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SI X T H EDI T I ON INTERNATIONAL BUSINESS SI X T H EDI T I ON Alan M. Rugman & Simon Collinson This sixth edition of International Business delivers a comprehensive guide to the subject from authors who keep pace with the ongoing developments in both theory and practice. Simon Collinson is Professor of International Business and Innovation at the Henley Business School, University of Reading. Cover photograph: © 3D Stock Illustrations / Alamy CVR_RUGM0979_06_SE_CVR.indd 1 • a brand-new chapter on Innovation, Entrepreneurship and “Born Global” Firms with cases on Facebook, Spreadshirt and SetJam • the core set of analytical frameworks in international business that bridge theory and practice • 105 case studies drawn from a wide range of sources, updated for this edition • practical tools, like the “weighted country risk assessment” model, for real-world decision making • a large set of bibliographic and web-based resources for independent research. Visit the companion website at www.pearsoned.co.uk/rugman to find valuable online teaching and learning resources Alan M. Rugman & Simon Collinson Alan M. Rugman is Professor of International Business and Head of the International Business and Strategy Group at the Henley Business School, University of Reading. • a new five-part structure emphasizing a strategic leadership approach to international business SI X T H EDI T I ON It has been restructured to lend greater emphasis to the strategic challenges of international business. The growing importance of emerging economies, such as China, India and Brazil, is reflected in specific chapters and case examples that help students understand how these countries are changing the competitive dynamics of global business. This links to a new focus on innovation, adaptability and entrepreneurship as necessary strategic capabilities for firms large or small, from mature, emerging or developing economies. The book provides essential material for the successful study of international business: INTERNATIONAL BUSINESS Business is becoming increasingly international, as the interaction, exchange and interdependence between nations, firms and people around the world keeps on growing. Our complex, fast-moving global economy continually throws up new management and leadership challenges, which require clear thinking. This textbook connects tried-and-tested theory, analytical frameworks, data and case examples to help students of management meet these challenges. INTERNATIONAL BUSINESS Alan M. Rugman & Simon Collinson www.pearson-books.com 20/03/2012 16:00 INTERNATIONAL BUSINESS Visit the International Business, 6th edition Companion Website at www.pearsoned.co.uk/rugman to find valuable student learning material including: A01_RUGM0979_06_SE_FM.indd i ● Multiple choice questions to test understanding ● Extensive links to valuable resources on the web ● An online glossary to explain key terms ● Electronic ‘flashcards’ to check understanding of key terms and definitions during revision 3/6/12 11:10 AM A01_RUGM0979_06_SE_FM.indd ii 3/6/12 11:10 AM INTERNATIONAL BUSINESS SIXTH EDITION Alan M. Rugman Henley Business School, the University of Reading Simon Collinson Henley Business School, the University of Reading A01_RUGM0979_06_SE_FM.indd iii 3/6/12 11:10 AM Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.com/uk First published by McGraw-Hill, Inc. 1995 Sixth edition 2012 © Pearson Education Limited 2000, 2012 The rights of Alan M. Rugman and Simon Collinson to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without either the prior written permission of the Publishers or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in the text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Pearson Education is not responsible for the content of third-party internet sites ISBN 978-0-273-76097-9 (Print) I SBN 978-0-273-76100-6 (PDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Rugman, Alan M. International business / Alan M. Rugman, Simon Collinson. — 6th ed. p. cm. Includes bibliographical references and index. ISBN 978-0-273-76097-9 1. International business enterprises—Management. I. Collinson, Simon. II. Title. HD62.4.R843 2012 658’.049—dc23 2012001440 10 9 8 7 6 5 4 3 2 1 16 15 14 13 12 Typeset in 10/12.5 pt Minion by 73 Printed and bound by Rotolito Lombarda, Italy. A01_RUGM0979_06_SE_FM.indd iv 3/6/12 11:10 AM CONTENTS IN BRIEF List of Illustrations Preface About the Authors Guide to the Case Studies Guided Tour Acknowledgments xv xviii xxi xxiii xxx xxxii Part One THE WORLD OF INTERNATIONAL BUSINESS Chapter 1 Chapter 2 Chapter 3 Regional and Global Strategy The Multinational Enterprise The Triad and International Business 3 36 71 Part Two THE ENVIRONMENT OF INTERNATIONAL BUSINESS Chapter 4 Chapter 5 Chapter 6 Chapter 7 International Politics International Culture International Trade International Financial Markets and Institutions 103 132 164 199 Part Three INTERNATIONAL BUSINESS STRATEGIES Chapter 8 Chapter 9 Chapter 10 Chapter 11 Multinational Strategy Organizing Strategy Corporate Strategy and National Competitiveness Innovation, Entrepreneurship, and “Born Global” Firms 243 272 300 331 Part Four FUNCTIONAL AREA STRATEGIES Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Production Strategy Marketing Strategy Human Resource Management Strategy Political Risk and Negotiation Strategy International Financial Management 363 399 430 462 497 Part Five REGIONAL STRATEGIES Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Glossary Index European Union Japan North America Emerging Economies China Corporate Ethics and the Natural Environment 537 569 605 637 669 700 728 738 v A01_RUGM0979_06_SE_FM.indd v 3/7/12 8:51 AM CONTENTS IN DETAIL List of Illustrations Preface About the Authors Guide to the Case Studies Guided Tour Acknowledgments xv xviii xxi xxiii xxx xxxii Part One THE WORLD OF INTERNATIONAL BUSINESS Chapter 1 Regional and Global Strategy 3 Objectives of the chapter 3 ■ Active Learning Case Coke goes worldwide with a local strategy Overview of the book Country and firm factors International competitiveness and firm strategy Globalization Regionalization Introduction World