Tải bản đầy đủ

Giáo trình charles hill international business competing in the global marketplace 9e


This page intentionally left blank


Intern at ion a 1

Charles W. L. Hill

The McGraw·Hill Companies

D McGraw-Hill
• 1rwin
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of
the Americas, New York, NY 10020. Copyright© 2013, 2011, 2009, 2007, 2005, 2003, 2000, 1997, 1994
by The McGraw-Hill Companies, Inc. All rights reserved. Printed in the United States of America. No
part of this publication may be reproduced or distributed in any form or by any means, or stored in a
database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc.,
including, but not limited to, in any network or other electronic storage or transmission, or broadcast for
distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside
the United States.
This book is printed on recycled, acid-free paper containing 10% postconsumer waste.
1 2 3 4 5 6 7 8 9 0 DOW /DOW 1 0 9 8 7 6 5 4 3 2




Vice president and editor-in-chief: Brent Gordon
Editorial director: Paul Ducham
Executive editor: John Weimeister
Executive director of development: Ann Torbert
Development editor II: Megan Shultz
Editorial coordinator: Heather Darr
Vice president and director of marketing: Robin J. Zwettler
Marketing director: Amee Mosley
Marketing manager: Jaime Halteman
Vice president of editing, design, and production: Sesha Bolisetty
Lead project manager: Christine A. Vaughan
Buyer II: Debra R. Sylvester
Senior designer: Mary Kazak Sander
Senior photo research coordinator: Jeremy Cheshareck
Photo researcher: Payee Oster
Senior media project manager: Allison Souter
Media project manager: Cathy L. Tepper
Cover design: Pam Verros
Interior design: Kay Lieberherr
Typeface: 10 .5/12 Goudy
Compositor: Aptara®, Inc.
Printer: R.R. Donnelley
Library of Congress Cataloging-in-Publication Data

Hill, Charles W. L.
International business: competing in the global marketplace/Charles W. L. Hill.-9th ed.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-07-802924-0 (alk. paper)
ISBN-10: 0-07-802924-4 (alk. paper)

International business enterprises-Management. 2.

Competition, International. I. Title.

HD62.4.H55 2013


For June &
Mike Hill, my parents

about the AUTHOR
Charles W. L. Hill

University of Washington

Charles W. L. Hill is the Hughes M. Blake Professor of International Business at the
School of Business, University of Washington. Professor Hill received his Ph.D. from
the University of Manchester's Institute of Science and Technology (UMIST) in
Britain. In addition to the University of Washington, he has served on the faculties
of UMIST, Texas A&M University, and Michigan State University.
Professor Hill has published more than 50 articles in peer-reviewed academic jour­
nals, including the Academy of Management Journal, Academy of Management Review,
Strategic Management Journal, and Organization Science. He has also published two
college texts: one on strategic management and the other on international business.
Professor Hill has served on the editorial boards of several academic journals, including
the Strategic Management Journal and Organization Science. Between 1993 and 1996 he
was consulting editor at the Academy of Management Review.
Professor Hill teaches in the MBA, Executive MBA, Management, and Ph.D. pro­
grams at the University of Washington. He has received awards for teaching excellence
in the MBA, Executive MBA, and Management programs. He has also taught custom­
ized executive programs.
Professor Hill works on a consulting basis with a number of organizations. His clients
have included ATL, Boeing, BF Goodrich, Hexcel, House of Fraser, Microsoft, Seattle
City Light, Tacoma City Light, T hompson Financial Services, and Wizards of the




Introduction and Overview
Chapter 1



The Globalization of Health Care


Country Differences
Chapter 2

National Differences in Political Economy

Chapter 3

Political Economy and Economic


Chapter 4

Differences in Culture

Chapter 5

Ethics in International Business


Siemens Bribery Scandal


Walmart's Foreign Expansion


Nike:The Sweatshop Debate



The Global Trade and Investment Environment
Chapter 6

International Trade Theory

Chapter 7

The Political Economy of International Trade

Chapter 8

Foreign Direct Investment

Chapter 9

Regional Economic Integration






Global Food Prices



The Global Monetary System
Chapter 10

The Foreign Exchange Market

Chapter 11

The International Monetary System

Chapter 12

The Global Capital Market


Hyundai and Kia




Anatomy of a Currency Crisis


Russian Ruble Crisis and Its Aftermath




The European Energy Market




The Ecuadorean Rose Industry



Etch-A-Sketch Ethics



The Strategy and Structure of International Business
Chapter 13

The Strategy of International Business

Chapter 14

The Organization of International Business



Brief Contents

Chapter 15

Entry Strategy and Strategic Alliances





JCB in India






Business Operations
Chapter 16

Exporting, Importing, and Countertrade

Chapter 17

Global Production, Outsourcing, and Logistics

Chapter 18

Global Marketing and R&D

Chapter 19

Global Human Resource Management

Chapter 20



Building the Boeing 787


Adopting International Accounting Standards
Li & Fung



Photo Credits



Accounting and Finance in the International






list of MAPS



GNI per Capita, 2009



GNI PPP per Capita, 2009



Growth Rate in GDP per Capita, 1999-2009



Human Development Index, 2010



Political Freedom in 2010



Distribution of Economic Freedom, 2011



World Religions



Member States of the European Union in 2011



Economic Integration in the Americas



ASEAN Countries



APEC Members





30 6




It is now two decades since I began work on the first edi­

I have always endeavored to do all of these things in

tion of International Business: Competing in the Global
Marketplace. By the third edition the book was the most
widely used international business text in the world.

International Business. In my view, many other texts paid

Since then its market share has only increased. I attri­
bute the success of the book to a number of goals I set for
myself when I embarked on the first edition of the book.
Specifically, I wanted to write a book that ( 1) was com­
prehensive and up-to-date, (2) went beyond an uncriti­
cal presentation and shallow explanation of the body of
knowledge, (3) maintained a tight, integrated flow be­
tween chapters, ( 4) focused on managerial implications,
and (5) made important theories accessible and interest­
ing to students.
Over the years, and through eight additional editions, I
have worked hard to adhere to these goals. It has not al­
ways been easy. An enormous amount has happened over
the past two decades, both in the real world of economics,
politics, and business and in the academic world of theory
and empirical research. Often I have had to significantly
rewrite chapters, scrap old examples, bring in new ones,
incorporate new theory and evidence into the book, and
phase out older theories that are increasingly less relevant
to the modem and dynamic world of international busi­
ness. That process continues in the current edition. As
noted below, there have been significant changes in this
edition, and that will no doubt continue to be the case in
the future. In deciding what changes to make, I have been
guided not only by my own reading, teaching, and research,
but also by the invaluable feedback I receive from profes­
sors and students around the world who use the book, from
reviewers, and from the editorial staff at McGraw- Hill. My

insufficient attention to the strategies and structures of
international businesses and to the implications of inter­
national business for firms' various functions. This omis­
sion has been a serious deficiency. Many of the students
in these international business courses will soon be
working in international businesses, and they will be ex­
pected to understand the implications of international
business for their organization's strategy, structure, and
functions. This book pays close attention to these
Comprehensiveness and relevance also require cover­
age of the major theories. It has always been my goal to
incorporate the insights gleaned from recent academic
work into the text. Consistent with this goal, over the
last eight editions I have added insights from the follow­
ing research:

To be comprehensive, an international business text­
book must:

Explain how and why the world's countries differ.

Samuel Huntington's influential thesis on the

The new growth theory of economic develop­

"clash of civilizations."
ment championed by Paul Romer and Gene

Michael Porter's theory of the competitive advan­

Robert Reich's work on national competitive

tage of nations.


Assess the special roles of an international busi­
ness's various functions.

The work of Nobel Prize-winner Douglass North
and others on national institutional structures
and the protection of property rights.
The market imperfections approach to foreign
direct investment that has grown out of Ronald
Coase and Oliver Williamson's work on
transaction cost economics.

Examine the strategies and structures of interna­
tional businesses.

Empirical work by Jeffrey Sachs and others on the
relationship between international trade and eco­
nomic growth.

monetary system.

The work of Hernando de Soto on the link
between property rights and economic

Present a thorough review of the economics and
politics of international trade and investment.
Explain the functions and form of the global

The work of Nobel Prize-winning economist
Amartya Sen on economic development.

thanks go out to all of them.


