International Business Environments and Operations Fifteenth Edition This page is intentionally left blank International Business Environments and Operations Fifteenth Edition John D Daniels University of Miami Lee H Radebaugh Brigham Young University Daniel P Sullivan University of Delaware Prashant Salwan Indian Institute of Management Indore Copyright © 2016 Pearson India Education Services Pvt Ltd Published by Pearson India Education Services Pvt Ltd, CIN: U72200TN2005PTC057128, formerly known as TutorVista Global Pvt Ltd, licensee of Pearson Education in South Asia No part of this eBook may be used or reproduced in any manner whatsoever without the publisher’s prior written consent This eBook may or may not include all assets that were part of the print version The publisher reserves the right to remove any material in this eBook at any time ISBN: 978-93-325-4822 -0 eISBN: 978-93-325-5877-9 Head Office: A-8 (A), 7th Floor, Knowledge Boulevard, Sector 62, Noida 201 309, Uttar Pradesh, India Registered Office: Module G4, Ground Floor, Elnet Software City, TS-140, Block & Rajiv Gandhi Salai, Taramani, Chennai 600 113, Tamil Nadu, India Fax: 080-30461003, Phone: 080-30461060 www.pearson.co.in, Email: companysecretary.india@pearson.com Brief Contents Preface xxvii About the Authors xliii PART ONE: Background for International Business Globalization and International Business An Atlas 36 1 PART TWO: Comparative Environmental Frameworks The Cultural Environments Facing Business 49 The Political and Legal Environments Facing Business The Economic Environments Facing Businesses 141 49 91 PART THREE: Theories and Institutions: Trade and Investment 193 International Trade and Factor-Mobility Theory 193 Governmental Influence on Trade 235 Cross-National Cooperation and Agreements 267 PART FOUR: World Financial Environment 305 Global Foreign-Exchange Markets 305 The Determination of Exchange Rates 337 10 Global Capital Markets 373 PART FIVE: Global Strategy, Structure, and Implementation 11 12 13 14 15 16 Globalization and Society 407 The Strategy of International Business 441 Country Evaluation and Selection 503 Export and Import 541 Direct Investment and Collaborative Strategies 591 The Organization of International Business 633 PART SIX: Managing International Operations 17 18 19 20 407 677 Marketing Globally 677 Global Manufacturing and Supply-Chain Management International Accounting and Finance Issues 757 International Human Resource Management 793 723 v This page is intentionally left blank Contents Cases with or company denotes a case that emphasizes a country, cases with Preface xxvii About the Authors • PART ONE: denotes a case that emphasizes an industry xliii BACKGROUND FOR INTERNATIONAL BUSINESS Globalization and International Business CASE: The Globalized Business of Sports Introduction How Does International Business Fit In? The Forces Driving Globalization Factors in Increased Globalization The Costs of Globalization 12 Threats to National Sovereignty 13 Environmental Stress 13 Growing Income Inequality and Personal Stress Point-Counterpoint Is Offshoring Good Strategy? 14 14 Why Companies Engage in International Business Expanding Sales 17 Acquiring Resources 17 Reducing Risk 17 Modes of Operations in International Business Merchandise Exports and Imports 18 Service Exports and Imports 18 Investments 19 Types of International Organizations 19 16 18 Why International Business Differs from Domestic Business Physical and Social Factors 20 Fast Moving Consumer Goods: Fmcg in India Market Break-up of Indian FMCG Industry 22 Looking to the Future Three Ways of Looking at Globalization Summary 33 20 22 Trends in FMCG Revenues Over the Years in India The Competitive Environment 26 CASE: Carnival Cruise Lines 23 27 28 vii viii C on ten ts Key Terms Endnotes 33 34 An Atlas 36 Map Index 44 • PART TWO: COMPARATIVE ENVIRONMENTAL FRAMEWORKS The Cultural Environments Facing Business CASE: Saudi Arabia’s Dynamic Culture Introduction 54 The People Factor 49 50 54 Cultural Awareness 55 A Little Learning Goes a Long Way 56 The Idea of a “Nation”: Delineating Cultures 57 The Nation as a Point of Reference 57 How Cultures Form and Change Sources of Change 57 57 Language as Both a Diffuser and Stabilizer of Culture Why English Travels So Well 60 Religion as a Cultural Stabilizer 61 Behavioral Practices Affecting Business Issues in Social Stratification 62 62 Does Geography Matter? Birds of a Feather Flock Together Work Motivation 65 Relationship Preferences 68 Risk-Taking Behavior 69 Information and Task Processing Communications 71 Spoken and Written Language Silent Language 73 58 63 70 71 Dealing with Cultural Differences 74 Host Society Acceptance 74 Degree of Cultural Differences 75 Ability to Adjust: Culture Shock 75 Company and Management Orientations Strategies for Instituting Change 77 76 Point-Counterpoint Does International Business Lead to Cultural Imperialism? Looking to the Future What Will Happen to National Cultures? 