International Management

Strategic Opportunities and Cultural Challenges

Paul Sweeney, Dean McFarlin

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781135955694
• Edition: 5
• Topic: Commerce
• Subtopic: Management

As the economies of many countries become more interrelated, international managers are facing huge challenges and unique opportunities associated with their roles. Now in its fifth edition, Sweeney and McFarlin's International Management embodies a balanced and integrated approach to the subject, emphasizing the strategic opportunities available to firms on a global playing field, as well as exploring the challenges of managing an international workforce.

Integrating theory and practice across all chapter topics, this book helps students to learn, grasp, and apply the underlying principles of successful international management:

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• Understanding the broad context of international business, including the critical trends impacting international management, the legal and political forces driving international business, and the ethical and cultural dilemmas that can arise

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• Mastering the essential elements of effective interaction in the international arena, from cross-cultural understanding and communication to cross-border negotiation

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• Recognizing and taking advantage of strategic opportunities, such as entering and operating in foreign markets

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• Building and leading effective international teams, including personal and behavioral motivation, as well as taking an international perspective on the hiring, training, and development of employees

These principles are emphasized in the text with current examples and practical applications, establishing a foundation for students to apply their understanding in the current global business environment. With a companion website featuring an instructor's manual, powerpoint slides, and a testbank, International Management, 5e is a superb resource for instructors and students of international management.

part I
on a global stage

the context of international management

1 ON A GLOBAL STAGE: THE WORLD OF INTERNATIONAL MANAGEMENT

2 LEGAL AND POLITICAL FOUNDATIONS OF INTERNATIONAL MANAGEMENT

3 DOING THINGS RIGHT: INTERNATIONAL ETHICS AND SOCIAL RESPONSIBILITY

chapter 1
on a global stage

the world of international management

INTERNATIONAL BUSINESS: A WORLD OF CONSTANT CHANGE

GLOBALIZATION AND THE GROWTH OF INTERNATIONAL BUSINESS

A SNAPSHOT OF REGIONAL TRENDS

KEY CHALLENGES FACING INTERNATIONAL BUSINESS

MANAGING IN A CHALLENGING INTERNATIONAL ENVIRONMENT

Learning Objectives

After reading this chapter, you should be able to:

• describe today’s competitive environment in international business;
• identify major trends, both positive and negative, in international business;
• describe how managers can respond to international business challenges;
• identify key foundation concepts in international management.

International Challenge

New Balance: Still Running with Production in the United States

Athletic shoes are everywhere, as are brand names such as Nike. The industry’s largest firms have all of their shoes made in low-wage locations such as China, Vietnam, and Indonesia, usually in factories owned and run by foreign subcontractors. Started in 1906 by an immigrant from England, New Balance Athletic Shoe, Inc., is a major player in the athletic shoe industry worldwide. New Balance also has foreign subcontractors. Stroll down the aisle of a subcontractor’s plant in China and you will see young women performing repetitive sewing tasks to produce New Balance shoes and earning very little, at least by American and European standards.

Of course, the idea is that by reaping big labor savings companies can earn much higher profits. Plus, some argue that developed economies are better off when low-skill, low-wage jobs can migrate to countries where labor is cheap and plentiful. But New Balance really is different. Unlike its main competitors, New Balance has 1,300 employees making 7 million pairs of shoes annually in its five U.S. factories. A few years ago, New Balance opened a new state-of-the-art research facility at its Lawrence, Massachusetts, manufacturing site to develop innovations and new products. Overall, New Balance makes about 25 percent of its shoes sold in America at its U.S. factories.

But what is interesting is that, the enormous gap in labor costs notwithstanding, the difference in total costs between the Chinese and American plants is not that great. In China, the total cost of producing a pair of shoes is about $3 less than in the U.S., only around 4 percent of the price for the average shoe. And that 4 percent is manageable, especially since American production means New Balance can fill orders and change styles more quickly than its competitors in the U.S.

New Balance narrows the costs of producing in the United States enough to compete effectively by being extraordinarily efficient. Its American employees produce a shoe from scratch in less than 25 minutes compared to three hours in China. So, what accounts for the American plants’ productivity and efficiency? And what role does management play in all of this? As you read through this introductory chapter, you will notice that change is a constant theme in international management. Adapting to change often means coming up with new paradigms, even if they go against what passes for conventional wisdom. After you have read the chapter, take a look at our closing Up to the Challenge? feature for an overview of New Balance’s approach.¹

International Business: A World of Constant Change

Even if you’re on the right track, you’ll get run over if you just sit there.

— Will Rogers, American social commentator and humorist

Will Rogers’ words are from the early twentieth century. Yet, his observation perfectly captures the challenge of international business in the twenty-first century. Indeed, Rogers’ words underscore that today’s international managers must be nimble, innovative, and adaptable. They must bridge cultural boundaries and cope with extraordinary global competition that changes and evolves at a pace that is faster than ever. Competitors can pop up quickly from anywhere, including emerging countries (such as China or India), while new technologies appear overnight.²

Other factors that contribute to this “new normal” of international business include global trends toward increased outsourcing of components, flexible manufacturing, and greater reliance on logistics systems that can deliver parts as needed (i.e., on a “just-in-time” basis).³ These trends have helped China and other emerging nations with cost advantages, such as labor and materials, attract investment, develop home-grown technologies, and build competitiveness. Of course, astounding innovations in information technologies have made it possible for firms to manage inventories, interact with employees, collect customer data, and track shipments around the world 24 hours a day, seven days a week.