business: a brief overview Exports and imports Foreign direct investment The triad Today’s international environment International trade regulation Technology 4 5 5 6 7 7 7 8 8 10 13 14 15 15 ■ International Business Strategy in Action Amazon.com is not a global business Small and medium-sized enterprises (SMEs) Globalization and strategic management Regional triad strategies Maintaining economic competitiveness Multinationals in action 16 17 17 17 19 21 ■ International Business Strategy in Action Tata The study of international business From general to strategic emphasis Framework for this book Key points 22 25 25 26 28 Key terms Review and discussion questions 28 28 ■ Real Cases Big oil gets bigger Wal-Mart Endnotes Additional bibliography Appendix to Chapter 1 29 30 32 32 33 Chapter 2 The Multinational Enterprise 36 Objectives of the chapter 36 ■ Active Learning Case Disneyland in Europe Introduction The nature of MNEs Characteristics of MNEs Why firms become MNEs 37 38 39 40 43 ■ International Business Strategy in Action Italian family firms The strategic philosophy of MNEs Strategic management and MNEs Strategic management of MNEs: an introduction 44 45 46 46 ■ International Business Strategy in Action Nestlé A framework for global strategies: the FSA–CSA matrix The FSA–CSA matrix It’s regional, not flat Multinationals in action Solectron BMW Levi Strauss Canon Zara Key points Key terms Review and discussion questions 48 49 50 52 52 52 53 54 55 55 58 58 58 ■ Real Cases Starbucks Sony Endnotes 59 60 61 vi A01_RUGM0979_06_SE_FM.indd vi 3/6/12 11:10 AM CONTENTS IN DETAIL Additional bibliography Appendix A to Chapter 2 Appendix B to Chapter 2 62 64 67 71 Objectives of the chapter 71 ■ Active Learning Case 72 74 74 75 76 ■ International Business Strategy in Action Aflac Reduce costs Gain a foothold in economic blocs 77 77 78 ■ International Business Strategy in Action Lafarge and Cemex: concrete multinationals Protect domestic markets Protect foreign markets Acquire technological and managerial know-how FDI and trade by triad members The triad’s domination of FDI and trade Triad FDI clusters Multinationals in action: regional business strategy The world’s regional automotive industry Mergers and acquisitions Key points Key terms Review and discussion questions 79 80 80 81 82 82 82 83 84 92 94 94 94 ■ Real Cases Panasonic and Philips Toys “ R” Us in Europe and Japan Endnotes Additional bibliography 95 96 97 98 Part Two THE ENVIRONMENT OF INTERNATIONAL BUSINESS 103 Objectives of the chapter 103 ■ Active Learning Case A01_RUGM0979_06_SE_FM.indd vii Softwood lumber: not-so-free trade Government–business cooperation Economic integration Trade creation and trade diversion Levels of economic integration Economic integration: an overall perspective Ethics, environment, MNEs, and the civil society 109 110 112 112 113 114 115 ■ International Business Strategy in Action Non-governmental organizations and political power The European Union (EU) Other examples of economic integration Economic integration and strategic management Strategic alliances and acquisitions Localization of business operations Key points Key terms Review and discussion questions 116 118 121 122 122 123 125 126 127 ■ Real Cases How environmental regulations can be used as trade barriers Embraer vs. Bombardier Endnotes Additional bibliography 127 128 130 130 Chapter 5 International Culture 132 Objectives of the chapter 132 ■ Active Learning Case Culture clash at Pharmacia and Upjohn Introduction What is culture? The importance of culture in different business contexts Culture has always been important 133 134 134 136 137 ■ International Business Strategy in Action Chapter 4 International Politics How risky is foreign investment in Russia? 105 106 108 ■ International Business Strategy in Action Chapter 3 The Triad and International Business Boeing versus Airbus Introduction Reasons for FDI Increase sales and profits Enter rapidly growing markets Introduction Political ideologies and economics Government control of assets vii 104 McDonald’s National stereotypes and key dimensions of culture Culture at two levels Hofstede’s four dimensions of culture Trompenaars’ seven dimensions of culture The GLOBE project’s nine dimensions of culture Applying the national culture frameworks 138 139 139 140 141 143 143 3/6/12 11:10 AM viii CONTENTS IN DETAIL “The way we do things here”: the implications of cultural differences for organizations and managers Cross-cultural management Organization Leadership Communication The corporate response Multinational organization structures: imperialist or independent? Culture clash in cross-border M&A and joint ventures 145 147 147 148 148 149 150 151 ■ International Business Strategy in Action Danone and Parmalat—going international, staying local Culture embodied in national institutions France: cultural and social characteristics that create a national distinctiveness Key points Key terms Review and discussion questions 153 155 156 157 157 157 Do not throw your meishi! Sport can be local and global: Manchester United Endnotes Additional bibliography 158 159 161 162 Chapter 6 International Trade 164 Objectives of the chapter 164 ■ Active Learning Case 165 166 167 167 168 170 170 172 ■ International Business Strategy in Action Microsoft shows the world is not flat Barriers to trade Reasons for trade barriers Commonly used barriers Tariffs 173 175 175 175 177 ■ International Business Strategy in Action The courier wars US trade policy Non-tariff barriers to trade Quotas “Buy national” restrictions Customs valuation A01_RUGM0979_06_SE_FM.indd viii 181 182 182 182 183 183 183 184 186 186 187 ■ Real Cases ■ Real Cases Trade of the triad and China Introduction International trade theory Theory of absolute advantage Theory of comparative advantage Factor endowment theory International product life cycle theory Other important considerations Technical barriers Antidumping legislation, subsidies, and countervailing duties Agricultural products Export restraints Other economic developments Countertrade Trade in services Free trade zones Key points Key terms Review and discussion questions 178 179 180 180 181 181 Job losses and offshoring to