International Business - Pearson
International BusinessThe New RealitiesFifth EditionA01 CAVU3961 05 SE FM.indd 126/10/18 12:03 AM
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International BusinessThe New RealitiesFifth EditionS. Tamer CavusgilFuller E. Callaway Professorial Chair,Georgia State UniversityGary KnightHelen Simpson Jackson Chair in InternationalManagement, Willamette UniversityJohn R. RiesenbergerPresident, Consilium PartnersThunderbird School of Global Management (retired)A01 CAVU3961 05 SE FM.indd 326/10/18 12:03 AM
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Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationshipbetween the owner and Pearson Education, Inc., or its affiliates, authors, licensees, or distributors.Library of Congress Cataloging-in-Publication DataNames: Cavusgil, S. Tamer, author. Knight, Gary A., author. Riesenberger,John R., author.Title: International business: the new realities / S. Tamer Cavusgil, FullerE. Callaway Professorial Chair, Georgia State University, Gary Knight,Helen Simpson Jackson Chair in International Management, WillametteUniversity, John R. Riesenberger, President, Consilium Partners,Thunderbird School of Global Management (retired).Description: Fifth edition. Boston: Pearson, [2020] Includes index.Identifiers: LCCN 2018044789 ISBN 9780135173961 (pbk.)Subjects: LCSH: International business enterprises–Management.Classification: LCC HD62.4 .C389 2020 DDC 658/.049–dc23LC record available at https://lccn.loc.gov/2018044789118ISBN 10:0-13-517396-5ISBN 13: 978-0-13-517396-1A01 CAVU3961 05 SE FM.indd 426/10/18 12:03 AM
Dedicated to.This book is dedicated to all those who feel passionate about cross-border business, our readers around the world. I trust that thisedition will inspire and help you discover the magic of internationalbusiness. Since any journey is much more rewarding when you areaccompanied by others, I also dedicate this edition to my students offour decades whom I had the opportunity to mentor over the years.S. Tamer CavusgilAtlanta, GeorgiaThis book is dedicated to my wife, Mari, for her intellect, patience, andadventurous spirit; to Bill and Audrey, and to Hiroshi and Hisako, forbeing great parents and role models; and to the many students I havehad the good fortune to influence over the years.Gary KnightSalem, OregonThis book is dedicated to my parents, Richard and Marie Riesenberger, for their example, many sacrifices, and love. To my wifeand best friend, Pat, for her enthusiasm and loving support. To mydaughters, Chris and Jen, of whom I am so very proud and thankful.To Byron, Ann-Marie and Terry, who enrich my life. To my amazing grandchildren, Ryan, Paige, Ethan, and Emma—the future of theNew Realities.John R. RiesenbergerScottsdale, ArizonaA01 CAVU3961 05 SE FM.indd 526/10/18 12:03 AM
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Brief ContentsPreface xxPart 1Foundation Concepts 21. Introduction: What Is International Business? 22. Globalization of Markets and the Internationalization of the Firm 30Part 2The Environment of International Business 603. The Cultural Environment of International Business 604. Ethics, Corporate Social Responsibility, Sustainability, and Governancein International Business 925. Theories of International Trade and Investment 1206. Political and Legal Systems in National Environments 1507. Government Intervention and Regional Economic Integration 1788. Understanding Emerging Markets 2149. The International Monetary and Financial Environment 24410. Financial Management and Accounting in the Global Firm 270Part 3Strategy and Opportunity Assessment 30011. Strategy and Organization in the International Firm 30012. Global Market Opportunity Assessment 334Part 4Entering and Working in International Markets 36213. Exporting and Global Sourcing 36214. Foreign Direct Investment and Collaborative Ventures 39615. Licensing, Franchising, and Other Contractual Strategies 426Part 5Functional Area Excellence 45416. Marketing in the Global Firm 45417. Human Resource Management in the Global Firm 484Glossary 512Author Index 518Company Index 525Subject Index 528viiA01 CAVU3961 05 SE FM.indd 726/10/18 12:03 AM