The ubiquitous availability of information technology also allows companies to scour the planet for the best talent at the best price. Wireless technologies, along with clever local partnerships, are allowing companies to reach hundreds of millions of new customers in poor economic areas of India and Africa with cell phone and other wireless services, despite the weak technological infrastructures within those locations. Overall, technology enables companies to stitch together far-flung outposts as well as reach new customers, both of which will help grow international business over the long haul.⁴

Globalization and the World Trade Organization

In essence, technology facilitates the interconnections between national economies. This ongoing connecting process, known as globalization, has increased international growth, particularly in emerging economies. In the past 20 years, the value of international trade has surged over 400 percent to more than $18 trillion annually. As tariffs and trade barriers slowly fade, the growth in international business should continue. Indeed, just a 1 percent reduction in the cost of international trade could boost income globally by $40 billion.⁵

Of course, plenty of concerns remain in the meantime. For instance, consider the World Trade Organization (WTO). This governing body is made up of 159 member countries (as of 2014), and sets the global rules for trade. Determining those rules typically requires protracted negotiations, the latest series of which is known as the Doha Round (begun in 2001 and still used today). The WTO also has elaborate mechanisms to enforce its rulings on trade disputes between members. A key goal for the WTO is to reduce barriers and stimulate trade worldwide.⁶

The WTO, however, is also a battleground for national interests and a lightning rod for criticism about globalization. For example, in responding to the charge that globalization destroys jobs and increases the gap between rich and poor, the WTO argues that freer trade promotes job creation and wealth building over the long haul. Naturally, the WTO’s critics are unlikely to be persuaded. Regardless, what is not in dispute is that the trade issues the WTO wrestles with are very complex. For instance, a single dispute between the United States and the European Union (EU) over banana tariffs (a government-imposed tax on imports) took several years to resolve. Of course, the WTO is not the only body that governs international trade. The growth of regional and bilateral free trade agreements in recent years has been enormous. While these agreements have many advantages and are generally positive, they also can make managing broader economic issues more difficult and complex, especially as new powerhouses such as Brazil, China, and India continue to flex their economic muscle.⁷

Our Plan for This Chapter

Trade agreements and the WTO notwithstanding, international managers should expect downturns and setbacks to occur, sometimes in the blink of an eye. Overall, grappling with the speed of change and the increasing complexity of international business makes the role of management—and the stakes—more important than ever. If you are wondering how international business leaders view the threats and challenges facing them, look at Figure 1.1. It summarizes the threat perceptions of roughly 1,400 international CEOs. As you can see, international executives have plenty of things to worry about.⁸

Yet, all companies face challenges and there are many good reasons to be fundamentally optimistic about the long-term prospects for international business. Consequently, the goal of this chapter is to give you a sense of the trends, opportunities, and challenges facing international managers today. It is also important to sketch out how firms approach international competition as well as provide a snapshot of the major players in the global economy. The chapter begins by describing how international business has grown in recent years, as well as profiling the countries and regions playing important roles in that growth.

Figure 1.1 What Keeps Them Up at Night: International CEOs List Their Top Ten Threats.

Source: Adapted from Champion, M. (2004). CEOs’ worst nightmares. The Wall Street Journal, January 21, A13.
Note that the total percentage exceeds 100 since CEOs could mention multiple threats.

Globalization and the Growth of International Business

Today, many companies look for ideas, workers, materials, and customers everywhere. Tough competitors can appear from anywhere. As one European manager put it, “The scope of every manager is the world.” Needless to say, managing that way is not easy. Among other things, it requires worldwide information networks, a supportive corporate culture, and the ability to tap into local needs and initiatives when they exist. For instance, Electrolux, the Sweden-based appliance maker, routinely rotates hundreds of appliance designers through the eight design centers it has scattered around the world. The idea is to expose people to different ways of thinking and the often divergent appliance needs people have in different parts of the world. By doing so, Electrolux hopes to speed up product development and be more innovative—something it must do to thrive in the face of tough competition from America’s Whirlpool and China’s Haier brands. But there is no single answer. For some companies, just letting local managers pursue their own ideas is a big step forward.⁹

The Hottest Areas for Growth and Investment

So, where is all the growth in international business occurring? One way to measure things is by the flow of foreign direct investment (FDI) into a particular country over several years. More than just capital, FDI also means that managerial knowledge and technical know-how is flowing into a country from outside its borders. As such, FDI is a good measure of a country’s prospects on the international business stage, either as an established market or an emerging one. Figure 1.2 lists the top FDI magnets in 2010 and 2012.

Figure 1.2 Top Foreign Direct Investment Magnets in 2010 and 2012.

Source: Adapted from United Nations Conference on Trade Development (2013). World Investment Report: FDI Flows by Region and Economy: 2007–2012, available from: http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf (retrieved November 20, 2013).

The total worldwide inflow of FDI was roughly $1.3 trillion in 2012, with 52 percent of that total being invested in developing countries—the first time developed countries as a group saw less investment. As you can see from Figure 1.2, the U.S. was the single biggest recipient of FDI in 2012 among developed countries. Yet, China and Hong Kong (combined) raked in $191 billion in 2012 to lead the pack among developing countries. On a percentage basis, Africa was the region with the biggest ...