China Dumping on trade complaints Endnotes Additional bibliography Appendix to Chapter 6: Balance of payments 188 189 190 190 192 Chapter 7 International Financial Markets and Institutions 199 Objectives of the chapter 199 ■ Active Learning Case Barclays Bank international financial dealings Introduction Foreign exchange markets Foreign exchange markets in the United States Determination of the exchange rate Purchasing power parity International Fisher effect Combined equilibrium relationships Other factors determining exchange rates Protecting against exchange risk Alternatives to minimize exchange risk 200 201 202 203 208 208 208 209 210 211 211 ■ International Business Strategy in Action Wall Street and world financial markets Foreign money and capital markets MNEs and national money markets MNEs and national capital markets Regional money and capital markets The eurocurrency market Eurocurrency interest rates Other market characteristics Criticisms of the euromarkets Eurobonds and euroequities 212 214 214 215 215 215 217 217 218 219 ■ International Business Strategy in Action AngloGold Ashanti The IMF system Unresolved problems with the IMF system 220 221 224 MNEs and international financial markets and institutions 225 3/6/12 11:10 AM CONTENTS IN DETAIL Key points Key terms Review and discussion questions 225 225 226 ■ Real Cases HSBC World financial crises Endnotes Additional bibliography Appendix to Chapter 7: Regional aspects of multinationality and performance Introduction Organization structures Early organization structures ix 274 275 275 ■ International Business Strategy in Action 227 228 230 230 233 Part Three INTERNATIONAL BUSINESS STRATEGIES Sanofi-Aventis The international division Global organization structures 277 278 279 ■ International Business Strategy in Action Making matrix work Strategic management and organizing strategy Analysis of key structural variables Coordination Key points Key terms Review and discussion questions 284 287 287 288 293 294 294 ■ Real Cases Chapter 8 Multinational Strategy 243 Objectives of the chapter 243 ■ Active Learning Case Vodafone and the triad telecom market Introduction Strategic orientations 244 246 247 ■ International Business Strategy in Action Arthur Andersen, Accenture, and McKinsey Strategy formulation External environmental assessment Internal environmental assessment Goal setting Strategy implementation Location 249 250 250 254 257 258 258 ■ International Business Strategy in Action Fuji Xerox and Xerox Ownership Functional strategies Control and evaluation Common methods of measurement Key points Key terms Review and discussion questions 259 260 261 262 263 264 265 265 ■ Real Cases Mountain Equipment Co-op: a small business Benetton Endnotes Additional bibliography 266 267 268 270 Chapter 9 Organizing Strategy 272 Objectives of the chapter 272 ■ Active Learning Case Procter & Gamble A01_RUGM0979_06_SE_FM.indd ix 273 LVMH: organizing luxury products in the international arena Command Alkon: a small business Endnotes Additional bibliography 295 296 296 297 Chapter 10 Corporate Strategy and National Competitiveness 300 Objectives of the chapter 300 ■ Active Learning Case Worldwide operations and local strategies of ABB Introduction The single diamond Determinants and external variables Critique and evaluation of the model The double diamond Canada and the double diamond 301 302 302 303 304 306 306 ■ International Business Strategy in Action Nokia and Ericsson Mexico and the double diamond Integration and responsiveness Integration versus national responsiveness 310 311 315 315 ■ International Business Strategy in Action Kodak Balancing the trade-offs Competitiveness in the triad Key points Key terms Review and discussion questions 316 318 320 323 324 324 ■ Real Cases There is no global beer, only local IBM Endnotes Additional bibliography 325 326 327 329 3/6/12 11:10 AM x CONTENTS IN DETAIL Chapter 11 Innovation, Entrepreneurship, and “Born Global” Firms 331 Objectives of the chapter 331 ■ Active Learning Case Facebook: Global and local? Introduction International dimensions of innovation The location of innovation activities in the MNE The innovative MNE as a differentiated network 337 339 340 341 342 344 ■ International Business Strategy in Action Spreadshirt: open innovation Dynamic capabilities and small firms Life cycles, networks, and clusters The practical challenges for internationalizing SMEs How do SME managers know which markets to enter? Modes of entry and adaptation for success in foreign markets Key points Key terms Review and discussion questions 346 347 347 349 349 351 353 353 354 ■ Real Cases GE Healthcare in India: Locally driven innovation SetJam: the mini multinational Endnotes Additional bibliography www resources 354 355 356 358 360 Part Four FUNCTIONAL AREA STRATEGIES Chapter 12 Production Strategy 363 Objectives of the chapter 363 ■ Active Learning Case The GE production process and Six Sigma A01_RUGM0979_06_SE_FM.indd x 365 366 369 370 370 ■ International Business Strategy in Action 332 333 334 335 ■ International Business Strategy in Action Innovation networks at IBM International small-and-medium-sized enterprises (SMEs) What are small firms? The international activities of SMEs International business theory and international new ventures Introduction Research, development, and innovation Speed-to-market Generation of goods and services Global sourcing Gap Inc.: a successful “Hollow Corporation” Manufacturing of goods 372 373 ■ International Business Strategy in Action The dark side of outsourcing: Boeing’s problems with its 787 Developing a strong service orientation International logistics Transportation Packaging Storage Different kinds of global production systems Strategic management and production strategy Technology and production design Continuous improvement Alliances and acquisitions Key points Key terms Review and discussion questions 374 378 380 380 382 383 383 384 384 385 385 392 392 392 ■ Real Cases Flextronics Nike Endnotes Additional bibliography 393 395 396 397 Chapter 13 Marketing Strategy 399 Objectives of the chapter 399 ■ Active Learning Case Volkswagen in the United States Introduction International market