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Unit V: Global Business Strategy
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Unit V: Global Business Strategy
by Sumati Varma
International Business
Cover
Title Page
Brief Contents
Contents
About the Author
Dedication
Preface
The Development of this Book
Unit I: Foundations
1. Globalization and International Business
Introduction
Elements of Globalization
Economic Globalization
Cultural Globalization
Political Globalization
Drivers of Globalization
Political Forces
Economic Forces
Technological Forces
Industry Focus Social Networking
Emergence of Global Governance
Competitive Forces
Region Focus Civets
International Orientations
Ethnocentric Orientation
Polycentric Orientation
International Business in Action Multi-Latinas
Regiocentric Orientation
Geocentric Orientation
International versus Domestic Business
Motives for Internationalization
Two Decades of Shifting Wealth
The Globalization Debate
Arguments in Support of Globalization
Concerns with Respect to Globalization
Managerial Implications: Managing a Global Enterprise
Terrorism
Corruption
Cultural Adjustment
Closing Case The Japanese Road to Success
Summary
Key Terms
Discussion Questions
Mini Projects
2. Globalization of Business Structures: The Transnational Corporation
Introduction
Transnational Corporations
TNCs from Developed and Developing Countries
Non-Equity Modes of International Production
Transnationality of Firms
Changing Face of TNCs
Evolution of TNCs
Dragon TNCs
Born Globals
Industry Focus Accelerated Internationalization of the White Goods Sector
Global Niche Players
Micro TNCs
State-Owned TNCs
International Business in Action Changing Face of the Family Business in the Middle East
Theories of Firm Internationalization
Closing Case Globalization of the Brazilian Enterprise
Summary
Key Terms
Discussion Questions
Mini Projects
Unit II: Global Business Environment
3. Economic Environment
Introduction
Economic Systems
Free Market Economy
Command Economy
Mixed Economy
Transition Economy
Asian Capitalism
Japan
East Asian Countries
China
Economic Indicators
Income Level and Distribution
Economic Growth: GDP
International Business in Action Daimler Expands in India
Alternatives to GDP
Inflation
Infrastructure
Region Focus The Making of a Global Giant
Population
Economic Stability
Industry Focus Internationalization of Argentina's Manufacturing Sector
Closing Case Index of Economic Freedom
Summary
Key Terms
Discussion Questions
Mini Projects
4. Political and Legal Environment
Introduction
Political Environment
Political Ideologies and Systems
Political Risk
International Business in Action Google in China
Legal Environment
Legal Systems
Legal Jurisdiction
Region Focus Industrial Carnage in Bhopal
Ethics in International Business
Human Rights
Industry Focus Articulating Corporate Values
Environmental Issues
Corruption and Bribery
Closing Case Ethical Survival of TNCs
Summary
Key Terms
Discussion Questions
Mini Projects
5. Cultural Environment
Introduction
Culture and its Relevance for International Business
Cultural Environment
Elements of Culture
Language
Non-Verbal Communication
Religion
Values and Attitudes
International Business in Action Islamic Banking
Customs and Manners
Aesthetics
Industry Focus Emergence of the Creative Industry
Cultural Dimensions in International Business
Hofstede's Dimensions of Culture
Schwartz's Classification
Trompenaars' and Hampden-Turner's Classification
Region Focus Hispanic Culture and Business
Managerial Implications for International Business
Closing Case Indianization of the World
Summary
Key Terms
Discussion Questions
Mini Projects
Unit III: Framework of International Business
6. Strategizing Foreign Entry
Introduction
Motives of Firm Internationalization
International Location Choice
Entry-Mode Selection
Trade-Related Entry Modes
International Business in Action China Exports Power Equipment to India
Contractual Entry Modes
Region Focus Donut King in China
Investment-Related Entry Modes
Foreign Entry: An Evolutionary Process
Managerial Implications
Closing Case Challenges Faced by Chinese Companies Going Global
Summary
Key Terms
Discussion Questions
Mini Projects
7. International Trade Theories and Applications
Introduction
International Trade Theories
Mercantilist Doctrine
Classical Approach
Factor Proportions Theory
Leontief Paradox
Linder's Income-Preference Similarity Theory
International Business in Action US–China Trade Accord
Human Skills and Technology-Based Views
