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I N T E R N AT I O N A L
BUSINESS
EIGHTH EDITION
Michael R. Czinkota
Georgetown University, University of Birmingham

Ilkka A. Ronkainen
Georgetown University

Michael H. Moffett
Thunderbird School of Global Management

John Wiley & Sons, Inc.


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Vice President & Executive Publisher: George Hoffman
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ISBN-13 978-0-470-53065-8
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1


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To Ilona and Margaret
MRC
To Sirkka and Alpo Ronkainen
IAR
To Bennie Ruth and Hoy Moffett
MHM


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P R E FA C E


We are grateful for the leadership position you, our market, have awarded to this
book. Best-selling status in the international business field also imposes an obligation
to deliver cutting-edge innovations and improvements in terms of content as well as
presentation. We honor your trust by doing our best to delight you through our presentation of conceptually sound, reality-based knowledge and by easing your task of
teaching and learning about international business. In this spirit of innovation, we
offer you yet more value—International Business, 8th Edition.
Our textbook has always been unique in its field due to its approach to international business. But now, this eighth edition is the most special of all. International
business has undergone major changes in the recent past—both in its concepts and
their application. Governments are playing a new, major role in their involvement
with international business. On a global scale there is an introduction of new regulations, restrictions, and ways to raise funds. Corporations and consumers are subject to
new ways of thinking.
For example, the concepts of risk, competition, profit, and private property are
being realigned. Some risks are no longer acceptable or require collaborative actions
among many to overcome the downside. A better recognition of what it is we do not
know—and the resulting uncertainty and limited ability to resolve controversial
issues—requires the development of new tools and new approaches.
Many players in international business only now discover that they are but one
integral component of society. Politics, security, and religion are only some of the
other dimensions that are held in possibly higher esteem than business by society at
large. Those who argue based on economic principles alone may increasingly find
themselves on the losing side. For example, the level and structure of profits and
executive compensation needs to reflect a firm’s long-term best interests within an
overall societal context. Small- and medium-sized firms have—thanks to changes in
technology—entirely new opportunities to succeed in new global markets. At the
same time, never before have they been exposed to so much unforeseen competition
from distant parts of the earth. Business school programs without an emphasis on
context, proportionality, and interaction must revise such shortcomings in their
teaching. Legislators and government need to appreciate the direct and indirect
effects their actions have on international business. What they may consider a

strictly local affair may turn out to have substantial impact on global conditions.
When we originally decided to write our international business book seven editions ago, we placed our wagers on several dimensions: key of them were the strong
links to government—which we expected to keep clearly addressed due to our location in Washington, DC. There was also a strong emphasis on small-and mediumsized firms—which we thought would gradually emerge as significant players in the
international field. Driven by our Georgetown presence, we were fully aware of the
need for the moral dimension and social responsibility by the business sector. Our
research orientation helped in maintaining the focus on the truly global nature of
actors and activities.
Years later, events have moved in our direction as never before. Our Washington
location has given us the ability to follow, analyze, and incorporate both the role of
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government in general, and of the U.S. government and its trade and investment
posture in particular. Having held policy-making positions in the government and
being called to advise both governments and elected representatives in many nations
has given us the insights and social networks that enable a decisive strategic orientation of this text. Our experience in founding and running small businesses allows us
to understand what the key needs and capabilities of such firms are, which in turn
allows us to help such firms do better. Our advisory work for larger multinational

firms permits us to share the realities of the battles in the international marketplace.
Our long-term involvement with nongovernmental organizations enables us to communicate understanding of the not-for-profit world. We are, therefore, pleased to
provide you with a strong theory base that also fully reflects government, managerial,
and consumer concerns from around the world. We hope that you will share our view
that the content, pedagogy, and presentation of this book make it fun to teach and
to learn.

CHANGES IN THE EIGHTH EDITION
This new edition is even more user-friendly. Important issues, such as investment
flows, are presented early in the text. The topics of transparency and governance are
covered more thoroughly to echo the changing times in which we live. Multinational
corporate issues, together with cooperative modes of market development, are presented in the context of international business entry and strategic planning. Countertrade is covered in conjunction with multinational financial management.

CURRENT COVERAGE
Today, change happens at breakneck speed. Keeping on top of the evolving world of
international issues and their impact on international business can be difficult. This
text addresses instructors’ and students’ needs for information with current perspectives on contemporary topics not yet available in other international business texts.
In preparing this edition, we have listened closely to our market in order to deliver an outstanding product. We begin by presenting the impact of international
business on countries, corporations, and individuals.
We reflect more fully on some of the controversies in international business
today, including the role of international institutions such as the World Trade
Organization, the World Bank, and the International Monetary Fund. We discuss
why some groups are disenchanted with increased globalization. Also presented are
some of the links between and areas of friction in international business and development, such as payment for intellectual property rights, distribution of patented
medication to poor countries, and development of genetically engineered foods.
We address the issues of bribery and corruption and the benefit of good governance;
in-depth attention is paid to the role of culture, policies, and politics. The dimensions of ethics, social responsibility, and diversity are fully reflected through examples and vignettes.
The text consistently adopts a truly global approach. Attention is given to topics
that are critical to the international manager yet so far have eluded other international texts. This coverage includes chapters on supply-chain management, international service trade, and doing business with newly emerging market economies
under conditions of privatization.



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Preface

NEW AND IMPROVED TOPIC COVERAGE AND
ORGANIZATION
International Business, 8th Edition, is organized into five parts and contains 19
chapters. These parts allow the text to flow logically from introductory material to
the international environment to marketing and financial considerations in the international marketplace.
Part 1 deals with the impact of globalization and provides an overview of the key
issues facing international business today.
Part 2 shifts to the conceptual foundations surrounding international trade and
investments.
Part 3 covers the environment and focuses on the similarities and differences
between cultures, as well as how global politics and laws both influence and
are influenced by these same factors.
Part 4 explains strategy issues, including planning, corporate governance, marketing, and expansion.
Part 5 is devoted to international operations, investigating management issues.
It concludes with a look toward the future horizons of the field and of the
student.

