Preface PDF

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CHARLES W. L. HILL
University of Washington
THOMAS McKAIG
University of Guelph and University of Guelph-Humber
Contributor
TIM RICHARDSON
Seneca College of Applied Arts and Technology
and University of Toronto
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Global Business Today

Third Canadian Edition
Copyright 2012, 2009, 2006 by McGraw-Hill Ryerson Limited, a Subsidiary of The McGraw-Hill
Companies. Copyright 2009, 2008, 2006, 2004, 2001, 1998 by The McGraw-Hill Companies
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to copy this material and/or redisseminate the data, in an original or modified form, for commercial
purposes, without the expressed permission of Statistics Canada. Information on the availability of the
wide range of data from Statistics Canada can be obtained from Statistics Canadas Regional Offices,
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ISBN-13: 978-0-07-040179-2
ISBN-10: 0-07-040179-9
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Library and Archives Canada Cataloguing in Publication Data
Hill, Charles W. L.
Global business today / Charles W. L. Hill, Thomas McKaig, Tim Richardson. 3rd Canadian ed.
Includes index.
ISBN 978-0-07-040179-2
1. International business enterprisesManagementTextbooks. 2. International
tradeTextbooks. 3. Investments, ForeignTextbooks. 4. Capital marketTextbooks.
I. McKaig, Thomas II. Richardson, Tim III. Title.
HD62.4.H54 2011
658.049
C2011-903126-4
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D E D I C AT I O N
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For June and Mike Hill, my parents.

Charles Hill
To my mother and father, Dorothy and Russell McKaig.
Thomas McKaig
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ABOUT THE AUTHORS
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Charles W. L. Hill is the Hughes M. Blake Professor of International Business at the

School of Business, University of Washington. Professor Hill received his PhD in industrial organization economics in 1983 from the University of Manchesters Institute of
Science and Technology (UMIST) in Great Britain. In addition to his position at the
University of Washington, he has served on the faculties of UMIST, Texas A&M University,
and Michigan State University.
Professor Hill has published more than 40 articles in
peer-reviewed academic journals. He has also published
ve college textbooks, one on strategic management, one
on principles of management, and the other three on international business (one of which you are now holding).
He serves on the editorial boards of several academic
journals and previously served as consulting editor at the
Academy of Management Review.
Professor Hill teaches in the MBA and executive MBA
programs at the University of Washington and has received awards for teaching excellence in both programs.
He has also taught in several customized executive
programs. He lives in Seattle with his wife, Lane, and
children.
Thomas McKaig is Adjunct Professor at the Department
of Marketing and Consumer Studies at the University
of Guelph where he teaches in the Undergraduate and
Executive MBA programs. He is a Certied International
Trade Professional (CITP). He earned his Diplme for
his thesis on CanadaEEC Trade Relations and Certicat majoring in International Relations and minoring
in European Economics, also at the Institut des Hautes
tudes Europennes of the Universit de Strasbourg III
(now Universit Robert Schuman). He earned his Honours
BA in Political Science from the University of Ottawa.
Thomas has worked in the Middle East, Africa, East and
West Europe, Central Asia, and North, Central, and South
America. He is uent in English, French, German, and Italian, with procient Spanish and intermediate Russian.
Thomas McKaig provides advisory services in
diverse industries, pinpointing and delivering strategic
realignment solutions in areas of business development,
operations and management reviews, international trade
research, and training. He is Principal in Thomas McKaig
International Inc. (TMI), an international development rm
(www.tm-int.com).
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BRIEF CONTENTS
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PREFACE
xii
PART ONE
Globalization
PART TWO
CHAPTER ONE
Globalization
Country Differences
40
CHAPTER TWO
Country Differences in Political Economy
CHAPTER THREE
The Cultural Environment
CHAPTER FOUR
Ethics in International Business
PART THREE Cross-Border Trade and Investment
PART FOUR
PART FIVE
END NOTES
88
126
162
CHAPTER FIVE
International Trade Theories
CHAPTER SIX
The Political Economy of International Trade
CHAPTER SEVEN
Foreign Direct Investment
CHAPTER EIGHT
Regional Economic Integration
Global Money System
162
194
226
260
298
CHAPTER NINE
The Foreign Exchange Market
CHAPTER TEN
The Global Monetary System
Competing in a Global Marketplace
298
328
366
CHAPTER ELEVEN
Global Strategy
CHAPTER TWELVE
Entering Foreign Markets
366
CHAPTER THIRTEEN
Exporting, Importing, and Countertrade
CHAPTER FOURTEEN Global Marketing and R&D
GLOSSARY
40
400
426
448
CHAPTER FIFTEEN
Global Production, Outsourcing, and Logistics
CHAPTER SIXTEEN
Global Human Resource Management
482
506
533
539
NAME/COMPANY INDEX
SUBJECT INDEX
558
562
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CONTENTS
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PREFACE xii
PART ONE
Globalization 2
CHAPTER ONE
Globalization 2
Opening Case: The Global Grocer 22
Introduction 5
What Is Globalization? 7
The Globalization of Markets 7
The Globalization of Production 8
The Emergence of Global Institutions 9
Drivers of Globalization 10
Declining Trade and Investment
Barriers 10
The Role of Technological Change 14
The Changing Demographics of the Global
Economy 18
The Changing World Output and World
Trade Picture 18
The Changing Foreign Direct Investment
Picture 21
The Changing Nature of the
Multinational Enterprise 22
The Changing World Order 24
The Global Economy of the Twenty-first
Century 25
The Globalization Debate 27
Antiglobalization Protests 28
Globalization, Jobs, and Income 29
Globalization, Labour Policies, and the
Environment 30
Globalization and National
Sovereignty 31
Globalization and the Worlds Poor 32
Managing in the Global Marketplace 34
Implications for Business 34
The NorthSouth Divide 35
The Role of Technology in International
Trade 35
Key Terms 35
Summary 36
Critical Thinking and Discussion

