GLOBAL BUSINESS TODAY
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11e GLOBAL BUSINESS TODAY
Charles W. L. Hill
University of Washington
G. Tomas M. Hult
Michigan State University
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GLOBAL BUSINESS TODAY, ELEVENTH EDITION
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All credits appearing on page are considered to be an extension of the copyright page. Library of Congress Cataloging-in-Publication Data
Names: Hill, Charles W. L., author. | Hult, G. Tomas M., author. Title: Global business today / Charles W.L. Hill, University of Washington, G. Tomas M. Hult, Michigan State University. Description: 11e [edition]. | New York, NY : McGraw-Hill Education, [2020] Identifiers: LCCN 2018050510| ISBN 9781260088373 (alk. paper) | ISBN 1260088375 (alk. paper) Subjects: LCSH: International business enterprises—Management. |
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International trade. | Investments, Foreign. | Capital market. Classification: LCC HD62.4 .H548 2020 | DDC 658/.049—dc23 LC record available at https://lccn.loc.gov/2018050510
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mheducation.com/highered
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Page iiiFor my mother June Hill, and the memory of my father, Mike Hill
—Charles W. L. Hill
For Gert & Margareta Hult, my parents
—G. Tomas M. Hult
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about the authors CHARLES W. L. HILL
University of Washington
Charles W. L. Hill is the Hughes M. and Katherine Blake Professor of Strategy and International Business at the Foster School of Business, University of Washington. Professor Hill has taught in the MBA, Executive MBA, Technology Management MBA, Management, and PhD programs at the University of Washington. During his time at the University of Washington, he has received over 25 awards for teaching excellence, including the Charles E. Summer Outstanding Teaching Award. The Foster School is consistently ranked as a Top-25 business school. Learn more about Professor Hill at http://foster.uw.edu/faculty- research/directory/charles-hill.
A native of the United Kingdom, Professor Hill received his PhD from the University of Manchester, UK. In addition to the University of Washington, he has served on the faculties of the University of Manchester, Texas A&M University, and Michigan State University.
Professor Hill has published over 50 articles in top academic journals, including the Academy of Management Journal, Academy of Management Review, Strategic Management Journal, and Organization Science. Professor Hill has also published several textbooks, including International Business (McGraw-Hill) and Global Business Today (McGraw-Hill). His work is among the most widely cited in international business and strategic management.
Beginning in 2014, Dr. Hill partnered with Dr. Tomas Hult in a formidable co-authorship of the International Business franchise of textbooks (International Business and Global Business Today).This brought together two of the most cited international business scholars in history.
Professor Hill works on a private basis with a number of organizations. His clients have included Microsoft, where he has been teaching in-house executive education courses for two decades. He has also consulted for a variety of other large companies (e.g., AT&T Wireless, Boeing, BF Goodrich, Group Health, Hexcel, Microsoft, Philips Healthcare, Philips Medical Systems, Seattle City Light, Swedish Health Services, Tacoma City Light, Thompson Financial Services, WRQ, and Wizards of the Coast). Professor Hill has also served on the advisory board of several start-up companies.
For recreation, Professor Hill enjoys skiing and competitive sailing!
G. TOMAS M. HULT
Michigan State University
Dr. Tomas Hult is Professor of Marketing, Byington Endowed Chair, and Director of the International Business Center in the Department of Marketing in the Eli Broad College of Business at Michigan State University. He also teaches for the Broad College’s Department of Supply Chain Management and Department of Management. Learn more about Professor Hult at http://broad.msu.edu/facultystaff/hult.
A native of Sweden, Dr. Hult received a mechanical engineer degree in Sweden before obtaining Bachelor and MBA degrees in the United States, followed by a PhD at The University
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of Memphis. In addition to Michigan State University, he has served on the faculties of Florida State University and the University of Arkansas at Little Rock. Dr. Hult holds visiting professorships in the International Business Group of his native Uppsala University, Sweden, and the International Business Division of Leeds University, United Kingdom. Michigan State, Uppsala, and Leeds are all ranked in the top 10 in the world in international business research.
Dr. Hult serves as Executive Director and Board Member of the Academy of International Business (AIB), President and Board Member of the Sheth Foundation, and serves on the U.S. District Export Council. Tomas Hult hosts the radio show globalEDGE Business Beat on the Michigan Business Network.