The new trade theory and strategic trade policy.

Christopher Bartlett and Sumantra Ghoshal's
research on the transnational corporation.

The writings of C. K. Prahalad and Gary Hamel
on core competencies, global competition, and
global strategic alliances.

Insights for international business strategy that
can be derived from the resource-based view of
the firm.

In addition to including leading-edge theory, in light
of the fast-changing nature of the international business
environment, every effort is being made to ensure that
the book is as up-to-date as possible when it goes to press.
Much has happened in the world since the first edition of
this book was published in 1993. The Uruguay Round of
GATI negotiations was successfully concluded and the
World Trade Organization was established. In 2001 the

Reflecting this rapid pace of change, in this edition of
the book I have tried to ensure that all material and sta­
tistics are as up-to-date as possible as of 2009. However,
being absolutely up-to-date is impossible because change
is always with us. What is current today may be outdated
tomorrow. Accordingly, I have established a home page
for this book on the World Wide Web at www.mhhe.
com/hill. From this home page the reader can access
regular updates of chapter material and reports on topi­
cal developments that are relevant to students of inter­
national business. I hope readers find this a useful
addition to the support material for this book.


W TO embarked upon another major round of talks


aimed to reduce barriers to trade, the Doha Round. The
European Union moved forward with its post-1992


agenda to achieve a closer economic and monetary
union, including the establishment of a common cur­
rency in January 1999. The North American Free Trade
Agreement passed into law. The former Communist
states of Eastern Europe and Asia continued on the road
to economic and political reform. As they did, the eu­
phoric mood that followed the collapse of communism in
1989 was slowly replaced with a growing sense of realism
about the hard path ahead for many of these countries.
The global money market continued its meteoric growth.
By 2009 more than $2 trillion per day was flowing across
national borders. The size of such flows fueled concern
about the ability of short-term speculative shifts in global
capital markets to destabilize the world economy. The
World Wide Web emerged from nowhere to become the
backbone of an emerging global network for electronic
commerce. The world continued to become more global.
Several Asian Pacific economies, including most notably
China, continued to grow their economies at a rapid rate.
Outsourcing of service functions to places such as China
and India emerged as a major issue in developed Western
nations. New multinationals continued to emerge from
developing nations in addition to the world's established
industrial powers. Increasingly, the globalization of the
world economy affected a wide range of firms of all sizes,
from the very large to the very small.
Also, unfortunately, in the wake of the terrorist at­
tacks on the United States that took place on Septem­
ber 11, 2001, global terrorism and the attendant
geopolitical risks emerged as a threat to global economic
integration and activity.

Many issues in international business are complex and
thus necessitate considerations of pros and cons. To
demonstrate both sides of issues to students, I have ad­
opted a critical approach that presents the arguments for
and against economic theories, government policies,
business strategies, organizational structures, and so on.
Therefore, I have attempted to explain the complexi­
ties of the many theories and phenomena unique to in­
ternational business so the student might fully
comprehend the statements of a theory or the reasons a
phenomenon is the way it is. I believe these theories and
phenomena are explained in more depth in this book
than they are in competing textbooks, the rationale be­
ing that a shallow explanation is little better than no
explanation. In international business, a little knowl­
edge is indeed a dangerous thing.

A weakness of many texts is that they lack a tight, inte­
grated flow of topics from chapter to chapter. This book
explains to students in Chapter 1 how the book's topics
are related to each other. Integration has been achieved
by organizing the material so that each chapter builds on
the material of the previous ones in a logical fashion.

Part One
Chapter 1 provides an overview of the key issues to be
addressed and explains the plan of the book.




Part Two
Chapters 2 and 4 focus on national differences in political
economy and culture, and Chapter 5 on ethical issues in
international business. Most international business text­
books place this material at a later point, but I believe it is
vital to discuss national differences first. After all, many of
the central issues in international trade and investment,
the global monetary system, international business strategy
and structure, and international business operations arise
out of national differences in political economy and cul­
ture. To fully understand these issues, students must first
appreciate the differences in countries and cultures. We
discuss ethical issues at this juncture primarily because
many ethical dilemmas flow out of national differences in
political systems, economic systems, and culture.

Part Three
Chapters 6 through 9 investigate the political economy of
international trade and investment. The purpose of this
part is to describe and explain the trade and investment
environment in which international business occurs.

Part Four
Chapters 10 through 12 describe and explain the global
monetary system, laying out in detail the monetary
framework in which international business transactions
are conducted.

Part Five
In Chapters 13 through 15 attention shifts from the en­
vironment to the firm. Here the book examines the
strategies and structures that firms adopt to compete ef­
fectively in the international business environment.

the actual practice of international business. This is ex­
plicit in the later chapters of the book, which focus on
the practice of international business, but it is not al­
ways obvious in the first half of the book, which consid­
ers many macroeconomic and political issues, from
international trade theory and foreign direct investment
flows to the IMF and the influence of inflation rates on
foreign exchange quotations. Accordingly, at the end of
each chapter in Parts Two, Three, and Four-where the
focus is on the environment of international business, as
opposed to particular firms-a section titled "Implica­
tions for Managers" clearly explains the managerial im­
plications of the material discussed in the chapter. For
example, Chapter 6, "International Trade Theory," ends
with a detailed discussion of the various trade theories'
implications for international business management.
In addition, each chapter begins with a case that il­
lustrates the relevance of chapter material for the prac­
tice of international business. Chapter 2, "National
Differences in Political Economy," for example, opens
with a case that profiles the economy of Poland.
I have also added a closing case to each chapter.
These cases are also designed to illustrate the relevance
of chapter material for the practice of international busi­
ness. The closing case for Chapter 2, for example, looks
at Indonesia's economy.
Another tool that I have used to focus on managerial
implications is a Management Focus box. There is at
least one Management Focus in each chapter. Like the
opening case, the purpose of these boxes is to illustrate
the relevance of chapter material for the practice of
international business. The Management Focus in
Chapter 2, for example, looks at how Starbucks has been
able to enforce its trademark in China. This box illus­
trates the important role that national differences in the
protection of intellectual property rights can play in
international business.

Part Six
In Chapters 16 through 20 the focus narrows further to


investigate business operations. These chapters explain

The international business arena is fascinating and ex­

how firms can perform their key functions-manufac­

citing, and I have tried to communicate my enthusiasm

turing, marketing, R&D, human resource management,
accounting, and finance-to compete and succeed in

for it to the student. Learning is easier and better if the
subject matter is communicated in an interesting, infor­
mative, and accessible manner. One technique I have

the international business environment.
Throughout the book, the relationship of new mate­
rial to topics discussed in earlier chapters is pointed out
to the students to reinforce their understanding of how
the material comprises an integrated whole.

I have always believed that it is important to show stu­
dents how the material covered in the text is relevant to

used to achieve this is weaving interesting anecdotes
into the narrative of the text-stories that illustrate the­
ory. The opening cases and focus boxes are also used to
make the theory being discussed in the text both acces­
sible and interesting.
Each chapter has two kinds of focus boxes-a Man­
agement Focus box (described above) and a Country Fo­

cus box. Country Focus boxes provide background on
the political, economic, social, or cultural aspects of
countries grappling with an international business issue.


In Chapter 2, for example, one Country Focus box dis­
cusses how the economy of Venezuela has performed un­
der the leadership of Hugo Chavez.

T he success of the first eight editions of International
Business was based in part upon the incorporation of
leading-edge research into the text, the use of the up-to­

Numerous people deserve to be thanked for their assis­
tance in preparing this book. First, thank you to all the
people at McGraw-Hill/Irwin who have worked with me
on this project:
Paul Ducham, Publisher
John Weimeister, Executive Editor

date examples and statistics to illustrate global trends

Megan Shultz, Developmental Editor

and enterprise strategy, and the discussion of current
events within the context of the appropriate theory.

