive Committee for the Pan Pacific Conference since itsbeginning 25 years ago. This committee helps to organize the annual meeting held inPacific Rim countries. He has been involved with some of the first empirical studies onmotivation and behavioral management techniques and the analysis of managerial activ-ities in Russia; these articles have been published in the Academy of Management Jour-nal, Journal of International Business Studies, Journal of World Business, and EuropeanManagement Journal. Since the very beginning of the transition to a market economyafter the fall of communism in Eastern Europe, he has been actively involved in manage-ment education programs sponsored by the U.S. Agency for International Developmentin Albania and Macedonia, and in U.S. Information Agency programs involving theCentral Asian countries of Kazakhstan, Kyrgyzstan, and Tajikistan. For example, Profes-sor Luthans’ recent international research involves his construct of positive psychologicalcapital (PsyCap). He and colleagues have published their research demonstrating theimpact of Chinese workers’ PsyCap on their performance in International Journal ofHuman Resource Management and Management and Organization Review. He is apply-ing his positive approach to organization behavior (POB) and authentic leadership toeffective global management.JONATHAN P. DOH is the Herbert G. Rammrath Chair in International Business, found-ing Director of the Center for Global Leadership, and Professor of Management at theVillanova School of Business. Jonathan teaches, does research, and serves as an executiveinstructor and consultant in the areas of international strategy and corporate responsibil-ity. He is also Senior Associate at the Center for Strategic and International Studies andan occasional executive educator for Duke Corporate Education and the Aresty Instituteof Executive Education at the Wharton Business School. Previously, he was on the fac-ulty of American and Georgetown Universities and a senior trade official with the U.S.government, with responsibilities for the North American Free Trade Agreement andthe U.S.-Canada Free Trade Agreement. Jonathan is author or co-author of more than45 refereed articles published in the top international business and management journals,xiiLut12575_fm_i-xxvi.indd Page xii 2/16/11 9:41 PM user-f494Lut12575_fm_i-xxvi.indd Page xii 2/16/11 9:41 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  14. 14. About the Authors xiii25 chapters in scholarly edited volumes, and more than 75 conference papers. Recentarticles have appeared in journals such as Academy of Management Review, CaliforniaManagement Review, Journal of International Business Studies, Organization Science,Sloan Management Review, and Strategic Management Journal. He is co-editor and con-tributing author of Globalization and NGOs (Praeger, 2003) and Handbook on Respon-sible Leadership and Governance in Global Business (Elgar, 2005) and co-author of theprevious edition of International Management: Culture, Strategy, and Behavior (7th ed.,McGraw-Hill/Irwin, 2009), the best-selling international management text. His currentresearch focus is on strategy for emerging markets, global corporate responsibility, andoffshore outsourcing of services. His most recent books are Multinationals and Develop-ment (with Alan Rugman, Yale University Press, 2008) and NGOs and Corporations:Conflict and Collaboration (with Michael Yaziji, Cambridge University Press, 2009). Heis co-Editor-in-Chief of MRN International Environment of Global Business (SSRN Jour-nal) and an Associate Editor of Academy of Management Learning and Education, Busi-ness & Society, and Long Range Planning. Jonathan has also developed more than adozen original cases and simulations published in books, journals, and case databases,and used at many leading global universities. He has been a consultant or executiveinstructor for ABB, Anglo American, Bodycote, Bosch, China Minsheng Bank, HanaFinancial, HSBC, Ingersoll Rand, Medtronic, Shanghai Municipal Government, SiamCement, the World Economic Forum, and Deloitte Touche, where he served as seniorexternal adviser to the Global Energy Resource Group. He received his PhD from GeorgeWashington University in strategic and international management.Lut12575_fm_i-xxvi.indd Page xiii 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xiii 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  15. 15. xivEnvironmental Foundation 11 Globalization and International Linkages 22 The Political, Legal, and Technological Environment 343 Ethics and Social Responsibility 60Brief Integrative Case 1.1: Colgate’s Distasteful Toothpaste 84Brief Integrative Case 1.2: Advertising or Free Speech?The Case of Nike and Human Rights 87In-Depth Integrative Case 1.1: Student Advocacy and“Sweatshop” Labor: The Case of Russell Athletic 89In-Depth Integrative Case 1.2: Pharmaceutical Companies,Intellectual Property, and the Global AIDS Epidemic 94The Role of Culture 1054 The Meanings and Dimensions of Culture 1065 Managing Across Cultures 1386 Organizational Cultures and Diversity 1667 Cross-Cultural Communication and Negotiation 192Brief Integrative Case 2.1: Coca-Cola in India 232Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha 238In-Depth Integrative Case 2.1a: Euro Disneyland 244In-Depth Integrative Case 2.1b: Beyond Tokyo: Disney’sExpansion in Asia 254In-Depth Integrative Case 2.2: Walmart’s Global Strategies 258International Strategic Management 2678 Strategy Formulation and Implementation 2689 Entry Strategies and Organizational Structures 30210 Managing Political Risk, Government Relations,and Alliances 33611 Management Decision and Control 360Brief Integrative Case 3.1: Microsoft Opens the Gates:Patent, Piracy, and Political Challenges in China 388Part TwoPart ThreeBrief ContentsPart OneLut12575_fm_i-xxvi.indd Page xiv 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xiv 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  16. 16. Brief Contents xvBrief Integrative Case 3.2: Can Sony Regain ItsInnovative Edge? The OLED Project 393In-Depth Integrative Case 3.1: Tata “Nano”:The People’s Car 399In-Depth Integrative Case 3.2: The Ascendance of AirAsia:Building a Successful Budget Airline in Asia 408Organizational Behavior andHuman Resource Management 41912 Motivation Across Cultures 42013 Leadership Across Cultures 45414 Human Resource Selection and Development Across Cultures 492Brief Integrative Case 4.1: A Copy Shop Goes Global 538Brief Integrative Case 4.2: The Road to Hell 541In-Depth Integrative Case 4.1: HSBC in China 544In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround 560Supplemental In-Depth Integrative Case: Nokia Targets theBase of the Pyramid (available on the Online LearningCenter at and Experiential Exercises 569References 587Endnotes 593Glossary 623Indexes 629Part FourLut12575_fm_i-xxvi.indd Page xv 2/17/11 8:53 PM user-f501Lut12575_fm_i-xxvi.indd Page xv 2/17/11 8:53 PM user-f501 MHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefilesMHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefiles
  17. 17. xviEnvironmental Foundation 11 Globalization and International Linkages 2The World of International Management:An Interconnected World 2Introduction 4Globalization and Internationalization 6Globalization, Antiglobalization, and Global Pressures 6Global and Regional Integration 9The Shifting Balance of Economic Power in theGlobal Economy 12Global Economic Systems 17Market Economy 17Command Economy 18Mixed Economy 18Economic Performance and Issuesof Major Regions 18Established Economies 18Emerging Economies 21Developing Economies on the Verge 24The World of International Management—Revisited 28Summary of Key Points 30Key Terms 30Review and Discussion Questions 30Answers to the In-Chapter Quiz 31Internet Exercise: Franchise Opportunities at McDonald’s 31In the International Spotlight: India 32You Be the International Management Consultant:Here Comes the Competition 332 The Political, Legal, and TechnologicalEnvironment 34The World of International Management:Google’s China Gamble 34Political Environment 36Ideologies 37Political Systems 40Table of ContentsPart OneLut12575_fm_i-xxvi.indd Page xvi 2/17/11 4:41 PM user-f501Lut12575_fm_i-xxvi.indd Page xvi 2/17/11 4:41 PM user-f501 MHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefilesMHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefiles
  18. 18. Table of Contents xviiLegal and Regulatory Environment 41Basic Principles of International Law 42Examples of Legal and Regulatory Issues 43Regulation of Trade and Investment 46Technological Environment and Global Shifts in Production 49Trends in Technology, Communication, and Innovation 49Biotechnology 51E-Business 52Telecommunications 53Technological Advancements, Outsourcing, and Offshoring 54The World of International Management—Revisited 56Summary of Key Points 56Key Terms 57Review and Discussion Questions 57Internet Exercise: Hitachi Goes Worldwide 57In the International Spotlight: Vietnam 58You Be the International Management Consultant: A Chinese Venture 593 Ethics and Social Responsibility 60The World of International Management:GE’s Imagination: Strategic CSR 60Ethics and Social Responsibility 63Ethics and Social Responsibility in International Management 63Ethics Theories and Philosophy 63Human Rights 64Labor, Employment, and Business Practices 66Environmental Protection and Development 67Globalization and Ethical Obligations of MNCs 69Reconciling Ethical Differences across Cultures 71Corporate Social Responsibility and Sustainability 71Corporate Governance 75Corruption 76International Assistance 78The World of International Management—Revisited 79Summary of Key Points 80Key Terms 80Review and Discussion Questions 80Internet Exercise: Social Responsibility at Johnson & Johnson and HP 81In the International Spotlight: Saudi Arabia 82You Be the International Management Consultant:It Sounds a Little Fishy 83Brief Integrative Case 1.1: Colgate’s Distasteful Toothpaste 84Brief Integrative Case 1.2: Advertising or Free Speech?The Case of Nike and Human Rights 87Lut12575_fm_i-xxvi.indd Page xvii 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xvii 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  19. 19. xviii Table of ContentsIn-Depth Integrative Case 1.1: Student Advocacy and“Sweatshop” Labor: The Case of Russell Athletic 89In-Depth Integrative Case 1.2: Pharmaceutical Companies,Intellectual Property, and the Global AIDS Epidemic 94The Role of Culture 1054 The Meanings and Dimensions of Culture 106The World of International Management:The Cultural Roots of Toyota’s Quality Crisis 106The Nature of Culture 108Cultural Diversity 109Values in Culture 113Value Differences and Similarities across Cultures 113Values in Transition 114Hofstede’s Cultural Dimensions 116Trompenaars’s Cultural Dimensions 122Integrating Culture and Management: The GLOBE Project 130Culture and Management 131GLOBE’s Cultural Dimensions 131GLOBE Country Analysis 132The World of International Management—Revisited 134Summary of Key Points 134Key Terms 135Review and Discussion Questions 135Internet Exercise: Renault-Nissan in South Africa 135In the International Spotlight: South Africa 136You Be the International Management Consultant: A Jumping-Off Place 1375 Managing Across Cultures 138The World of International Management: Car Culture:Changing Global Trends in the Automotive Industry 138The Strategy for Managing across Cultures 140Strategic Predispositions 141Meeting the Challenge 142Cross-Cultural Differences and Similarities 145Parochialism and Simplification 146Similarities across Cultures 148Many Differences across Cultures 148Cultural Differences in Selected Countries and Regions 152Doing Business in China 153Doing Business in Russia 155Doing Business in India 157Doing Business in France 158Doing Business in Brazil 159Doing Business in Arab Countries 160Part TwoLut12575_fm_i-xxvi.indd Page xviii 2/10/11 6:14 PM user-f494Lut12575_fm_i-xxvi.indd Page xviii 2/10/11 6:14 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  20. 20. Table of Contents xixThe World of International Management—Revisited 162Summary of Key Points 162Key Terms 163Review and Discussion Questions 163Internet Exercise: Sony’s Approach 163In the International Spotlight: Mexico 164You Be the International Management Consultant:Beijing, Here We Come! 1656 Organizational Cultures and Diversity 166The World of International Management: Managing Culture andDiversity in Global Teams 166The Nature of Organizational Culture 168Definition and Characteristics 169Interaction between National and Organizational Cultures 170Organizational Cultures in MNCs 174Family Culture 176Eiffel Tower Culture 176Guided Missile Culture 177Incubator Culture 178Managing Multiculturalism and Diversity 180Phases of Multicultural Development 180Types of Multiculturalism 182Potential Problems Associated with Diversity 183Advantages of Diversity 185Building Multicultural Team Effectiveness 185A Successful Multicultural Workforce 187The World of International Management—Revisited 188Summary of Key Points 188Key Terms 189Review and Discussion Questions 189Internet Exercise: Hewlett-Packard’s International Focus 189In the International Spotlight: Japan 190You Be the International Management Consultant:A Good-Faith Effort Is Needed 1917 Cross-Cultural Communication and Negotiation 192The World of International Management:Offshoring Culture and Communication 192The Overall Communication Process 195Verbal Communication Styles 195Interpretation of Communications 198Communication Flows 199Downward Communication 199Upward Communication 201Lut12575_fm_i-xxvi.indd Page xix 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xix 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  21. 21. xx Table of ContentsCommunication Barriers 202Language Barriers 202Perceptual Barriers 205The Impact of Culture 207Nonverbal Communication 209Achieving Communication Effectiveness 212Improve Feedback Systems 212Provide Language Training 212Provide Cultural Training 213Increase Flexibility and Cooperation 213Managing Cross-Cultural Negotiations 215Types of Negotiation 215The Negotiation Process 216Cultural Differences Affecting Negotiations 217Negotiation Tactics 220Negotiating for Mutual Benefit 221Bargaining Behaviors 223The World of International Management—Revisited 226Summary of Key Points 227Key Terms 227Review and Discussion Questions 228Internet Exercise: Working Effectively at Toyota 228In the International Spotlight: China 230You Be the International Management Consultant:Foreign or Domestic? 231Brief Integrative Case 2.1: Coca-Cola in India 232Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha 238In-Depth Integrative Case 2.1a: Euro Disneyland 244In-Depth Integrative Case 2.1b: Beyond Tokyo: Disney’s Expansion in Asia 254In-Depth Integrative Case 2.2: Walmart’s Global Strategies 258International Strategic Management 2678 Strategy Formulation and Implementation 268The World of International Management:Big Pharma Goes Global 268Strategic Management 271The Growing Need for Strategic Management 272Benefits of Strategic Planning 273Approaches to Formulating and Implementing Strategy 273Global and Regional Strategies 277The Basic Steps in Formulating Strategy 280Environmental Scanning 281Internal Resource Analysis 282Goal Setting for Strategy Formulation 283Part ThreeLut12575_fm_i-xxvi.indd Page xx 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xx 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  22. 