assessment Initial screening: basic need and potential Second screening: financial and economic conditions Third screening: political and legal forces Fourth screening: socio-cultural forces Fifth screening: competitive environment Final selection Product strategies Little or no modification Moderate to high modification 400 401 402 402 402 403 403 404 404 405 405 405 ■ International Business Strategy in Action 364 Kola Real Group 408 3/6/12 11:10 AM CONTENTS IN DETAIL Promotion Nature of the product Advertising 410 410 410 ■ International Business Strategy in Action IKEA in international markets Personal selling Pricing Government controls Market diversity Currency fluctuations Price escalation forces Place Different distribution systems Choosing the best distribution system Strategic management and marketing strategy Ongoing market assessment Internet marketing and “open innovation” Key points Key terms Review and discussion questions 411 412 413 413 414 414 415 415 416 416 417 417 421 422 422 423 ■ Real Cases Bang & Olufsen Brazilian soap operas: a world market Endnotes Additional bibliography 423 425 427 428 Chapter 14 Human Resource Management Strategy 430 Objectives of the chapter 430 ■ Active Learning Case The Coca-Cola Company thinks local Introduction Selection and repatriation International screening criteria and selection procedures Repatriation of expats Training and development Types of training 431 432 433 434 436 437 437 ■ International Business Strategy in Action P&O, Carnival, and Dubai Port World Compensation Common elements in an international compensation package Compensation trends and comparisons Labor relations Labor relations practices 439 440 441 442 444 445 ■ International Business Strategy in Action German management and unions Industrial democracy Industrial democracy in action A01_RUGM0979_06_SE_FM.indd xi Strategic management and IHRM strategies Language training Cultural adaptation Competitive compensation Specially designed HRM programs Key points Key terms Review and discussion questions xi 449 449 451 451 453 454 455 455 ■ Real Cases Offshoring to India Executive search firms Endnotes Additional bibliography 456 457 459 460 Chapter 15 Political Risk and Negotiation Strategy 462 Objectives of the chapter 462 ■ Active Learning Case Kodak in China: changing the rules of the game Introduction Generic PEST analysis Political risk Deregulation and political risk The nature of political risk Sources of political risk Country analysis and political risk assessment Online risk information resources Quantifying risk vulnerability Accounting for country risk Negotiation strategies Behavioral characteristics of the participants in negotiations 463 465 465 467 468 469 470 471 471 472 475 476 478 ■ International Business Strategy in Action Political risk for De Beers 479 ■ International Business Strategy in Action Dell goes to Brazil Transparency and corruption: politically sensitive political risk Strategic management and political risk Use of integrative and protective/defensive techniques Key points Key terms Review and discussion questions 481 484 485 486 488 489 490 ■ Real Cases 446 448 448 Yukos and the Russian oligarchs Problems with ports Endnotes 491 492 494 3/6/12 11:10 AM xii CONTENTS IN DETAIL Additional bibliography www resources Chapter 16 International Financial Management Objectives of the chapter 494 496 497 Chapter 17 European Union 537 497 Objectives of the chapter 537 ■ Active Learning Case ■ Active Learning Case British Airways Introduction Determining parent–subsidiary relationships Polycentric solution Ethnocentric solution Geocentric solution Managing global cash flows Internal funds flows Funds positioning techniques Multilateral netting 498 499 501 501 501 501 502 502 503 505 ■ International Business Strategy in Action Tax havens Managing cash 508 509 ■ International Business Strategy in Action Sovereign wealth funds Exchange risk management Transaction risk Translation risk Economic risk An example of exchange risk management Developing forecasting and reporting systems Capital budgeting in the MNE Use of NPV Institutional features International financing in the MNE Financial structure Control: identifying objectives, evaluating affiliate performance, and making performance consistent with goals Strategic international finance Establishing overseas operations Reducing financial risk Alliances Cost cutting Key points Key terms Review and discussion questions 511 513 513 513 513 515 517 518 519 521 522 522 524 524 525 526 526 526 527 528 528 ■ Real Cases Skandia Repsol’s acquisition of YPF Endnotes Additional bibliography A01_RUGM0979_06_SE_FM.indd xii Part Five REGIONAL STRATEGIES 529 530 531 532 France Telecom The EU environment Emergence of a Single European Market The competitive status of the EU Conducting a strategic analysis Using competitive intelligence 538 539 540 543 546 546 ■ International Business Strategy in Action Ford and Volvo Evaluating locations Strategy issues Overall strategic analysis for the EU Exporting Strategic acquisitions and alliances Marketing considerations 547 548 549 549 552 554 554 ■ International Business Strategy in Action Deutsche Bahn: more than a railway Manufacturing considerations Management considerations Barriers to EU market access Key points Key terms Review and discussion questions 555 557 559 559 561 562 562 ■ Real Cases Accor budget hotels Carrefour Endnotes Additional bibliography 563 565 566 567 Chapter 18 Japan 569 Objectives of the chapter 569 ■ Active Learning Case Doing business in Japan Introduction Political, social, and cultural characteristics A traditionally strong government role in the economy Distinctive cultural characteristics Economic characteristics Japan and China: the new Asian powerhouse? Business characteristics Manufacturing strengths 570 572 572 572 573 574 578 578 579 3/6/12 11:10 AM CONTENTS IN DETAIL Strong applied R&D Keiretsu 579 579 ■ International Business Strategy in Action Kirin Beer goes international Distribution, retailing, and customer orientation Japanese corporations A changing nation Restructuring capital markets Deregulation, increased M&A, and inward FDI 582 ■ Real Cases 590 591 Chapter 20 