Jaime Halteman, Marketing Manager

Building on these strengths, my goals for this revision
have been threefold:

1. To incorporate new insights from recent scholarly
research wherever appropriate.

2. To make sure the content of the text covers all
appropriate issues.
3. To make sure the text is as up-to-date as possible

with regard to current events, statistics, and
As part of the overall revision process, changes have
been made to every chapter in the book. All statistics
have been updated to incorporate the most recently
available data. New examples, cases, and boxes have
been added and older examples updated to reflect new
developments. Almost all of the chapter opening and
closing cases are new to this edition. New material has
been inserted wherever appropriate to reflect recent
academic work or important current events.
Most notably for this edition, detailed discussion of the

global financial crisis that occurred in 2008 and 2009, and
its implications for international business, has been added to
many chapters. For example, Chapter 7 opens with a case
that discusses the impact of the global financial crisis on
attitudes toward protectionism in many countries. Simi­

Elizabeth Steiner, Marketing Coordinator
Denise Showers, Project Manager
Christine Vaughan, Lead Project Manager
Allison Souter, Media Project Manager
Debra Sylvester, Production Supervisor
Cara Hawthorne, Designer
Jeremy Cheshareck, Senior Photo Research
Second, my thanks go to the reviewers who provided
good feedback that helped shape this book.
Yeqing Bao, University of Alabama, Huntsville
Jacobus F. Boers, Georgia State University
Ken Chinen, California State University,
Abiola 0. Fanimokun, Pennsylvania State
University, Fayette
John Finley, Columbus State University
Michael Harris, East Carolina University
Anthony C. Koh, University of Toledo
Steve Lawton, Oregon State University
Ruby Lee, Florida State University

larly, Chapter 11 closes with a case that profiles how the
global financial crisis triggered economic turmoil and a

Joseph W. Leonard, Miami University

currency crisis in Latvia.
Elsewhere, Chapter 7 has been updated to discuss
progress on the current round of talks sponsored by the
WTO aimed at reducing barriers to trade, particularly in

Sunder Narayanan, New York University

agriculture (the Doha Round). Chapter 8 now discusses
the slump in foreign direct investment flows that took
place in 2008 and 2009, and explains how the global fi­
nancial crisis of 2008 contributed to it. Chapter 10 dis­

Hoon Park, University of Central Florida

cusses the weakness in the U.S. dollar between 2004 and
2008, and its paradoxical rebound in late 2008 in the
midst of a severe financial crisis in the United States
and elsewhere. And so on.


David N. McArthur, Utah Valley University

Eydis Olsen, Drexel University
Daria Panina, Texas A&M University
Dr. Mahesh Raisinghani, Texas Women's
Brian Satterlee, EdD, DBA, Liberty University
Michael Volpe, University of Maryland

Guided Tour
Cases, focus

boxes, and

the book


make theories

accessible and interesting and show
how theory relates to the practice of
international business.

part two Country Differences


National Differences in
Political Economy
Lll:AllNING OllJll:CTIVll:S:
Aft•r reading this chaptaryc;1uwill baabhJto:

LO 1

UndE1rst1md how th El polihcal systams of oountnes diffsr


Understand how the economic systems or countries differ.


UndE1rstand how lh9 l9gel systems of o:iunt1iE1s differ.


EKPlain the implications for management practice of
netionald1ffln9ncE1sin political110Jnomy.

The Polish Surprise
A!'J the finaocial crisis of2006 and2009 u11fuldwas PolBnd.whosa economy gre.v l1f1.5 perc&nt durillQ
2009, while every other economy in theEuropea11 Union

qusnce.betwean1989 and 2010 Fbland recorded the
highest sustained growth in the region. Real GDP
doubled l'.llll:lf this pe1iod. oomparsd to a 70 percsnt
1ncreaoo in 001ghbofin11 Skwakia and 45 percent in the

contracted. How did Poland adlisw this? Th& cou11try
benefitlld from .o;.ound economic policy. a s,table potitical
s,ys,1em,and$0me lucl::.
ln1969,Fbl.ment after more than four dooades of Communist rule.
S1nce then, �k.e IT'tFblandhraced rT\olrl::.et-baseopened its markets to intemabooal trade and foreign
investment, and privatized many state-owned t>usi­
oosses. ln2004the count1yjomed theEuropean Union,
giving it sasy acC<3ss to the larg&0011sumer marksts of
WestsrnEurope.All thishelped transformFbland into a
majorexport81". Exports&cco1.mt forabout40 perc&nt of
gross domastic product(in contrast. they acoount for
around 12 percent in the United States). As a conse-

Pol.and"SgoY&rnmemhas alsobeen fiscallyconS6rw·
tive,li:.e11piog public debtin check,t10t allow1n11it to a11.­
p<1nddoJnngthe 1ecess1on as many othGr countrius did.
Thialedto iflvestorcooftdence m the couotry.Asatesult
there was oo lwhat hinvestors pulled mooevoot of those economltls durin\I
2008and2009,dnving theircurrenciesdown,raiS1f19the
oost of goYSrnmentdabt.and precipitating atull-blown
aconomiccrisis thatraquirsdths lMFandEU to stepin
with linani::ialassistaooe.
Pol.and also got lucky. A tight monetary squeeze
in thee.ar�2000s.which wasdesignad to curb in1Latian

and ease Poland's entry into the European Union,
headed off the asset pnce bubble,particularlysurging
home prices, that hurt so many other economies
around the W01ld. lrooicaUy,tlieFbl1sh government hbeen crit1c1zed lor its bght monetar y policy earlier 1n
thtl dec3de.butin2000and2009 it servedtheoountry
well. Mor�r.in2009Poland b&nelited from the eccr
nornic stlmulus in nelghboringGermany.A scheme to
boost dEmind for G&!Tnan automoblle companles by
giving cash grant9 to peopl& who exchanged old cars
lor new ooesta •cashfor clunk&rs• program) helped
Poland b&eauS& th& country hu several automobile
rs Bnd components to
plants and was S&lling many ca
Noooolthisis tt>wy thatPoland is a modelstate.The
country still has substantial problems. Migrant workers
returning !Jorn Western Europe have swelled the ranl<.s
of the memplayed. In 2009 unemp oyment hit 11 pef­
ce11t.The ta» system 1sC
Opening Case


theWorldBank put thePolish lilxsystemat151 st outof
tha183oountries it survey&d. Extensive r&gulations can
still mak& it difficult to do businassinPolBnd;thaWor1d
Bank rankedPolBnd76th ineaseof doingbu!line.ss.E�
atter2-0\f6111"11,the transltion frorna soc:ialist economyto
a market-based system Is still not comp� and many
SUt�enterpiises reml!in.
On the othar hand. thePolish gownnrnent has oom­
mltt&d its61f to manging mud1 of this. Steps are belog
taken to simplify tax laws.reduceta:i;rates.snd1em<1'1&
bureaucratic hurdles todo1ng business inthe country.AA
examplewas theEn'IJ&pr&neurshipLaw passed lnMardl
2009.whidi dramatically reduced the number of hoolth,
labor, and tax controls that companies had to comply
wrth,making 1t much easier to start a business in the
country.J\lso,aftera S1)(-yearstandst1U,Pt>land privallzed
state-ownedenterprises thataccounted fur 0.6 percent
of GDP 111 2009, and those accounting for another
2.5 pe1centofGDP i1120101


Re:i.d the. Criunny f<"IC.,. OI\ Ch:i.vet'•Vcnttud�.
then answu the following ques.:ior.s:

Hnwwill the hiflh l�cl nl ('tlhlic.in.Venezuelaimpactfutwegroovth ra�!

UnduChavei's lcadcrship, wha1 kind o(
tc00.0m icsystem i!bcing put in pfacrin
Vcnewda? Hnwwnuld 1"'ll di:i.mctuirL the
political system!

d. Currently Venuuela i& bcncliringfrom a
boom in oil prices. What do you think
mia;ht hal'rienif nilt>riu:srcnc;atfmmtheir
current high. level/

Hnw dn ynu think thatChave•'• ur.il:i.ur:d
changesto contractswithforeign oilrom·
ln your e•timatinn,wha1U. the lona;-run
prognoois for theVenCJUClan eGOru>myllo
thi• acountrythati• attmclivefflintema·
tional hu•inc.�

Research Task


Closing Case
Each chapter concludes with a closing case
demonstrating the relevance of the chapter
material to the practice of international business.

,1.11.1•••··••11. .•11.

National Differences in Political Economy
Mmku Pr,tontia! 1ndu (M?I) i• a yc;irly .ducwlby the Michigan State UniversityC.en1er fot
lntematinnal Bu•ine�• Educ:atinn and RC"<",1rdt(MSU.