Questions 36
Research Task 37
Closing Case: Tim HortonsA Canadian

Company Looking for New Markets 37
Sustainability in Practice:
Adidas-Salomon: Supply-Chain
Management 39
PART TWO
Country Differences 40
CHAPTER TWO
Country Differences in Political
Economy 40
Opening Case: The Changing Political
Economy of India 40
Introduction 43
Political Systems 44
Collectivism and Individualism 44
Democracy and Totalitarianism 46
Economic Systems 48
Market Economy 48
Command Economy 49
Mixed Economy 49
Legal Systems 50
Different Legal Systems 50
Differences in Contract Law 52
Property Rights 52
The Protection of Intellectual
Property 57
Product Safety and Product
Liability 60
The Determinants of Economic
Development 62
Differences in Economic
Development 62
Broader Conceptions of Development:
Amartya Sen 63
Political Economy and Economic
Progress 64
Geography, Education, and Economic
Development 68
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States in Transition 69
The Spread of Democracy 69
The New World Order? 71
The Spread of Market-Based Systems 72
Implications 77
Attractiveness 78
Ethics and Regulations 81
Key Terms 83
Summary 84
Critical Thinking and Discussion Questions 84
Research Task 85
Corruption 135
Moral Obligations 137
Ethical Dilemmas 138
The Roots of Unethical Behaviour 139
Philosophical Approaches to Ethics 144
Straw Men 144
Utilitarian and Kantian Ethics 147
Rights Theories 148
Justice Theories 149
Ethical Decision Making 150
Hiring and Promotion 151
Organization Culture and Leadership 151
Decision-Making Processes 152
Ethics Officers 154
Moral Courage 155
Summary of Decision-Making Steps 155
Benefits 156
Costs 156
Risks 156
Key Terms 156
Summary 157
Research Task 158
Closing Case: Chavezs Venezuela 86

CHAPTER THREE
The Cultural Environment 88
Opening Case: McDonalds in India 88
Introduction 90
What Is Culture? 92
Values and Norms 92
Culture, Society, and the Nation-State 93
The Determinants of Culture 94
Social Structure 95
Individuals and Groups 95
Social Stratification 98
Religious and Ethical Systems 100
Christianity 101
Islam 103
Hinduism 107
Buddhism 108
Confucianism 108
Language 109
Spoken Language 109
Education 111
Culture and the Workplace 113
Cultural Change 115
Cross-Cultural Literacy 118
Culture and Competitive Advantage 119
Culture and Business Ethics 120
Key Terms 122
Summary 122
Research Task 124
Closing Case: Etch-A-Sketch Ethics 158

Sustainability in Practice: B.C. Hydros
Aboriginal Relations Programs 160
PART THREE Cross-Border Trade and Investment 162
Closing Case: Walmarts Foreign Expansion 124

