International Business

Attitudes and Alternatives

Alan Sitkin

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000435412
• Edition: 2
• Topic: Business
• Subtopic: International Business
• Index: Business

This eagerly awaited update of a popular text has been substantially revised and updated to incorporate developments in the field of International Business. It continues to do so in Alan Sitkin's characteristically direct, lively and accessible style which is ideal for introductory students.

This new edition expands upon issues of growing importance to global businesses, including corporate social responsibility, corporate citizenship and sustainability. It explores topics of great importance to business at the start of the new decade, including digital transformation and digital business, and explores the intersection of technology and pandemic-accelerated change to look to the future of business in a global setting.

Enriched with practitioner examples as well as new, colourful and illustrative cases, and ideally structured to make navigation and learning straightforward, this textbook is an ideal introduction to international business. Tutors are supported with a range of materials including an instructor manual, testbank, suggested assignment questions and resources to offer their students, such as revision tips, additional cases and self-test multiple-choice questions.

PART I Economic and political framework

Chapter 1 Introduction to international business

DOI: 10.4324/9781003159056-2

Introduction

At its most basic level, international business (IB) encompasses all the different varieties of cross-border entrepreneurialism. The discipline has materialised in many forms ever since various human communities first began interacting with one another. When isolated pre-historic tribes started to exchange commodities like minerals, crops or simple beads, they were in fact engaging in early forms of IB (Watson 2005). Of course, trade has become much more complex since then. Nowadays, IB refers to the exchange not only of physical goods but also of services, capital, technology and human resources. The first point to make about this field of study is that it covers a broad range of economic activities.

Fig 1.1 Chinese communities were already trading rice up and down the Yangtze River 5,000 years ago.

Just as important is to recognise both what distinguishes IB from other business disciplines and where it overlaps with them. Many aspects of domestic business can also be found in IB, but the latter’s cross-border emphasis means it is generally treated differently here. Similarly, IB covers most of the same topics as international management but goes much further. Whereas the former largely focuses on micro-level decisions made by companies and/or the individuals working for them, IB not only incorporates these factors but also analyses the macro-level political, economic, social, technological, philosophical and ecological contexts while also asking to what extent micro-level IB decisions are constrained by external circumstances or, conversely, subject to decision-makers’ agency, hence influenced by their subjective and/or psychological profiles.

Agency - Empowerment to make decisions autonomously.

Given the interplay between all these factors, IB students and practitioners must be capable of analysing situations on many levels. In turn, this requires an ability to navigate efficiently between theory, on the one hand, and empirical facts, on the other. The goal in IB studies must therefore be to ascertain whether or not today’s reality aligns with the way it is being theorised – a constant confrontation that is crucial to any discipline as dynamic as IB. Reflecting the endless questioning of basic principles, IB students and practitioners tend to be characterised by their inquisitiveness and, associated with this, rich general culture. It is these traits – and the ability and desire to embrace diversity – that give this field of study its distinct philosophy and enduring attraction.

Learning objectives

After reading this chapter, you will be able to:

• differentiate between international and global business
• explain the importance for international managers of developing a flexible mindset
• understand the main terminology used in IB studies
• connect IB to politics, economics and other relevant disciplines
• analyse the internal and external drivers of IB

Case study 1.1 Foxconn, the apple of Apple’s eye

Ever since the year 2000 when Taiwanese components maker Foxconn landed its first order with American tech giant Apple to manufacture iMac personal computers (Brightmore 2019), the fate of the two companies has been inextricably linked. Foxconn Technology Group, founded in 1974, epitomises the rise of Southeast Asia’s tiger economies, a regional success story that demonstrates how national economies, by nurturing companies capable of carving out a role for themselves in high-tech global value chains, can accelerate the speed at which they grow their gross domestic product. The skills that Foxconn would develop over the years in sectors as diverse as cloud computing, mobile devices, the Internet-of- Things, artificial intelligence and robotics – all products that it has learnt to sell to a whole list of top-tier international customers at highly competitive prices – largely explain why it became an essential supplier to Apple. It is not that the Americans lacked the ability to make the inputs that they have been sourcing from Foxconn. Instead, the real question for Apple is why it would even want to allocate its own resources to generic manufacturing operations when it could generate much greater returns by concentrating on product R&D, design and sales and delegating lower-value activities to someone else. Ultimately the decision seemed straightforward – Apple would mainly focus on the specific activities where it had the greatest competitive advantage and turn to its reliable and cost-effective foreign partner for other key functions.