TI.c dcfinirion nfwnni< and fl'!litie;>l ick,..""" 1m�.,.dif.
fcrenJ. mcani� in different contexts worldwidc. lnf.icr,
thefmod<•minlfl<'Wurld•�evitlwteo theotutec:l(IO'

CIBER} t<> cnml'are emef1in1 ""1rkeu on g v�ricty <>f
dimensions. Provide a description of the indicaton
uocd in the inda. Which nf the indiC>ol""'would h;:ive
grcatu importance for a company duu marl:= laprop
Cornidering the MP! ranking.,whidt de·
veloping countrieswould you ..dvt.e sue.ha company ro

liticalright.;imldvillikrtic•a dcsaiptioo. of this sLJrVCyorul.a ranking( in ttnnsc:l
�&=lorn") of theworld'o leader< ;md laggard•. Wh"lt f<>e·
llllSarerakcnintooonsidcrationin this""rvcy!


lndonn.ia lo a vast country. Ito ZZO million l"'Ol'k aR
spread outover some17,()()()iolands that span an arc
J,200 miles long from Sumatra in the weol lo lrian

"crony c;,pit;,lism,nuoing hiocommandof thtopo\itica\
systemtofavor thebuoine!Scnterpri...,;o(hi...,4>f><>rt•
er. andfamily.

Jaya in the cast. it lo the world's m01t populous Mu•·
lim nation-some SS percent of the popularlim counl
themodves ru.Muslimo--but ;,loo one nf the m06I eth·
nically dlvene. M<>re than 500 lan1uaa;e1 are spoken
in the eountry,and1eparntist1 ;,re ;,ctive in a1Wmkr
off)rcwinces. Fo1 30 ycar1the 1trnf\ia1rrtolPtcsiden1

ln the end,Suh;,rto"'HOove:rtakenby maatveddito
that Indonesia had accumulated during 1he l990s. In
l997,the Jndone•�"lll ecnnomy ....nt info " mihpin. The
lntemati=alMonetaryFund 1tq>pedinwi1h a$43bil·
limtrci<:UP.f'l'\Cb>gc. Whenit,....revcak:d1hm muchd
this moncy found it:s way into the penrmal cnffcn ol

Suha.rro held this spra.wlina natinn t<>aerhu.Suharte>
""'a virtual dkt»tor"'how;,1b;,ckedbr the milimry

Suharto and h!s crontc1.pcople 1ooktolhe streets in
prote�t ;md ho:"'"'forced to r
"rnbli1!untnt. Under hi1 rule, the lndonui;m �on·
omy a;rew sttadily,but thctewas a cn11.Suh&.rrobru·
1"1lyff11re....d intem;,l di1..,nt.tieW\\$a\sofumousfor

L mcwedmpidlr10Willdavigm>
ousdem.xracy, culm!natina:inOcwber 2004 wich the
in.�tionofSuoilo Brunlxmg 'ti.dhoymo,thecountryO

The Globalization of Health Care
h has long been thou�ht that heal1h care i1 m1e cl the

400,000werc trcatcdin Z007, andwhen::theL.x:almedi­

indumieo le•n vuh=able to di11loo1.ti011 from glohalii:a­

cal ochoolsare considcredtoheamong 1heveryhenin

rion. After all, like many rervke bu,inesse., heal1ham:

ismwmally dcliveredwhere it is purcha1edHowever, fur

thewotld).Cost• in the.., coun.ttii:illl<'""'itlly nmfrom
ZOro35perccnt ofthooc inthe Uni1edSm1eo.

ing.The ttend Jx.ganwith certain diagnootir pnx:edwes,
ruch as MR1 ocan•. The United States has a shmtagc of

trend.Fint thet<' i• the high <=I ofm..diral care in the
United States, whkh i• the 0011� of the largen

r.tdiologi•lll, the doctotswho>iJ><'C:ia\ize in re-.tding and

number of p;i.tientll. Then th..t<' is th.. fact that ov"t

sr1me activitict and procedure1, thi!i i• now fan clurng­

intcrp1cting dlagno1tk rnedicill Images, including

X-r.ip,CT 10C..n1,MRI 10C"'11.1, and ul�. Derni..nd
futholllologirt!haiibet-ngtow�rwke ""f.Qt:>1J1lhcro.te

45 million Ametk..ru are uninsut..d and many tnole
""" "undetlruiuted• ;i.nd f,.c., high eopaymentio for

e1pen1lve ptixedure� ( ;i.\th
;1.t whirh n1edk;1.\ •choo\1 ii.I<' g1;1.
the United Stat<'ll •hould cN.nl" thU
ftve yei1.11). M anyofth...e p..opkftnd it6tl"ch.-i.petto

C".di1D014'es.Thl1 imb.tfance betwt't'nwpply anddemant.l

fly klh1oild to set ttc>
diulogi:rt = ....rn ,.. much ,.. $400,000 ii. )'<';a. In the

high-q1uJity plivilt.. h0d(lit;1.I d-...im in plac<'ll :111c h as
lndia and Slngapor... Fourrh, the 1hing c
eatly 2000., an Indian r;i.diologi•t working at the

ing their WOJ'.Kfotce• >
M........,hwetts O..nera\Hu.pit..!, Dr. Sanjay S..ini, found

American comp-.mie• to lockabtatd. And finally, >0 me

a..-J.yto dealwith the 1hortag.. andexp�dim­

insurance comp-.mie•ate expetimentingwithp..yrnent

� over thelnt..met to Indi-.,where they cuuld be in­

fotfoteign ttcatment>1t internationally;oceredit..dhoo­

terpr..ted by r;i.diologi•ts. Tub would l<'duce th..

pirrtl•. In 2008, for example, Aetna, a l;uge in1met,

vrmrlr:lnad onAmcrica'1 radinlngi•t1r.tdiologi•t inlndia mightearnone-tenth ofhisoiher

launched a pilot scheme in parmerohipwi1h Singapnr­
ean hospitab. Aetn;i. 1t;uted to give Amerkaru the op­

U.S. «01ntcrpart. Plus, becatll!e India is on the oppn&itc

tion ro have procedures coning$20,000 or more in the

•idcnf1he �lnbe, theim"l!e•couldbe interprcredwhile

it''"'" nl�httim.o ln tb.o Unitd State1


atwl be re:..dy for

the attending phY1ki;i.nwh..n he<,:.< 1he arrivwl futwvtk


that the qualiry of cau i! better than at


the followlng mornlng.
ThtoglOO;iJl zatlonnendhaiinow�Jledovetinto 1ur·

Case Discussion Questions

What Ille the f;u:illt"J.ting <.levdopmenta th.l.t have
aliowed.he-d!th careto •r.ut gk>lvliiing!



in 200750lne 750,000Americ;m• trnveled abtatd fot

fotec-...ting the numbers to te;i.ch 10 million by 2012,

Arethere ;myri:sh=otion tihe-.ilth c;ae!Cm th.... risb be mitigated!

$Z'iO,oo::>, re.pectivdy.Forr... t andJun."are nvt alone;
mOOical treatment.The coruulting companyDebi� ii

Who benefit. from the glob..IG.tion ufhealth cw:..?
Who w:e theW...,nl

tr.tvde>q>en..,s.H..dtho.., operntiombo:..n donieinthe
United States, they wonld h;i.v<' coot $45,000 ;ond


On ba\;mce, do you think that 1he globali.-..tion of
health care i• a goodthing, ornnr?

whkhwould heworth ahout$2lhillion tn 1h..,...,na­
rion:iwherethe procedure•ar<'p..tfonno:d.
Smne1night hewnrricd ahout the qualirynfmr:dkal

<:are in oihcrC()llntries, hut medical tnuri1U l}T>kally fl"
t.> new hospitals, 1un11t nfwhich are ptivate, where

h�hly �killed physicians treat them, in.any nfwhotn
tralnedintht:UnltedState11MBritaln.The 1lvee�
reciplen1C()ll ntrie1,>fAmeticanracients areMexkn
( due tn iu pmximiry), India (wh�re 450,000 were
treated in 2007), and Singapore (whet� more 1han

Longer, end-of-part cases allow for more in-depth

A number of facto!'!! are drivingth.eglohalimtinn

with the •kills o.nd qw.\iflc;i.tl()fi:j t""-!uiled toJc-.u.I TD0<.11·
lll<'"'111 rh.l.t ra<.llologi:s� ..re expemiv..; om Ame1i<:"o111 r�·


IQ. C..lvin,"Think Ynur JM Can't &Sent In lndla!"' "''""""·
Decen1ber 13,2004,p. 80; A. P.;,lb.d:,"Wh.;,"11\ctdini Your
X·R•y,"T'l•Ner 16,2003.Pfl.l.9�.
Anooy1000","Sun,•nJ1nJ1<:11ipels'", Tilt&ollW!i11,
TM &momm, August 16ch,2008. rP i+-76. It Beiley,"Hips
Abrnad",Roo."'"• Mar 2M . po.W"l+.

study of international companies.