Product Life-Cycle Theory
New Trade Theory
National Competitive Advantage
Theory Assessment
Region Focus China's New Trade Partners
Developments in World Trade
Volume
Composition
Direction
Service Trade
Closing Case Fruit Salad from India
Summary
Key Terms
Discussion Questions
Mini Projects
8. Political Economy of International Trade
Introduction
Government Intervention in Trade
Economic Rationale
Non-Economic Rationale
Instruments of Trade Control
Tariff Barriers
International Business in Action Banana Wars
Non-Tariff Barriers
Region Focus Brazilian Beef Exports
Industry Focus Setting up Legal Shop in India
International Trade Regulation
General Agreement on Tariffs and Trade (GATT)
World Trade Organization
WTO Agreements
General Agreement on Tariffs and Trade (GATT)
General Agreement on Trade in Services (GATS)
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Agreement on Trade-Related Investment Measures (TRIMS)
WTO: An Evaluation
Developing-Country Issues
Dispute-Resolution Mechanism
Subsidies in Agriculture
Trade in Services
Future Challenges for WTO
United Nations Conference on Trade and Development
Functions of UNCTAD
UNCTAD over the Years
Foreign Trade in India
Organizations for Export Promotion
Export Incentives
Marketing Assistance
Production Assistance/Facilities
Special Economic Zones (SEZs)
Analysis of India's Foreign Trade
Volume of India's Foreign Trade
Composition of India's Foreign Trade
Direction of India's Foreign Trade
Closing Case Liberalization or Protectionism? The BRIICS Story
Summary
Key Terms
Discussion Questions
Mini Projects
9. Foreign Direct Investment: Theory and Application
Introduction
FDI: A Classification
Asset-Based View
Nature of Business Activity
Motive-Based View
Industry Focus Kobe Steel's Multi-Pronged Strategy for the Indian Market
Modes of FDI Entry
Branch Offices
Strategic Alliances
Wholly Owned Subsidiaries
Umbrella Holding Companies
Differences between Joint Ventures and Mergers
International Business in Action Suzlon Energy: Post-Merger Blues
Traditional Theories of FDI
Perfect Market Hypothesis
Industrial Organization Approach
Transaction Cost Approach
Eclectic Paradigm
FDI Theories for Emerging-Market Firms
Effects of FDI
Host-Country Perspective
Home-Country Perspective
Region Focus Indian FDI in Africa
Global FDI Patterns
Trends in FDI
Direction of FDI
FDI Outflows
Foreign Investment in India
Policy Perspective
Sectoral Dimensions of FDI Flows
Geographical Composition
Outward Indian FDI
Closing Case Chinese Investment in Africa
Summary
Key Terms
Discussion Questions
Mini Projects
10. Regional Economic Integration
Introduction
Levels of Economic Integration
Effects of Integration
Trade Creation and Trade Diversion
Reduced Import Prices
Increased Competition and Economies of Scale
Higher Factor Productivity
Regional Trading Agreements
European Union (EU)
International Business in Action EU Restriction on the Use of Pesticides
North American Free Trade Agreement (NAFTA)
Region Focus US–South Korea Trade Pact
Caricom
Mercosur
Andean Pact
Association of Southeast Asian Nations (ASEAN)
Asia-Pacific Economic Cooperation Forum (APEC)
South Asian Association for Regional Cooperation (SAARC)
Closer Economic Relations (CER)
Economic Integration in Africa
Commodity Arrangements
Multi Fibre Arrangement (MFA)
Organization of Petroleum Exporting Countries (OPEC)
Closing Case The Future of OPEC
Summary
Key Terms
Discussion Questions
Mini Projects
Unit IV: Global Monetary Environment
11. International Monetary and Financial System
Introduction
Basics of Foreign Exchange
Exchange Rate Determination
Currency Convertibility
Monetary Systems till the Present
The Gold Standard (1876–1914)
The Inter-War Years and World War II (1914–44)
The Bretton Woods System (1944–73)
The Post–Bretton Woods System: 1973–Present
Contemporary Exchange Rate Systems
Fixed Rate System
Independent Float System
Arguments for the Fixed Exchange Rate System
Exchange Rate Arrangements in Practice
Hard Pegs
Soft Pegs
Floating Arrangements
Target-Zone Arrangement
Evaluation of the Floating System
Currency Convertibility
Industry Focus Currency Controls in Practice
Region Focus Lessons from the Asian Financial Crisis
Currency Crisis
International Financial Systems
Foreign Exchange Markets
International Business in Action Venezuela's Exchange Rate Policy
International Capital Markets
International Financial Institutions
International Monetary Fund (IMF)
World Bank Group
Asian Development Bank
African Development Bank
African Development Fund (ADF)