INNOVATIVE LEARNING TOOLS

USE OF WORLDWIDE EXAMPLES
Drawing on worldwide examples, trends, and data rather than just on U.S.-based
information makes this a global book. For example, many of the data sets presented
and sources recommended come from Europe and Asia.
We also ensure the reality and pragmatism of our content by always addressing
the issue of ‘‘What does this mean for international business?’’ As an example, we
explain how to use cultural variables for segmentation purposes in order to create
new competitive tools.

BLENDING CURRENT THEORY AND APPLICATION
Our theory section presents the latest thinking both from business researchers and
leading economists. We also present the interdependence and linkages between the
different theories so that students gain an appreciation of the overall context of international business thought. All tables, figures, and maps were updated to present
the most current information.

RESEARCH EMPHASIS
This edition includes a greatly strengthened research chapter. An in-depth information appendix enhances the student’s ability to conduct independent research, primarily by using web sites and other resources of the Internet. We devote a section to
the issue of data privacy and to research on the Internet, where we highlight best
practices of firms and provide a comparison of the different approaches to privacy in
Europe and in the United States.

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We also focus on ‘‘born global’’ firms, which have a global orientation from their
inception, and differentiate the levels of internationalization of these firms. We offer
a model of the internationalization process, reflecting the latest in research findings.
We show how firms can receive export help from their governments and provide Internet information for the leading export promotion organizations from around the
globe. A section highlights how leading-edge firms are developing ‘‘export complaint
management systems’’ in order to stay close to their customers, adapt products
quickly, and regain control of export channels.

TECHNOLOGY, ELECTRONIC COMMERCE, AND
THE INTERNET
Issues surrounding technology in the international workplace are integrated throughout the text. In addition, Web-based questions and research exercises at the end of
each chapter permit immersion in ongoing international business issues and communicate the excitement of rapid change.
We have developed a strong focus on Internet-based research, but also discuss
the strengths and weaknesses of electronic databases. We highlight, for example, the
fact that culture has a major effect on technology use and content expectations, and
that search engines tend to pick only a small portion of actual work carried out and
are still heavily biased toward English-language publications. We also show how new
technology can help even very small firms reach out to international markets and
compete successfully abroad.

DISTINGUISHING PEDAGOGICAL FEATURES
GEOGRAPHY
To enhance the geographic literacy of students, the text includes many full color
maps covering the social, economic and political features of the world. In addition,

several chapters have maps particularly designed for this book, which integrate the
materials discussed in the text and reflect a truly ‘‘global’’ perspective. They provide
the instructor with the means to visually demonstrate concepts such as political
blocs, socioeconomic variables, and transportation routes. A list of maps appears on
page xxii. An appendix, dealing specifically with the impact of geography on international marketing, is part of Chapter 1. Each text is packaged with a foldout map by
National Geographic Society.

CONTEMPORARY REALISM
Each chapter offers a number of Focus on Issues boxes that describe actual contemporary business situations. These issues include Politics, Ethics, e-Business, Culture, and
Entrepreneurship. These boxes are intended to serve as reinforcing examples, or minicases. As such, they will assist the instructor in stimulating class discussion and aid
the student in understanding and absorbing the text material.

CHAPTER SUMMARY AND REVIEW QUESTIONS
Each chapter closes with a chapter summary of key points that students should retain,
organized by learning objective. The discussion questions are a complementary


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learning tool that will enable students to check their understanding of key issues, to
think beyond basic concepts, and to determine areas that require further study. All
these tools help students discriminate between main and supporting points and provide mechanisms for classroom activity or at-home review.


ON THE WEB
Each chapter contains several Internet exercises to involve students in the high-tech
world of cyberspace. Students are asked to explore the Web to research topics related
to materials covered in each chapter. This hands-on experience helps to develop Internet, research, and business skills.

TAKE A STAND!
These end-of-chapter exercises ask students to read a short paragraph outlining a
situation and to make an educated decision about the outcome for the scenario.
They can be used as a homework exercise, a personal assessment, or for classroom
discussion.

EXEMPLARY CASE SELECTION
To further link theory and practice, we present nineteen cases, more than half of
which are new or updated. We draw case materials from firms around the world to
offer truly global business scenarios, ranging from Vietnam and Russia to Iceland and
Turkey. The cases deal with manufacturing industries, such as automotive firms, but
also with honey from New Zealand and a Soweto festival in South Africa. We present some of the controversy emanating from the diamond industry, and we also focus
on the human dimension that is so highly important for expatriates. Challenging
questions accompany each case. Some of our best cases from previous editions are
also available on the text support site (www.wiley.com/college/czinkota) for instructor use. They encourage in-depth discussion of the material covered in the chapters
and allow students to apply the knowledge they have gained and allow instructors to
retain the use of favorite teaching tools.

PERSONAL SUPPORT
We personally stand behind our product, and we will work hard to delight you.
Should you have any questions or comments on this book, please contact us and provide us with your feedback.
Michael R. Czinkota



Ilkka A. Ronkainen


Michael H. Moffett


ACKNOWLEDGMENTS
We are very grateful to Charles Skuba, Professor of the Practice at Georgetown University. His background as Chief of Staff for Market Access and Compliance in the
U.S. Dept. of Commerce, his close linkage with industry, his dedication to students,
and his willingness to share all his knowledge and experience have made him a major

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supporter of this book project. He is always right on track, unfailingly courteous, and
deeply insightful. Most importantly, he delivers! Charlie, our hats are off to you.
Thanks to Susan Ronkainen, who was able to pull together the chapter changes in
marketing, culture, human resources, strategic planning, and organization and strategic planning for this edition. We thank Professor Anne Balazs of Eastern Michigan