80 CASE: Tesco PLC: Leveraging Global Knowledge 82 77 49 ix C o nt e nt s Summary 87 Key Terms Endnotes 87 88 The Political and Legal Environments Facing Business CASE: China—Complicated Risks, Big Opportunities 92 Introduction 95 The Political Environment 96 Individualism Versus Collectivism Individualism 97 Collectivism 98 97 Political Ideology 98 Spectrum Analysis 99 Democracy 100 Totalitarianism 101 The Standard of Freedom 102 Trends in Political Ideologies 103 Engines of Democracy 104 Democracy: Recession and Retreat Authoritarianism’s Surge 107 105 Looking to the Future Political Ideology and MNEs’ Actions 108 Political Risk 110 Classifying Political Risk 111 Classes and Characteristics of Political Risks 111 Point-Counterpoint Proactive Political Risk Management: The Best Approach The Legal Environment 115 Types of Legal Systems 116 Trends in Legal Systems 117 Implications for Managers 119 The Confound of Democracy’s Retreat Which Rule When? 120 119 Legal Issues in International Business 122 Operational Concerns 122 A Key Relationship: Wealth and Regulation Strategic Concerns 125 Country Characteristics 125 Product Safety and Liability 126 124 113 91 www.freebookslides.com C h a pt e r 1 JAN MAYEN IS (Denmark) A D en ma rk St Ar ctic Ocean it 39 Globalization and International Business Bar ents Sea Murmansk B ICELAND Reykjavik N o r w egi a n S ea C FAEROE IS (Den.) FINLAND SWEDEN SHETLAND IS (U.K.) St Petersburg Helsinki Bergen D Oslo ORKNEY IS RUSSIA Lake Ladoga NORWAY Kostroma Tallinn Stockholm ESTONIA Moscow Glasgow E UNITED KINGDOM Belfast Dublin Irish Sea IRELAND The Hague Le Havre Granada Málaga CORSICA BA L EA RIC Se Naples 300 km Timisoara B l a ck Sea Bucharest BULGARIA Pristina Skopje Sofia Istanbul Messina TURKEY Thessaloniki ALBANIA GREECE I onian Sea M e d i t SICILY e r r a n e a n 300 mi Valetta MALTA Odesa a Tirana MACEDONIA Taranto Mykolayiv Arad KOSOVO Bari Palermo Cartagena tic Chisinau Belgrade Ty r rhenian Sea I S Valencia M3 EUROPE VATICAN CITY ria MOLDOVA ROMANIA BOSNIA & CROATIA HERZEGOVINA SERBIA & MONTESarajevo Florence NEGRO d ITALY Dnipropetrovsk Chernivtsi Debrecen Bratislava Budapest Zagreb Rome SARDINIA Strait of Gibraltar J Livorno UKRAINE Lvov VAKIA SLO Vienna Padova Venice Genoa Monaco Kiev Brno SAN Turin MARINO Barcelona Madrid Linz A Marseille ANDORRA Sevilla Milan Nỵmes Toulouse SPAIN Bern Homyel’ Krakow AUSTRIA HUNGARY Ljubljana SLOVENIA SWITZERLAND Geneva Lyon St Etienne A Coruña Lisbon CZECH REP Stuttgart Kursk BELARUS Warsaw Wroclaw Zurich LIECHTENSTEIN Limoges Bordeaux Dresden Orel Minsk Lódz Prague Munich B ay of B i scay PORTUGAL Leipzig Frankfurt Luxembourg FRANCE Porto Liège LUXEMBOURG Paris Le Mans G Brussels POLAND GERMANY Essen Düsseldorf Bonn BELGIUM l Vilnius Bydgoszcz Berlin Amsterdam Smolensk LITHUANIA RUS Hamburg NETHERLANDS anne E ngl is h C h Malmo Tula LATVIA Baltic Sea Kaliningrad Gdansk Manchester Liverpool London Atlantic Ocean I DENMARK Copenhagen Birmingham F H Göteborg North S ea Edinburgh Riga Aege an Se a Piraiévs Athens CYPRUS CRETE S e a H G F E D C an S ea Izmir k Ankara Blac Se a Omsk Aral Sea Lake Balkash KAZAKHSTAN Astana Yekaterinburg Chelyabinsk Novosibirsk PALESTINE M4 ASIA YEMEN Sanaa 0 Male 1000 km Colombo 1000 mi SRI LANKA Chennai (Madras) Mandalay Bangkok VIETNAM Baguio TAIWAN (Formosa) RYUKYU IS Kagoshima Tokyo Kyoto Osaka Kitakyushu Celebes Bandar Seri Begawan Sea Davao Jakarta I N D O N E S I A SINGAPORE M A L A Y S I A BRUNEI Ho Chi Minh City (Saigon) CAMBODIA Kuala Lumpur George Town Macau Hong Kong Taipei East China Sea Nagasaki SOUTH KOREA Seoul RO Banda Sea LIN PALAU CA EAST TIMOR MOLUCCA IS JAPAN KURIL IS Bering Sea South Manila China Sea PHILIPPINES Hanoi HAINAN I Guangzhou Vientiane LAOS Kunming Changsha Fuzhou Wuhan Nanjing Shanghai Tianjin Vladivostok Sea of O kho ts k Sea NORTH of KOREA Ja p a n Harbin Pyongyang Shenyang Chongqing THAILAND Phnom Penh Yangon MYANMAR Dhaka Bay of Bengal Calcutta Hyderabad INDIA Nagpur Bangalore Mumbai (Bombay) Chengdu CHINA Taiyuan Qiqihar Changchun Beijing Ulaanbaatar Lake Baikal MONGOLIA BANGLADESH Ar ctic Ocean R U S S I A Delhi NEPAL BHUTAN New Delhi Karachi Kanpur Kathmandu Thimpu PAKISTAN MALDIVES Arabian Sea OMAN Muscat U.A.E Abu Dhabi Hyderabad Ind ia n Ocea n ARABIA QATAR UZBEKISTAN Bishkek Damascus AZERBAIJAN Almaty Amman IRAQ TURKMENISTANTashkent Tehran KYRGYZSTAN ISRAEL Ashgabat Bagdad Samarkand Hamadan ¯ JORDAN TAJIKISTAN Basra Mashhad Dushanbe Kuwait Herat IRAN Medina Kabul KUWAIT Shiraz Islamabad AFGHANISTAN Jeddah Riyadh BAHRAIN Peshawar Manama Lahore Mecca Multan SAUDI Doha TIBET Baku GEORGIA Tbilisi Yerevan TURKEY Istanbul CYPRUS Nicosia ARMENIA