Hult is one of the world’s leading academic authorities (citations, publications) in marketing strategy, international business, international marketing, strategic management, global supply chains, and complex multinational corporations. He is one of only about 100 Elected Fellows of the Academy of International Business, an accolade achieved by only the elite international business scholars. Dr. Hult was also selected in 2016 as the Academy of Marketing Science/CUTCO-Vector Distinguished Marketing Educator.
He regularly speaks at high profile events (e.g., European Commission, Swedish Entrepreneurship Forum, United Nation’s Conference on Trade and Development, U.S. Department of Education, World Investment Forum) and publishes influential op-ed articles (e.g., Time, Fortune, Fortune, World Economic Forum, The Conversation). Tomas has developed a large clientele of the world’s top corporations (e.g., ABB, Albertsons, Avon, BG, Bechtel, Bosch, BP, Defense Logistics Agency, Domino’s, FedEx, Ford, FreshDirect, General Motors, GroceryGateway, HSBC, IBM, Michigan Economic Development Corporation, Masco, NASA, Raytheon, Shell, Siemens, State Farm, Steelcase, Tech Data, and Xerox).
In addition to co-authoring with Charles W. L. Hill the market-share leading textbooks in international business (Global Business Today, now in its 11th edition, and International Business, now in its 12th edition), Dr. Hult has written several popular business trade books (e.g., Second Shift; Global Supply Chain Management; Extending the Supply Chain; and Total Global Strategy).
Tennis, golf, and traveling are his favorite recreational activities.
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brief contents PART ONE Introduction and Overview
Chapter One Globalization 2
PART TWO National Differences
Chapter Two National Differences in Political, Economic, and Legal Systems 36
Chapter Three National Differences in Economic Development 58
Chapter Four Differences in Culture 86
Chapter Five Ethics, Corporate Social Responsibility, and Sustainability 122
PART THREE The Global Trade and Investment Environment
Chapter Six International Trade Theory 150
Chapter Seven Government Policy and International Trade 184
Chapter Eight Foreign Direct Investment 212
Chapter Nine Regional Economic Integration 240
PART FOUR The Global Monetary System
Chapter Ten The Foreign Exchange Market 270
Chapter Eleven The International Monetary System 294
PART FIVE The Strategy of International Business
Chapter Twelve The Strategy of International Business 320
Chapter Thirteen Entering Developed and Emerging Markets 356
PART SIX International Business Functions
Chapter Fourteen Exporting, Importing, and Countertrade 382
Chapter Fifteen Global Production and Supply Chain Management 408
Chapter Sixteen Global Marketing and Business Analytics 438
Chapter Seventeen Global Human Resource Management 474
GLOSSARY 503
NAME INDEX 511
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SUBJECT INDEX 513
ACRONYMS 531
COUNTRIES AND THEIR CAPITALS 532
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the proven choice for international business Current. Application Rich, Relevant. Accessible and Student Focused. Global Business Today (GBT), the worldwide market leader among international business products, has set a new standard for international business teaching. We have focused on creating resources that
Are comprehensive, state of the art, and timely. Are theoretically sound and practically relevant. Focus on applications of international business concepts. Tightly integrate the chapter topics throughout. Are fully integrated with results-driven technology. Take full and integrative advantage of globalEDGE.msu.edu—the Google-ranked #1 web resource for “international business resources.”
International Business (now in its 12th edition, 2019), also co-authored by Charles W. L. Hill and G. Tomas M. Hult, is a more comprehensive and case-oriented version that lends itself to the core course in international business for those that want a deeper focus on the global monetary system, structure of international business, international accounting, and international finance.
GBT has always endeavored to be current, relevant, application rich, accessible, and student- focused. Our goal has always been to cover macro and micro issues equally and in a relevant, practical, accessible, and student-focused approach. We believe that anything short of such a breadth and depth of coverage is a serious deficiency. Many of the students in these international business courses will soon be working in global businesses, and they will be expected to understand the implications of international business for their organization’s strategy, structure, and functions in the context of the global marketplace. We are proud and delighted to have put together this international business learning experience for the leaders of tomorrow.
Over the years, and now through 11 editions, Dr. Charles Hill has worked hard to adhere to these goals. Since the ninth edition, Charles’ co-author, Dr. Tomas Hult, has followed the same approach. In deciding what changes to make, we have been guided not only by our own reading, teaching, and research but also by the invaluable feedback we received from professors and students around the world, from reviewers, and from the editorial staff at McGraw-Hill Education. Our thanks go out to all of them.