University. She was a strong motivator behind this new edition and provided meaningful insights and support. Also very helpful was Dafina Nikolova, Ph.D. candidate,
who assisted in shaping some of the chapters, worked hard on many vignettes, and
provided substantial research assistance—particularly with government documents.
We are grateful to many reviewers for their imaginative comments and criticisms
and for showing us how to get it even more right:

Kamal M. Abouzeid
Lynchburg College
Yair Aharoni
Duke University
Zafar U. Ahmed
Minot State University
Riad Ajami
Rensselaer Polytechnic Institute
Joe Anderson
Northern Arizona University
Robert Aubey
University of Wisconsin-Madison
David Aviel
California State University
Josiah Baker
University of Central Florida
Marilynn Baker
University of North
Carolina—Greensboro
Bharat B. Bhalla
Fairfield University
Julius M. Blum
University of South Alabama
Sharon Browning

Northwest Missouri State University
Peggy E. Chaudhry
Villanova University
Ellen Cook
University of San Diego
Lauren DeGeorge
University of Central Florida
Luther Trey Denton
Georgia Southern University
Dharma deSilva
Wichita State University

Gary N. Dicer
The University of Tennessee
Peter Dowling
University of Tasmania
Carol Dresden
Coastal Carolina University
Derrick E. Dsouza
University of North Texas
Massoud Farahbaksh
Salem State College
Runar Framnes
Norwegian School of Management
Anne-Marie Francesco
Pace University—New York
Esra F. Gencturk
University of Texas—Austin
Debra Glassman
University of Washington-Seattle

Raul de Gouvea Neto
University of New Mexico
Antonio Grimaldi
Rutgers, The State University
of New Jersey
John H. Hallaq
University of Idaho
Daniel Himarios
University of Texas at Arlington
Veronica Horton
Middle Tennessee State University
Basil J. Janavaras
Mankato State University
Michael Kublin
University of New Haven
Diana Lawson
University of Maine


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Jan B. Luytjes

Florida International University
John Manley
Iona College
David McCalman
Indiana University-Bloomington
Tom Morris
University of San Diego
James Neelankavil
Hofstra University
V. R. Nemani
Trinity College
Moonsong David Oh
California State
University—Los Angeles
Sam C. Okoroafo
University of Toledo
Diane Parente
State University of New York-Fredonia
Mike W. Peng
Ohio State University
William Piper
Piedmont College
Jesus Ponce de Leon
Southern Illinois
University-Carbondale
Jerry Ralston
University of Washington-Seattle
Peter V. Raven
Eastern Washington University
William Renforth

Florida International University
Martin E. Rosenfeldt
The University of North Texas
Tagi Sagafi-nejad
Loyola College

Rajib N. Sanyal
Trenton State College
Ulrike Schaede
University of California-Berkeley
John Stanbury
Indiana University-Kokomo
John Thanopoulos
University of Akron
Douglas Tseng
Portland State University
Robert G. Vambery
Pace University
C. Alexandra Van Nostrand
Palm Beach Atlantic College
Betty Velthouse
University of Michigan-Flint
Heidi Vernon-Wortzel
Northeastern University
Steven C. Walters
Davenport College
James O. Watson
Millikin University
Mindy West
Arizona State University-Tempe

George H. Westacott
SUNY-Binghamton
Jerry Wheat
Indiana University Southeast
Tim Wilkinson
University of Akron
Bill Wresch
University of Wisconsin—Oshkosh
Kitty Y. H. Young
Chinese University of Hong Kong

Many thanks to those faculty members and students who helped us in sharpening
our thinking by cheerfully providing challenging comments and questions. Several
individuals had particular long-term impact on our thinking. These are Professor Bernard LaLonde, of the Ohio State University, a true academic mentor; the late Professor Robert Bartels, also of Ohio State; Professor Arthur Stonehill of Oregon State
University; Professor James H. Sood of American University; Professor Arch G.
Woodside of Tulane University; Professor David Ricks of University of MissouriSt. Louis; Professor Brian Toyne of St. Mary’s University; and Professor John
Darling of Mississippi State University. They are our academic ancestors.
Many colleagues, friends, and business associates graciously gave their time and
knowledge to clarify concepts; provide us with ideas, comments, and suggestions; and

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deepen our understanding of issues. Without the direct links to business and policy
that you have provided, this book could not offer its refreshing realism. In particular,
we are grateful to Secretaries Malcolm Baldrige, C. William Verity, Clayton Yeutter,
and William Brock for the opportunity to gain international business policy experience and to William Morris, Paul Freedenberg, and J. Michael Farrell for enabling its
implementation. We also thank William Casselman, Lew Cramer of the Utah World
Trade Center, Gregory Unruh, Thunderbird School of Management, and Hannu
Serist€o of Aalto University. We appreciate all the horse sense shared by Professor
Thomas Cooke.
Our elite team of student researchers provided valuable assistance. They made
important and substantive contributions to this book. They dig up research information with tenacity and relentlessness; they organize and analyze research materials,
prepare drafts of vignettes and cases, and reinforce everyone on the fourth floor of
the Hariri Building with their infectious can-do spirit. They are Sugy Choi, Rebecca
White, Glenn Russo, and Robert Salas, all of Georgetown University. We appreciate
all of your work.
A very special thank you to the people at John Wiley & Sons. Thanks to George
Hoffman, Publisher; Lise Johnson, Executive Editor; Susan McLaughlin, Developmental Editor; Sarah Vernon, Assistant Editor; Maddy Lesure, Senior Designer; Sandra Dumas, Senior Production Editor; and Danielle Urban and Elm Street Publishing
Services, for their efforts in support of this project.
Foremost, we are grateful to our families, who have had to tolerate late-night
computer noises, weekend library absences, and curtailed vacations. The support and
love of Ilona Vigh-Czinkota and Margaret Victoria Czinkota; Susan, Sanna, and
Alex Ronkainen; Megan Murphy, Caitlin Kelly, and Sean Michael Moffett gave us
the energy, stamina, and inspiration to write this book.
Michael R. Czinkota
Ilkka A. Ronkainen
Michael H. Moffett