Beirut LEBANON SYRIA Jerusalem e an Sea B Atlan tic Ocean rr Medite a Red Arafura Sea S ND SLA E I FEDERATED STATES OF MICRONESIA NORTHERN MARIANAS IS Pac ific O c ean part A Caspian S e 40 www.freebookslides.com Background for International Business www.freebookslides.com C h a pt e r 1 A 41 Globalization and International Business Arctic Se a ELLESMERE I GREENLAND B PARRY IS Baffin Ba y Beaufor t Se a D BAFFIN I a vi Bering Se a sS VICT ORIA I tr C BANKS I a it Fairbanks Anchorage Labrador Se a Gulf of Alaska D Juneau Hudson Ba y CANADA NEWFOUNDL AND St John’s Edmonton E Calgary Vancouver Pacific O cean Seattle Regina G San Diego Tijuana Spokane Phoenix Tucson EASTERN CARIBBEAN I Santo Domingo Ca r i b b e San Juan PUERTO RICO an CURAÇAO (Neth.) BONAIRE (Neth.) J ARUBA (Neth.) MONT SERRAT (Br.) DOMINICA MARTINIQUE (Fr.) ST VINCENT & THE GRENADINES GRENADA Port of Spain GUADELOUPE (Fr.) M i c h i g an Lake Gulf of Mexico Monterrey Acapulco WEST INDIES Havana CUBA Atlantic O cean BERMUDA JAMAICA Mexico City Puebla BELIZE Belmopan GUATEMALA Guatemala DOMINICAN REPUBLIC HAITI Santo Port-au-Prince Cancún Mérida León ST LUCIA HONDURAS Kingston Caribbean Se a Tegucigalpa NICARAGUA Managua EL SALVADOR Panama COST A RICA San José PANAMA BARBADOS TRINIDAD & TOBAGO Toronto Savannah Dallas Jackson Jacksonville Shreveport Mobile Orlando New Orleans Houston St Petersburg BAHAMAS Corpus Cristi Miami Nassau San Antonio Guadalajara La k Fort Worth MEXICO ANGUILLA ANTIGUA & BARBUDA ST KITTS & NEVIS El Paso Torreón VIRIN ISLANDS (U.S & Br.) ke La Bismarck Helena Ciudad Juárez DOMINICAN REPUBLIC Montréal Ottawa e F HAWAIIAN ISLANDS (U.S.) Halifax Quebec Winnipeg Burlington Boston Hartford L Providence Minneapolis e Buffalo New York UNITED STATES Detroit e Er i Milwaukee k Philadelphia La Pittsburgh Chicago Baltimore Cleveland Omaha Des Moines Salt Lake Great Salt Washington, D.C Charleston Lake City Indianapolis Richmond Kansas City Cincinnati Provo Sacramento Boulder Norfolk St Louis Louisville Denver San Francisco Winston-Salem Wichita Charlotte Little Memphis Tulsa Las Vegas Rock Columbia Los Angeles Albuquerque Oklahoma City Atlanta Tacoma Portland H Gulf of St Lawr ence M5 NORTH AMERICA 0 2000 mi 2000 km Domingo www.freebookslides.com 42 Background for International Business part 1 Ca r i bb ea n S ea Santa Marta Cumaná Port of Spain Maracaibo Caracas Cartagena TRINIDAD & TOBAGO Barquisimeto Maturín Montería Ciudad Guyana Valencia Maracay Cúcuta Ciudad Bolívar San Cristóbal Bucaramanga Georgetown VENEZUELA Paramaribo Medellín Mackenzie Manizales Cayenne Bogotá Buenaventura SURINAME Ibagué FRENCH Cali GUYANA Neiva GUIANA Popayán Barranquilla A B CURAÇAO (Neth.) BONAIRE Atlantic Ocean COLOMBIA Ambato Guayaquil Pasto Quito Belém ECUADOR São Luís Manaus Iquitos Fortaleza C Teresina Chiclayo Trujillo D Lima Itabuna Brasilia La Paz BOLIVIA Goiânia Santa Cruz Sucre Iquique E Córdoba Mendoza Santiago Rancagua Asunción San Miguel de Tucumán Corrientes Santiago del Estero San Juan G Uberaba Belo Horizonte Araraquara Juiz dé Fora Bauru Petrópolis Niterói Campinas Rio de Janeiro São Paulo Santos PA R A G UAY Salta CHILE Viđa del Mar Valparso Uberlândia Campo Grande Potosi Antofagasta Pacific Ocean Recife Salvador Cuzco Arequipa F Caruaru BRAZIL P E RU Callao Natal Campina Grande Posadas Santa Maria Santa Fe Río Cuarto Rosario Ponta Grossa Curitiba Pôrto Alegre Pelotas Paraná Rio Grande U RU G UAY Buenos Aires La Plata Montevideo A RG E N T I NA Talcahuano Concepción Temuco Bahia Blanca Valdivia H Atlantic Ocean I FALKLAND ISLANDS (U.K.) Stanley Isla Grande de Tierra del Fuego J M6 SOUTH AMERICA 0 1000 mi 2000 km H G Albany Collie O A U Dili E T S R L CAROLINE ISLANDS Bundaberg Ballarat 0 Hobart Launceston rait Ba ss S t TASMANIA Newcastle Honiara 1000 mi VANUATU NAURU Wellington Dunedin Christchurch Auckland NEW ZEALAND TONGA AMERICAN SAMOA KERMADEC IS Pacifi c O cean FIJI WALLIS & FETUNA TUVALU KIRIBATI REPUBLIC OF THE MARSHALL ISLANDS NEW CALEDONIA (France) Port-Vila Nouméa SOLOMON ISLANDS Tasman Se a 1000 km Coff’s Harbour Port Macquarie Wollongong Shellharbour Canberra Sydney Melbourne Geelong Bendigo Wagga Wagga Rockhampton Redcliffe Ipswich Brisbane Southport Toowoomba Lismore Longreach Mackay Townsville Cairns Port Moresby PA P UA N EW G U I N E A Tamworth Broken Hill Dubbo A Elizabeth Adelaide FEDERATED STATES OF MICR ONESIA Charters Towers Mount Gambier Warrnambool Port Augusta A Alice Springs I Gulf of Carpenteria A Jayapura Tennant Creek Katherine I PALAU Gr eat Austr alian Bight S Darwin EAST TIMOR N Kalgoorlie Kupang Major Aborigine Reserves Bunbury D Stirling Geraldton N Perth Fremantle Ind ia n O cea n Semarang I JAVA Surabaya M7 OCEANIA Bandung Jakarta CELEBES Ujung Pandang Banjarmasin BORNEO C h a pt e r F E D C B A www.freebookslides.com Globalization and