Focus Boxes and Exercises


Country Focus
Each Country Focus example provides back­
ground on the political, economic, social, or
cultural aspects of countries grappling with an
international business issue.

Chavez's Venezuela.
Hugo CMvez. a former m•11ary officer who was once
ja�ed for engir1eer1ng a lailedcoup attempt,waselected

"worltn addt!ion,lhegoye
p1es1de111 of Venezuela 111 1998Chavez.a self-atyled

larmsand•andlestha1Ctisvez cla1msarenot sufficiently

democratic soc.alist won Ille iuesid&nul election by

produclN&,1uminglllllmintostatE1-DV1med cooperawes

campa.igning �irnr1 comJption, e«ioomic misrnanag�


111 2004, the wotld o; mar1c&t bailed Chavez out of

ment, afld thil "Mrsh rnahlies" of global capita�sm

moun1111g economic difficul�es. Oil prices started to

When he took office in February 1Q99,Chavez claimed he

surgelrom lhek:m$20s.reaci11ng$150 a barralbym
had inherited the worsle
2008,and\fenezuela.t00world.s filth·largest producer,

try's recent h�tory_ He w1S11't tar oft the mark_ A collapse

started toreap a bonanza On the badcolsurging oilex­

in the priceol oil,whidi8CCOUnted lor70 percent of the

ports,lhe ecooomy grnwat a robust rate_Chavezused

country's exports,lelt\lenezuelo with a large budget def�

theoil reven:.iwto�government spending onsod11I

citandkm:edthe economyir1lDadeep recession

programs, many ot them modeled alter programs in

Soon aftertlikingollic:e.Chavezworlced to consolidate

Cuba_ As a result, the government's share of GDP in-

h1s hold overthe a;ip;ira!usof govemment A constituent

creased lrnm 20 percent at the end of the 1990s to

assembly,OOmina!ed byChaw• followers,drafted a new

almost 40 pi!l<:enl ;,, 2008_ Chave• also extended gOY-

coMtitution that Slrenglhened the powers of the pres�

emme111 colllrd cve< foreign oil producers doing busi.

dency and alb.Yvd Clmoei. !•I roolectedl lD stay in office

nws in \kflQi.uela. which he accused of makir1g otJISi�

until2012.Sul>$equently.the nahoni1l co"11reSS,wh1ch

proli!$ 1l the expense ot a poornatio11 ln2005, he an·

was controlle
nounced an increue on tlle royalties the gOV<1rrom<1nt

sure allow1'1Q the govemment 10 remove and apf)Oint

would collect l•om od Siles from 1 percent to 30 per-

Supreme Court JtU!ices. etteclivety mcreasing Chavez's

cenl.and he ir1c1ened ltie tu rate on sales from 34 to

hold ov&r 100 judicW1ry.Chavez also &�tended govern-

!';0 percent In 2008. h& announced plans to reduce the

ment control°"'"' the

B y2009, Freedom Housa.

stakes held


lornign companies in o� projects ;,, the

which 1noo11ty ll!lsesses pohbclll and civil liberties world-

Orinoco regions and to yiw the state-run oil ccmpany,

wide, concluded Venezuelo was only "p11rtly free" and

Petroleos deVeneruelo SA, a ma)Ofity position_ However,

that freedoms were beifl'J progres>rivety curtailed

despite stmng global demand,oil production inVenezuel1


On the economic: tront things rerrw ned rough.The
economy ahrank bv9 percent in2002 and another 8pef
cent in20ro.Unemployment 1emai1ed persistently high
at 15 to 17 percent end the pwerty rate roae to more

appears to be lllippifl'J, having faMen every year since

l prices

2006. Moreover. wtien oi

fell in 2009-2009,

theVenezuelan economy went into reverse,shrinking by
3.3 percent in2009Wld2.Bpercent in2010


than 50 percent of the population.A 200 3 study by the

Aidifl'J a WiNe of popu arity at home. in December

World Ban� concluded Venezuel.i was one of the moat

2000Cll!rfflz won reelection as president.He celebrated

regulated ecooomies ln the world and thatstate control3

hl3 vietory bvstepping on the revolutionary accelerator.

co.ter business octMlies {l8Ye ptiblic officials ample oppof

Pariamefll {IB'le him the

!t.lnitles lo enrich themset.ea by demanding bribes in re-

power 10 legislate bvdecree for
IS moflltls,arid 11 committee ol hi� SUPPOrters $10rted lo

1urnfor p&rmission 1o oxpend opora1ions or ont&rMw

draftaeonstitutional reformtoMn V&n&Zuola inlo an

avowedty50eialis1 coun1ry andto allow thilpriuident to


rhetoric, Transparency ln1ematt0na , wtlich ranks the

standlor reelect1oo indelmitefy Hawever, 1n a 31gntlwlt

wor1d's nat<0rur11Ccordino;ito the exteflt of public corrup-

Chawz's popula.-ity has l m1ts, 1n a December 2,2007,

tion,h1snotedttmc..-ruption lwls1ncra11sedunderCh11Vez

n1tiormide relerefldum.\fe.nezuel1n voters Mrr""'ty re-

ln 2011. Trnrniparency International ranked Venezuela



jected a revised constitution that would have placed

164 outof 178n1tions,dow11 from 114 n2004.Coosis-

morepower inCha.....,· shands Despitethis,in late2010

tent wrthhis sociakstrhe!Ofic:,Cl>ll v ezhas progress1vely

Chavez yet again persuaded the National Assembly,

taken vartous enterprises into stale ownership and

where his SllllflOl'ters dominated. to once more grant

has required that other ente1prises be restructured as

him the power ro rule by decree for another 18months!

Management Focus
Starbuchhas big plans l0<0liM_ lt ba�eves tOO!ast-

company m ShaAghai in 1999, before Starbucks en-

Qrowirig nalion will be<:ome ttie company's second-

tered lhe cily_ ·1 hadn't heard of Starbocks at the lime�

largest market after lhe Unitsd States. Starbucks

claimed the mano�e<."so how could I imitate its brand

ent11r!ld the count1y in 1999,and by th& end of2:007 it
had more than 300


But in China, ce>pycats of wel�

HOWll\<&f, 1n Janwry2006 1 SM�M1 court ruled th11

&stablrshedWestern brarids are common. Starbucks

too laced compehhon from 1 look-alike,Shenghai)(ing

tered ils Chinese name •n 19� The court stated that

Ba Ke Coffee Shop, whose s10
X•rlQ Ba Ke"s use ot the rwime and similar logo was

Stub..ck! format 11gM down to I green-1md-"Nhit&Xing

"cle11rtv m11lic100s"' and constitut&d 1mprop11r comp&I�

Ba Ke circul8r lo11o ttiat mimlc$ Starbucks' ubiquitous

tion.Th& co...-t ocdered Xing Ba Ke to stop using the

lo\lo. Th& n1me also mimics the standard Chin&!&

n.am& and to piiy Stubud:s $62,000 in comp&nsll•on

translation for Starbocb_ Xing means "star"' and Ba Ke

While the money involved her& may be smd, the prec-

sounds like "bucks.
In 20-03. Starbucks decided to soo Xin11 Ba Ke in
Chinese court lor ttedem11rk violations.Xing Ba Ke's

edent is no1.ln a coont1Ywhere violation ol trademarks
has been comroon. the courts seem to be sigiafog 11
shift tOWW'd greater protection of intellechllll properly