Nigeria Trust Fund (NTF)
Closing Case The Indian Experience with Convertibility
Summary
Key Terms
Discussion Questions
Mini Projects
12. Financing of Global Operations
Introduction
Multinational Financial Management
Capital Budgeting
Global Business Finance
Financial Structure of the TNC
International Trade Payment and Finance
International Trade Payment
International Trade Finance
International Trade Credit
Region Focus US EXIM Bank
Foreign Exchange Risk and Exposure
Transaction Exposure
Industry Focus Hedging in the Shipping Industry
International Business in Action Forex Losses for HCL
Economic Exposure
Translation Exposure
Working Capital Management
Cash Management
Foreign Receivable Management
Closing Case The Brave New World of Sovereign Wealth Funds
Summary
Key Terms
Discussion Questions
Mini Projects
13. International Balance of Payments
Introduction
Fundamentals of Balance of Payments Accounting
Defining International Economic Transactions
The BOP as a Cash Flow Statement
BOP Accounting: Double-Entry Bookkeeping
Types of Balance of Payments Accounts
Current Account
International Business in Action Capital Controls in Chile
Capital and Financial Account
Net Errors and Omissions
Official Reserves Account
Region Focus The Vulnerability of Foreign Credit
The Balance of Payments in Totality
Different Approaches to Adjustment
Classical Viewpoint
Elasticity Approach
Keynesian Approach
Monetary Approach
Closing Case Managing Capital Flows in Emerging Market Economies (EMEs)
Summary
Key Terms
Discussion Questions
Mini Projects
Unit V: Global Business Strategy
14. Alliances and Acquisitions
Introduction
Strategic Alliances
Equity-Based Alliances
Contractual Alliances
International Business in Action R&D in Canadian Aerospace
Industry Focus Cisco and Tata Consultancy Services Announce Strategic Alliance
Rationale for Strategic Alliances
Risk Reduction and Cost Spreading
Acquisition of Knowledge and Resources
Benefits of Economies of Scale and Scope
Bypassing Barriers to Entry
Acceptance in the Local Market
Ability to Face Competition
Building Strategic Alliances
The Decision to Cooperate
Contract or Equity
Alliance Evolution
Performance of the Alliance
Alliance Management
Alliances: An Evaluation
Acquisitions
Reasons for Acquisitions
Acquisitions: An Evaluation
Region Focus India's Cross-Border M&As
Closing Case Forging Links in Israel
Summary
Key Terms
Discussion Questions
Mini Projects
15. Technology and Innovation
Introduction
Technology
Region Focus Globalization of the Indian IT Industry
Technological Innovation
The National Innovation System
Education and Training
Science and Technology Capabilities
Research and Development
Interactions within the Innovation System
Patents and Innovation
Technology Transfer
Information and Communications Technology (ICT)
The Internet
Industry Focus Computers and Cakes Give Cash and Confidence to Peruvian Housewives
E-Commerce: An Overview
E-Commerce vs e-Business
Types of E-Commerce
Advantages and Disadvantages of E-Commerce
Drivers of E-Commerce
Global Factors
Demographic Factors
Economic and Financial Resources
Information Infrastructure
Industry Structure
National Policy
International Business in Action E-Commerce in Community-Based Tourism
Biotechnology
Virtual Worlds and the Transformation of Business
Mangerial Implications
Closing Case The GM Controversy
Summary
Key Terms
Discussion Questions
Mini Projects
16. International Organizational Structures and Design
Introduction
Early Organizational Structures
International Division Structure
Global Organizational Structures
International Structural Stages Model
Global Product Structure
Global Area Structure
Industry Focus Organizational Rethink at Kimberly-Clark
Global Functional Structure
International Business in Action Kraft Foods Adopts a Global Structure
Mixed Structure
Matrix Structure
Transnational Network Structure
Organizational Strategy and Structure
Closing Case A Century of Change
Summary
Key Terms
Discussion Questions
Mini Projects
Unit VI: Building Functional Excellence
17. International Marketing
Introduction
International Market Assessment
The Marketing Mix
Product
Industry Focus MTV in Pakistan
Promotion Strategy
International Business in Action Luxury Cars Target the Indian Market
Pricing Strategy
Distribution
Region Focus Chocolate for China
Closing Case Made for India
Summary
Key Terms
Discussion Questions
Mini Projects
18. International Human Resource Management
Introduction
Recruitment and Selection
Ethnocentric Orientation
Polycentricity