Emerging Economies 637 Objectives of the chapter 637 592 592 593 593 594 595 596 596 596 599 601 602 604 Chapter 19 North America 605 Objectives of the chapter 605 ■ Active Learning Case 606 608 608 609 610 ■ International Business Strategy in Action A01_RUGM0979_06_SE_FM.indd xiii 627 630 631 631 632 633 634 635 Renault and Nissan: no pain, no gain Canon Group Endnotes Additional bibliography www resources Bombardier Canada’s multinationals Multilateral agreement on investment (MAI) Business opportunities in Canada Franchising Mexico Mexico’s economy Mexico and NAFTA Regional trade agreements Doing business in Mexico Mexico and NAFTA Key points Key terms Review and discussion questions Jumex of Mexico GlaxoSmithKline in the United States Endnotes Additional bibliography ■ Real Cases NAFTA Introduction Canada Canada’s economy Differences in the business environment ■ International Business Strategy in Action 583 584 586 587 589 ■ International Business Strategy in Action Wal-Mart takes Seiyu Restructuring corporations The decline of manufacturing and distribution keiretsu The growth of outward FDI and offshore manufacturing The decline of lifetime employment and changing HRM practices Diversification strategies Conclusions Key points Key terms Review and discussion questions xiii 611 616 619 621 623 623 623 625 625 626 ■ Active Learning Case Acer Taiwan goes international Introduction Triad firms and emerging economy firms: why the mutual interest? An overview of emerging economies, by region Asia–Pacific and the Middle East Central and Eastern Europe Latin America and the Caribbean Africa 638 639 640 641 644 648 648 649 ■ International Business Strategy in Action From Oserian to Tesco: the Kenyan cut flower industry Shifting patterns of comparative and competitive advantage Flying Geese model Emerging economies as sources of innovation Market access to the triad 650 652 653 655 657 ■ International Business Strategy in Action Korean chaebols: Hyundai and Samsung Key points Key terms Review and discussion questions 658 660 661 661 ■ Real Cases The Indian IT, software, and services industry Bumrungrad International in Thailand Endnotes Additional bibliography www resources 661 664 665 666 668 Chapter 21 China 669 Objectives of the chapter 669 ■ Active Learning Case Oxford Instruments in China Introduction 670 671 3/6/12 11:10 AM xiv CONTENTS IN DETAIL Unprecedented scale, scope, and speed of growth The role of government MNE investment into China 672 675 676 ■ International Business Strategy in Action Airbus in China Foreign R&D investment Getting into China Outward investment and the new multinationals from China 677 680 682 685 ■ International Business Strategy in Action Haier abroad Key points Key terms Review and discussion questions 689 691 692 692 ■ Real Cases Citigroup in China Nanjing Auto makes the MG Endnotes Additional bibliography www resources 692 694 696 697 699 Chapter 22 Corporate Ethics and the Natural Environment 700 Objectives of the chapter 700 ■ Active Learning Case The environment, NGOs, and MNEs Introduction Developing effective strategies Going where the action is 703 703 ■ International Business Strategy in Action 3M International business research frameworks Theories of international business Practical applications of the theory The five partners business network framework Forging new business networks Coping with changing environments Political environment Economic environment The trade and investment framework Environment and MNEs 704 705 705 706 707 707 709 709 710 713 715 ■ International Business Strategy in Action Is The Body Shop an ethical business? The pattern of MNE responses Key points Key terms Review and discussion questions 716 718 720 721 721 ■ Real Cases Dell: B2C Maersk Group Endnotes Additional bibliography 721 723 725 726 Glossary Index 728 738 701 702 Supporting resources Visit www.pearsoned.co.uk/rugman to find valuable online resources Companion Website for students ■ Multiple choice questions to test understanding ■ Extensive links to valuable resources on the web ■ An online glossary to explain key terms ■ Electronic ‘flashcards’ to check understanding of key terms and definitions during revision For instructors ■ An Instructor’s Manual containing teaching notes and guidance on case studies ■ Powerpoint slides that can be downloaded and used for presentations ■ Testbank of over 2000 assessment questions Also: The Companion Website provides the following features: ■ Search tool to help locate specific items of content ■ E-mail results and profile tools to send results of quizzes to instructors ■ Online help and support to assist with website usage and troubleshooting For more information please contact your local Pearson Education sales representative or visit www.pearsoned.co.uk/rugman A01_RUGM0979_06_SE_FM.indd xiv 3/6/12 11:10 AM LIST OF ILLUSTRATIONS Figures 1.1 Model for this book 27 2.1 The multinational enterprise and its environment 40 2.2 Entry into foreign markets: the internationalization process 41 2.3 The strategic management process in action 46 2.4 The basic components of international business 49 2.5 The FSA–CSA matrix 50 3.1 Wal-Mart’s globalization: regional distribution of stores 85 3.2 General Motors: revenue 2006–2009 89 3.3 Toyota Motors: revenue 2006–2009 91 3.4 Daimler AG: revenue 2006–2009 92 4.1 The European Union’s institutions 120 5.1 Cross-cultural business contexts 136 5.2 Hofstede’s power distance against individualism for 20 countries 140 5.3 Excerpts from Trompenaars’ cultural attitudes survey 146 5.4 Management dimensions of culture 148 5.5 Shared characteristics stemming from common cultural influences 155 6.1 The international product life cycle 171 6.2 Impacts of a tariff 177 7.1 Foreign exchange market for euros in New York 202 7.2 US foreign exchange markets 203 7.3 Exchange rate determination 210 7.4 History of the LIBOR rates, January 1, 1999–December 31, 2010 217 7.5 Three-month eurocurrency deposit rates (year-end) 218 7.6 Special drawing right (October 15, 2004) 223 7.7 Multinationality and performance 233 8.1 The five-forces of industry competitiveness 251 8.2 The five-forces model applied to the semiconductor industry 252 8.3 A