International Business 43 www.freebookslides.com 44 part Background for International Business Map Index COUNTRY AND TERRITORY PRONUNCIATION MAP MAPS 2–7 Afghanistan Albania Algeria American Samoa Andorra af-´gan-ə-,stan al-´ba¯-ne¯-ə al-´jir-e¯-ə ə-mer´i-kən sə-mo¯´ə an-´do˙r-ə D7 C5 D5 F9 — Map 4, E3 Map 3, I6 Map 2, C3 Map 7, D9 Map 3, H2 Angola Antigua & Barbuda Argentina Armenia Australia an-´go¯-lə an-´te¯-g(w)ə / bär-’büd-ə ,,är-jen-´te¯-nə är-´me¯-ne-ə o˙-´stra¯l-yə E5 — G3 C6 G8 Map 2, G4 Map 5, I3 Map 6, G3 Map 4, D2 Map 7, E4 Austria Azerbaijan Bahamas Bahrain Bangladesh ´o˙s-tre¯-ə ´az-ər-´bı¯-´jän bə-hä´-məz bä-´ra¯n ´bänJ-glə-´desh C5 D6 D3 — D7 Map 3, G5 Map 4, D2 Map 5, H7 Map 4, E2 Map 4, F5 Barbados Belarus Belgium Belize Benin bär-´b a¯d-əs ´be¯-lə-´rüs ´bel-jəm bə-´le¯z bə-´nin — C5 C5 D2 E5 Map 5, J3 Map 3, F6 Map 3, F3 Map 5, I6 Map 2, E3 Bermuda Bhutan Bolivia Bosnia & Herzegovina Botswana (´)bər-´myüd-ə bü-´tan bə-´liv-e¯-ə ´bäz-ne¯-ə / ´hert-sə-go ¯ -´ve¯-nə bät-´swän-ə — D7 F3 D5 F5 Map 5, G8 Map 4, F5 Map 6, E4 Map 3, H5 Map 2, I5 Brazil Brunei Bulgaria Burkina Faso Burundi Cambodia Cameroon Canada Cape Verde Islands Central African Rep Chad Chile China Colombia Congo (Democratic Republic) Congo Republic Costa Rica Croatia Cuba Curaỗao Cyprus Czech Republic Denmark Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea brə-´zil bro¯o-nı¯´ ´bəl-´gar-e¯-ə bu˙r-´ke¯-nə-´fa˙-so¯ bu˙-´rün-de¯ kam-´bd-e¯-ə ´kam-ə-´rün ´kan-əd-ə ´vard F3 E8 D5 E5 E6 E7 E5 C2 — E5 E5 G3 D8 E3 E5 E5 E2 D5 E3 — D6 C5 C5 E6 — E3 E3 D5 E2 E5 Map 6, D6 Map 4, G7 Map 3, H6 Map 2, E2 Map 2, G6 Map 4, G6 Map 2, F4 Map 5, E5 Map 2, G1 Map 2, E5 Map 2, D5 Map 6, F3 Map 4, E5 Map 6, B3 Map 2, G5 Map 2, F4 Map 5, J7 Map 3, H5 Map 5, H7 Map 5, J1 Map 4, D2 Map 3, G5 Map 3, E4 Map 2, E7 Map 5, I3 Map 5, H8 Map 6, C2 Map 2, C6 Map 5, I6 Map 2, F4 ´chad ´chil-e¯ ´chı¯-nə kə-´ləm-be¯-ə ´känJ(´)go ¯ ´känJ(´)go¯ ´käs-tə-´re¯-kə kro¯-´a¯-sh(e¯)ə ´kyü-bə ´k(y)ür-ə-´so ¯ ´sı¯-prəs ´chek ´den-´märk jə-´büt-e¯ ´däm-ə-´ne¯-kə də-´min-i-kən ´ek-wə-´do˙ (ə)r ´e¯-jəpt el-´sal-və-´do˙ (ə)r e¯-kwa´-to ¯ r-e¯al `gi-ne¯ www.freebookslides.com C h a pt e r Globalization and International Business COUNTRY AND TERRITORY PRONUNCIATION MAP Eritrea Estonia Ethiopia Falkland Islands Fiji Finland France French Guiana Gabon Gambia Georgia Germany Ghana Greece Greenland Grenada Guatemala Guinea Guinea-Bissau Guyana Haiti Honduras Hong Kong Hungary Iceland India Indonesia ´er-ə-´tre¯-ə e-´sto ¯ -ne¯-ə ´e¯-the¯-´o ¯ -pe¯-ə ´fo˙ (l)-klənd ´fe¯-je¯ ´fin-lənd ´fran(t)s ge¯-´an-ə ga-´bo ¯n ´gam-be¯ -ə ´jo˙ r-jə ´jerm-(ə-)ne¯ ´gän-ə ´gre¯s ´gre¯n-lənd grə-na¯´də ´gwät-ə-´mäl-ə ´gin-e¯ ´gin-e¯-bis-´au˙ gı¯-´an-ə ´ha¯t-e¯ hän-´d(y)u˙r-əs ´hänJ-´känJ ´hənJ-g(ə)re¯ ´ı¯-slənd ´in-dê-ə ´in-də-´ne¯-zhə E6 C5 E6 — — B5 C5 E3 E5 E4 C6 C5 E5 D5 A4 — E2 E4 E4 E3 E3 E2 — C5 B4 D7 E8 Iran Iraq Ireland Israel Italy Ivory Coast (Cote D'Ivoire) Jamaica Japan Jordan Kazakhstan Kenya Kiribati Korea, North Korea, South Kosovo Kuwait Kyrgyzstan Laos Latvia Lebanon Lesotho Liberia Libya Liechtenstein Lithuania Luxembourg Macedonia Madagascar Malawi i-´rän i-´räk ´ı¯(ə)r-lənd ´iz-re¯-əl ´it-əl-e¯ ¯ı´və-re¯ jə-´ma¯-kə jə-´pan ´jo˙rd-ən kə-´zak-´stan ´ken-yə kỵr-ì-bàs´ kə-´re¯-ə kə-´re¯-ə ´Ko-so ¯ -vo¯ kə-´wa¯t kỵr-ge¯-stän´ ´lau˙s ´lat-ve¯-ə ´leb-ə-nən lə-´so ¯ -(´)to¯ lı¯-´bir-e¯-ə ´lib-e¯-ə lìk´tən-stı¯n´ ´lith-(y)ə-´wa¯-ne¯-ə ´lək-səm-´bərg ´mas-ə-´do¯-nyə ´mad-ə-´gas-kər mə-´lä-we¯ D6 D6 C5 D6 D6 E5 E3 D8 D6 D7 E6 — D8 D8 C5 D6 D7 D7 C5 D6 F6 E5 D5 — C5 C5 D6 F6 F6 MAPS 2–7 Map 2, D7 Map 3, D6 Map 2, E7 Map 6, J4 Map 7, D8 Map 3, C6 Map 3, G3 Map 6, B5 Map 2, F4 Map 2, E1 Map 4, D2 Map 3, F4 Map 2, E2 Map 3, I6 Map 5, B7 Map 5, J3 Map 5, I6 Map 2, E1 Map 2, E1 Map 6, B4 Map 5, H8 Map 5, I7 Map 4, F6 Map 3, G5 Map 3, B1 Map 4, F4 Map 4, H7; Map 7, B3 Map 4, E3 Map 4, D2 Map 3, F1 Map 4, D2 Map 3, H4 Map 2, E2 Map 5, I7 Map 4, D7 Map 4, D2 Map 4, D4 Map 2, F7 Map 7, B8 Map 4, D7 Map 4, D7 Map 3, H6 Map 4, E2 Map 4, D4 Map 4, F5 Map 3, E6 Map 4, D2 Map 2, J6 Map 2, F2 Map 2, C4 Map 3, G4 Map 3, E6 Map 3, G3 Map 3, H6 Map 2, I8 Map 2, H6 45 www.freebookslides.com 46 part Background for International Business COUNTRY AND TERRITORY PRONUNCIATION MAP MAPS 2–7 Malaysia Maldives Mali Malta Marshall Islands Mauritania Mauritius Mexico Micronesia Moldova Mongolia Morocco Mozambique Myanmar Namibia Naura Nepal Netherlands New Caledonia New Zealand Nicaragua Niger Nigeria Norway Oman Pakistan Palau Palestine Panama Papua New Guinea Paraguay Peru Philippines Poland Portugal Puerto Rico Qatar Romania Russia mə-´la¯-zh(e¯ -)ə môl´dı¯vz ´mäl-e¯ ´mo˙ l-tə mär´shəl ´mo˙ r-ə-´ta¯-ne¯-ə mo˙ -´rísh´əs ´mek-si-´ko¯ mı¯´kro¯-ne¯´zhə mäl-´do¯-və män-´go ¯ l-yə mə-´räk-(´)o¯ ´mo ¯ -zəm-´be¯k ´myän-´mär nə-´mib-e¯-ə nä´-ü-rü nə-´po˙ l ´neth-ər-lən(d)z ´kal-ə-´do¯-nyə ´ze¯-lənd ´nik-ə-´räg-wə ´nı¯-jər nı¯-´jir-e¯-ə ´no˙ (ə)r-´wa¯ o¯-´män ´pak-i-´stan pä-lou´ pa-lə-´stı¯n ´pan-ə-´mä ´pap-yə-wə ´par-ə-´gwı¯ pə-´rü ´fil-ə-´pe¯nz ´po ¯ -lənd ´po¯ r-chi-gəl ´po¯ rt-ə-´re¯(´)ko¯ ´kät-ər ro¯-´a¯-ne¯-ə ´rəsh-ə E8 — D5 — — D5 — D2 — D6 D8 D5 F6 E7 F5 — D7 C5 — G9 E3 E5 E5 C5 E6 D7 — — E3 F9 F3 F3 E8 D5 D5 E3 D6 D5 C7 Rwanda St Kitts & Nevis St Lucia St Vincent and the Grenadines San Marino São Tomé and Príncipe ru˙-´än-də ´kits / ´ne¯-vəs sa¯nt-´lü-shə grèn´ə-de¯nz´ sàn mə-re¯´no¯ soun to¯ə-mè´pre¯n´-se¯pə E6 — — — — — Map 4, G6 Map 4, H3 Map 2, D2 Map 3, J5 Map 7, A8 Map 2, D1 Map 2, J8 Map 5, I5 Map 7, A5 Map 3, G7 Map 4, D5 Map 2, B2 Map 2, H6 Map 4, F5 Map 2, I4 Map 7, B7 Map 4, F4 Map 3, F3 Map 7, E7 Map 7, H7 Map 5, I7 Map 2, D4 Map 2, E4 Map 3, D4 Map 4, F2 Map 4, E3 Map 7, A3 Map 4, D1 Map 5, J8 Map 7, C5 Map 6, E4 Map 6, D2 Map 4, F7 Map 3, F5 Map 3, I1 Map 5, I2 Map 4, E2 Map 3, H6 Map 3, D7; Map 4, C5 Map 2, F6 Map 5, I3 Map 5, I3 Map 5, J3 Map 3, H4 Map 2, F3 Saudi Arabia Senegal Serbia & Montenegro Seychelles Sierra Leone Singapore Slovakia Slovenia Solomon Islands Somalia ´sau˙d-e¯ ´sen-i-´g˙l ´sər-be¯-ə / ´män-tə-´ne¯-gro¯ sa¯-shèlz´ se¯-´er-ə-le¯-´o¯n ´sinJ-(g)ə-´po¯(ə)r slo¯-´väk-e¯-ə slo¯-´ve¯n-e¯-ə ´säl-ə-mən so¯-´mäl-e¯-ə E6 E4 D5 — E4 — C5 C5 — E6 Map 4, E2 Map 2, D1 Map 3, H6 Map 2, J1 Map 2, E1 Map 4, H6 Map 3, G5 Map 3, H5 Map 7, C6 Map 2, F8 www.freebookslides.com C h a pt e r COUNTRY AND TERRITORY PRONUNCIATION South Africa South Sudan Spain Sri Lanka Sudan Suriname Swaziland Sweden Switzerland Syria Taiwan Tajikistan Tanzania Thailand Togo Tonga Trinidad & Tobago Tunisia Turkey Turkmenistan Tuvalu Uganda Ukraine United Arab Emirates United Kingdom United States Uruguay Uzbekistan Vanuatu Vatican City Venezuela Vietnam Western Sahara Yemen Zambia Zimbabwe ´a-fri-kə sü-´dan ´spa¯pn (´)sre¯-´länJ-kə sü-´dan su˙r-ə-´näm-ə ´swäz-e¯-´land ´swe¯ d-ən ´swit-sər-lənd ´sir-e¯-ə ´tı¯-´wän tä-´ji-ki-´stan ´tan-zə-´ne¯-ə ´tı¯-land ´to¯ (´)go¯ ´tän-gə ´trin-ə-´dad / tə-´ba¯-(´)go¯ t(y)ü-´ne¯-zh(e¯-)ə ´tər-ke¯ tûrk´-men-i-stàn´ tü´-vä-lü (y)ü-´gan-də -´kra¯n yoo-nı¯´tid r´əb i-mỵr´its king´dəm yu˙-´nı¯t-əd-´sta¯ts ´(y)u˙r-ə-gwı¯ (´)u˙z-´bek-i-´stan van-ə-´wät-(´)ü vàt´ ì-kən ´ven-əz(-ə)-´wa¯-lə ve¯-´et-´näm sə-hâr´ə ´yem-ən ´zam-be¯-ə zim-´bäb-we¯ Globalization and International Business MAP MAPS 2–7 F6 E6 C5 E7 E6 E3 F6 B5 C5 D6 D8 D7 F6 E8 E5 — — D5 D6 D6 — E6 C6 D6 C5 D2 G3 C6 — — E3 E8 D4 E6 F5 F6 Map 2, J5 Map 2, E6 Map 3, I1 Map 4, G4 Map 2, E6 Map 6, B5 Map 2, I6 Map 3, C5 Map 3, G4 Map 4, D2 Map 4, E7 Map 4, E4 Map 2, G6 Map 4, F5 Map 2, E3 Map 7, D9 Map 5, J3 Map 2, B4 Map 4, D2 Map 4, D3 Map 7, C9 Map 2, F6 Map 3, F7 Map 4, E2 Map 3, F2 Map 5, F5 Map 6, G5 Map 4, D3 Map 7, D7 Map 3, H4 Map 6, A4 Map 4, G6 Map 2, C1 Map 4, F2 Map 2, H5 Map 2, H6 47 www.freebookslides.com This page is intentionally left blank www.freebookslides.com Comparative Environmental Frameworks PART TWO CHAPTER The Cultural Environments Facing Business OBJECTIVES After studying this chapter, you should be able to Understand methods for learning about cultural environments Grasp the major causes of cultural difference and change Discuss behavioral factors influencing countries’ business practices Recognize the complexities of crosscultural information differences, especially communications Analyze guidelines for cultural adjustment Grasp the diverse ways that national cultures may evolve If you see men stroking their beards, stroke yours ayazad/Shutterstock —Arab proverb www.freebookslides.com CASE Saudi Arabia (see Map 2.1), a land of contrasts and paradoxes, can be perplexing to foreign managers as they try to exercise acceptable personal and business behavior.1 Its mixture of strict religious convictions, ancient social traditions, and governmental economic policies results in laws and customs that sometimes shift with little advance notice and vary by industry and region as dominant forces evolve Many of these laws and customs contrast markedly with those in the home countries of the companies doing business there Thus, foreign companies and the employees they send there must determine what these differences are and how to adjust to them A brief discussion of the roots of Saudi traditions and a sample of both cultural norms and foreign operating adjustments should help you understand the importance of culture in international business A LITTLE HISTORY AND BACKGROUND Although the land encompassing the Kingdom of Saudi Arabia has a long history, until recently most inhabitants’ loyalty was primarily tribal rather than national In most times past, invaders controlled a divided land Nevertheless, the inhabitants have shared a common language (Arabic) and religion (Islam) In fact, Saudi Arabia is the birthplace of Islam