11erieral rrwnaoe1 responded by claiming it was just

rights.This is perhaps notslJfprising,sioceforeigngov-

an accident that the logo and name were so similar to

emments ar.d the WOOd Trade Organization have been

thato! Starbud:s.Heclaimed the right to use the logo

poohin11Chir.a hardrecently to start respectingintellec-

and name bec11use Xing Ba Ke had registered as a

tool property rights."

rewulatiMt. The� rep.bMn.sOOl!ge WTO memben m grant Md enforu racuin Lut!na:
at 1"ast 20yean and copyright' la1ting 50f"an. Rich COW\ttiu Md to comply ..;th the
ruleowithina year.PoorGhOOflve yeanofl&fl>CC. andthe vrorypoorcst havelOyearo.l2(For furthnd.-tai!.cf the
TRIPS agreement.""" Ch:.p�r 7.)
ln addition lo lobbying govcmrn=ts,furn. can fi1" law.uito en their own beh<>lf. For
e:rnmp1",Sta.bucks...,n a landrnruitrademarkcopyright caoe in0.ina..gairut a crnt (oee the ocrompanyingManagementFocuofor detail.).Firrno may aJ....chome M stay
out of countries whe,.,intelloctual prcperty lawsare lax,rather than riskh.avingtheir
idea.otolenhy loc.al entrqueneun. Firms al..,need tohe on the alento en...,re that
pirakd copi"" cf their products produced in countries with weak ir.1el1"c1ual property
laW5 don't tum up in thcir home market or in third rountri... U.S. cornrura toltware
gi>mtMicro5Qf1,lor e,.,.,,,ple,di1CCvered that pira1edMicr<>$0l'1ooftw.i.r,.,p rodocedilk­
gallyinlnaihmd.•'>f�rold wcrldwid.- a1 theI<'althin$.

Product tahrty law• �t certain 5afery standatds tc whkh a produc1 must adhere.
Product lllrblllty invfllves hnldin1 a firm r.nd lt!I citken re.•poMible when a product
ca.us injury,d.ath,ordamat:e. Product liability can be much p•:ouer if a product <3.oeo
notconforrnto requircd...fety standards.&theivilanderimiMl produc.tllabilityb"'"
exiot Civil laws callfor rovment Md monetary damage.•. Criminal liahiJitybw• re."Wlt
in fW• or impriK>nmcnL Both civil and crimim1l liability !"""' arc probably more

Management Focus examples further illustrate
the relevance of chapter material for the practice
of international business.


mplications for Managers


exteruive in the United States thm in any other COW\try, altho� many other We&t·
cm n:i.ti(ln! alM"> h:i.ve c.oml'reh��ive li�hility laws. l!:i.hility la"" are tV(lic.illy lc:i.exteruive inless dcvdopf.:dn.ations •."'. boomin produetliability suitsandaw;irdsinthe
United States reoubcd in a dnm.atic incrcaoe in the cost of liability Uuuraru:e .Many
hu:1ine'" accutiv� ai"Jllt' thur me high roo;t?< r>f li:i.hility inncsscs lcss cornpe[itivc in the global marl:cetplace.
ln addition tnthe c.omroetitivenes• i""ue,country differencc.< in Jl",d""t safety :i.nd
liability law• raise an important ethical issue fur firm• doing bmine&S abroad. When
11rodtict!l;lfct\'fawsorctnuehcrinafirm"h"mc countryth:i.ninofnreigncnuntty or
when liability laws arc more lax, should a firm doing bmin� in that foreign munlry ful­
fow the 1n<1rc rcla>
    ncbrd• M •hould it :i.dhere tn the counttylWhile the erhic.althina:tnd<>i•undouhud!yto:idhcrcrnh-�ntry
    danh,firms have bun known w tah advantage of lax safety and liahi\ity Jawg to &
    hu•in.,,.• in;:i.m;mn"1i:hat wouldnothc allt.wul:i.thome.

    At the end of each chapter in

    Parts 2,


    and 4-where the focus is on the environment






    particular firms-sections titled "Implications
    for Managers" clearly explain the managerial
    implications of material discussed in the chapter.

    The material discll5sed m this chapter has twobrood implic.iillons for m1emR­
    tionalbu:line.ss.First. the political. economic.11.nd�g11l systems of a co1S1try
    raise important ethicalissuesthathave im?lications lorth!!iwacticeofinle<­
    nntioMlbu:liness.For example.what ethical implkations are associated
    with doing business in totalitarian countries where citi2e11Sare denied
    basichumanrio;llts.corruption is rampant.andhribes arenecessarytogain
    permission to doblJ3iness? Is it right to operate in s11ch 11. setting?Afull
    ciscllS.'lion of lhe eth1cal implications of countrydillerences in polihcalecon·
    omvis reseived forCha11ter5.wtierewe explore ethics in internatioMlbusiness in
    Second.the p.0li�l economic, and legal environmenu ol a countrvclearly influ­
    erice the attractiveness ol thal coontry aaa market or investment sile. Thebenehts.
    coste.and rlskausoclatedwlth doingbuslMuln a counuvare a funcriofi of that
    countrv'apo�tkaL economic.and legal systems.The overd attrac1Neness of a country
    as a marldoingb1JSiness in th11.l coun!fVagainst the likelycosts11.nd risks.Since this chapter
    is the lirst ol two dealingwi1h issues ol political economy.we w1lldelaya detailed
    discussion ol how 1M>litical economy imPl'cts thebenefits. costs. 1md risks ol doing
    business in d1fferenl m1tion- statesuntil the end of the next dlo0pte<.when wehave a
    fullgrasp ol alt lhllrelevantvan..bles thatare importantfor us11ssingbe1111liH.costs.
    and risks
    For now. other thingsbeing equal. a nation with democratic political instit>ltioos. a
    - ased economic system. and strong legal system !hilt protects property rights
    andlimits corruption is clewtvmoreattractive as a placeinwhichto dobusioosslh1111a
    nation tMt ladr.OOmocralic institutions.whera ecooomicact;.,ityis hewily"'!lul.itedhy
    th!!3tate.andwh!!re co�ptionism.mpant andtheruleol law is not respocled.Onthis
    basis,lorelUlmplie.Polond is abett1JJp laceinwhichto dobu$iness 1Mn lh<:1Vooewel•
    o!HugoCMYuid. thand eVtherearen•1&r11enurnbers ofsuue--owned enterprises.yet m1nvWes,ernbusinesSfeelthat theymwt lnve$1 inCllina.Th
    globalEDGE Research Task
    Using the text and the globalEDGE website,
    http://globaledge.msu.edu, students solve realistic
    international business problems related to each


    RcadtheC:w.mtryfothenanswer thefoll.owini:questions:


    Ho..-..ill the highJ,,..,.l o(p'1>lic conuption
    inVcnc:ucla impoctfurur.:i:rowthratcll!

    Under Chave:i:'' leadership. what hnd <>f
    economicrystem io bcing put in place in
    Vene:i:uelalHow woctld you charactcrilc the
    political system?


    Currently Vcnauel.a is benefiting from a
    boom in oil pric.,,,. What do you think

    chapter. These exercises expose students to

    Ra1aarcb Task u ,..., •OG•

    the types of tools and data sources international

    Use the 111.obalEOOE"" site ro 'ompletc the fullowinf,:







    ln your c.tim:ltilln, what is the long-run
    prognoois for tho: Vennuelan =IT!\'l 1'
    tht.a collllttyth:ir.is attrnctive ro intema­

    h. How & yoct think that Chavei' unibtcral
    change• to contrnct• -..ith foreign oil com·


    National Differences in Political Economy

    "Thc dcfinition of word•and political.ideasrnnhavcdif­
    fercntmeaningsin different contcru ..orld..;de. Infact,
    litkal.right?1andcivil lihcrticoaroundthcworld.Pmvkle
    a dCl'Cription ofthil!ourvcyand a rani:ing( inmm• ol
    "frt.dnm�) of the world's kadcr:. ..nd lawink Whatfac­
    toro au token into tomideration in thioourveyf

    Mark•t Potmtial Iruiu {MPI) is a yearly study con­
    ducted by thc Michig:;m State Univenity Centcr for
    lntcrnatiorutl Businc"' Educ.a1iCIBER) to compare emeri)ng marb:ts on a variety of
    dimensions. Provide a dn.criplion of the indkaton
    u•cdinthe index.Whichofth.:indicaro"' wouldh:ive
    grcater importancc for a company lhat market•laptop
    computers? Considering thc MPI mnkini:s,which de­
    velopingco1mtrico-..auklyouadvisc!t.lch a companyto

    One,.11y th:it expera analyze tonditions in emerjing
    m;i.rkets t1 through the UM' of e.:onomk indicators. Tht

    Indonesia-Asia's Stumbling Giant
    ln.donc1ia is a va•l c0lmtry.lt1 220million.,.--0ple are
    srrcad 0C1tovcrwme 17,000L•land. that,;pan an arc
    J,200 mile• long from Sumatra in the ...,,, to lrian

    "cronycapitalism,"u•ing hio comm.andolthe politkal
    •ye,,. and family.