June, 2010


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ABOUT THE AUTHORS

Michael R. Czinkota

Michael R. Czinkota presents international business and marketing issues at the
Graduate School and the Robert Emmett McDonough School of Business at
Georgetown University and the Birmingham Business School in the United Kingdom. He has held professorial appointments at universities in Asia, Australia,
Europe, and the Americas.
Dr. Czinkota served in the U.S. government as Deputy Assistant Secretary of
Commerce. He also served as head of the U.S. Delegation to the OECD Industry
Committee in Paris and as senior advisor for Export Controls.
His background includes ten years of private-sector business experience as a partner in a fur trading firm and in an advertising agency. His research has been supported by the U.S. government, the National Science Foundation, the Organization
of American States, and the American Management Association. He was listed as
one of the three most published contributors to international business research in
the world by the Journal of International Business Studies and has written several books,
including Key Shifts in International Business: Adjusting to a New World, (with I. Ronkainen and M. Kotabe, Businessexpertspress.com) and Mastering Global Markets
(Cengage).
Dr. Czinkota has served on the Global Advisory Board of the American Marketing Association, the Global Council of the American Management Association, and
the Board of Governors of the Academy of Marketing Science. He is on the editorials

boards of the Journal of Academy of Marketing Science, Journal of International Marketing, and Asian Journal of Marketing. He is a contributor to the Washington Times, the
Korea Times, and the Handelsblatt in Germany.
For his work in international business and trade policy, he was named a Distinguished Fellow of the Academy of Marketing Science, a Fellow of the Chartered
Institute of Marketing, and a Fellow of the Royal Society of Arts in the United
Kingdom. He has been awarded honorary degrees from the Universidad Pontificia
Madre y Maestra in the Dominican Republic and the Universidad del Pacı´fico in
Lima, Peru.
He serves on several corporate boards and has worked with corporations such as
AT&T, IBM, GE, Nestle, and US WEST. He advises the Executive Office of the
President of the United States, the United Nations, and the World Trade Organization. Dr. Czinkota is often asked to testify before the United States Congress.
Dr. Czinkota was born and raised in Germany and educated in Austria, Scotland,
Spain, and the United States. He studied law and business administration at the
University of Erlangen-N€urnberg and was awarded a two-year Fulbright Scholarship.
He holds an MBA in international business and a Ph.D. in logistics from The Ohio
State University.

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ABOUT THE AUTHORS


Ilkka A. Ronkainen

Ilkka A. Ronkainen is a member of the faculty of marketing and international business
at the School of Business at Georgetown University. He has received the undergraduate
teaching and research awards twice, and in 2001 and 2008, the International Executive
MBA program at Georgetown recognized him as the Outstanding Professor of the Year.
He is the founder and director of the MSB’s summer Hong Kong program. He has been
a member of the Georgetown University Faculty Senate since 1992.
Dr. Ronkainen serves as docent of international marketing at the Helsinki
School of Economics. He was visiting professor at HSE during the 1988–1997 and
1991–1992 academic years and continues to teach in its Executive MBA, International MBA, and International BBA programs.
Dr. Ronkainen holds a Ph.D. and a master’s degree from the University of South
Carolina as well as an M.S. (Economics) degree from the Helsinki School of Economics.
Dr. Ronkainen has published extensively in academic journals and the trade
press. He is a coauthor of a number of international business and marketing texts,
including Global Business: Positioning Ventures Ahead (2010) and Emerging Trends,
Threats and Opportunities in International Marketing: What Executives Need to Know
(2009). In 1995, his co-authored text, The Global Marketing Imperative, was a winner
of the Choice Award given to the best research books of the year. He serves on the
review boards of the Journal of Business Research, International Marketing Review, and
Journal of Travel Research, and has reviewed for the Journal of International Marketing
and the Journal of International Business Studies. He served as the North American
coordinator for the European Marketing Academy, 1984–1990. He was a member of
the board of the Washington International Trade Association from 1981–1986 and
started the association’s newsletter, Trade Trends.
Dr. Ronkainen has served as a consultant to a wide range of U.S. and international institutions. He has worked with entities such as IBM, the Rand Organization,
and the Organization of American States. He maintains close relations with a number of Finnish companies and their internationalization and educational efforts.

Michael H. Moffett


Michael H. Moffett, Ph.D., is an associate professor of finance and holds the Continental Grain Professorship in Finance at Thunderbird School of Global Management. Dr. Moffett earned his Ph.D. at the University of Colorado, Boulder in 1985.
He also holds an M.A. from the University of Colorado, an M.S. from
Colorado State University, and a B.A. from the University of Texas at Austin.
He has been a contributor to a number of books, including Multinational Business
Finance, co-authored with Arthur Stonehill and David Eiteman, in its 12th edition,
and Fundamentals of Multinational Finance with Stonehill and Eiteman in its third edition. He has authored more than 50 case studies on a variety of global business topics,
and his writings have appeared in the industry’s leading publications, including Journal
of Applied Corporate Finance, Journal of International Financial Management and Accounting, Journal of International Money and Finance, Contemporary Policy Issues, Brookings
Discussion Papers in Economics, and the Journal of Financial and Quantitative Analysis.
Prior to joining the Thunderbird faculty in 1994, Dr. Moffett was an associate
professor in Oregon State University’s Department of Finance and International
Business. He has served as a visiting professor at a multitude of different universities
including the University of Michigan, Helsinki School of Economics and Business
Administration, University of Ljubljana’s International Center for Public Enterprises
in Slovenia, Aarhus School of Business in Denmark, University of Colorado, and
University of Hawaii. In 1984–1985, Dr. Moffett was a Research Fellow at the Brookings Institute in Washington, DC. His expertise has been tapped by multinational
firms in North and South America, Europe and Asia, and over the past 20-plus years,
he has taught and consulted in more than 25 countries.