22. Table of Contents xxiStrategy Implementation 284Location Considerations for Implementation 285Combining Country and Firm-Specific Factors inInternational Strategy 286The Role of the Functional Areas in Implementation 288Specialized Strategies 289Strategies for Emerging Markets 290Entrepreneurial Strategy and New Ventures 295The World of International Management—Revisited 297Summary of Key Points 298Key Terms 298Review and Discussion Questions 298Internet Exercise: Finding Out What Makes Fujitsu Tick 299In the International Spotlight: Poland 300You Be the International Management Consultant: Go East,Young People, Go East 3019 Entry Strategies and Organizational Structures 302The World of International Management: From Matrixto Customer-Centric Management at ABB 302Entry Strategies and Ownership Structures 305Export/Import 305Wholly Owned Subsidiary 305Mergers/Acquisitions 306Alliances and Joint Ventures 310Licensing 312Franchising 313The Organization Challenge 315Basic Organizational Structures 316Initial Division Structure 316International Division Structure 317Global Structural Arrangements 318Transnational Network Structures 322Nontraditional Organizational Arrangements 324Organizational Arrangements from Mergers, Acquisitions,Joint Ventures, and Alliances 324The Emergence of the Electronic Network Formof Organization 326Organizing for Product Integration 327Organizational Characteristics of MNCs 328Formalization 328Specialization 329Centralization 330Putting Organizational Characteristics in Perspective 331Lut12575_fm_i-xxvi.indd Page xxi 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xxi 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  23. 23. xxii Table of ContentsThe World of International Management—Revisited 332Summary of Key Points 332Key Terms 333Review and Discussion Questions 333Internet Exercise: Organizing for Effectiveness 333In the International Spotlight: Australia 334You Be the International Management Consultant:Getting In on the Ground Floor 33510 Managing Political Risk, Government Relations,and Alliances 336The World of International Management:IKEA’s Russian Roulette 336The Nature and Analysis of Political Risk 338Macro and Micro Analysis of Political Risk 339Terrorism and Its Overseas Expansion 343Analyzing the Expropriation Risk 344Managing Political Risk and Government Relations 344Developing a Comprehensive Framework or Quantitative Analysis 344Techniques for Responding to Political Risk 348Managing Alliances 351The Alliance Challenge 352The Role of Host Governments in Alliances 353Examples of Challenges and Opportunities in Alliance Management 354The World of International Management—Revisited 355Summary of Key Points 356Key Terms 356Review and Discussion Questions 356Internet Exercise: Nokia in China 357In the International Spotlight: Brazil 358You Be the International Management Consultant: Rushing into Russia 35911 Management Decision and Control 360The World of International Management:Global Online Retail: Amazon and Beyond 360Decision-Making Process and Challenges 363Factors Affecting Decision-Making Authority 364Cultural Differences and Comparative Examples ofDecision Making 366Total Quality Management Decisions 368Decisions for Attacking the Competition 370Decision and Control Linkages 371The Controlling Process 372Types of Control 374Approaches to Control 375Lut12575_fm_i-xxvi.indd Page xxii 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xxii 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  24. 24. Table of Contents xxiiiPerformance Evaluation as a Mechanism of Control 377Financial Performance 377Quality Performance 378Personnel Performance 381The World of International Management—Revisited 383Summary of Key Points 384Key Terms 384Review and Discussion Questions 384Internet Exercise: Looking at the Best 385In the International Spotlight: Denmark 386You Be the International Management Consultant: Expansion Plans 387Brief Integrative Case 3.1: Microsoft Opens the Gates: Patent,Piracy, and Political Challenges in China 388Brief Integrative Case 3.2: Can Sony Regain Its Innovative Edge?The OLED Project 393In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car 399In-Depth Integrative Case 3.2: The Ascendance of AirAsia: Building aSuccessful Budget Airline in Asia 408Organizational Behavior andHuman Resource Management 41912 Motivation Across Cultures 420The World of International Management: Motivating Employeesin a Multicultural Context: Insights from the Emerging Markets 420The Nature of Motivation 422The Universalist Assumption 423The Assumption of Content and Process 424The Hierarchy-of-Needs Theory 425The Maslow Theory 425International Findings on Maslow’s Theory 425The Two-Factor Theory of Motivation 429The Herzberg Theory 429International Findings on Herzberg’s Theory 431Achievement Motivation Theory 435The Background of Achievement Motivation Theory 435International Findings on Achievement Motivation Theory 436Select Process Theories 437Equity Theory 437Goal-Setting Theory 439Expectancy Theory 439Motivation Applied: Job Design, Work Centrality, and Rewards 440Job Design 440Sociotechnical Job Designs 441Part FourLut12575_fm_i-xxvi.indd Page xxiii 2/10/11 6:02 PM user-f494Lut12575_fm_i-xxvi.indd Page xxiii 2/10/11 6:02 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  25. 25. xxiv Table of ContentsWork Centrality 442Reward Systems 446Incentives and Culture 447The World of International Management—Revisited 448Summary of Key Points 449Key Terms 450Review and Discussion Questions 450Internet Exercise: Motivating Potential Employees 451In the International Spotlight: Singapore 452You Be the International Management Consultant: Motivation Is the Key 45313 Leadership Across Cultures 454The World of International Management: Global LeadershipDevelopment: An Emerging Need 454Foundation for Leadership 456The Manager-Leader Paradigm 456Philosophical Background: Theories X, Y, and Z 458Leadership Behaviors and Styles 461The Managerial Grid Performance: A Japanese Perspective 462Leadership in the International Context 465Attitudes of European Managers toward Leadership Practices 465Japanese Leadership Approaches 467Differences between Japanese and U.S. Leadership Styles 468Leadership in China 470Leadership in the Middle East 471Leadership Approaches in India 471Leadership Approaches in Latin America 472Recent Findings and Insights about Leadership 473Transformational, Transactional, and Charismatic Leadership 473Qualities for Successful Leaders 475Culture Clusters and Leader Effectiveness 477Leader Behavior, Leader Effectiveness, and Leading Teams 478Cross-Cultural Leadership: Insights from the GLOBE Study 478Positive Organizational Scholarship and Leadership 481Authentic Leadership 482Ethical, Responsible, and Servant Leadership 483Entrepreneurial Leadership and Mindset 486The World of International Management—Revisited 487Summary of Key Points 487Key Terms 488Review and Discussion Questions 488Internet Exercise: Taking a Closer Look 489In the International Spotlight: Germany 490You Be the International Management Consultant:An Offer from Down Under 491Lut12575_fm_i-xxvi.indd Page xxiv 2/17/11 4:42 PM user-f501Lut12575_fm_i-xxvi.indd Page xxiv 2/17/11 4:42 PM user-f501 MHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefilesMHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefiles
  26. 26. Table of Contents xxv14 Human Resource Selection and DevelopmentAcross Cultures 492The World of International Management: The Challengeof Talent Retention in India 492The Importance of International Human Resources 495Getting the Employee Perspective 495Employees as Critical Resources 496Investing in International Assignments 496Economic Pressures 496Sources of Human Resources 498Home-Country Nationals 498Host-Country Nationals 498Third-Country Nationals 499Subcontracting and Outsourcing 500Selection Criteria for International Assignments 503General Criteria 503Adaptability to Cultural Change 504Physical and Emotional Health 505Age, Experience, and Education 505Language Training 506Motivation for a Foreign Assignment 506Spouses and Dependents or Work-Family Issues 506Leadership Ability 507Other Considerations 507Economic Pressures and Trends in Expat Assignments 509International Human Resource Selection Procedures 510Testing and Interviewing Procedures 510The Adjustment Process 510Compensation 512Common Elements of Compensation Packages 513Tailoring the Package 515Individual and Host-Country Viewpoints 516Candidate Motivations 516Host-Country Desires 517Repatriation of Expatriates 518Reasons for Returning 518Readjustment Problems 518Transition Strategies 519Training in International Management 520The Impact of Overall Management Philosophy on Training 522The Impact of Different Learning Styles on Trainingand Development 523Reasons for Training 524Types of Training Programs 526Standardized vs. Tailor-Made 526Cultural Assimilators 529Positive Organizational Behavior 530Lut12575_fm_i-xxvi.indd Page xxv 2/10/11 2:28 PM user-f494Lut12575_fm_i-xxvi.indd Page xxv 2/10/11 2:28 PM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  27. 