CHAPTER FOUR
Ethics in International Business 126
Opening Case: Imagine No Metal 126
Introduction 129
Ethics, as Affected by the Environments
Ethical Issues in International Business 130
Ethics, as Affected by the Technological
Environments 161
Employment Practices 161
Human Rights 162
Environmental Pollution 134
129
Introduction 164
An Overview of Trade Theory 165
The Benefits of Trade 165
The Pattern of International Trade 166
Trade Theory and Government Policy 167
Mercantilism 168
Absolute Advantage 168
Comparative Advantage 170
The Gains from Trade 171
Qualifications and Assumptions 173
Trade and Simple Extensions of the Ricardian
Model 173
HeckscherOhlin Theory 177
The Leontief Paradox 177
The Product Life-Cycle Theory 178
Evaluating the Product Life-Cycle Theory 179
The New Trade Theory 181
The Aerospace Example 181
Implications 182
National Competitive Advantage: Porters Diamond
Factor Endowments 184
Demand Conditions 185
Related and Supporting Industries 185
Firm Strategy, Structure, and Rivalry 186
Evaluating Porters Theory 186
183
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vii
Contents
CHAPTER FIVE
International Trade Theories 162
Opening Case: The Equadorean Rose Industry 162
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Location Implications 187
First-Mover Implications 188
Policy Implications 189
Key Terms 190
Summary 190
Critical Thinking and Discussion Questions
Research Task 191
191
Closing Case: The Rise of the Indian Software

Industry 192
CHAPTER SIX
The Political Economy of International Trade 194
Opening Case: The Great Banana Wars 194
Contents
viii
Introduction 196
Instruments of Trade Policy 198
Tariffs 198
Subsidies 199
Import Quotas and Voluntary Export Restraints 201
Local Content Requirements 202
Administrative Policies 203
Antidumping Policies 203
The Case for Government Intervention 205
Political Arguments for Intervention 205
Economic Arguments for Intervention 209
The Revised Case for Free Trade 211
Retaliation and Trade War 211
Domestic Politics 212
Development of the World Trading System 212
From Smith to the Great Depression 213
19471979: GATT, Trade Liberalization, and Economic
Growth 216
19801993: Disturbing Trends 214
The Uruguay Round and the World Trade
Organization 215
The Future of the WTO: Unresolved Issues and the Doha
Round 217
Trade Barriers and Firm Strategy 221
Policy Implications 221
Key Terms 222
Summary 222
Research Task 224
Closing Case: When Do Government Tax Incentives

Become Export Subsidies? 224
CHAPTER SEVEN
Foreign Direct Investment 226
Opening Case: Starbucks Foreign Direct
Investment 226
Introduction 228
Foreign Direct Investment in the World Economy
The Growth of FDI 229
The Direction of FDI 232
The Source of FDI 232
228
The Form of FDI: Acquisitions versus Green-Field

Investments 233
Canadas Case 233
The Theory of Foreign Direct Investment 237
Why Foreign Direct Investment? 237
The Pattern of Foreign Direct Investment 240
Political Ideology and Foreign Direct Investment 243
The Radical View 243
The Free Market View 244
Pragmatic Nationalism 245
Shifting Ideology 246
Costs and Benefits of FDI to the Nation-State 246
Host-Country Effects: Benefits 246
Host-Country Effects: Costs 249
Home-Country Effects: Benefits 250
Home-Country Effects: Costs 251
International Trade Theory and Foreign Direct
Investment 251
Government Policy Instruments and FDI 251
Home-Country Policies 252
Host-Country Policies 252
International Institutions and the Liberalization
of FDI 254
The Theory of FDI 255
Government Policy 256
Key Terms 257
Summary 257
Research Task 258
Closing Case: Lakshmi Mittal and the Growth

of Mittal Steel 259
CHAPTER EIGHT
Regional Economic Integration 260
Opening Case: The European Energy Market 260
Introduction 262
Gold Brick Countries 262
Model for Economic Integration 263
Levels of Economic Integration 264
The Case for Regional Integration 266
The Economic Case for Integration 266
The Political Case for Integration 267
Impediments to Integration 267
The Case Against Regional Integration 269
Regional Economic Integration in Europe 270
Evolution of the European Union 270
Political Structure of the European Union 273
The Single European Act 274
The Establishment of the Euro 275
Fortress Europe? 279
Enlargement of the European Union 279
Regional Economic Integration in the Americas 280
The North American Free Trade Agreement 280
The Andean Community of Nations 284
MERCOSUR 285
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Central American Common Market and