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BRIEF CONTENTS


PART 1

IMPACT 1

1. The International Business Imperative 2
PART 2

FOUNDATIONS 31

2. Trade and Investment Polices 32
3. The Theory of Trade and Investment 62
4. The Balance of Payments 94

PART 4

STRATEGY 301

9. Strategic Planning 302
10. The Corporation: Ownership, Governance,
and Sustainability 332
11. Organization, Implementation, and Control 358
12. Building the Knowledge Base 390
13. Entry and Expansion 426

Part 2 Cases
Iceland 2006—A Small Country in a Global Capital Market
119
The Venezuelan Bolivar Black Market 122
Will Tire Tariffs Launch Trade Dispute? 125

The Catfish Dispute 132

Part 4 Cases
Honeyland Manuka Honey from New Zealand 455
IKEA: Furnishing the World 459
Koch Industries Acquires Georgia-Pacific 463
Petroleum Development and the Curse of Oil 466
Tao Kae Noi Seaweed Snack 469

PART 3

PART 5

5.
6.
7.
8.

ENVIRONMENT 137

Culture 138
Politics and Law 172
Global Financial Markets 198
Economic Integration and Emerging
Markets 234

Part 3 Cases
The Banana Wars 276
H1-B Visas: A High-Tech Dilemma 280
Closing the MG Rover Plant: The Aftereffects 284

The GM–AvtoVAZ Joint Venture 286
Mattel’s Chinese Sourcing Crisis of 2007 292
Nine Dragons Paper 295

OPERATIONS 475

14. Marketing 476
15. Services 516
16. Logistics and Supply-Chain
Management 536
17. Financial Management 570
18. Human Resource Management 600
19. New Horizons 632
Part 5 Cases
Nova International (Macedonia) 665
Porsche Changes Track 669
The Market Entry Strategy Social Approach
When Diamonds Weep 679

675

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CONTENTS

Preface v
About the Authors xiii
PART 1

IMPACT 1

1. The International Business Imperative 2
Learning Objectives 2
Opening Vignette New Challenges for International
Business Managers 3
The Need for International Business 4
A Definition of International Business 5
A Brief History 6
Global Links Today 11
The Current U.S. International Trade Position 16
The Impact of International Business on the United States 16
The Structure of the Book 18
Summary 20 / Take a Stand 21
Appendix 1: Geographic Perspectives on International
Business 24
Location 24 / Place 25 / Interaction 26 / Movement 27 /
Regions 29


PART 2

FOUNDATIONS 31

2. Trade and Investment Policies 32
Learning Objectives 32
Opening Vignette The Global Economic Crisis and Lessons
from the Depression 33
Rationale and Goals of Trade and Investment Policies 34
Global Trade Regulation since 1945 35
Changes in the Global Policy Environment 37
Limits of Domestic Policy Influences 37 / Revitalizing
International Institutions 40 / Sharpening of the Conflict
between Industrialized and Developing Nations 42
Policy Responses to Changing Conditions 43
Restrictions of Imports 43 / Restrictions of Exports 49 / Export
Promotion 49 / Import Promotion 51 / Investment Policies 51 /
The Host-Country Perspective 52 / The Home-Country
Perspective 54 / Restrictions on Investment 55 / Investment
Promotion 55 / Management of the Policy Relationship 57
A Strategic Outlook for Trade and Investment Policies 58
A U.S. Perspective 58 / An International Perspective 59
Summary 60 / Take a Stand 61

3. The Theory of Trade and Investment 62
Learning Objectives

62

Opening Vignette China, Trade, and the Global

Recession 63
The Age of Mercantilism 64
Classical Trade Theory 65
The Theory of Absolute Advantage 66 / The Theory of
Comparative Advantage 67 / A Numerical Example of Classical
Trade 67 / National Production Possibilities 68 / The Gains
from International Trade 70 / Concluding Points about Classical
Trade Theory 72
Factor Proportions Trade Theory 72
Factor Intensity in Production 72 / Factor Endowments, Factor
Prices, and Comparative Advantage 73 / Assumptions of the
Factor Proportions Theory 74 / The Leontief Paradox 74 /
Linder’s Overlapping Product Ranges Theory 76
International Investment and Product Cycle Theory 77
The Stages of the Product Cycle 77 / Trade Implications of the
Product Cycle 78
The New Trade Theory: Strategic Trade 80
Economies of Scale and Imperfect Competition 80 / Strategic
Trade 82 / The Competitive Advantage of Nations 84 /
Clusters and the New Economics 85
The Theory of International Investment 86
The Foreign Direct Investment Decision 87 / The Theory of
Foreign Direct Investment 88 / Firms as Seekers 88 / Firms as
Exploiters of Imperfections 89 / Firms as internalizers 90
Summary 90 / Take a Stand 93

4. The Balance of Payments 94
Learning Objectives 94
Opening Vignette Why Do Balance of Payments Problems
Occur? 95

Fundamentals of Balance of Payments Accounting 96
Defining International Economic Transactions 97 / The BOP as
a Flow Statement 97 / BOP Accounting: Double-Entry
Bookkeeping 97
The Accounts of the Balance of Payments 98
The Current Account 98 / The Capital and Financial Account
101 / Net Errors and Omissions 104 / Official Reserves
Account 105
The Balance of Payments in Total 106
The Balance of Payments and Economic Crises 109
The Asian Crisis 109
Capital Mobility 113
Capital Flight 114
Summary 117 / Take a Stand 118
Cases 119