basic value chain 255 8.4 Generic strategies in worldwide shipbuilding 257 8.5 The control and evaluation process 263 9.1 An export department structure 276 9.2 Use of subsidiaries during the early stages of internationalization 276 9.3 An international division structure 278 9.4 A global product structure 279 9.5 A global area structure 281 9.6 A global functional structure 282 9.7 Geographic matrix structure 282 9.8 9.9 9.10 9.11 10.1 10.2 10.3 10.4 10.5 10.6 10.7 11.1 11.2 11.3 11.4 11.5 12.1 12.2 12.3 12.4 13.1 13.2 14.1 14.2 14.3 15.1 15.2 15.3 15.4 15.5 15.6 16.1 16.2 A multinational matrix structure A mixed structure Transnational network structure Organizational epigrams Porter’s single-diamond framework The four stages of national development and the historical position of select nations The single-diamond view Canadian–US double diamond The shape of North America US–Mexican double diamond Integration and national responsiveness Internationalization drivers for the innovative multinational firm Structural, strategic, and organizational dilemmas for the innovative multinational firm Global MNE structures for managing innovation Risk vs. reward: country market attractiveness for SME managers Foreign market selection criteria for international and non-international SMEs Global R&D: markets and hierarchies Cost reduction approaches: the United States versus Japan Product- and service-dominated businesses Global production systems: where is the value added? Selected examples of product modification in the international arena Product life cycles: two different approaches The management of multinational enterprises Cost of expatriate managers Labor unions worldwide, 1995 (percentage of labor force that is unionized) Kodak’s structure in China PEST framework for country analysis Types and levels of political risk FDI drivers: the strategic objectives of MNEs, host-country attractiveness, and host-government requirements Zones of acceptance in the negotiating process (in millions of US $) Select examples of the use of integrative and protective/defensive techniques Financial management in the MNE Common examples of internal sources and flows of funds 283 285 286 292 303 305 307 308 313 313 315 335 336 336 350 351 367 375 379 383 405 409 433 443 445 464 466 469 477 483 487 500 503 xv A01_RUGM0979_06_SE_FM.indd xv 3/6/12 11:10 AM xvi LIST OF ILLUSTRATIONS 16.3 Multilateral dollar flows between subsidiaries 16.4 Centralized netting process in action 17.1 Productivity: percentage increase in output per hour, 1992–2008 17.2 Business strategies for the EU 17.3 Pan-European manufacturing systems 17.4 Competition and shelter-based strategies 18.1 Trends in Japan’s trade by country/region: exports from Japan 18.2 Trends in Japan’s trade by country/region: imports to Japan 18.3 The Fuyo keiretsu group before restructuring 18.4 Bank group consolidation in Japan 18.5 Cross-border M&A activity in Japan 18.6 The global distribution of Renault and Nissan sales (main markets), 2008 18.7 Renault–Nissan alliance combined worldwide sales and production sites 20.1 What is the attraction for triad and non-triad firms investing in each other’s home regions? 505 507 544 551 558 561 576 576 581 588 589 597 598 640 20.2 “Flying Geese” model: changing national-level specialization 20.3 “Flying Geese” model: the shifting location of industrial production 20.4 “Flying Geese” pattern of shifting comparative advantage 20.5 Accelerated structural transformation (are the geese flying faster?) 20.6 Firm-specific advantages (FSAs) for the new multinationals 20.7 The growth of India’s IT industry 22.1 Network linkage and the changing shape of international distribution systems 22.2 Network linkages for successful MNEs 22.3 FDI and NAFTA 22.4 NAFTA and the EU 22.5 Different perceptions of the WTO 22.6 Institutional alternatives for trade and investment 22.7 MNE strategies and civil society 22.8 Segmentation of the Maersk Group activities 653 653 654 654 656 662 708 708 713 714 717 718 719 724 Tables 1.1 World trade, 2008 9 1.2 Intra-regional trade in the triad, 1980–2008 10 1.3a Foreign direct investment in the United States, 2008 (by US$ size ranking) 11 1.3b Foreign direct investment by the United States, 2008 (by US$ size ranking) 12 1.4 Comparative differences in the study of international business, 1950–2010 26 1A The top 25 importers in the world, 2008 33 1B The top 25 exporters in the world, 2008 33 1C Inward stocks of world foreign direct investment, 2008 (by US$ size ranking) 34 1D Outward stocks of world foreign direct investment, 2008 (by US$ size ranking) 35 2.1 The world’s largest 500 multinational enterprises, 2010 ranking 39 2.2 The international expansion of four MNEs 46 2.3 The top 100 economies and MNEs, 2010 ranking 57 2A The 25 largest US MNEs, 2010 ranking 64 2B The 25 largest European MNEs, 2010 ranking 65 2C The 25 largest Japanese MNEs, 2010 ranking 66 2D The 25 largest MNEs from emerging economies, 2010 ranking 67 2E Dunning’s “eclectic” theory of international production 68 3.1 Fifteen years of intra-regional FDI in the triad, 1993–2008 74 3.2 The largest MNEs by size of their foreign subsidiaries, 2008 75 3.3a Ten years of triad FDI 82 3.3b Ten years of triad trade 83 3.4 The regional nature of the motor vehicles and parts industries, 2010 ranking 86 A01_RUGM0979_06_SE_FM.indd xvi 3.5 General Motors, revenue 2006–2009 (US$ million) 89 3.6 Toyota Motors: revenue 2006–2009 (US$ million) 91 3.7 Daimler AG, revenue 2006–2009 (US$ million) 92 5.1 World population percentages in terms of home region, language, and religion 135 5.2 Average and intra-country ranking of work goals: a seven-nation comparison 147 5.3 Organization types reflecting cultural predispositions 151 6.1 Members of the Organization of the Petroleum Exporting Countries (OPEC), January 2007 176 6.2 Common non-tariff barriers to trade 180 6.3 Overview of the US balance of current account, 2008 184 6A Balance of payments: IMF presentation 193 6B US international transactions, 2008 197 6C US merchandise trade, 2008 198 7.1 Exchange rates in the inter-bank market, June 26, 2010 205 7.2 Currency futures contract specifications at the Chicago Mercantile Exchange 206 8.1 