ContentsPreface xxPart 1 Foundation Concepts 21 Introduction: What Is International Business? 2 Instagram: A Global Phenomenon 2What Are the Key Concepts in International Business? 7The Nature of International Trade 7The Nature of International Investment 8Services as Well as Products 9The International Financial Services Sector 11How Does International Business Differ from Domestic Business? 12The Four Risks in Internationalization 12Who Participates in International Business? 14Focal Firms in International Business 15Small and Medium-Sized Enterprises 16Born Global Firms 17Governments and Nongovernmental Organizations 17Why Do Firms Internationalize? 18Why Study International Business? 20Facilitator of the Global Economy and Interconnectedness 20Contributor to National Economic Well-Being 20A Competitive Advantage for the Firm 20j You Can Do It Recent Grad in IB: Mary Lyles 21A Competitive Advantage for You 21An Opportunity to Support Ethics, Sustainability and CorporateCitizenship 22CKR Career Preparation Kit: Tangible Process Tools and Travel AbroadPreparation Checklist 22j Closing Case: Internationalization at Harley-Davidson 23j End-of-Chapter Review: Key Terms 25 Summary 25 Test YourComprehension 26 Apply Your Understanding 26globalEDGE Internet Exercises 27Endnotes 282 Globalization of Markets and the Internationalizationof the Firm 30 Spotify and the Rise of Born Global Firms 30Phases of Globalization 32Market Globalization: Organizing Framework 34Driving Forces of Globalization 36Technological Advances and Globalization 37Information ions 41viiiA01 CAVU3961 05 SE FM.indd 826/10/18 12:03 AM
CONTENTS ix ons of Market Globalization 42Firm-Level Consequences of Market Globalization: Internationalizationof the Firm’s Value Chain 43j You Can Do It Recent Grad in IB: Terrance Rogers 45Societal Consequences of Globalization 45Contagion: Rapid Spread of Monetary and Financial Crises 46Loss of National Sovereignty 46Offshoring 47Reshoring 47Effect on the Poor 47Effect on Sustainability and the Natural Environment 49Effect on National Culture 49Globalization and Africa 52j Closing Case: A Debate on the Good and Harm of Globalization 53j End-of-Chapter Review: Key Terms 55 Summary 55 Test YourComprehension 56 Apply Your Understanding 56globalEDGE Internet Exercises 57Endnotes 57Part 2 The Environment of International Business 603 The Cultural Environment of International Business 60 Baidu: Social Media and Culture in China 60Culture and Cross-Cultural Risk 62What Culture Is Not 64Socialization and Acculturation 65Dimensions of Culture 65Values and Attitudes 65Manners and Customs 65Perceptions of Time 66Perceptions of Space 66Symbolic Productions 67Material Productions and Creative Expressions 68Education 68Social Structure 69Role of Language and Religion in Culture 70Verbal Language 70Nonverbal Communication 72Religion 73Culture’s Effect in International Business 77Models and Explanations of Culture 79Cultural Metaphors 79High- and Low-Context Cultures 79Hofstede’s Research on National Culture 80Deal Versus Relationship Orientation 82A01 CAVU3961 05 SE FM.indd 926/10/18 12:03 AM