Value chain - Succession of acts adding value to item as it is transformed from raw material or simple input to finished product or service.

Gross domestic product (GDP) - National income, defined by aggregate consumption plus/minus investment activity plus/minus government spending plus/minus trade balance.

The partnership has worked like a charm for both companies for many years. Like any relationship, however, it has gone through rough patches. Apple has come under criticism, for instance, from observers decrying what they view as its exploitative capture of the lion’s share of the value generated by its products – the idea here being that Foxconn’s Chinese workers are insufficiently remunerated for their efforts (Froud et al. 2012). It has also received some very negative coverage for the exhausting schedules the workers are required to put in and the psychological toll this takes on them (Chamberlain 2018). It remains that these critiques – albeit entirely justified – tend to be drowned out by the broader approval of Apple’s overall business model, not to mention the occasional argument that by outsourcing some of its functions to China, the American multinational enterprise (MNE) is actually doing an ethical thing by supporting the country’s economic emergence.

This status quo was shaken, however, when former US President Donald Trump, a nationalist, entered the White House in January 2017. As part of Mr. Trump’s vociferous denunciation of certain American companies that he claimed were importing goods into the country (hence exporting jobs out of it), he met with Apple CEO Tim Cook in late 2018, ostensibly to try and convince the latter that Apple should repatriate to the USA some of the work that Foxconn had been successfully performing on the company’s behalf for years. There is a strong case to make that the motive behind this exertion of political pressure had nothing to do with sound business or economic logic: full employment in Apple’s home region of Silicon Valley meant there was no real outcry demanding that computer manufacturing jobs be brought back home; and American consumers were delighted to access Apple goods at a lower price than they would have had to pay had its products been entirely produced in the USA.

Using a combination of charm and flattery, Mr. Cook was largely able to pacify the politician, successfully helping Apple avoid paying the brunt of the new tariffs that Mr. Trump had started imposing on many, if not most, imports from China during the course of the multiple trade wars that his administration declared on the USA’s long-standing trading partner (Jeakie 2019). As much as anything, Mr. Cook’s approach demonstrated the depth of Apple’s attachment to its traditional IB model – after all, the company was willing to incur the wrath of a powerful individual to protect its relationship with Foxconn. The same commitment would again become apparent in early 2020, when China’s devastating Covid-19 outbreak hampered Foxconn’s ability to maintain a steady supply of the parts and products that are so crucial to Apple’s market presence. Despite the fragility that the pandemic revealed in its global value chain, at no point did Apple indicate any desire to change its model. Quite the contrary, the only adjustment it made was to develop a backup sourcing relationship with a new foreign supplier – Wistron in India (Mankotia 2020) – basically doubling down on its way of doing IB. For Apple, the idea of abandoning successful overseas partnerships at a time of international turmoil was clearly just plain bananas.

Fig 1.2 Apple headquarters in Cupertino (California) concentrates on higher value-added activities and outsources most, if not all, product manufacturing.

Case study questions

1. What advantages does Apple derive from its supplier relationship with Foxconn?
2. What are the chances that Apple might change its IB model one day?

Section I. The international context

Every discipline has its own vocabulary and it is always helpful to introduce this from the outset. This will be followed by a brief review of some of the trends characterising the shape of IB today. The chapter will then conclude with an introduction to some of the general drivers underpinning companies’ participation in cross-border activities.

Terminology and useful concepts

One useful starting point when analysing IB is to differentiate between this discipline’s focus on how national settings diverge, versus the convergence themes characterising the neighbouring field of globalisation. The two terms do not denote the same phenomenon and should not be used synonymously. IB’s overriding emphasis on variability largely explains this book’s seminal principle that the strategies and behaviours which apply in one situation may not be relevant in another, suggesting that, contrary to certain theories (Womack et al. 1991), there is in fact never any “one best way” of doing business. It is an approach that may seem foreign to learners whose culture has taught them to seek optimal solutions to whatever problems they face. On the other hand, students whose culture of origin trains them to prepare multiple responses to any given situation will feel very much at home with this philosophy. Focusing on divergence is also more useful educationally since it accustoms future practitioners to the foreignness of many of the phenomena that they are likely to experience during their careers in IB. Indeed, without this emphasis, there would be little difference between international and domestic business studies.

Globalisation - Process whereby the world becomes increasingly interconnected socially, economically, politically and commercially.

Foreignness - Degree to which a national environment varies from the ones to which observer is accustomed.

IB is also associated...