and the location of its two holiest cities, Mecca and Medina (The opening photo shows the Grand Mosque at Mecca.) Beginning in 1745, the Wahabi movement swept across and united most of the peninsula by calling for the purification of Islam through a literal view of the Koran King Ibn Saud (1882–1953), a descendant of Wahabi leaders, took power in 1901, merged independent areas, created an entity that was both political and religious, and legitimized his monarchy and succession by being the defender of Islamic holy areas, beliefs, and values The growing importance of oil for Saudi Arabia, particularly since the 1970s, has led to rapid urbanization and given the government the means to offer social services such as free education These changes have furthered its citizens’ sense of a national identity, while diminishing their traditional ways of living Since 1950, the rural population has decreased from more than 80 percent (about half nomadic) to less than 20 percent Cities have also modernized physically However, below the physical surface, Saudis hold attitudes and values that are neither like the norm elsewhere nor easily discerned Modernization has been controversial within Saudi Arabia The liberal group, supported by an elite segment that Saudi Arabia’s Dynamic Culture has traveled abroad, wants such trappings from economic growth as greater choices in products and lifestyles At the same time, the conservative group is supported by religious leaders and people who fear that modernization will upset traditional values and adherence to strict Koranic teachings The government (the Royal Family) must balance these viewpoints while taking care not to overstep the acceptable boundaries of conservatism lest it become vulnerable to being replaced For instance, it is well aware that Iran’s Islamic Revolution was spearheaded in part by dissenters who viewed the Shah’s modernization movements as corrupt and too secular In 1979, a group largely marginalized by modernization seized the Grand Mosque of Mecca, which brought questions about the Royal Family’s ability to protect Islam’s holiest site Meanwhile, liberals have been largely pacified by taking well-paid government jobs and slowly gaining the transformation they wish The government has sometimes made tradeoffs to appease conflicting groups, such as requiring women to wear longer robes (women must wear abayas and men customarily wear thobes) in exchange for advancing women’s education THE RELIGIOUS FACTOR If your country maintains more or less strict separation between religion and the state, you will probably find the pervasiveness of religious culture in Saudi Arabia daunting Religious proscriptions prohibit the sale or use of pork products and alcohol During the holy period of Ramadan, when people fast during the day, restaurants serve customers only in the evening Because Muslim men are called to prayer five times a day, restaurants such as McDonald’s dim their lights and close their doors during those periods Many companies convert revenue-generating space to prayer areas; Saudi Arabian Airlines does this in the rear of its planes, the British retailer Harvey Nichols in its department store However, there are regional differences In the capital, Riyadh, women traditionally wear niqabs that cover their faces But in the port city of Jeddah, which has more contact with foreigners and is less conservative, dress codes are more relaxed and fewer women wear them Nevertheless, merchants routinely remove mannequins’ heads and hands and keep them properly clad to prevent public objections Starbucks franchises even altered the company logo and Coty Beauty its point-of-purchase exhibits in order not to display women’s faces Rules of behavior may also be hard to comprehend because of the ways in which religious and legal rules have www.freebookslides.com C h a pt e r 51 The Cultural Environments Facing Business MAP 2.1 Saudi Arabia and the Arabian Peninsula The kingdom of Saudi Arabia comprises most of the Arabian Peninsula in Southwest Asia The capital is Riyadh Mecca and Medina are Islam’s holiest cities Jeddah is the most important port All of the country’s adjacent neighbors are also Arabic—that is, the people speak Arabic as a first language All the nations on the peninsula are predominantly Islamic SYRIA LEBANON Mediterranean Sea Palestine ISRAEL IRAQ IRAN JORDAN KUWAIT Pe rsi an Gu lf EGYPT Medina SAUDI ARABIA OMAN Ra’s al Khaymah Ajman BAHRAIN Umm al Qaywayn Ash Shariqah Ash Shaqra QATAR Al Fujayrah Dubayy Abu Dhabi Gulf of Oman Riyadh UNITED ARAB Muscat EMIRATES Red Sea Mecca Jeddah OMAN SUDAN Emirates Major cities 0 400 mi 400 km ERITREA YEMEN Arabian Se a www.freebookslides.com 52 part Comparative Environmental Frameworks me against strangers” illustrates a family-centered society where trust of others is