27. xxvi Table of ContentsFuture Trends 531The World of International Management—Revisited 531Summary of Key Points 533Key Terms 534Review and Discussion Questions 534Internet Exercise: Going International with Coke 535In the International Spotlight: Russia 536You Be the International Management Consultant: A Selection Decision 537Brief Integrative Case 4.1: A Copy Shop Goes Global 538Brief Integrative Case 4.2: The Road to Hell 541In-Depth Integrative Case 4.1: HSBC in China 544In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround 560Supplemental In-Depth Integrative Case: Nokia Targets theBase of the Pyramid (available on the Online LearningCenter at and Experiential Exercises 569Personal Skill-Building Exercises 5691. The Culture Quiz 5702. Using Gung Ho to Understand Cultural Differences 5753. “When in Bogotá . . .” 5774. The International Cola Alliances 5805. Whom to Hire? 584In-Class Simulations (available on the Online LearningCenter at “Frankenfoods” or Rice Bowl for the World: The U.S.–EU Disputeover Trade in Genetically Modified Organisms2. Cross-Cultural Conflicts in the Corning–Vitro Joint VentureReferences 587Endnotes 593Glossary 623Name and Organization Index 629Subject Index 638Lut12575_fm_i-xxvi.indd Page xxvi 2/17/11 8:53 PM user-f501Lut12575_fm_i-xxvi.indd Page xxvi 2/17/11 8:53 PM user-f501 MHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefilesMHDQ283/hir34620_disk1of1/0078034620/hir34620_pagefiles
  28. 28. PART ONEENVIRONMENTALFOUNDATIONLut12575_ch01_001-033.indd Page 1 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 1 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  29. 29. 2OBJECTIVESOFTHECHAPTERChapter 1GLOBALIZATION ANDINTERNATIONAL LINKAGESGlobalization has and continues to have profound impactson international management. In nearly every countryaround the world, increasing numbers of large, medium, andeven small corporations are going international, and a grow-ing percentage of company revenue is derived from over-seas markets. Yet, the financial crisis and global economicrecession present challenges for governments, corporations,and communities around the world, causing some to ques-tion the current system for regulating and overseeing inter-national trade, investments, and global financial flows.Nonetheless, international management—the process ofapplying management concepts and techniques in a multi-national environment—continues to gain importance.Although globalization and international linkages havebeen part of history for centuries (see the InternationalManagement in Action box later in the chapter, “Tracing theRoots of Modern Globalization”), the principal focus of thisopening chapter is to examine the process of globalizationin the contemporary world. The rapid integration of coun-tries, advances in information technology, and the explosionin electronic communication have created a new, more inte-grated world and true global competition. Yet, the complexi-ties of doing business in distinct markets around the worldpersist. These developments both create and influence theopportunities, challenges, and problems that managers inthe international arena will face during the years ahead.Since the environment of international management is all-encompassing, this chapter is mostly concerned with theeconomic dimensions, while the following two chapters arefocused on the political, legal, and technological dimensionsand ethical and social dimensions, respectively. The specificobjectives of this chapter are:1. ASSESS the implications of globalization forcountries, industries, firms, and communities.2. REVIEW the major trends in global and regionalintegration.3. EXAMINE the changing balance of global eco-nomic power and trade and investment flows amongcountries.4. ANALYZE the major economic systems and recentdevelopments among countries that reflect those systems.The World of InternationalManagementAn Interconnected WorldWe live in a world interconnected by socialmedia. Today, the population of Facebookactive users is greater than the population of the UnitedStates (400 million versus 312 million). Businesses cangain a competitive edge by seizing the opportunitiesinherent in this new global society of online socialnetworks.Facebook and Social Media NetworksFacebook’s statistics underscore how social media canconnect people across the globe:• 50 percent of active users log onto Facebook inany given day.• The average user has 130 friends.• The average user is connected to 60 pages,groups, and events.• The average user creates 70 pieces of contenteach month.• More than 25 billion pieces of content (weblinks, news stories, blog posts, photo albums,etc.) are shared each month.• People spend over 500 billion minutes permonth on Facebook.• About 70 percent of Facebook users are outsidethe United States.• More than 70 translations are available onFacebook.Two-thirds of comScore’s U.S. top websites and half ofcomScore’s Global top 100 websites have integrated withFacebook. On March 15, 2010, Heather Dougherty ofHitwise Intelligence reported that Facebook outpacedGoogle to become the most visited website in the U.S.during the previous week. That same day, Daniel NationsLut12575_ch01_001-033.indd Page 2 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 2 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  30. 30. 3Twitter are fundamentally changing the way businessesand consumers behave, connecting hundreds of millionsof people to each other via instant communication.” Inessence, social media is reshaping how “consumers andcompanies communicate and interact with each other.”Social media has changed how consumers search forproducts and services. Qualman gives the example of awoman who wants to take a vacation to South America,but she is not sure which country she wants to visit. Inthe past, she would have typed in “South American vaca-tion” to Google, which would have brought her to travelwebsites such as TripAdvisor. After hours of research, shewould have picked a destination. Then, after moreresearch, she would pick a place to stay. With socialmedia, this woman’s vacation planning becomes stream-lined. When she types “South American vacation” into asocial network, she finds that five of her friends havetaken a trip to South America in the last year. She noticesthat two of her friends highly recommended their vaca-tions to Chile with GoAhead Tours. She clicks on a link toGoAhead Tours and books her vacation. In a social net-work, online word of mouth among friends carries greatweight for consumers. With the data available from theirfriends about products and services, consumers knowwhat they want without traditional marketing campaigns.This trend means that marketers must be responsive tosocial networks. For example, an organization that givestravel tours has a group on Facebook. A marketer at thatorganization could create a Facebook application thatallows its group members to select “places I’d like tovisit.” Let’s say that 25 percent of group members whouse the application choose Victoria Falls as a place theywould like to visit. The organization could develop a tourto Victoria Falls, and then could send a message to all ofits Facebook group members to notify them about thisnew tour. In this way, a social network serves as an inex-pensive, effective means of marketing directly to a busi-ness’s target audience.Social Media and DiplomacyIn February 2010, Washington sent an unconventional del-egation to Moscow, which included the creator of Twitter,the chief executive of eBay, and the actor Ashton Kutcher.One of the delegation’s goals was “to persuade Russia’sthriving online social networks to take up social causes likeof released a ranking of the top 10 most popu-lar social networks:• Faceboook with 133,623,529 unique visits.