    )aya in the ea1t.lt i• the worldllm0!!tl""f'uln"'M"'­
    lim nation-ome85.,.-rtent <:>f lhc-population count
    thcm:;e!vu asM�'1im1�ut aloe ooe o( the rn"'t eth•
    nkally dtvcn.e.MorctlumSOOIAAgW1paretp0ken
    in the country,and �cparatL,a arc active in a number
    olprovinces.For30year1 t\w.1trong arm olPreiident
    s..ha!"tllh cldthL� srrawlini: nati(ln�hcr. Suhr.rro

    ln the end,Suha!"tllwao ovcn:aUn hynt:>S$ive&ba
    that ln.don.-oia had accumubtted during th..1?90..ln
    1997,the InMn.,,.ian wmorny went ir>tn a tailsJlin. The
    Jn1emattonalMoru:t�rvfund iteppedinoritha$4Jbil­
    lion reOGuepacbae.When it w:is revealed that much ol
    thii money found iu w;iy into th..pcrs<:>nal coffe!! of
    Suharto and.bi! cronie1, pc<)(llcto<>k to the strceu in

    W:'L� a vim.llil.l dictator whowao baclcd by thc rnillw-y
    catablllhrnent. Under hil!rule, the lndoneoian ccon­
    omy grew steadily,hut there was a cost. Suharui bru­
    tally "'pre,..,d internal di,.ent. He wa• also famou• for

    prot.st andhc w.uforccd torcoJv>.
    ()U•&mocrn.cy,culminatini: in October W04 with the

    Supplements for the Instructor
    Online Learning Center (OLC)­
    A password-protected portion of the book's
    website will be available to adopters of International
    Business, featuring online access to the instructor's

    manual, PowerPoint presentations, video cases,
    and globalEDGE answers. Instructors can also


    view student resources to make more effective

    A new Video collection features recent news

    supplementary assignments.

    footage. V ideos correspond to video teaching
    notes accessible on the instructor's side of the

    For students, this website also provides rich

    Online Learning Center.

    interactive resources to help them learn how to
    practice international business, including chapter

    An updated Instructor's Manual and Video

    quizzes and interactive modules.

    Guide (prepared by Veronica Horton) includes

    course outlines, chapter overviews and teaching
    suggestions, lecture outlines, ideas for student
    exercises and projects, teaching notes for all

    Test Bank

    cases in the book, and video notes.

    T he Test Bank contains over 100 true/false,
    multiple choice, and essay questions per chapter,
    each tagged to the Learning Objectives, page
    number, level of difficulty, AACSB, and Bloom's
    Taxonomy standards.

    Two sets of slides per chapter (one prepared by
    Veronica Horton, one by Steve Lawton of Oregon
    State University) feature original materials not
    found in the text in addition to reproductions of
    key text figures, tables, and maps.





    Less Managing.
    More Teaching.
    Greater Leaming.

    Access and review each response; manually
    change grades or leave comments for students to
    Reinforce classroom concepts with practice tests
    and instant quizzes .

    Instructor Library The Connect International Business

    ternational Business is an

    Instructor Library is your repository for additional re­
    sources to improve student engagement in and out of
    class. You can select and use any asset that enhances

    online assignment and assessment solution that con­
    nects students with the tools and resources they'll need

    your lecture. The Connect International Business Instruc­
    tor Library includes:

    McGraw-Hill Connect In-

    to achieve success.
    McGraw-Hill Connect International Business helps
    prepare students for their future by enabling faster
    learning, more efficient studying, and higher retention
    of knowledge.


    Instructor's Manual

    PowerPoint files

    Answers to the end-of-chapter globalEDGE
    Research Tasks

    McGraw-Hill Connect International
    Business Features
    Connect International Business offers a number of pow­
    erful tools and features to make managing assignments

    International Business Newsletter archives

    Access to interactive study tools such as Business
    Around the World, Drag-and-drop maps, the Global
    Business Plan, and iGlobe

    easier, so faculty can spend more time teaching. With
    Connect International Business, students can engage

    with their coursework anytime and anywhere, making
    the learning process more accessible and efficient.
    Connect International Business offers you the features

    described below.

    Simple Assignment

    Management With Connect

    Student Study Center The Connect International
    Business Student Study Center is the place for students

    to access additional resources. The Student Study

    International Business, creating assignments is easier

    than ever, so you can spend more time teaching and less
    time managing. The assignment management function
    enables you to:

    Offers students quick access to lectures, practice
    materials, e-books, and more.
    Provides instant practice material and study ques­
    tions, easily accessible on the go.
    Gives students access to the Personalized Leaming
    Plan described below.

    Student Progress Tracking Connect International Busi­

    selectable end-of-chapter questions and test
    bank items.

    ness keeps instructors informed about how each student,

    Streamline lesson planning, student progress re­
    porting, and assignment grading to make classroom

    section, and class is performing, allowing for more pro­
    ductive use of lecture and office hours. The progress­

    Go paperless with the e-book and online submission and grading of student assignments.

    Smart Grading When it comes to studying, time is
    precious. Connect International Business helps students
    learn more efficiently by providing feedback and prac­
    tice material when they need it, where they need it.
    When it comes to teaching, your time also is precious.
    The grading function enables you to:

    Create and deliver assignments easily with

    management more efficient than ever.

    Videos and Instructional Notes

    Have assignments scored automatically, giving
    students immediate feedback on their work and
    side-by-side comparisons with correct answers.

    tracking function enables you to:

    View scored work immediately and track individ­
    ual or group performance with assignment and
    grade reports.

    Access an instant view of student or class perfor­
    mance relative to learning objectives.
    Collect data and generate reports required by many
    accreditation organizations, such as AACSB.

    Lecture Capture Increase the attention paid to lec­
    ture discussion by decreasing the attention paid to note
    taking. For an additional charge Lecture Capture offers
    new ways for students to focus on the in-class discussion,

    knowing they can revisit important topics later. Lecture
    Capture enables you to:

    Record and distribute your lecture with a click of

    Record and index PowerPoint presentations and


    Educators know that the more students can see, hear,
    and experience class resources, the better they learn. In
    fact, studies prove it. With Tegrity Campus, students
    quickly recall key moments by using Tegrity Campus's
    unique search feature. T his search helps students effi­
    ciently find what they need, when they need it, across

    anything shown on your computer so it is easily

    an entire semester of class recordings. Help tum all your

    searchable, frame by frame.

    students' study time into learning moments immediately
    supported by your lecture.

    Offer access to lectures anytime and anywhere by
    computer, iPod, or mobile device.

    Increase intent listening and class participation
    by easing students' concerns about note taking.
    Lecture Capture will make it more likely you will
    see students' faces, not the tops of their heads.

    McGraw-Hill Connect Plus International Business
    McGraw-Hill reinvents the textbook learning experi­
    ence for the modem student with Connect Plus Interna­
    tional Business. A seamless integration of an e-book and
    Connect International Business, Connect Plus International
    Business provides all of the Connect International Business

    features plus the following:

    To learn more about Tegrity watch a two-minute
    Flash demo at http://tegritycampus.mhhe.com.

    Many educational institutions today are focused on the
    notion of assurance of learning, an important element of
    some accreditation standards. International Business is
    designed specifically to support your assurance of learn­
    ing initiatives with a simple, yet powerful solution.
    Each test bank question for International Business
    maps to a specific chapter learning outcome/objective
    listed in the text. You can use our test bank software, EZ
    Test and EZ Test Online, or Connect International

    An integrated e-book, allowing for anytime, any­
    where access to the textbook.