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xviii

CONTENTS


Iceland 2006—A Small Country in a Global Capital
Market

119

The Venezuelan Bolivar Black Market

122
125

Will Tire Tariffs Launch a Trade Dispute?
The Catfish Dispute

PART 3

132

ENVIRONMENT 137

5. Culture 138
Learning Objectives 138
Opening Vignette Crossing Cultures: Balancing the Global
with the Local 139
Culture Defined 140
The Elements of Culture 144
Language 144 / Nonverbal Language 147 / Religion 148 /
Values and Attitudes 151 / Manners and Customs 152 /
Material Elements 154 / Aesthetics 155 / Education 157 /
Social Institutions 157

Sources of Cultural Knowledge 158
Cultural Analysis 161
The Training Challenge 165
Making Culture Work for Business Success 167
Summary 169 / Take a Stand 171

6. Politics and Law 172
Learning Objectives 172
Opening Vignette International Trade and Elephants 173
The Home-Country Perspective 174
Embargoes and Sanctions 175 / Export Controls 176 / A
New Environment for Export Controls 178 / Regulating
International Business Behavior 180
Host-Country Political and Legal Environment 183
Political Action and Risk 183 / Economic Risk 189 /
Managing the Risk 190 / Legal Differences and
Restraints 191 / The Influencing of Politics
and Laws 192
International Relations and Laws 194
International Politics 194 / International Law 195
Summary 196 / Take a Stand 197

7. Global Financial Markets 198
Learning Objectives 198
Opening Vignette Global Capital Markets: Entering a New
Era 199
The Global Financial Marketplace 200
Assets, Instruments, and Institutions 200
The Market for Currencies 201
Exchange Rate Quotations and Terminology 202 / Size of the

Market 205 / Market Structure 207 / The Big Three (or
Four?) 207
Evolution of the Global Monetary System 208
The Gold Standard 208 / The Interwar Years 1919–1939,
209 / Bretton Woods Agreement, 1944–1971 209 / Times of
Crisis, 1971–1973 210 / Floating Exchange Rates, 1973–
Present 210 / The Launch of the Euro 211

The Purpose of Exchange Rates 212
What Is a Currency Worth? 212 / The Law of One Price 213
Global Capital Markets 214
Sources of Capital 214 / Defining International Financing 215 /
International Money Markets 217 / International Banking and
Bank Lending 218 / International Security Markets 219 /
Gaining Access to International Financial Markets 221
The Financial Crisis of 2007–2009 221
The Seeds of Crisis: Subprime Debt 221 / The Transmission
Mechanism: Securitization of Derivatives 223 / Credit Default
Swaps 225 / The Fallout: The Crisis of 2007 and 2008 226 /
Global Contagion 227 / The Remedy: Prescriptions for an
Infected Global Financial Organism 228
Summary 231 / Take a Stand 233

8. Economic Integration and Emerging
Markets 234
Learning Objectives 234
Opening Vignette Building Blocs toward Worldwide Free
Trade 235
Levels of Economic Integration 238
The Free Trade Area 238 / The Customs Union 238 / The

Common Market 239 / The Economic Union 239
Arguments Surrounding Economic Integration 239
Trade Creation and Trade Diversion 240 / Reduced Import
Prices 240 / Increased Competition and Economies of Scale
241 / Higher Factor Productivity 241 / Regionalism versus
Nationalism 242
Regional Groupings 242
European Integration 242 / Organization of the EU 244
North American Economic Integration 245
Integration in Latin America 250 / Integration in Asia 251 /
Integration in Africa and the Middle East 253
Cartels and Commodity Price Agreements 254
Emerging Markets 257
China: Production Platform to Marketplace 260 / India: Growth
in Services 262 / Brazil 263
Barriers to Business 264
Infrastructure Problems 265
Transition Economies 266
The Developing Markets 267
Research 268 / Creative Buying Power 268 / Tailoring Local
Solutions 268 / Improving Access 268 / Shaping
Aspirations 269
Economic Integration and the International Manager 271
Effects of Change 271 / Strategic Planning 272 /
Reorganization 272 / Lobbying 272
Summary 273 / Take a Stand 275
Cases 276
The Banana Wars 276
H-1B Visas: A High-Tech Dilemma 280
Closing the MG Rover Plant: The Aftereffects 284

The GM–AvtoVAZ Joint Venture 286
Mattel’s Chinese Sourcing Crisis of 2007 292
Nine Dragons Paper 295


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Contents

PART 4

STRATEGY 301

9. Strategic Planning 302
Learning Objectives 302
Opening Vignette The Changing Landscape of Global
Markets 303
Globalization 305
Globalization Drivers 306
The Strategic Planning Process 311
Understanding and Adjusting the Core Strategy 311 / Formulating
Global Strategy 314 / Global Program Development 318 /
Implementing Global Programs 323 / Localizing Global Moves
324 / The Local Company in the Global Environment 327

Summary 329 / Take a Stand 331

10. The Corporation: Ownership, Governance, and
Sustainability 332
Learning Objectives 332
Opening Vignette Treatise on the Law of
Corporations 333
Ownership 333
The Corporation 334 / Corporate Stakeholders 335 / The
Public Perspective 337
The Corporate Objective 337
Operational Goals 338 / Publicly Traded or Privately Held 338 /
Shareholder Wealth Maximization 339 / Separation of
Ownership from Management 340 / Stakeholder
Capitalism 341
Corporate Governance 342
The Goal of Corporate Governance 342 / The Structure of
Corporate Governance 343 / Comparative Corporate
Governance 345 / Failures in Corporate Governance 347 /
Good Governance and Corporate Reputation 347 / Corporate
Governance Reform 348
Corporate Responsibility and Sustainability 352
Triple Bottom Line 353 / Differing Perspectives on
Responsibility 355 / A Question of Trust 355
Summary 357 / Take a Stand 357

11. Organization, Implementation, and
Control 358
Learning Objectives 358
Opening Vignette Organizing to Think Globally and Act