x CONTENTSManagerial Implications of Culture 82Cultural Orientations 83How to Acquire Cross-Cultural Competence 83j Closing Case: Hollywood Movies and Global Culture 85j End-of-Chapter Review: Key Terms 87 Summary 87 Test YourComprehension 88 Apply Your Understanding 88globalEDGE Internet Exercises 89Endnotes 904 Ethics, Corporate Social Responsibility, Sustainability,and Governance in International Business 92 CSR and Sustainability at Coca-Cola 92Ethical Behavior and Its Importance in International Business 94Components of Ethical Behavior 94Value of Ethical Behavior 95Unethical Behavior 95Ethical Standards and Dilemmas Around the World 96Relativism and Normativism 97Ethical Challenges in International Business 98Corruption 98Bribery 99Harmful Work Environment 101Unethical Business Practices 101Harmful Global Sourcing 101Illicit Products and Marketing 102Intellectual Property Infringement 102Corporate Social Responsibility 103Settings of Corporate Social Responsibility 104Successes and Failures of CSR 104Sustainability 106Company Role in Sustainability 107The Role of Corporate Governance 108Embracing Ethical Behavior 109Ethical Standard Approaches for Corporate Governance 109A Global Consensus 110Going Deep, Wide, and Local 110Benefits of Corporate Governance 110j You Can Do It Recent Grad in IB: Javier Estrada 111A Framework Tool for Making Ethical Decisions 112j Closing Case: Scandal at Volkswagen 113j End-of-Chapter Review: Key Terms 115 Summary 115 Test YourComprehension 116 Apply Your Understanding 116globalEDGE Internet Exercises 117Endnotes 1175 Theories of International Trade and Investment 120 Apple’s Advantages in Global Competition 120Why Do Nations Trade? 124A01 CAVU3961 05 SE FM.indd 1026/10/18 12:03 AM
CONTENTS xi Classical Theories 124How Can Nations Enhance Their Competitive Advantage? 130The Competitive Advantage of Nations 130Determinants of National Competitiveness 131National Industrial Policy 132National Industrial Policy in Practice 133Why and How Do Firms Internationalize? 134Internationalization Process of the Firm 135Born Global Firms 135How Can Internationalizing Firms Gain and Sustain CompetitiveAdvantage? 136FDI-Based Explanations 136Dunning’s Eclectic Paradigm 140Non-FDI-Based Explanations 141j Closing Case: Unilever’s Comparative and Competitive Advantages 142j End-of-Chapter Review: Key Terms 144 Summary 144 Test YourComprehension 145 Apply Your Understanding 145globalEDGE Internet Exercises 146Endnotes 1486 Political and Legal Systems in National Environments 150 Risks in Brazil’s Political and Legal Systems: Odebrecht 150How Prevalent Is Country Risk? 153Political and Legal Environments in International Business 154Political 156Democracy 156National Governance and Economic Prosperity 157The Relationship Between Political Systems and Economic Systems 158Legal Systems 159Common Law 159Civil Law 160Religious Law 160Mixed Systems 161Participants in Political and Legal Systems 161Government 162International Organizations 162Regional Trade Organizations 162Special Interest Groups 162Competing Firms 162Types of Country Risk Produced by Political Systems 163Government Takeover of Corporate Assets 163Embargoes and Sanctions 164Boycotts Against Firms or Nations 164Terrorism 165War, Insurrection, and Violence 165A01 CAVU3961 05 SE FM.indd 1126/10/18 12:03 AM
xii CONTENTSTypes of Country Risk Produced by Legal Systems 165Country Risk Arising from the Host-Country Legal Environment 165Country Risk Arising from the Home-Country Legal Environment 167j You Can Do It Recent Grad in IB: Christopher Johnson 168Managing Country Risk 169Proactive Environmental Scanning 169Strict Adherence to Ethical Standards 170Alliances with Qualified Local Partners 170Protection Through Legal Contracts 170j Closing Case: The Global Biopharmaceutical Industry: Political, Legal,and Ethical Dilemmas 170j End-of-Chapter Review: Key Terms 173 Summary 173 Test YourComprehension 174 Apply Your Understanding 174globalEDGE Internet Exercises 175Endnotes 1767 Government Intervention and Regional EconomicIntegration 178 India’s Transformation to a Liberal Economy 178The Nature of Government Intervention 181Defensive Rationale 182Offensive Rationale 183Instruments of Government Intervention 183Tariffs 