• MySpace with 50,615,444 unique visits.• Twitter with 23,573,178 unique visits.• Linkedin with 15,475,890 unique visits.• Classmates with 14,613,381 unique visits.• MyLife with 8,736,352 unique visits.• Ning with 6,120,667 unique visits.• LiveJournal with 3,834,155 unique visits.• Tagged with 3,800,325 unique visits.• with 3,473,978 unique visits.Certainly, social networks are a part of many people’slives. Yet, how does the virtual world of social media net-works connect to the world of international business?Procter & Gamble’s Future FriendlyFacebook InitiativeProcter & Gamble (P&G) owns several of the most recog-nizable brands on the planet. According to P&G’s website,“Four billion times a day, P&G brands touch the lives ofpeople around the world.” P&G recently launched FutureFriendly, which is “a program that empowers consumersto save energy, save water, and reduce waste.” To pro-mote its conservation initiative, P&G enlisted the help ofFacebook.On April 19, 2010, P&G unveiled a Billion Acts ofGreen™ Facebook application which allows people to“make a pledge to lessen their environmental impact andpromote environmentally beneficial habits to friends andfamily via social media channels.” This social media appli-cation enables users to share their “act of green” pledgeswith their Facebook network. As of June 11, 2010, therewere 39,302,676 acts of green pledged.Through its use of Facebook, P&G can connect withmillions of people around the world at little cost to sup-port its conservation efforts and enhance its brand.Social Media Change How We Do BusinessIn his book Socialnomics: How Social Media Transformsthe Way We Live and Do Business, Erik Qualman writes,“Social media platforms like Facebook, YouTube, andLut12575_ch01_001-033.indd Page 3 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 3 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  31. 31. 4 Part 1 Environmental FoundationSocial networks have rapidly diffused from the United States and Europe to everyregion of the world, underscoring the inexorable nature of globalization. As individu-als who share interests and preferences link up, they are afforded opportunities toconnect in ways that were unimaginable just a decade ago. Facebook, Myspace, Twit-ter, Linkedin, and others are all providing communication platforms for individualsand groups in disparate—and even isolated—locations around the world. Such net-works also offer myriad business opportunities for companies large and small to iden-tify and target discrete groups of consumers or other business partners. These networksare revolutionizing the nature of management—including international management—by allowing producers and consumers to interact directly without the usual interme-diaries. Networks and the individuals who make them up are bringing populations ofthe world closer together and further accelerating the already rapid pace of globaliza-tion and integration.In this chapter, we examine the globalization phenomenon, the growing integrationamong countries and regions, the changing balance of global economic power, and exam-ples of different economic systems. As you read this chapter, keep in mind that althoughthere are periodic setbacks, such as the recession of 2008–2009, globalization is movingat a rapid pace and that all nations, including the United States, as well as individualcompanies and their managers, are going to have to keep a close watch on the currentenvironment if they hope to be competitive in the years ahead.■ IntroductionManagement is the process of completing activities with and through other people.International management is the process of applying management concepts and tech-niques in a multinational environment and adapting management practices to differenteconomic, political, and cultural contexts. Many managers practice some level of inter-national management in today’s increasingly diverse organizations. International manage-ment is distinct from other forms of management in that knowledge and insights aboutglobal issues and specific cultures are a requisite for success. Today more firms thanever are earning some of their revenue from international operations, even nascent orga-nizations as illustrated in The World of International Management about the new socialmedia that opened the chapter.Many of these companies are multinational corporations (MNCs). An MNC is afirm that has operations in more than one country, international sales, and a mix of nation-alities among managers and owners. In recent years such well-known American MNCs asAvon Products, Chevron, Citicorp, Coca-Cola, Colgate Palmolive, Du Pont, ExxonMobil,Eastman Kodak, Gillette, Hewlett-Packard, McDonald’s, Motorola, Ralston Purina, Texaco,the 3M Company, and Xerox have all earned more annual revenue in the internationalarena than they have stateside. GE, one of the world’s largest companies, with 2007 rev-enue of more than $170 billion, saw its overseas revenue exceed domestic sales in 2007.Sales to developing markets alone are expected to reach $50 billion by 2014. Table 1–1lists the world’s top nonfinancial companies ranked by foreign assets in 2007.fighting corruption or human trafficking,” according to JaredCohen who serves on Secretary of State Hillary Clinton’spolicy planning staff. In Russia, the average adult spends6.6 hours a month on social networking sites, based on com-Score market research. This act of diplomacy by Washingtonunderscores how important social networks have becomein our world today, a world in which Twitter has helpedmobilize people to fight for freedom from corruption.Social media networks have accelerated technologicalintegration among the nations of the world. People acrossthe globe are now linked more closely than ever before.This social phenomenon has implications for businessesas corporations can now leverage networks such asFacebook to achieve greater success. Understanding theglobal impact of social media is key to understanding ourglobal society Process of completingactivities efficiently andeffectively with andthrough other management Process of applyingmanagement conceptsand techniques in amultinational environmentand adapting managementpractices to differenteconomic, political, andcultural contexts.MNC A firm having operationsin more than one country,international sales, and anationality mix amongmanagers and owners.Lut12575_ch01_001-033.indd Page 4 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 4 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  32. 32. Chapter 1 Globalization and International Linkages 5In addition, companies from developing economies, such as India, Brazil, andChina, are providing formidable competition to their North American, European, andJapanese counterparts. Names like Cemex, Embraer, Haier, Lenovo, LG Electronics, PingAn, Rambaxy, Telefonica, Santander, Reliance, Samsung, Grupo Televisa, Tata, and Info-sys are becoming well-known global brands. Globalization and the rise of emergingmarkets’ MNCs have brought prosperity to many previously underdeveloped parts of theworld, notably the emerging markets of Asia. In 2009, sales of automobiles in Chinaoutpaced those in the U.S. for the first time. Vehicle sales in the country jumped to arecord 13.6 million units in 2009, according to the China Association of AutomobileManufacturers, far ahead of the 10.4 million cars and light trucks sold in the U.S.1Moreover, a number of Chinese auto companies are becoming global players via increasedexports, foreign investments, and international acquisitions, including the purchase byGeely of ailing General Motors unit Volvo.In a striking move, Cisco Systems, one of the world’s largest producers of networkequipment, such as routers, announced it would establish a “Globalization Center East”in