highly correlated with the degree of familiarity with them Given the trust factor, most Saudi businesses have historically been family owned and operated, preferring to hire family members or people they know well even though others might be better qualified However, these companies have seen the need to partner with foreign firms to gain expertise The process of partnering is usually lengthy because Saudis take time to know the foreigners well and are reluctant to make full financial disclosures outside the family They generally prefer to get to know you well, perhaps invite you into their homes, and develop a certain level of friendship before ever turning to business details Not understanding this norm, a British publisher dispatched two salesmen to Saudi Arabia and paid them on commission The salesmen moved aggressively, figuring they could make the same number of calls—and sales—per day as they made in Britain, where they were used to punctual schedules, the undivided attention of potential clients, and conversations devoted only to business transactions To them, time was money In Saudi Arabia, however, they soon found that appointments seldom began on time and usually took place at local cafés over casual cups of coffee As far as they were concerned, Saudis spent too much time in idle chitchat and would even turn their attention to personal acquaintances rather than continue with business Eventually, both salesmen began showing their irritation, and their Saudi counterparts came to regard them as rude and impatient The publisher had to recall them Saudis’ preference for dealing with people they know has led to a system known as wasta, which roughly translates into English as “connections.” Thus, who you know helps a great deal in almost everything, such as moving a résumé to the top of a pile, gaining approval of a zoning request, getting a passport, and obtaining a visa to bring in a visitor from headquarters Gender Roles Perhaps the most baffling aspect of Saudi culture to many outsiders is the expected role of people by gender Based largely on a Koranic prescription whereby daughters receive only half the inheritance that sons receive, females are placed in a separate and often subservient position Their role has been to be virtuous, marry young, and have offspring, while males take responsibility as their protectors and the family breadwinners Not only is female virtue required, but also the appearance of it Because of family importance, a negative perception of one member reflects on all These beliefs have led to a number of proscriptions for women, such as no traveling abroad without permission of a male relative and no studying abroad without a male relative escort Basically, non-kin males and females may interact personally only in “open areas,” or in “closed areas” when the females are accompanied by a male relative However, applying this restriction may seem a bit confusing to outsiders For instance, restaurants are considered closed areas, and proprietors must maintain separate dining rooms and entrances for men without female companions However, the food malls at most shopping centers are considered open areas where members of both sexes intermingle Nevertheless, several happenings since 2011 foretell possibly fewer future differences in gender requirements: women received future rights to vote and hold political offices, there was little intimidation when a group of women drove autos to protest their prohibition against driving, a Saudi prince spoke out in favor of women’s driving as a means of limiting the number of foreign workers, a two-member women’s team participated in the Olympics for the first time (but critics labeled them prostitutes for doing so), and prohibitions were lifted on female physical education classes in schools A 2008 royal decree lifted a ban on mixing men and women in the workplace, but the situation is complex Male and female employees within the public sector work in separate buildings When they must meet together, they so within meeting rooms in the Governor’s office, where they must use separate entrances Men and women may work together within the private sector, but there are other limitations Although there are now more female than male university graduates in Saudi Arabia, only about 15 percent of the workforce is female Why? The answer is partly cultural Some women prefer traditional www.freebookslides.com C h a pt e r The Cultural Environments Facing Business 53 family roles Some find driving restrictions to be too much of a hassle And some families prohibit female members from working because of family honor (“What will people think?”) Economic factors blend with cultural ones as well, such as companies incurring the cost of providing separate entrances and toilet facilities However, the genders interact