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International Business

A Global Perspective

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International Business

A Global Perspective

Marios I. Katsioloudes

American University of Sharjah, UAE

and

Spyros Hadjidakis

Intercollege, Nicosia-Cyprus

NEW YORK€OXFORD€PARIS€SAN DIEGO

SAN FRANCISCO€SINGAPORE€SYDNEY€TOKYO

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Katsioloudes, Marios I.

International business : a global perspective / Marios I. Katsioloudes and Spyros

Hadjidakis.

p. cm.

ISBN 0-7506-7983-2

1. International trade. 2. International business enterprises. 3. International

“nance. 4. Globalization...Economic aspects. I. Hadjidakis, Spyros. II. Title.

HF1379.K38 2006

338.8

8...dc22

2006035890

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ISBN 13: 978...0...7506...7983...1

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This book is dedicated to our families and to all the people of the world, irrespective of color, religion, gender and social status.

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Contents

PartA: Chapters.......................................................... 1 1 Challenges in International Business................................... 3 Objectives 3. Opening Case 3. Todays World of Business 6. What is Interna- tional Business? 9. Why Do Companies Go International? 12. The Participants in International Business 15. The Global Perspective of International Business

19. Why Study International Business? 21. Practical Tips 24. Closing Case 26.

Chapter Summary 28. Review and Discussion Questions 28. Endnotes 29. 2 The Culture Challenge in International Business....................... 31 Objectives 31. Opening Case 31. What Is Culture? 34. Culture and its Elements

38. The Study of Cultural Differences 50. Culture in the Workplace 53. Cross-

cultural Management and Training 55. Practical Tips 57. Closing Case 60. Chapter Summary 61. Review and Discussion Questions 62. Endnotes 62. 3 Theories of International Trade and International Investment.......... 65 Objectives 65. Opening Case 65. International Trade in General and its Importance 68. Mercantilism 69. Adam Smith and the Theory of Absolute Advantage 71. David Ricardo and the Theory of Comparative Advantage 73. The Heckscher...Ohlin (Factor Proportions) Model 75. Raymond Vernon and the Product Life Cycle Theory of Trade 78. Contemporary Trade Theories 82. Prac- tical Tips 90. Closing Case 92. Chapter Summary 94. Review and Discussion

Questions 95. Endnotes 95.

vii

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viii Contents 4 The Monetary System in the International Arena...................... 97 Objectives 97. Opening Case 97. International Transactions 98. Balance of Payments 99. The Foreign Exchange Market 104. The International Monetary System 125. The Gold Standard 126. Closing Case 129. Chapter Summary

130. Review and Discussion Questions 131. Endnotes 132.

5 International Economic Integration.................................. 135 Objectives 135. Opening Case 135. The Changing World Context 138. Glob- alization and Economic Activity 140. Economic Integration 150. Economic Inte- gration in Europe: The European Union 153. Economic Integration in North America"NAFTA 167. Economic Integration among Developing Countries

168. Closing Case 173. Chapter Summary 174. Review and Discussion Ques-

tions 175. Endnotes 175. 6 Government, Law, and Political Risk in International Business....... 181 Objectives 181. Opening Case 181. Washingtons Worries and Monts Defense

183. Introduction 184. The Political Environment 184. Closing Case 205.

Chapter Summary 206. Review and Discussion Questions 206. Endnotes 206. 7 Global Strategic Planning............................................ 209 Objectives 209. Opening Case 209. Introduction 211. Overview on Global Strategic Planning 211. The Strategic Planner in a Global Multicultural Environ- ment 226. Closing Case 230. Chapter Summary 232. Review and Discussion

Questions 232. Endnotes 233.

8 Entering the International Market................................... 235 Objectives 235. Opening Case 235. Concerns and Issues of Going International

236. International Business Research: Determining International Business Research

Objectives 240. Distribution and Sales Channel Identi“cation 241. Foreign Mar- ket Entry Strategies 242. International Logistics and Transportation Issues Related to Foreign Market Entry 258. Closing Case 259. Chapter Summary 260. Review and Discussion Questions 262. Endnotes 262.