Bangalore, India. This center will include all the corporate and operational functionsof U.S. headquarters, which will be mirrored in India. Under this plan, which includesan investment of over $1.1 billion, one-fifth of Cisco’s senior management will move toBangalore.2,3IBM, another American archetype, had about 400,000 employees globallyin 2009, with only about 115,000 in the U.S., fewer than in India, with about 200,000employees. And HSBC, the London-based global bank, announced in 2009 that it wasmoving its chief executive, Michael Geoghegan, to Hong Kong, so that he could focuson HSBC’s increasingly important emerging markets business.4These trends reflect the reality that firms are finding they must develop interna-tional management expertise, especially expertise relevant to the increasingly importantdeveloping and emerging markets of the world. Managers from today’s MNCs must learnto work effectively with those from many different countries. Moreover, more and moresmall and medium-sized businesses will find that they are being affected by interna-tionalization. Many of these companies will be doing business abroad, and those thatdo not will find themselves doing business with MNCs operating locally. Table 1–2 liststhe world’s top nonfinancial companies from developing countries ranked by foreignassets in 2007.Table 1–1The World’s Top Nonfinancial MNCs, Ranked by Foreign Assets, 2007(in millions of dollars)Company Home Foreign Total Foreign TotalRank Name Economy Assets Assets Sales Sales1 General Electric United States $420,300 $795,337 $86,519 $172,7382 Vodafone Group Plc United Kingdom 230,600 254,948 60,317 71,0703 Royal Dutch/ Netherlands/Shell Group United Kingdom 196,828 269,470 207,317 355,7824 British PetroleumCompany Plc United Kingdom 185,323 236,076 223,216 284,3655 ExxonMobil United States 174,726 242,082 269,184 390,3286 Toyota Motor Corporation Japan 153,406 284,722 145,815 230,6077 Total France 143,814 167,144 177,835 233,6998 Electricité De France France 128,971 274,031 40,343 87,7929 Ford Motor Company United States 127,854 276,459 91,581 172,45510 E.ON AG Germany 123,443 202,111 41,391 101,179Source: UNCTAD World Investment Report 2009, Annex Table A.I.9.Lut12575_ch01_001-033.indd Page 5 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 5 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  33. 33. 6 Part 1 Environmental Foundation■ Globalization and InternationalizationInternational business is not a new phenomenon; however, the volume of internationaltrade has increased dramatically over the last decade. Today, every nation and an increas-ing number of companies buy and sell goods in the international marketplace. A numberof developments around the world have helped fuel this activity.Globalization, Antiglobalization, and Global PressuresGlobalization can be defined as the process of social, political, economic, cultural, andtechnological integration among countries around the world. Globalization is distinctfrom internationalization in that internationalization is the process of a business crossingnational and cultural borders, while globalization is the vision of creating one world unit,a single market entity. Evidence of globalization can be seen in increased levels of trade,capital flows, and migration. Globalization has been facilitated by technological advancesin transnational communications, transport, and travel. Thomas Friedman, in his bookThe World Is Flat, identified 10 “flatteners” that have hastened the globalization trend,including the fall of the Berlin Wall, offshoring, and outsourcing, which have combinedto dramatically intensify the effects of increasing global linkages.5Hence, in recent years,globalization has accelerated, creating both opportunities and challenges to global busi-ness and international management.On the plus side, global trade and investment continue to grow, bringing wealth,jobs, and technology to many regions around the world. While some emerging countrieshave not benefited from globalization and integration, the emergence of MNCs fromdeveloping countries reflects the increasing inclusion of all regions of the world in thebenefits of globalization. Yet, as the pace of global integration quickens, so have the criesagainst globalization and the emergence of new concerns over mounting global pres-sures.6These pressures can be seen in protests at the meetings of the World TradeTable 1–2The World’s Top Nonfinancial MNCs from Developing Countries, Ranked by ForeignAssets, 2007(in millions of dollars)Company Home Foreign Total Foreign TotalRank Name Economy Assets Assets Sales Sales1 Hutchison Hong Kong/Whampoa Limited China $83,411 $102,445 $33,260 $39,5792 Cemex S.A. Mexico 44,269 49,908 18,007 21,7803 LG Corp. Republic ofKorea 30,505 57,772 50,353 81,4964 Samsung Electronics Republic ofCo., Ltd. Korea 29,173 99,749 82,650 105,2325 Petronas–PetroleumNational BhD Malaysia 27,431 102,616 27,219 67,4736 Hyundai Motor Republic ofCompany Korea 25,939 89,571 33,692 74,3537 CITIC Group China 25,514 180,945 3,287 14,9708 Singtel Ltd. Singapore 21,159 24,087 7,102 10,3009 Tata Steel Ltd. India 20,720 31,715 28,254 33,37210 China OceanShipping Company China 20,181 29,194 10,109 21,701Source: UNCTAD World Investment Report 2009, Annex Table A.I.11.globalizationThe process of social,political, economic,cultural, and technologicalintegration amongcountries around the world.offshoringThe process by whichcompanies undertake someactivities at offshorelocations instead of in theircountries of origin.outsourcingThe subcontracting orcontracting out of activitiesto external organizationsthat had previously beenperformed by the firm.Lut12575_ch01_001-033.indd Page 6 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 6 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  34. 34. 7International Management in ActionTracing the Roots of Modern GlobalizationGlobalization is often presented as a new phenomenonassociated with the post–World War II period. In fact,globalization is not new. Rather, its roots extend backto ancient times. Globalization emerged from long-standing patterns of transcontinental trade that devel-oped over many centuries. The act of barter is theforerunner of modern international trade. During differ-ent periods of time, nearly every civilization contributedto the expansion of trade.Middle Eastern Intercontinental TradeIn ancient Egypt, the King’s Highway or Royal Roadstretched across the Sinai into Jordan and Syria andinto the Euphrates Valley. These early merchants prac-ticed their trade following one of the earliest codes ofcommercial integrity: Do not move the scales, do notchange the weights, and do not diminish parts of thebushel. Land bridges later extended to the Phoeni-cians, the first middlemen of global trade. Over 2,000years ago, traders in silk and other rare valued goodsmoved east out of the Nile basin to Baghdad andKashmir and linked the ancient empires of China, India,Persia, and Rome. At its height, the Silk Road extendedover 4,000 miles, providing a transcontinental conduitfor the dissemination of art, religion, technology, ideas,and culture. Commercial caravans crossing land routesin Arabian areas were forced to pay tribute—a forerun-ner of custom duties—to those who controlled suchterritories. In his youth, the Prophet Muhammad trav-eled with traders, and prior to his religious enlighten-ment the founder of Islam himself was a trader. Accord-ingly, the Qur’an instructs followers to respect privateproperty, business agreements, and trade.Trans-Saharan Cross-Continental TradeEarly tribes inhabiting the triad cities of Mauritania, inancient West Africa below the Sahara, embraced cara-van trade with the Berbers of North Africa. Gold from thesub-Saharan area was exchanged for something evenmore prized—salt, a precious substance needed forretaining body moisture, preserving meat, and flavoringfood. Single caravans, stretching five miles and includ-ing nearly 2,500 camels, earned their reputation as shipsof the desert as they ferried gold