Comprehensive and Up-to-Date To be relevant and comprehensive, an international business package must
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Explain how and why the world’s cultures, countries, and regions differ. Cover economics and politics of international trade and investment. Tackle international issues related to ethics, corporate social responsibility, and sustainability. Explain the functions and form of the global monetary system. Examine the strategies and structures of international businesses. Assess the special roles of the various functions of an international business.
Relevance and comprehensiveness also require coverage of the major theories. It has always been a goal to incorporate the insights gleaned from recent academic scholarship into the book. Consistent with this goal, insights from the following research, as a sample of theoretical streams used in the book, have been incorporated:
New trade theory and strategic trade policy. The work of Nobel Prize–winning economist Amartya Sen on economic development. Samuel Huntington’s influential thesis on the “clash of civilizations.” Growth theory of economic development championed by Paul Romer and Gene Grossman. Empirical work by Jeffrey Sachs and others on the relationship between international trade and economic growth. Michael Porter’s theory of the competitive advantage of nations. Robert Reich’s work on national competitive advantage. 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. Bartlett and 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 and complementary theories. Paul Samuelson’s critique of free trade theory. Conceptual and empirical work on global supply chain management—logistics, purchasing (sourcing), operations, and marketing channels.
In addition to including leading-edge theory, in light of the fast-changing nature of the international business environment, we have made every effort to ensure that this product is as up-to-date as possible. A significant amount has happened in the world since we began revisions of this book. By 2016, almost $4 trillion per day were 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 continued to become more global. As you can see in Chapter 1 on Globalization, trade across country borders has almost exponentially escalated in the last few years. Several Asian economies, most notably China and India, continued to grow their economies at a rapid rate. 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. We take great pride in covering international business for small- and medium-sized enterprises (SMEs), as well as larger multinational corporations. We also take great pride in covering firms from all around the world. Some sixty SMEs and multinational corporations from all six core continents are covered in the chapters’ opening cases, closing cases, and/or Management Focus boxes.
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And unfortunately, global terrorism and the attendant geopolitical risks keep emerging in various places globally, many new and inconceivable just a decade ago. These represent a threat to global economic integration and activity. Plus, with the United Kingdom opting to leave the European Union (Brexit), which has implications past 2019, the election of President Donald Trump in the United States (who espouses views on international trade that break with the long established consensus), and several elections around the world, the globe—in many ways—has paid more attention to nationalistic issues over trade. These topics and many more are integrated into this text for maximum learning opportunities.
WHAT’S NEW IN THE 11TH EDITION The success of the first ten editions of Global Business Today (and its longer, more in-depth textbook option and companion, International Business, now in the 12th edition) was based in part on the incorporation of leading-edge research into the text, the use of the up-to-date examples and statistics to illustrate global trends and enterprise strategy, and the discussion of current events within the context of the appropriate theory. Building on these strengths, our goals for the 11th edition have focused on the following:
1. Incorporate new insights from scholarly research. 2. Make sure the content covers all appropriate issues. 3. Make sure the text is up-to-date with current events, statistics, and examples. 4. Add new and insightful opening and closing cases in most chapters.
5. Incorporate value-added globalEDGETM features in every chapter. 6. Connect every chapter to a focus on managerial implications.
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. As before, we provide the only textbook in International Business that ensures that all material is up-to-date on virtually a daily basis. The copyright for the book is 2020, but you are likely using the text somewhere between the years 2019 to 2022. We keep the textbook updated to each semester you use the text in your course! We do this by integrating Connect and globalEDGETM features in every chapter.
Specifically, combining McGraw Hill’s Connect platform with the Google number-one- ranked globaledge.msu.edu site (for “international business resources”), we can add up-to-date materials and exercises to each chapter to add value to the material and provide relevant data and information. This keeps chapter material constantly and dynamically updated for teachers who want to infuse Connect and globalEDGETM material into the chapter topics, and it keeps students abreast of current developments in international business.