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Contents ix

9 International Marketing............................................. 265 Objectives 265. Opening Case 265. Sports Marketing/Advertisement Revolution by Nike 266. Vision and Global Strategy 267. Nike Constantly Strives for Inno- vation 268. Innovative Communication 268. Innovation through Integration Logistics and Supply Chain Management 268. Nike Activities in Southeast Asia: Ethical Dilemmas and Social Responsibility Policies 269. The Global Environment

269. International Market Assessment 272. The Global Marketing Environment

272. The National Marketing Environment 274. Market Information 279. Inter-

national Marketing Strategy and Management 282. The International Market- ing Mix: Product, Promotion, Pricing, and Placing Strategies 285. Cross-cultural Consumer Marketing 293. Industrial Marketing 294. Industrial International Marketing Applications 295. Vertical Coordination in the Retailing Sector 295. Chain Marketing 296. Supply Chain Strategy and Management 297. Interna- tional Marketing Implementation in Challenging Areas of the Global Economy

298. Marketing in the Newly Emerging and Former Eastern Bloc Economies 299.

Closing Case 302. The GreeneryŽ: How Dutch Fresh Vegetable Growers Develop their International Marketing Organization 302. Chapter Summary 306. Review and Discussion Questions 307. Endnotes 308. 10 International Accounting, Finance, and Taxation..................... 311 Objectives 311. Opening Case 311. Introduction 313. The Environment of Global Financial Markets 313. Global Equity Markets 315. Some Trends 321. The Environment of International Financial Accounting 322. International Finan- cial Reporting 332. Auditing in an International Environment 339. International Taxation and International Transfer Prices 345. International Transfer Pricing

347. Closing Case 351. Chapter Summary 352. Review and Discussion Ques-

tions 353. Endnotes 354. 11 International Operations Management............................... 355 Objectives 355. Opening Case 355. Production and Operations 357. What is Operations Management? 358. What Do Operations Managers Do? 362. Oper- ations Management in the International Arena 366. Operations Management at Easyjet Airlines 368. Operations Management Applications 369. Project Man- agement 375. Closing Case 381. Chapter Summary 382. Review and Discussion

Questions 383. Problems 383. Endnotes 384.

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x Contents 12 Strategic Human Resource Management of International Assignments......................................................... 387 Objectives 387. Opening Case 388. Functions of International Assignments

392. Ful“lling a Speci“c Need for Personnel and Know-how 392. The Develop-

ment of Managers and their Implication Toward the Organization 393. Types of International Personnel 394. Strategic Planning and Job Analysis 402. Recruit- ment of international employees 403. Selection of International Employees 405. Preparation to Transfer 410. Pre-departure Cross-cultural Training Effective- ness 413. Adjustment of the Expatriate Manager: Organization Support upon Arrival and during the Assignment 415. The Process of Cross-cultural Adjust- ment 415. The Integrated Cross-cultural Adjustment Model 417. Compensation of International Employees 426. Repatriation and Retention 428. Potential Prob- lems Faced by the Expatriates 428. Women in the Global Arena 431. Clos- ing Case 433. Chapter Summary 433. Review and Discussion Questions 434.

Endnotes 434.

13 Doing Business in the Industrialized Countries....................... 439 Objectives 439.OpeningCase 440.Introduction"AbouttheIndustrializedCoun- tries 441.AChangingWorld"TheRoleoftheIndustrializedCountries 442.Eco- nomic and Demographic Forces 443. A New World Economy 443. Demographic Forces 444. Income and Purchasing Power 446. Labor Forces 447. Nature of the Economy and other Characteristics 448. Political, Legal, and Regulatory Forces

450.InternationalPolitical/EconomicAgreementsandCooperation 452.TheTech-

nological Forces 453. The Natural Forces 457. Social and Cultural Forces 458. Consumer Behavior in the Industrialized Countries 459. The Individual Determi- nantsofConsumerBehavior 463.EnvironmentalDeterminantsofConsumerBehav- ior 464.CulturalandSocialFactors 465.BusinessSocialResponsibilityandEthics