powder, slaves, ivory,animal hides, and ostrich feathers to the northeast andreturned with salt, wool, gunpowder, porcelain pottery,silk, dates, millet, wheat, and barley from the East.China as an Ancient Global Trading InitiatorIn 1421, a fleet of over 3,750 vessels set sail fromChina to cultivate trade around the world for theemperor. The voyage reflected the emperor’s desire tocollect tribute in exchange for trading privileges withChina and China’s protection. The Chinese, like modern-day multinationals, sought to extend their economicreach while recognizing principles of economic equityand fair trade. In the course of their global trading,the Chinese introduced uniform container measure-ments to enable merchants to transact business usingcommon weight and dimension measurement sys-tems. Like the early Egyptians and later the Romans,they used coinage as an intermediary form of valueexchange or specie, thus eliminating complicated bar-ter transactions.European Trade ImperativeThe concept of the alphabet came to the Greeks viatrade with the Phoenicians. During the time of Alexanderthe Great, transcontinental trade was extended intoAfghanistan and India. With the rise of the RomanEmpire, global trade routes stretched from the MiddleEast through central Europe, Gaul, and across theEnglish Channel. In 1215 King John of England signedthe Magna Carta, which stressed the importance ofcross-border trade. By the time of Marco Polo’s writingof The Description of the World, at the end of the13th century, the Silk Road from China to the city-statesof Italy was a well-traveled commercial highway. Histales, chronicled journeys with his merchant uncles,gave Europeans a taste for the exotic, further stimulatingthe consumer appetite that propelled trade and global-ization. Around 1340, Francisco Balducci Pegolotti, aFlorentine mercantile agent, authored Practica DellaMercatura (Practice of Marketing), the first widely dis-tributed reference on international business and a pre-cursor to today’s textbooks. The search for tradingroutes contributed to the Age of Discovery and encour-aged Christopher Columbus to sail west in 1492.Globalization in U.S. HistoryThe Declaration of Independence, which set out griev-ances against the English crown upon which a newnation was founded, cites the desire to “establish Com-merce” as a chief rationale for establishing an inde-pendent state. The king of England was admonished“for cutting off our trade with all parts of the world” inone of the earliest antiprotectionist free-trade state-ments from the New World.Globalization, begun as trade between and acrossterritorial borders in ancient times, was historically andis even today the key driver of world economic devel-opment. The first paths in the creation of civilizationwere made in the footsteps of trade. In fact the wordmeaning “footsteps” in the old Anglo-Saxon languageis trada, from which the modern English word trade isderived. Contemporary globalization is a new branchof a very old tree whose roots were planted in antiquity.Lut12575_ch01_001-033.indd Page 7 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 7 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  35. 35. 8 Part 1 Environmental FoundationOrganization (WTO), International Monetary Fund (IMF), and other global bodies andin the growing calls by developing countries to make the global trading system moreresponsive to their economic and social needs. These groups are especially concernedabout rising inequities between incomes, and nongovernmental organizations (NGOs)have become more active in expressing concerns about the potential shortcomings ofeconomic globalization.7Who benefits from globalization? Proponents believe that everyone benefits fromglobalization, as evidenced in lower prices, greater availability of goods, better jobs, andaccess to technology. Theoretically, individuals in established markets will strive for bet-ter education and training to be prepared for future positions, while citizens in emergingmarkets and underdeveloped countries will reap the benefits of large amounts of capitalflowing into those countries which will stimulate growth and development. Critics dis-agree, noting that the high number of jobs moving abroad as a result of the offshoringof business services jobs to lower-wage countries does not inherently create greateropportunities at home and that the main winners of globalization are the company exec-utives. Proponents claim that job losses are a natural consequence of economic andtechnological change and that offshoring actually improves the competitiveness of Amer-ican companies and increases the size of the overall economic pie.8Critics point out thatgrowing trade deficits and slow wage growth are damaging economies and that globaliza-tion may be moving too fast for some emerging markets, which could result in economiccollapse. Moreover, critics argue that when production moves to countries to take advan-tage of lower labor costs or less regulated environments, it creates a “race to the bottom”in which companies and countries place downward pressure on wages and workingconditions.9India is one country at the center of the globalization debate. As noted above, Indiahas been the beneficiary of significant foreign investment, especially in services such assoftware and IT. Limited clean water, power, paved roadways, and modern bridges, how-ever, are making it increasingly difficult for companies to expand. There have even beeninstances of substantial losses for companies using India as an offshore base, such asoccurred when Nokia Corp. experienced the destruction of thousands of cellular phonesdue to a lack of storage space at an airport during a rainstorm. With India’s public debtat more than 80 percent of GDP, the country now stands where China did a decade ago.It is possible that India will follow in China’s footsteps and continue rapid growth inincomes and wealth; however, it is also possible that the challenges India faces are greaterthan the country’s capacity to respond to them.10This example illustrates just one of the ways in which globalization has raisedparticular concerns over environmental and social impacts. According to antiglobalizationactivists, if corporations are free to locate anywhere in the world, the world’s poorestcountries will relax or eliminate environmental standards and social services in order toattract first-world investment and the jobs and wealth that come with it. Proponents ofglobalization contend that even within the developing world, it is protectionist policies,not trade and investment liberalization, that result in environmental and social damage.They believe globalization will force higher-polluting countries such as China and Russiainto an integrated global community that takes responsible measures to protect the envi-ronment. However, given the significant changes required in many developing nations tosupport globalization, such as better infrastructure, greater educational opportunities, andother improvements, most supporters concede that there may be some short-term disrup-tions. Over the long term, globalization supporters believe industrialization will createwealth that will enable new industries to employ more modern, environmentally friendlytechnology. We discuss the social and environmental aspects of globalization in moredetail in Chapter 3.These contending perspectives are unlikely to be resolved anytime soon. Instead,a vigorous debate among countries, MNCs, and civil society will likely continue andaffect the context in which firms do business internationally. Business firms operat-ing around the world must be sensitive to different perspectives on the costs andLut12575_ch01_001-033.indd Page 8 30/12/10 11:00 AM user-f494Lut12575_ch01_001-033.indd Page 8 30/12/10 11:00 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  36. 36. 