Geocentric Approach
Region Focus Talent Management at the Tatas
Regiocentricity
Training and Development
Cross-Cultural Training
Language Training
Specific Skills Training
Industry Focus Developing a Global Mindset
Compensation
International Business in Action Gearing up to Meet China's Talent Shortage
International Labour Relations
International Labour Standards
Closing Case The Expat Experience of Working in China
Summary
Key Terms
Discussion Questions
Mini Projects
19. International Operations
Introduction
Supply-Chain Management
Industry Focus The Fashion Supply Chain
International Logistics
Global Supply Chain Decisions
Quality
Third-Party Logistics (3PL)
Location Decisions
Production Decisions
Region Focus E-Sourcing
Purchasing Decision
Inventory Decisions
International Business in Action The Bullwhip Effect in American Manufacturing
International Packaging Issues
International Storage Issues
Transportation Decisions
Closing Case Walmart's Strategy
Summary
Key Terms
Discussion Questions
Mini Projects
20. Accounting for International Business
Introduction
The Accounting System
Region Focus Transparency in UK Banking
National and International Accounting Standards
The Incarnation of IFRS: How it Came into Being
Consolidation and Currency Translation
Taxation
International Business in Action Indian FDI through Mauritius
Triple Bottom Line Accounting
Indian Accounting Practices
IFRS: A Change for the Better
Closing Case Doing Business in the Bahamas
Summary
Key Terms
Discussion Questions
Mini Projects
Unit VII: Emerging Issues in International Business
21. Environmental Issues for International Business
Introduction
Climate Change
Trans-Boundary Pollution
International Business in Action Oil Pollution in Ecuadorian Rainforests
International Legal Frameworks
Kyoto Protocol
International Emissions Trading
Ethics of Carbon Trading
Region Focus Biodiesel from Pongamia Pinnata429
Environmental Protection and Business Strategy
Industry Focus Initiatives at Hewlett-Packard
Wind-Power Industry
Environmental Management
Closing Case French Energy Subsidies Fuel Solar Power
Summary
Key Terms
Discussion Questions
Mini Projects
22. Global Outsourcing
Introduction
Forms of Outsourcing
Drivers of Outsourcing
Theory of Comparative Advantage
Concentration on Core Competency
Developments in Technology
Existence of Low-Cost, Skilled Manpower
Changes in Regulatory Environment
Infrastructural and Institutional Development
Factors behind a Decision to Outsource
Industry Focus Legal Outsourcing
Technical and Institutional Separability
Standardization and Automation
Cost Minimization
Market Size
Software Industry in India
International Business in Action Product Development in China
Public Policies and the Development of India's Software Exports
Developments in the IT–BPO Sector
Growth Drivers of India's ITES–BPO Sector
Abundant Talent
Sustained Cost Competitiveness
Continued Focus on Quality
World-Class Information Security Environment
Rapid Growth in Key Business Infrastructure
Enabling Business Policy and Regulatory Environment
Problems and Pitfalls of the ITES–BPO Industry
Appreciation of the Rupee
Poor Infrastructure
Increasing Demand for Trained Manpower
Employee Dissatisfaction and High Attrition Rates
Intensifying Competition
Future Threats
IT Value Chain
Region Focus Moving beyond the Back Office
Managerial Perspective
Closing Case Indian Software Industry: The Move up the Value Chain
Summary
Key Terms
Discussion Questions
Mini Projects
23. International Entrepreneurship
Introduction
New International Ventures
Motives of Accelerated Internationalization
Perspectives on International Entrepreneurship
Strategic Management Perspective
Individuals and Opportunities
Entrepreneurship as a Capability
International Business in Action Avapreneurship and Born Virtuals
Characteristics of Accelerated Internationalization
Speed of Internationalization
Geographic Scope of Internationalization
Foreign Sales
Industry Focus The Growth of Alibaba.com
Entrepreneurial Orientation
Personal Factors
Networks of Information
Financial Resources
Institutional Factors
Managerial Perspective
Closing Case Born Global Acquirers from India
Summary
Key Terms
Discussion Questions
Mini Projects
Notes
Acknowledgements
Copyright
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13. International Balance of Payments
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14. Alliances and Acquisitions
Unit V: Global Business Strategy
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