466.CommunicationandMedia 467.In"uencingConsumerBehavior 468.Other

Issues 469.TheFuture 475.ClosingCase 476.ChapterSummary 478.Review andDiscussionQuestions 479.Endnotes 479. 14 Doing Business in the Newly Emerging Economies................... 483 Objectives 483. Opening Case 483. Introduction 484. Business Opportunities in the Financial Markets 486. Foreign Direct Investments 493. Foreign Trade Potential of the Emerging Economies 497. Growing Potential of the Market of Services 502. Closing Case 505. Chapter Summary 507. Review and Discussion

Questions 507. Endnotes 508.

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Contents xi

15 Business Behavior in Europes Single Market......................... 509 Objectives 509. Opening Case 510. The Issue 510. Description 510. Intro- duction: What is In"uencing Business Behavior in Europes Single Market? 512. The Challenges in the European Continent in the Aftermath of World War II 513. The First Steps: The Origins of Cooperation in Europe 514. The Deepening of European Integration: The Evolution of the EU through Treaties 514. The Institu- tional Design of the EU: How Europe is Governed 518. The Widening of the EU: The Policy of Enlargement 520. National and Cultural Differences within the EU: The Importance of Diversity 521. The Impact of National Diversity on Business Behavior 524. The Signi“cance of Europes Single Mar- ket: The Four Freedoms of Movement 527. The European Monetary Union: Conducting Business in the Euro-Zone 538. The Need for Regulation in Europes Business Environment: The EUs Competition Policy 539. Closing Case 541. Chapter Summary 544. Review and Discussion Questions 545.

Endnotes 545.

16 Doing Business in the Developing Countries......................... 547 Objectives 547. Opening Case 547. Introduction 548. Classification of the Developing Countries 549. Cultural and Political Factors 558. Entry Strategies in the LDCs 563. Interaction with the World Market: Forms, Dependences, and Basic Trends 571. Closing Case 581. Chapter Summary 582. Review and Discussion

Questions 583. Endnotes 584.

PartB:A Potpourri of Cases........................................... 585 Air Arabia: Seeking Success in an Open Skies Market....................... 587 Can Personal Agendas Produce Good Business Decisions: The Case of KYT Inc...................................................... 595 Chicago Food and Beverage Company..................................... 619 Making the Product-to-Service Transition in International Markets......... 633 The Misadventures of an American Expatriate in Europe................... 641 The UAE: An Information Society for Growth and Employment............ 659 Index...................................................................... 693

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Preface

In the shadow of globalization and all the other world developments we have decided to write a book on international business from a global perspective, and not just from the European, the American, the German, or the Japanese point of view. We have included a lot of primary information that were based on interviews of several individuals from around the world, and also from our own international experience as educators, researchers, and consultants. Several chapters were written by specialists in their own “eld and their contributions are extremely valuable to the “nal version of the book. The book consists of two parts. The “rst part consists of sixteen chapters, with the last four being a practical application of how it is to do business in certain regions of the world. Each chapter begins with an Opening Case and a stimulating question. The main body of each chapter consists of a theoretical framework that results from primary and/or secondary data, and the chapter ends with a Closing Case with a stimulating question. Chapter summary and review and discussion questions are found at the end of each chapter, and practical tips are found in some chapters, wherever appropriate. The second part consists of six comprehensive cases addressing international issues ranging from human resources management, culture, to marketing, family businesses and national development. The book is accompanied by an instructors manual with PowerPoint presentation slides, and a test bank with true or false, multiple choice, and critical thinking questions.