In addition to updating all statistics, figures, and maps to incorporate most recently published data, a chapter-by-chapter selection of changes for the 10th edition include the following:
CHAPTER 1: GLOBALIZATION New opening case: GM and Its Chevrolet Supercar, The Corvette ZR1 New materials on international trade, trade agreements, world production, and world population Explanations of differences in cross-border trade and in-country production; the value of trade agreements; and population implications related to resource constraints Revised Management Focus: Boeing’s Global Production System
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Revised Management Focus: Wanda Group New closing case: Globalization of BMW, Rolls-Royce, and the MINI
CHAPTER 2: NATIONAL DIFFERENCES IN POLITICAL, ECONOMIC, AND LEGAL SYSTEMS
New opening case: Transformation in Saudi Arabia New Country Focus: Putin’s Russia Updated data on corruption Updated Country Focus: Corruption in Brazil New closing case: The Decline of Zimbabwe
CHAPTER 3: NATIONAL DIFFERENCES IN ECONOMIC DEVELOPMENT
New opening case: Brazil’s Struggling Economy Updated statistics and discussion in section Differences in Economic Development Updated Country Focus: Property Rights in China Updated statistics and discussion in section States in Transition New closing case: Economic Development in Bangladesh
CHAPTER 4: DIFFERENCES IN CULTURE New opening case: China, Hong Kong, Macau, and Taiwan Deeper treatment of culture, values, and norms Revised the foundation that most religions are now pro-business Updated the Hofstede culture framework with new research New Country Focus: Determining Your Social Class by Birth New Country Focus: Turkey, Its Religion, and Politics New Management Focus: China and Its Guanxi New closing case: The Swatch Group and Cultural Uniqueness
CHAPTER 5: ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY
New opening case: Sustainability Initiatives at Natura, the Bodyshop, and Aesop Deeper focus on corporate social responsibility and sustainability at the country, company, and customer levels New Management Focus: “Emissionsgate” at Volkswagen New closing case: Woolworths’s Corporate Responsibility Strategy
CHAPTER 6: INTERNATIONAL TRADE THEORY New opening case: “Trade Wars Are Good and Easy to Win” Discussion of President Donald Trump’s approach to international trade Updated Country Focus: Is China Manipulating Its Currency in Pursuit of a Neo- Mercantilist Policy? New closing case: The Trans Pacific Partnership (TPP) Is Dead; Long Live the CPTPP! Updated Appendix: International Trade and the Balance of Payments with new data and
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revised discussion
CHAPTER 7: GOVERNMENT POLICY AND INTERNATIONAL TRADE
New opening case: U.S. and South Korea Strike a Revised Trade Deal New section: The World Trading System Under Threat, which discusses the potential ramifications of Brexit and the trade policies of the Trump administration New Closing Case: Boeing and Airbus Are in a Dogfight over Illegal Subsidies
CHAPTER 8: FOREIGN DIRECT INVESTMENT New opening case: Geely Goes Global Updated statistics and discussion in the section Foreign Direct Investment in the World Economy New Management Focus: Burberry Shifts Its Entry Strategy in Japan New closing case: FDI in the Indian Retail Sector
CHAPTER 9: REGIONAL ECONOMIC INTEGRATIONS
New opening case: NAFTA 2.0? Extended discussion of Brexit and its ramifications New section The Future of NAFTA, which discusses the renegotiation of NAFTA by the Trump administration New closing case: Free Trade in Africa: TFTA and CFTA
CHAPTER 10: THE FOREIGN EXCHANGE MARKET New opening case: The Fluctuating Value of the Yuan Gives Chinese Business a Lesson in Foreign Exchange Risk New closing case: The Mexican Peso, the Japanese Yen, and Pokemon Go
CHAPTER 11: THE INTERNATIONAL MONETARY SYSTEM
New opening case: Can Dollarization Save Venezuela? Updated statistics discussion of floating exchange rates through to early 2018 New Country Focus: China’s Exchange Rate Regime New Closing Case: Egypt and the IMF
CHAPTER 12: THE STRATEGY OF INTERNATIONAL BUSINESS
New opening case: Red Bull, a Leader in International Strategy Deeper discussion of the rise of regionalism Integration of global strategy thoughts New Management Focus: IKEA’s Global Strategy
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CHAPTER 13: ENTERING DEVELOPED AND EMERGING MARKETS
New opening case: IKEA Entering India, Finally! New scope of the chapter to include entering developed and emerging markets, as well as aspects of less developed markets New closing case: Cutco Corporation—Sharpening Your Market Entry
CHAPTER 14: EXPORTING, IMPORTING, AND COUNTERTRADE
New opening case: Spotify and SoundCloud New material on company readiness to export and import material New and revised material on globalEDGETM Diagnostic Tools, with a focus on Company Readiness to Export (CORE) New Management Focus: Embraer and Brazilian Importing New Management Focus: Exporting Desserts by a Hispanic Entrepreneur New Management Focus: Two Men and a Truck New closing case: Tata Motors and Exporting
CHAPTER 15: GLOBAL PRODUCTION AND SUPPLY CHAIN MANAGEMENT
New opening case: Procter & Gamble Remakes Its Global Supply Chains Revised and new material on global logistics, global purchasing, and global operations Revised sections Strategic Roles for Production Facilities, Make-or-Buy Decisions, and Global Supply Chain Functions New material in the sections Role of Information Technology, Coordination in Global Supply Chains, and Interorganizational Relationships New Management Focus: IKEA Production in China New Management Focus: Amazon’s Global Supply Chains New closing case: Alibaba and Global Supply Chains