Typical strategic orientations of MNEs 248 8.2 Typical goals of an MNE 258 9.1 Factors that encourage centralization or decentralization of decision making in multinational operations 289 10.1 FDI position by Canada, the United States, and Mexico, 2000–2009 312 10.2 AD and CVD orders by product category, as of July 20, 2007 321 11.1 Various definitions of small-and-mediumsized enterprises (SMEs) 341 3/6/12 11:10 AM LIST OF ILLUSTRATIONS 11.2 Types of international SMEs by trade and FDI up and down the value chain 12.1 The cost of arriving late to market (and still be on budget) 12.2 The Mitsubishi and Mitsui keiretsu in Japan 13.1 The effect of MNE pricing on final consumer costs 13.2 International market penetration: location of subsidiaries, holdings, and joint ventures 14.1 Employer incentive practices around the world 14.2 A cultural assimilator situation 14.3 Cost of living in select cities (New York ⫽ 100), 2009 14.4 HRM practices in select countries 15.1 Changes in national regulations on FDI, 1992–2008 15.2 Political risk: sources, agents, and effects 15.3 The Weighted Country Risk Assessment Model 15.4 Twelve examples of the differences in verbal behaviors among Japanese, American, and Brazilian negotiators 16.1 Shifting profits by transfer pricing 16.2 Transfer pricing through tax havens 16.3 Net cash positions of subsidiaries 16.4 Exchange risk hedging techniques 16.5 International sources of credit (including markets and intrafirm transfers) 17.1 Economic profile of the big three (in US dollars) 17.2 Hourly compensation costs in manufacturing 17.3 The world’s most competitive economies 17.4 Comparison of location factors 17.5 Direction of EU trade 540 544 545 550 553 17.6 EU antidumping cases investigated by sector, 2002–2009 18.1 Economic and trade data for Japan 18.2 Japan’s FDI imbalance (millions of US$) 18.3 Japan’s FDI inflows and outflows by source and destination, 2008 18.4 The top 40 Japanese firms 19.1 Direction of US trade, 1999–2008 19.2 Direction of Canada’s trade, 1999–2008 19.3 Direction of Mexico’s trade, 1999–2008 19.4 The largest 25 Canadian-owned companies, by revenues, 2010 ranking 19.5 The largest foreign-owned companies in Canada, by revenues, 2010 ranking 19.6 The largest Canadian-based firms, by degree of multinationality, 2010 ranking 19.7 The sales of the 50 largest firms in North America, 2010 ranking 20.1 FDI inflows, by host region and economy, 1990–2008 (millions of dollars) 20.2 FDI from developing countries, 1990–2008 (billions of dollars) 20.3 The top 50 non-financial TNCs from developing economies ranked by foreign assets, 2007 (millions of dollars, number of employees) 21.1 China: key economic indicators 21.2 China: key trade indicators, 2010 21.3 Direct investment flows, outward and inward (billions of US $) 21.4 Common examples of synergies between foreign multinationals and local Chinese firms 21.5 Top 25 Chinese (mainland) firms in the Forbes 2000 list, 2010 ranking 22.1 The world’s major trade agreements 14 377 506 Japan 2008 North America, Canada, Mexico, and United States South and East Asia 343 369 386 415 418 443 452 453 454 468 470 473 483 504 505 506 514 522 xvii 560 575 575 576 585 607 607 607 617 618 619 620 642 643 645 673 673 674 684 686 711 Maps The European Union timeline Ford Fiesta production network World tax havens A01_RUGM0979_06_SE_FM.indd xvii 577 609 672 3/6/12 11:10 AM PREFACE In the Sixth Edition, in the strategy section of Part Three, there is a new chapter on “Innovation, Entrepreneurship and ‘Born Global’ Firms.” Innovation is the lifeblood of any firm, large or small. By persistently creating new and better products and services, new production processes, management practices and business models, they can stay ahead of the competition. Multinational firms have an added competitive advantage. Small firms lack the scale and scope advantages of large multinationals but can still benefit from a diversity of options for sourcing inputs and accessing markets if they internationalize. However, they arguably face greater challenges and risks than large firms when they do expand abroad. Those that succeed against the odds provide lessons for all entrepreneurs and innovators. Five new cases feature in this chapter: “Facebook: Global and Local?”, “Innovation Networks at IBM,” “Spreadshirt: Open Innovation,” “GE Healthcare: Product Innovation Driven by Local Needs in India,” and “SetJam: the Mini Multinational.” The book is also reorganized into five parts, of which three parts focus on strategies. Part One introduces the world of international business. Part Two discusses the environment of international business. Part Three focuses on international business strategies. Part Four deals with functional area strategies. Part Five pays specific attention to regional strategies. The major changes are in Part Three which now include the new Chapter 11 “Innovation, Entrepreneurship and ‘Born Global’ Firms,” and the former Chapter 15 “Corporate Strategy and National Competitiveness” which now becomes Chapter 10. This chapter discusses the integration and responsiveness framework of multinational business strategy as well as the diamond and double diamond approach to international competitiveness. This now provides a more logical development of the key frameworks in the text which are: the FSA/CSA framework in Chapter 2 and throughout Parts One and Two; integration and responsiveness in Chapter 10 and throughout Parts Three and Four; the diamond and double diamond in Chapter 10; and the five-partners flagship framework in Chapter 22. In addition, all tables and figures in the text and cases have been updated. As listed in the Guide to the Case Studies, all the cases have been updated and several new cases have been added. About 75 of the 105 cases have been revised and/or updated. There are seven new case studies (five new cases for the new Chapter 11), one new case each for Chapters 12 and 22 respectively. At the end of each chapter the bibliographies have been substantially revised and updated. The additional material in the book consists of the following: ■ Chapter 1. The Active Learning Case “Coke goes worldwide with a local strategy” and the two The Real