The unique features of the book are:

€the opening and closing cases in each chapter with one OR MORE thought provoking question for each case; €the answers in some chapters of people interviewed from the govern- ment, business, and other sectors; €the reference on women issues and their contribution to international business issues in some chapters; €the global approach found throughout the book; xiii

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xiv Preface €the last four chapters which address international business issues in various geographic areas of the world; and €the length of the book which consists of sixteen chapters. This book is an anthology of chapters written by a number of experts in their respective “elds and we are sincerely grateful and thankful for their contribution. These colleagues are: €Dr George Baourakisof the Mediterranean Agronomic Institute of Chania, Crete-Greece, responsible for Chapters 8 and 9. €Dr John L. Havertyof Saint Josephs University, Philadelphia, USA, responsible for Chapter 10. €Professor Harry Kogetsidisof Intercollege, Nicosia, Cyprus, responsi- ble for Chapter 11. €Dr Marie-France Waxinof the American University of Sharjah,

Sharjah, UAE, responsible for Chapter 12.

€Dr Alkis Thrasouof Intercollege, Nicosia, Cyprus, responsible for

Chapter 13.

€Dr Rumen Gechevof the University of National and World Economy, So“a, Bulgaria, responsible for Chapters 14 and 16. €Professor Christina Ioannouof Intercollege, Nicosia, Cyprus, responsi- ble for Chapter 15. Our gratitude goes to the following people who have contributed their case studies: Dr Marie-France Waxin; Dr Robert Bateman; Dr Donelda McKechnie; Dr James Grant; Dr Zeinab Karake-Shalhoub; and Ms Mona Fahmi all of the American University of Sharjah, UAE; Dr Gary Kritz of Seton Hall University and Dr Samuel Wathen of Coastal Carolina University, USA and Dr Virginia Bodolica of the Université du Québec en Outaouais,

Canada.

Special thanks go to Mr Anthos Shiekkeris and Dr Maria Michaelidis, both at Intercollege, Nicosia, Cyprus, for their contributions in earlier ver- sions of Chapter 12. Special thanks also go to Michael G. Papaioannou of International Capital Markets Department, International Monetary Fund, who has endorsed our book. Furthermore, our sincere and honest appreciation goes to Maggie Smith and Dennis McGonagle, of the Elsevier Group, for their patience, guidance and, above all, professionalism throughout this project. Our thanks go to all the anonymous reviewers of the manuscript and all the interviewees who have been very willing to provide us with useful information for inclusion in some chapters. Finally, we would also like to thank the project manager,

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Preface xv

Kalpalathika Rajan, and the copy editor Abiramavalli R. of Integra Software Services, India for the successful completion of this book.

Dr Marios I. Katsioloudes,

American University of Sharjah, UAE

Dr Spyros Hadjidakis,

Intercollege, Nicosia-Cyprus

June 2006

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Part A: Chapters

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1

Challenges in International

Business

Objectives

Through this chapter, the student will be exposed to:

€Today"s world of business

€What is international business

€Why companies go international

€The participants in international business

€The global perspective of international business

€Why study international business

€The framework of this textbook.

Opening Case

FAMAGUSTA, Inc. in Manila, Philippines

FAMAGUSTA, Inc. (a “ctitious name) is a large, non-US-based multinational corporation (MNC) that has set up its new of“ce in Manila. With the help of a few previous connections and more than a little good fortune, you land your “rst contract within a relatively short period of time. The job involves providing professional consultation and technical support on a joint ven- ture project with a local corporation. You will be working in the of“ces of the Philippine company, scoping and designing the project, managing the implementation phase, and working with their domestic personnel to get the job done. Your contract speci“es an interim review after the design phase is 3 Elsevier US Job code: KIB Chapter: Ch01-H7983 6-12-2006 8:09p.m. Page:4 Trimsize:7.25in×10.25in

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4 International Business

completed, but top management assures you that it is just a formality"they de“nitely want to work with you for the whole project. You review the facilities and résumés of both management and technical staff and every- thing looks “ne. No problem, you tell yourself as you tackle the project enthusiastically. At “rst everything is great. You are given your own of“ce and are told by the chief executive of“cer (CEO) to work directly with the executive vice president (EVP) for the division; he seems highly supportive and tells you to call on him at any time for whatever you might need. Although the working environment is relaxed by American and European standards, the staff works long hours and everyone is unfailingly polite. You soon “nd yourself enjoying the change of pace and the congenial aspects of the Filipinoquotesdbs_dbs20.pdfusesText_26

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