Locally 359
Organizational Structure 361
Organizational Designs 361
Implementation 372
Locus of Decision Making 372 / Factors Affecting Structure
and Decision Making 373 / The Networked Global Organization
374 / Promoting Global Internal Cooperation 377 / The Role
of Country Organizations 379
Controls 381
Types of Controls 381 / Exercising Controls 386
Summary 387 / Take a Stand 389

xix

12. Building the Knowledge Base 390
Learning Objectives 390
Opening Vignette Cool Merchandizing 391
International and Domestic Research 393
New Parameters 393 / New Environmental Factors 393 / The
Number of Factors Involved 394 / Broader Definition of
Competition 394
Recognizing the Need for International Research 394
Determining Research Objectives 395
Going International—Exporting 395 / Going International—
Importing 396 / Market Expansion 397
Conducting Secondary Research 397
Identifying Sources of Data 397 / Selection of Secondary Data
401 / Interpretation and Analysis of Secondary Data 401 /
Data Privacy 402
Conducting Primary Research 403

Industrial versus Consumer Sources of Data 404 / Determining
the Research Technique 404
The International Information System 408
Summary 412 / Take a Stand 413
Appendix 12A: Monitors of International Issues 415
European Union 415 / United Nations 416 / U.S. Government
416 / Selected Organizations 417 / Indexes to Literature
419 / Directories 419 / Encyclopedias, Handbooks, and
Miscellaneous 420 / Periodic Reports, Newspapers,
Magazines 420
Appendix 12B: The Structure of a Country Commercial
Guide 423

13. Entry and Expansion 426
Learning Objectives 426
Opening Vignette An Accidental Exporter 427
The Role of Management 428
Motivations to Go Abroad 430
Proactive Motivations 430 / Reactive Motivations 431
Strategic Effects of Going International 433
Entry and Development Strategies 435
Exporting and Importing 435
International Intermediaries 436
Export Management Companies 437 / Trading
Companies 438 / Private-Sector Facilitators 440 /
Public-Sector Facilitators 440 / Licensing 442 /
Franchising 444
Local Presence 445
Interfirm Cooperation 445 / Full Ownership 451
A Comprehensive View of International Expansion 452

Summary 453 / Take a Stand 454
Cases 455
Honeyland Manuka Honey from New Zealand 455
IKEA: Furnishing the World 459
Koch Industries Acquires Georgia-Pacific 463
Petroleum Development and the Curse of Oil 466
Tao Kae Noi Seaweed Snack 469


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PART 5

Page 20

CONTENTS

OPERATIONS 475

14. Marketing 476
Learning Objectives 476
Opening Vignette Being a Good Sport Sponsorship 477
Target Market Selection 479
Identification and Screening 479 / Concentration versus

Diversification 484
Marketing Management 486
Standardization versus Adaptation 486 / Product Policy 487 /
Pricing Policy 494 / Distribution Policy 498 / Promotional
Policy 505
Summary 514 / Take a Stand 515

15. Services 516
Learning Objectives 516
Opening Vignette Global Labor Mobility Outsourcing and
the Worker of the Future 517
Differences between Services and Goods 518
Link between Services and Goods 518 / Stand-Alone
Services 519
The Role of Services in the U.S. Economy 522
The Role of Global Services in the World Economy 524
Global Transformations in the Services Sector 525
Problems in Service Trade 526
Data Collection Problems 526 / Global Regulations of
Services 527
Corporations and Services Trade 528
Services and E-Commerce 528 / Typical International
Services 529 / Starting to Offer Services
Internationally 532 / Strategic Indications 532
Summary 534 / Take a Stand 535

16. Logistics and Supply-Chain
Management 536
Learning Objectives 536
Opening Vignette Supply-Chain Management Logistics in

China 537
International Logistics Defined 538
Supply-Chain Management 539
The Impact of International Logistics 540
The New Dimensions of International Logistics 542
International Transportation Issues 542 / Selecting a Mode of
Transport 546 / Export Documentation 550 / Terms of
Shipment and Sale 551
International Inventory Issues 553
Order Cycle Time 553 / Customer Service Levels 554 /
Inventory as a Strategic Tool 555
International Packaging Issues 555
International Storage Issues 557
Storage Facilities 557 / Special Trade Zones 559
Management of International Logistics 560
Centralized Logistics Management 560 / Decentralized
Logistics Management 561 / Outsourcing Logistics
Services 561

The Supply Chain and the Internet 562
Logistics and Security 563
Logistics and the Environment 565
Summary 567 / Take a Stand 568

17. Financial Management 570
Learning Objectives 570
Opening Vignette When International Financial Management
Dictates Strategy 571
What Is the Goal of Management? 572
Global Financial Goals 572 / Genus Corporation 573 /

Multinational Management 574
Import–Export Trade Financing 576
Trade Financing Using a Letter of Credit 576
Multinational Investing 578
Captial Budgeting 578 / A Proposed Project Investment 579 /
Risks in International Investments 580 / Combining
Interest-Rate and Exchange-Rate Risks 580
International Cash Flow Management 582
Operating Cash Flows and Financing Cash Flows 583 /
Intrafirm Cash Flows and Transfer Prices 583 / Cash
Management 584
Foreign Exchange Exposure 586
Transaction Exposure 587 / Transaction Exposure
Management 587 / Risk Management versus Speculation
588 / Transaction Exposure Case: Lufthansa 588 / Currency
Risk Sharing 590
Economic Exposure 591
Countertrade 592
A Definition of Countertrade 593
International Taxation 595
Tax Jurisdictions 595 / Tax Types 596 / Income Categories
and Taxation 598
Summary 598 / Take a Stand 599

18. Human Resource Management 600
Learning Objectives 600
Opening Vignette The New Global Executive 601
Managing Managers 603
Early Stages of Internationalization 604 / Advanced Stages
of Internationalization 604 / Interfirm Cooperative