    Business to easily query for learning outcomes/objectives
    that directly relate to the learning objectives for your

    Dynamic links between the problems or questions
    you assign to your students and the location in

    Test to aggregate student results in similar fashion, making

    the e-book where that problem or question is

    the collection and presentation of assurance of learning
    data simple and easy.

    A powerful search function to pinpoint and connect key concepts in a snap.


    In short, Connect International Business offers you and
    your students powerful tools and features that optimize
    your time and energies, enabling you to focus on course
    content, teaching, and student learning. Connect Inter­
    national Business also offers a wealth of content resources
    for both instructors and students. T his state-of-the-art,
    thoroughly tested system supports you in preparing stu­
    dents for the world that awaits.
    For more information about Connect, go to www.
    mcgrawhillconnect.com, or contact your local McGraw­
    Hill sales representative.

    g r ly.

    McGraw-Hill Higher Education and Blackboard have
    teamed up. What does this mean for you?
    1. Your life, simplified. Now you and your students

    can access McGraw-Hill's ConnectTM and Create TM
    right from within your Blackboard course-all
    with one single sign-on. Say goodbye to the days
    of logging in to multiple applications.
    2. Deep integration of content and tools. Not only
    do you get single sign-on with Connect TM and
    Create™, you also get deep integration of
    McGraw-Hill content and content engines right

    Tegrity Campus is a service

    that makes class time avail­
    able 24/7 by automatically
    capturing every lecture in a searchable format for
    students to review when they study and complete assign­
    ments. With a simple one-click start-and-stop process,
    you capture all computer screens and corresponding
    audio. Students can replay any part of any class with
    easy-to-use browser-based viewing on a PC or Mac.

    course. You can then use the reporting features of EZ

    in Blackboard. Whether you're choosing a book
    for your course or building Connect TM assign­
    ments, all the tools you need are right where you
    want them-inside of Blackboard.

    3. Seamless Gradebooks. Are you tired of keeping
    multiple gradebooks and manually synchroniz­
    ing grades into Blackboard? We thought so. When
    a student completes an integrated Connect TM
    assignment, the grade for that assignment auto­
    matically (and instantly) feeds your Blackboard
    grade center.

    4. A solution for everyone. Whether your institu­
    tion is already using Blackboard or you just want
    to try Blackboard on your own, we have a solution
    for you. McGraw-Hill
    and Blackboard can
    now offer you easy ac­
    cess to industry leading
    technology and content, whether your campus
    hosts it or we do. Be sure to ask your local
    McGraw-Hill representative for details.

    this textbook. The AACSB leaves content coverage and
    assessment within the purview of individual schools, the
    mission of the school, and the faculty. While International
    Business, 9th edition, and the teaching package make no
    claim of any specific AACSB qualification or evalua­
    tion, we have within International Business, 9th edition
    labeled selected questions according to the six general
    knowledge and skills areas.




    The McGraw-Hill Companies is a proud corporate
    member of AACSB International. Understanding the

    At McGraw-Hill, we understand that getting the most
    from new technology can be challenging. That's why our

    importance and value of AACSB accreditation, Interna­
    tional Business, 9th edition recognizes the curricula

    services don't stop after you purchase our products. You
    can e-mail our Product Specialists 24 hours a day to get

    guidelines detailed in the AACSB standards for business
    accreditation by connecting selected questions in the

    product-training online. Or you can search our knowl­
    edge bank of Frequently Asked Questions on our sup­

    test bank to the six general knowledge and skill guide­
    lines in the AACSB standards.
    The statements contained in International Business,

    port website. For Customer Support, call 800-331-5094,
    e-mail hmsupport®mcgraw-hill.com, or visit www.mhhe.
    com/support. One of our Technical Support Analysts

    9th edition, are provided only as a guide for the users of

    will be able to assist you in a timely fashion.


    This page intentionally left blank





    Introduction and Overview

    After reading this chapter you will be able to:


    Understand what is meant by the term globalization.


    Recognize the main drivers of globalization.


    Describe the changing nature of the global economy.


    Explain the main arguments in the debate over the impact
    of globalization.


    Understand how the process of globalization is creating
    opportunities and challenges for business managers.

    Legal Outsourcing
    Sacha Baron Cohen, the irreverent British comedian

    noted that without legal outsourcing to somewhere such

    whose fictional characters have included Borat, Ali G,

    as India, mounting a defense against this kind of lawsuit

    and Bruno, is no stranger to lawsuits, including several

    would not have made economic sense. The defendants

    from members of the public who claimed they were

    would have simply paid the plaintiff to go away to avoid

    duped into appearing in his 2006 film, Borat: Cultural

    paying U.S. legal fees, even though the case had no

    Learnings of America for Make Benefit Glorious Nation
    of Kazakhstan. In 2009, Cohen was sued yet again, this

    merit. But with a team of excellent Indian attorneys

    time by a woman who claimed Cohen defamed her dur­

    it was less expensive to fight and win the suit than it was

    ing a sketch in the Da Ali G Show, in which Cohen plays

    to settle out of court.

    trained in U.S. law doing a major chunk of the legal work,

    the linguistically challenged rap star Ali G. Like most

    Legal outsourcing to places such as India and the

    other suits against Cohen, this one was dismissed. In

    Philippines is growing. Although the amounts involved

    rendering his opinion, Los Angeles Superior Court Judge

    are still small-estimates suggest that of the $180 billion

    Terry Friedman stated, "No reasonable person could

    Americans spend on legal services each year only about

    consider the statements made by Ali G on the program

    $1 billion is outsourced-the growth rate is high at 20 to
    30 percent annually. The driving force has been spiraling
    legal fees in the United States. Between 1998 and 2009,

    to be factual. It is obvious that the Ali G character is
    absurd, and all his statements are gibberish and intended
    as comedy."
    An interesting aspect of this case was that the major­

    hourly rates at big American law firms shot up more than

    65 percent, according to industry sources.

    ity of the preparatory work was done not by lawyers in

    Faced with escalating costs, law firms and corporate

    Los Angeles but by a six-member team of lawyers and

    law departments are exploring outsourcing. Some legal

    legal assistants in Mysore, India. A veteran media lawyer

    tasks cannot be done cheaply. If the fate of your company

    hangs on the verdict. you will probably want a brilliant

    underlies American law. Also, educated Indians speak

    lawyer to argue your case. However, plenty of legal tasks

    good English, and the 10- to 12-hour time difference be­

    are routine. These include reviewing documents, drafting

    tween India and the United States means that work can

    contracts, and the like. American law firms typically use

    be done overnight in India, increasing responsiveness

    fresh law graduates to do such grunt work, billing them

    to clients.

    out at steep rates to generate lots of profit for the firm.

    Pangea3 serves two kinds of clients, corporations and

    The 2008-2009 recession promoted clients to rebel

    U.S. law firms seeking to outsource routine legal work

    against this practice. Increasingly, clients are pushing

    to low-cost locations. Some 75 percent of its business

    their law firms to drive down legal costs through out­

    comes from Fortune 1000 companies, while the rest

    sourcing. While hourly rates for U.S. lawyers doing grunt

    comes from law firms. Pangea3's value proposition is

    work can run from $100 to as high as $500, lawyers in

    simple: It helps companies and law firms improve their

    India will do the work for between $20 and $60 an hour,

    efficiency, and minimize their business and legal risks, by

    resulting in significant cost savings.

    having routine, labor-intensive legal work that requires a

    One major beneficiary of this trend has been an out­

    low degree of judgment done in India. Most industry ex­

    sourcing company known as Pangea3. Founded in 2004

    perts believe that in the short to medium term, compa­

    by David Perla, the former general counsel of Monster.

    nies such as Pangea3 will see their market opportunity

    com, Pangea3 has headquarters in New York and Mumbai,

    expand from about $1 billion today to $3 billion to $5 bil­

    India, and a staff of more than 450. India is favored

    lion by decade's end. In anticipation of this rapid growth,

    because local universities produce a steady stream of

    Thomson Reuters, one of the world's largest media

    lawyers trained in common law, which is the legal tradi­

    and information services companies, bought Pangea3 in

    tion India inherited from the British. The same tradition

    November 2010.1