184Nontariff Trade Barriers 185Investment Barriers 187Subsidies and Other Government Support Programs 188Evolution and Consequences of Government Intervention 189How Firms Can Respond to Government Intervention 194Strategies for Managers 194j You Can Do It Recent Grad in IB: Ashley Lumb 196Regional Integration and Economic Blocs 197Levels of Regional Integration 197Leading Economic Blocs 199The European Union 199North American Free Trade Agreement (NAFTA) 202Advantages and Implications of Regional Integration 203Expand Market Size 203Achieve Scale Economies and Enhanced Productivity 203Attract Direct Investment from Outside the Bloc 203Acquire Stronger Defensive and Political Posture 204j Closing Case: Government Intervention: Airbus Versus Boeing 204j End-of-Chapter Review: Key Terms 206 Summary 206 Test YourComprehension 207 Apply Your Understanding 208globalEDGE Internet Exercises 209Endnotes 211A01 CAVU3961 05 SE FM.indd 1226/10/18 12:03 AM
CONTENTS xiii 8 Understanding Emerging Markets 214 New Global Challengers: Top Firms from Emerging Markets 214Advanced Economies, Developing Economies,and Emerging Markets 216Advanced Economies 217Developing Economies 217Emerging Market Economies 220What Makes Emerging Markets Attractive for International Business? 223Emerging Markets as Target Markets 223Emerging Markets as Manufacturing Bases 224Emerging Markets as Sourcing Destinations 224Assessing the True Potential of Emerging Markets 225Per-Capita Income as an Indicator of Market Potential 225Middle Class as an Indicator of Market Potential 227Risks and Challenges of Emerging Markets 228Political Instability 228Weak Intellectual Property Protection 228Bureaucracy, Red Tape, and Lack of Transparency 228Poor Physical Infrastructure 228Partner Availability and Qualifications 228Likely Resistance from Family Conglomerates 229Success Strategies for Emerging Markets 230Customize Offerings to Unique Emerging Market Needs 230Partner with Family Conglomerates 230Target Governments in Emerging Markets 231j You Can Do It Recent Grads in IB: Andrew and Jamie Waskey 232Skillfully Challenge Emerging Market Competitors 232Corporate Social Responsibility, Sustainability, and the Crisisof Global Poverty 233Foster Economic Development 233Microfinance to Facilitate Entrepreneurship 234The Special Case of Africa 234j Closing Case: Tata Group: India’s Top Global Challenger 235j End-of-Chapter Review: Key Terms 238 Summary 238 Test YourComprehension 239 Apply Your Understanding 239globalEDGE Internet Exercises 240Endnotes 2419 The International Monetary and Financial Environment 244 The European Union and the Euro 244Exchange Rates and Currencies in International Business 246Convertible and Nonconvertible Currencies 247Foreign Exchange Markets 248Currency Risk 248How Exchange Rates Are Determined 250Economic Growth 250Inflation and Interest Rates 251A01 CAVU3961 05 SE FM.indd 1326/10/18 12:03 AM
xiv CONTENTSMarket Psychology 251Government Action 252Emergence of the Modern Exchange Rate System 252The Bretton Woods Agreement 252The Modern Exchange Rate System 253The Monetary and Financial Systems 254International Monetary System 254Global Financial System 254Key Players in the Monetary and Financial Systems 255The Firm 255National Stock Exchanges and Bond Markets 256Commercial Banks 257j You Can Do It Recent Grad in IB: Maria Petit 258Central Banks 259The Bank for International Settlements 260International Monetary Fund 260The World Bank 261The Global Debt Crisis 261j Closing Case: Tesco, the European Debt C
International Business The New Realities Fifth Edition A01_CAVU3961_05_SE_FM.indd 1 26/10/18 12:03 AM. A01_CAVU3961_05_SE_FM.indd 2 26/10/18 12:03 AM. The New Realities S. Tamer Cavusgil Fuller E. Callaway Professorial Chair, Georgia State University Gary Knight
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