Ventures 606
Sources for Management Recruitment 606
Selection Criteria for Overseas Assignments 610 / Culture
Shock 615 / Repatriation 617 / Compensation 617
Managing Labor Personnel 622
Labor Participation in Management 622 / The Role of Labor
Unions 626 / Human Resource Policies 628
Summary 629 / Take a Stand 630

19. New Horizons 632
Learning Objectives 632
Opening Vignette Bankers See Scrooge Alive in
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Contents
The International Business Environment 634
The Increased Role of Government 634 / Terrorism 636 /
Corruption 637 / Planned versus Market Economies 638 /
Global Frictions 638 / The International Financial Environment
643 / The Effects of Population Shifts 646 / The
Technological Environment 647

Globalization and Friction 648
The Future of International Business Management 650
International Planning and Research 650 / International Product
Policy 652 / International Communications 654 / Distribution
Strategies 655 / International Pricing 655
Careers in International Business 656
Further Training 657 / Employment with a Large Firm 657 /
Opportunities for Women in Global Management 660 /

xxi

Employment with a Small or Medium-Sized Firm 661 /

661
663 / Take a Stand 664

Self-Employment

Summary
Cases

Nova International (Macedonia) 665
Porsche Changes Track 669
The Market Entry Strategy Social Approach
When Diamonds Weep

Notes 683
Glossary 701
Name Index 721
Subject Index 731


679

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MAP CONTENTS

1. International Trade as a Percentage of Gross Domestic Product 22
2. Change of Forest Area from 1990 to 2007 44
3. Total Greenhouse Gas Emissions 45
4. Desertification Vulnerability 45
5. IMF Data Mapper 71
6. The Religions of the World 150
7. Risk Map 2010 186
8. International Free Trade Areas 235
9. International Groupings: World, Europe 255
10. Map of South America 256
11. Global Consumer Recession Index 319
12. Income Distribution: IMF Data Mapper, GDP Growth 2015 482
13. Services as a Percentage of GDP 527
14. Railway Density World Map 558

15. Labor Union Membership 624
16. Expatriate Wealth Heat Map 631
17. The Cost Per Diem in the World’s Major Business Cities 662

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PA R T

1

I M PA C T
1 The International Business Imperative
The globalization of business brings new opportunities and threats to governments, firms, and individuals. The challenge is to compete successfully
in the global marketplace as it exists today and develops tomorrow.
Part 1 sets the stage by introducing the effects of international business
and demonstrating the need to participate in international activities.


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C H A P T E R

1

The International
Business Imperative
CHAPTER

CONTENTS

&

LEARNING

OBJECTIVES

THE NEED FOR INTERNATIONAL BUSINESS

1. To understand the history and impact of international business
A DEFINITION OF INTERNATIONAL BUSINESS

2. To learn the definition of international business
A BRIEF HISTORY

3. To recognize the growth of global linkages today

GLOBAL LINKS TODAY

4. To understand the U.S. position in world trade and the impact international business has on the United States
THE CURRENT U.S. INTERNATIONAL TRADE POSITION

5. To appreciate the opportunities and challenges offered by international
business
THE STRUCTURE OF THE BOOK

6. To identify the relationship between the text ’s structure and the theoretical, political, and strategic aspects of international business
APPENDIX: GEOGRAPHIC PERSPECTIVES ON INTERNATIONAL BUSINESS

2


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New Challenges for International Business Managers
The financial crisis and economic recession late in the first
decade of the third millennium raised questions about the
long-term viability of globalization of business and its shape
in the future. Some have challenged the viability of capitalism
in an internationally interconnected world. Others dispute
whether the current ethical underpinnings of business are

suitable in light of the global challenges that are before us.
The times are challenging: big companies depend on
governments to rescue them from their unmanageable debt;
firms and individuals have criminally defrauded investors;
traders speculating in global commodity and currency markets have caused high dislocations and spikes in prices;
there have been huge bonuses and payoffs for financial
high-flyers. All these have created worldwide hostility
towards capitalism and businesses. If internationalists were
the subjects of popularity polls, they would probably be
ranked among the lowest of the low in 2009.
Questions about capitalism are certainly not new. Back
in 1942, economist Joseph Schumpeter, the champion of
entrepreneurial innovation, doubted the long-term survivability of capitalism. Although capitalism and private enterprise
have endured so far, their long-term future may be in
question.
In his 2009 encyclical Caritas in Veritate (‘‘Charity in
Truth’’), Pope Benedict XVI wrote: ‘‘Today’s international
economic scene, marked by grave deviations and failures,
requires a profoundly new way of understanding business
enterprise. Old models are disappearing, but promising new

ones are taking shape on the horizon . . . . Efforts are
needed——and it is essential to say this——not only to create
‘‘ethical’’ sectors or segments of the economy or the world of
finance, but to ensure that the whole economy——the whole
of finance——is ethical.’’
International managers are called upon to understand
and handle a changing array of opportunities and challenges
in the second decade of the twenty-first century. The globalization of business and economic growth that accelerated
dramatically in the 1990s has created the new conditions.

Now, international managers must address ethical lapses
and corruption as well as the growing distrust of business
among global public audiences and the stronger role of governments. In newly linked societies, governments and businesses will be increasingly interconnected.
All this highlights the importance of the study of International Business. Some suggest that there is a need for a new
breed of international business executive——a new global corporate statesperson. Perhaps the manager of the future will
require a broader perspective of the role of corporations in
global society and a stronger moral compass. There is no
doubt that corporate executives will need a solid foundation
both in business area disciplines and in the international intersection of business, government, and society.
Sources: Martin Sorrell, ‘‘The Pendulum Will Swing Back,’’ Financial
Times, April 9, 2009; Robert J. Samuelson, ‘‘American Capitalism
Besieged,’’ Washington Post, March 23, 2009; Benedict XVI,
Encyclical Letter, Caritas in Veritate, 40, 45.

3