at work, especially in multinational companies For example, Unilever’s female brand managers, as long they adhere to dress codes, interact with male colleagues and meet with men from other companies However, they are limited in traveling abroad on company business because they need permission from their male relatives Some multinationals ease this problem by paying the travel costs for a male relative to accompany a woman abroad At one time, visas for single women to enter Saudi Arabia were nearly unobtainable However, the Saudi Arabian General Investment Authority (SAGIA) has successfully attracted investments by MNEs that need visas to send female executives there for short- and long-term assignments While these visas are not given automatically, they can be obtained—more easily for women over 40, but also possibly for younger women, especially with the use of wasta The U.S consulting company Monitor Group brought in American women in their twenties, and L’Oreal has sent its female human resources manager there Restrictions on gender interactions also lead to other adjustments For instance, four young Saudis who had lived and studied abroad wanted to test the market potential for opening an upscale restaurant— the Java Lounge—in Jeddah Ordinarily, it can be difficult to conduct such research in Saudi Arabia because limitations on male-female interactions restrain family-focused interviews In this case, however, consultants interviewed apparently affluent families by approaching them in restaurants after noting how they comported themselves, whether they wore custom-made versus off-the-rack robes, what quality of wristwatches showed beneath long sleeves, and how well the men kept their beards—all indicators that researchers unfamiliar with the society would probably overlook At upscale U.S.- and U.K.-based department stores like Saks Fifth Avenue and Harvey Nichols, mixed shopping is allowed only on the lower floors There, all salespeople are men (even those specializing in such products as cosmetics and lingerie), and there are no changing rooms or places to try cosmetics Meanwhile, the upper floors are for women only, and female shoppers can check their abayas and shop in jeans or whatever they choose (Meanwhile, the men who drove the women there can relax in a space the stores have set aside for them.) One problem: Because male managers can visit these upper floors only when a store is closed, they are limited in their ability to observe operations CULTURAL DYNAMICS Almost all aspects of culture evolve, and Saudi Arabia is no exception Take the case of women in the workplace In terms of preparation, the first public school for girls did not open until 1960, and the government had to provide troops in one city because of protests that the schooling would negatively affect girls’ religious and social values Since then, the country has seen a gradual increase in years of study and curriculum offered for females Economic need has spurred both changes in education and the use of education within the workforce At the same time, critics have had to be persuaded that changes are compatible with women’s roles One of the first acceptances of working women (alongside men) was in the medical field because of the shortage of doctors, the high cost of separate male and female specialists, and the compatibility of healing with women’s role as nurturers In addition, Saudi opinion and policy has been to reduce the heavy dependence on and cost of foreign workers Thus, the government pays for foreign university education of its citizens while recognizing the disregard of much female talent The Saudi business world has seen much change Consider that women own about 20 percent of all Saudi businesses, or that a woman is CEO of one of the country’s largest concerns, the Olayan Financing Company Three things will likely boost Saudi female workforce participation: (1) an increase in inward foreign investment, (2) more women studying abroad, and (3) women’s psychological drive to prove themselves Bear in mind, however, that changes tend to be uneven, particularly among geographic areas of the country and people of certain income and educational levels ■ ... Structure, and Implementation 11 12 13 14 15 16 Globalization and Society 407 The Strategy of International Business 4 41 Country Evaluation and Selection 503 Export and Import 5 41 Direct Investment and. .. Environment 11 5 Types of Legal Systems 11 6 Trends in Legal Systems 11 7 Implications for Managers 11 9 The Confound of Democracy’s Retreat Which Rule When? 12 0 11 9 Legal Issues in International Business 12 2... International Business Expanding Sales 17 Acquiring Resources 17 Reducing Risk 17 Modes of Operations in International Business Merchandise Exports and Imports 18 Service Exports and Imports 18 Investments