9benefits of globalization and adapt and adjust their strategies and approaches to thesedifferences.Global and Regional IntegrationOne important dimension of globalization is the increasing economic integration amongcountries brought about by the negotiation and implementation of trade and investmentagreements. Here we provide a brief overview of some of the major developments inglobal and regional integration.Over the past six decades, succeeding rounds of global trade negotiations haveresulted in dramatically reduced tariff and nontariff barriers among countries. Table 1–3shows the history of these negotiation rounds, their primary focus, and the number ofcountries involved. These efforts reached their crest in 1994 with the conclusion of theUruguay Round of multilateral trade negotiations under the General Agreement on Tar-iffs and Trade (GATT) and the creation of the World Trade Organization (WTO) tooversee the conduct of trade around the world. The WTO is the global organization ofcountries that oversees rules and regulations for international trade and investment,including agriculture, intellectual property, services, competition, and subsidies. Recently,however, the momentum of global trade agreements has slowed. In December 1999, tradeministers from around the world met in Seattle to launch a new round of global tradetalks. In what later became known as the “Battle in Seattle,” protesters disrupted themeeting, and representatives of developing countries who felt their views were being leftout of the discussion succeeded in ending the discussions early and postponing a newround of trade talks. Two years later, in November 2001, the members of the WTO metagain and successfully launched a new round of negotiations at Doha, Qatar, to be knownas the “Development Round,” reflecting the recognition by members that trade agree-ments needed to explicitly consider the needs of and impact on developing countries.11However, after a lack of consensus among WTO members regarding agricultural subsi-dies and the issues of competition and government procurement, progress slowed. At ameeting in Cancún in September 2003, a group of 20-plus developing nations, led byA Closer LookOutsourcing and OffshoringThe concepts of outsourcing and offshoring are notnew, but these practices are growing at an extremerate. Offshoring refers to the process by which compa-nies undertake some activities at offshore locationsinstead of in their countries of origin. Outsourcing is thesubcontracting or contracting out of activities to exter-nal organizations that had previously been performedwithin the firm and is a wholly different phenomenon.Often the two combine to create “offshore outsourcing.”Offshoring began with manufacturing operations. Glo-balization jump-started the extension of offshore out-sourcing of services, including call centers, R&D, infor-mation services, and even legal work. During 2006, DuPont hired attorneys in Manila to oversee documenta-tion in preparation for legal cases. The company hopesto save an estimated $6 million in legal spending bymoving offshore and cutting documentation by 40 to60  percent once everything is scanned and digitallysaved. This is a risky venture as legal practices are notthe same across countries, and the documents may betoo sensitive to rely on assembly-line lawyers. It alsoraises the question as to whether or not there are limita-tions to offshore outsourcing. Many companies, includ-ing Deutsche Bank, spread offshore outsourcing oppor-tunities across multiple countries such as India andRussia for economic or political reasons. The advan-tages, concerns, and issues with offshoring span a vari-ety of subjects. Throughout the text we will revisit theidea of offshore outsourcing as it is relevant. Here inChapter 1 we see how skeptics of globalization wonderif there are benefits to offshore outsourcing, while inChapter 2 we see how these are related to technology,and finally in Chapter 14 we see how offshore practicesaffect human resource management and the global dis-tribution of work.Source: Pete Engardio and Assif Shameen, “Let’s Offshorethe Lawyers,” BusinessWeek, September 18, 2006, p. 42;and Tony Hallett and Andy McCue, “Why Deutsche BankSpreads Its Outsourcing,” BusinessWeek, March 15, 2007.World TradeOrganization (WTO)The global organization ofcountries that overseesrules and regulations forinternational trade andinvestment.Lut12575_ch01_001-033.indd Page 9 30/12/10 11:00 AM user-f494Lut12575_ch01_001-033.indd Page 9 30/12/10 11:00 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles
  37. 37. 10 Part 1 Environmental FoundationBrazil and India, united to press developed countries such as the United States, the Euro-pean Union (EU), and Japan to reduce barriers to agricultural imports. Failure to reachagreement resulted in another setback, and although there have been attempts to restartthe negotiations, they have remained stalled, especially in light of rising protectionismin the wake of the global economic crisis.12Partly as a result of the slow progress in multilateral trade negotiations, theUnited States and many other countries have pursued bilateral and regional trade agree-ments. The United States, Canada, and Mexico make up the North American FreeTrade Agreement (NAFTA), which in essence has removed all barriers to trade amongthese countries and created a huge North American market. A number of economicdevelopments have occurred because of this agreement which are designed to promotecommerce in the region. Some of the more important developments include (1) theelimination of tariffs as well as import and export quotas; (2) the opening of govern-ment procurement markets to companies in the other two nations; (3) an increase inthe opportunity to make investments in each other’s country; (4) an increase in theease of travel between countries; and (5) the removal of restrictions on agriculturalproducts, auto parts, and energy goods. Many of these provisions were implementedgradually. For example, in the case of Mexico, quotas on Mexican products in thetextile and apparel sectors were phased out over time, and customs duties on all textileproducts were eliminated over 10 years. Negotiations between NAFTA members andmany Latin American countries, such as Chile, have concluded, and others are ongoing.Moreover, other regional and bilateral trade agreements, including the U.S.–SingaporeFree Trade Agreement, concluded in May 2003, and the U.S.–Central American FreeTrade Agreement (CAFTA), later renamed CAFTA-DR to reflect the inclusion of theDominican Republic in the agreement and concluded in May 2004, were negotiated inthe same spirit as NAFTA. The U.S. Congress approved the CAFTA-DR in July 2005,and the president signed it into law on August 2, 2005. The export zone created willbe the United States’ second largest free-trade zone in Latin America after Mexico.The United States is implementing the CAFTA-DR on a rolling basis as countries makesufficient progress to complete their commitments under the agreement. The agreementfirst entered into force between the United States and El Salvador on March 1, 2006,followed by Honduras and Nicaragua on April 1, 2006, Guatemala on July 1, 2006,Table 1–3Completed Rounds of the Negotiations under the GATT and WTOYear Place (name) Subjects Covered Countries1947 Geneva Tariffs 231949 Annecy Tariffs 131951 Torquay Tariffs 381956 Geneva Tariffs 261960–1961 Geneva Tariffs(Dillon Round) 261964–1967 Geneva Tariffs and antidumping(Kennedy Round) measures 621973–1979 Geneva Tariffs, nontariff measures,(Tokyo Round) “framework” agreements 1021986–1994 Geneva Tariffs, nontariff measures,(Uruguay Round) services, intellectual property,dispute settlement, textiles,agriculture, creation of WTO 123Source: Understanding the WTO (Geneva: World Trade Organization, 2008), American FreeTrade Agreement(NAFTA)A free-trade agreementbetween the United States,Canada, and Mexico thathas removed most barriersto trade and investment.Lut12575_ch01_001-033.indd Page 10 30/12/10 10:19 AM user-f494Lut12575_ch01_001-033.indd Page 10 30/12/10 10:19 AM user-f494 /203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles/203/MHBR222/Lut12575_disk1of1/0078112575/Lut12575_pagefiles