Cases “Big oil gets bigger” and “Wal Mart” have been greatly updated. Data on the two cases International Business Strategy in Action “Amazon. com” and “Tata” have also been updated. ■ Chapter 2: The Active Learning Case “Disneyland in Europe” has been updated. Data on the cases “Starbucks,” “Italian Family Firms,” and “Sony” have been updated. ■ Chapter 3. The regional automotive industry discussion has been substantially rewritten and updated. The Active Learning Case “Boeing versus Airbus” and the International Business Strategy in Action “Large and Cemex: concrete multinationals” have been extensively updated. Data on the cases “Panasonic and Philips” and “Toys ‘R’ Us” in Europe and Japan have been updated. ■ Chapter 4. The Active Learning Case “How risky is investment in Russia?” and the Real Case “Embraer versus Bombardier” have been substantially updated. ■ Chapter 5. The International Business Strategy in Action cases, “McDonald’s” and “Danone and Parmalat—Going international, staying local” have been updated as has the Real Case “Sport can be local and global: Manchester United.” ■ Chapter 6. The Active Learning Case “Trade of the Triad and China” and the International Business Strategy in Action case “Microsoft shows the world is not flat” have been updated. Data on the Active Learning Case “Trade of the triad and China” and the Real Case “Job losses and offshoring to China” have been updated and the cases have been revised. xviii A01_RUGM0979_06_SE_FM.indd xviii 3/6/12 11:10 AM PREFACE ■ ■ Chapter 7. Data on the Active Learning case “Barclays Bank International Financial Dealings” and the International Business Strategy in Action case “AngloGold Ashanti” have been updated. The Real Case “HSBC” has been substantially revised and updated. Chapter 8. The Active Learning case “Vodafone” and answers have been greatly revised. Data and facts on the two cases of International Business Strategy in Action “Arthur Andersen, Accenture and McKinsey” and “Fuji Xerox and Xerox” have been updated. Data on the Real Case “Mountain Equipment Co-op: a Small Business” and “Benetton” have been updated. ■ Chapter 9. The International Business Strategy in Action case “Sanofi-Aventis” has been greatly updated. Data and facts on the Active Learning Case “Procter & Gamble”, the two Real Cases on “LVMH: organizing luxury products in the international arena” and “Command Alkon: A Small Business” have been updated. ■ Chapter 10 (old Chapter 15): New text and examples relating to the diamond, double-diamond, and integration/responsiveness frameworks to the earlier FSA–CSA matrix have been added. The Active Learning Case “Worldwide Operation and Local Strategies of ABB,” the International Business Strategy in Action case “Nokia and Ericsson,” and the Real Case “There is No Global Beer, only Local” have been substantially revised and updated. Data on the case “IBM” have been updated. ■ ■ ■ Chapter 11 (new chapter) This chapter has five new cases: The Active Learning Case is about the social network “Facebook: Global and Local?”; two International Business Strategy in Action cases “Innovation Network at IBM” and “Spreadshirt: Open Innovation”; and two Real Cases “GE Healthcare: Product Innovation Driven by Local Needs in India” and “SetJam: The Mini Multinational.” The entire text of this chapter is new. Chapter 12 (old Chapter 10). The International Business Strategy in Action case “Greening the Supply Chain” is replaced by the new case “The Dark Side of Outsourcing: Boeing’s Problems with Its 787.” The International Business Strategy in Action “Gap Inc.: A Successfully ‘Hollow Corporation’” and the two Real Cases “Flextronics” and “Nike” have been greatly revised and updated. Chapter 13 (old Chapter 11). The Active Learning Case “Volkswagen in the United States,” the A01_RUGM0979_06_SE_FM.indd xix xix International Business Strategy in Action case “IKEA in International Markets,” and the Real Case “Bang & Olufsen” have been revised and updated. ■ Chapter 14 (old Chapter 12). The International Business Strategy in Action “P&O, Carnival, and Dubai Port World” and “German Management Gets Tough” (now retitled as “German Management and Unions”) and the Real Case “Executive Search Firms” have been extensively revised and updated. ■ Chapter 15 (old Chapter 13). The Weighted Country Risk Assessment Model has been revised with a new approach to calibrating the country comparisons. The International Business Strategy in Action cases “Political Risk for De Beers” and “Dell goes to Brazil” have been updated. The text on “Transparency and Corruption” has been updated and revised. The Real Case on “Yukos and the Russian oligarchs” has been updated and the footnotes and references extensively revised. ■ Chapter 16 (old Chapter 14). The International Business Strategy in Action case “Tax Havens” has been revised and updated. Data and facts on the Active Learning Case “British Airways,” the International Business Strategy in Action “Sovereign Wealth Funds,” and the Real Case “Skandia” have been updated. ■ Chapter 17 (old Chapter 16). Material on the composition and challenges of the EU has been revised. The Real Case “Accord Budget Hotels” and the Active Learning Case “France Telecom” have been updated. The International Business Strategy in Action case on “Ford and Volvo” has been updated as have sections of the text on evaluating locations. A new table and accompanying material on the World Bank “Doing Business” country analysis tool have been added along with a new section on regional incentives. All of the remaining cases have been revised and updated. ■ Chapter 18 (old Chapter 17). The International Business Strategy in Action “Kirin Beer Goes International” and the two Real Cases “Renault and Nissan: No Pain, No Gain” and “Canon” have been greatly revised and updated. ■ Chapter 19 (old Chapter 18). Data on the International Business Strategy in Action “Bombardier” and Real Case “GlaxoSmithKline in the United States” have been updated. ■ Chapter 20 (old Chapter 19). The Active Learning Case “Acer Taiwan Goes International” has been updated. Data and facts on the International Business 3/6/12 11:10 AM
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