CHAPTER 16: GLOBAL MARKETING AND BUSINESS ANALYTICS
New opening case: Fake News and Alternative Facts Revised section Globalization of Markets and Brands New section on Business Analytics; reordered with International Marketing Research to provide a better flow of the chapter material Revised section International Marketing Research Inclusion of more social media topics throughout Revised positioning of the Product Development and R&D section New Management Focus: Global Branding, Marvel Studios, and Walt Disney Company New Management Focus: Burberry’s Social Media Marketing
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New closing case: ACSI and Satisfying Global Customers
CHAPTER 17: GLOBAL HUMAN RESOURCE MANAGEMENT
New opening case: Global Mobility at Shell New section: Building a Diverse Global Workforce, which looks at the benefits, challenges, and policies for building a diverse global workforce in a multinational enterprise New Closing Case: Sodexo: Building a Diverse Global Workforce
Beyond Uncritical Presentation and Shallow Explanation Many issues in international business are complex and thus necessitate considerations of pros and cons. To demonstrate this to students, we have adopted a critical approach that presents the arguments for and against economic theories, government policies, business strategies, organizational structures, and so on.
Related to this, we have attempted to explain the complexities of the many theories and phenomena unique to international business so the student might fully comprehend the statements of a theory or the reasons a phenomenon is the way it is. We believe that these theories and phenomena are explained in more depth in this work than they are in the competition, which seem to use the rationale that a shallow explanation is little better than no explanation. In international business, a little knowledge is indeed a dangerous thing.
Practical and Rich Applications We have always believed that it is important to show students how the material covered in the text is relevant to the actual practice of international business. This is explicit in the later chapters of the book, which focus on the practice of international business, but it is not always obvious in the first half of the book, which considers macro topics. 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—there is a section titled Focus on Managerial Implications. In this section, the managerial implications of the material discussed in the chapter are clearly explained. Additionally, most chapters have at least one Management Focus box. The purpose of these boxes is to illustrate the relevance of chapter material for the practice of international business.
A Did You Know? feature in each chapter challenges students to view the world around them through the lens of international business (e.g., Did you know that sugar prices in the United States are much higher than sugar prices in the rest of the world?). The authors recorded short videos explaining the phenomenon.
In addition, each chapter begins with an opening case that sets the stage for the chapter and ends with a closing case that illustrates the relevance of chapter material for the practice of international business.
To help students go a step further in expanding their application-level understanding of international business, each chapter incorporates two globalEDGETM research tasks designed and written by Tomas Hult. The exercises dovetail with the content just covered.
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Integrated Progression of Topics A weakness of many texts is that they lack a tight, integrated 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. Globalization of markets and globalization of production is the core focus.
PART TWO Chapters 2 through 4 focus on country differences in political economy and culture, and Chapter 5 on ethics, corporate social responsibility, and sustainability issues in international business. Most international business textbooks place this material at a later point, but we 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 functions arise out of national differences in political economy and culture.
PART THREE Chapters 6 through 9 investigate the political economy of global 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 and 11 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 12 and 13, attention shifts from the environment to the firm. In other words, we move from a macro focus to a micro focus at this stage of the book. We examine strategies that firms adopt to compete effectively in the international business environment.
PART SIX In Chapters 14 through 17, the focus narrows further to investigate business functions and related operations. These chapters explain how firms can perform their key functions— exporting, importing, and countertrade; global production; global supply chain management; global marketing; global research and development (R&D); human resource management—to compete and succeed in the international business environment.
Throughout the book, the relationship of new material to topics discussed in earlier chapters is pointed out to the students to reinforce their understanding of how the material comprises an integrated whole. We deliberately bring a management focus to the macro chapters (Chapters 1
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