CARICOM 286
Free Trade Area of the Americas 286
Regional Economic Integration Elsewhere 287
Association of Southeast Asian Nations 287
Asia-Pacific Economic Cooperation 288
Regional Trade Blocs in Africa 290
Opportunities 292
Threats 292
Key Terms 293
Summary 293
Research Task 294
Closing Case: Deutsche Banks Pan-European Retail

Banking Strategy 294
Sustainability in Practice: Foreign Investment for
Sustainable Community Development 296
PART FOUR Global Money System 298

CHAPTER NINE
The Foreign Exchange Market 298
Opening Case: Hyundai and Kia Face a Strong
Won 298
Introduction 300
The Functions of the Foreign Exchange Market 301
Currency Conversion 301
The World and the Canadian Dollar 302
Insuring Against Foreign Exchange Risk 605
The Nature of the Foreign Exchange Market 308
Economic Theories of Exchange Rate
Determination 309
Prices and Exchange Rates 310
Interest Rates and Exchange Rates 315
Investor Psychology and Bandwagon
Effects 318
Summary 319
Exchange Rate Forecasting 319
The Efficient Market School 319
The Inefficient Market School 319
Approaches to Forecasting 320
Currency Convertibility 321
Convertibility and Government Policy 321
Countertrade 322
Transaction Exposure 323
Translation Exposure 323
Reducing Translation and Transaction Exposure 323
Reducing Economic Exposure 324
Other Steps for Managing Foreign Exchange Risk 324
Key Terms 325
Summary 325
Research Task 325
Closing Case: The Ultimate Store of Wealth 327
CHAPTER TEN
The Global Monetary System 328
Opening Case: Argentinas Monetary Crisis 328
Introduction 330
The Gold Standard 332
Mechanics of the Gold Standard 332
Strength of the Gold Standard 332
The Period between the Wars: 19181939 333
The Bretton Woods System 334
The Role of the IMF 334
The Role of the World Bank 336
The Collapse of the Fixed Exchange Rate System 336
The Floating Exchange Rate Regime 338
The Jamaica Agreement 338
Exchange Rates since 1973 338
Fixed versus Floating Exchange Rates 340
The Case for Floating Exchange Rates 340
The Case for Fixed Exchange Rates 341
Who Is Right? 342
Exchange Rate Regimes in Practice 342
Pegged Exchange Rates 343
Currency Boards 344
Crisis Management by the IMF 345
Financial Crises in the Post-Bretton Woods Era 345
Third World Debt Crisis 346
Mexican Currency Crisis of 1995 347
Russian Ruble Crisis 351
The Asian Crisis 353
Evaluating the IMFs Policy Prescriptions 357
Currency Management 359
Business Strategy 359
CorporateGovernment Relations 360
Key Terms 360
Summary 361
Research Task 362
Closing Case: Chinas Managed Float 362

Sustainability in Practice: A Tax on Currency Speculation
to Finance Sustainable Development and Other
Suggestions for a Sustainable Global Economy 364
PART FIVE
Competing in a Global Marketplace 366
CHAPTER ELEVEN
Global Strategy 366
Opening Case: The Evolving Strategy of
Coca-Cola 366
Introduction 368
Strategy and the Firm 369
Value Creation 370
The Firm as a Value Chain 371
The Role of Strategy 373
Profiting from Global Expansion 374
Location Economies 375
Experience Effects 376
Leveraging Core Competencies 377
Leveraging Subsidiary Skills 380
3rd Pass
ix
Contents
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Pressures for Cost Reductions and Local

Responsiveness 381
Pressures for Cost Reductions 382
Pressures for Local Responsiveness 382
Strategic Choices When Choosing a Strategy 385
International Strategy 385
Multidomestic Strategy 387
Global Strategy 388
Transnational Strategy 388
Summary 390
Strategic Alliances 390
The Advantages of Strategic Alliances 391
The Disadvantages of Strategic Alliances 392
Making Alliances Work 393
Partner Selection 393
Alliance Structure 393
Managing the Alliance 395
International Business Requirements 396
Key Terms 396
Summary 396
Research Task 398
Closing Case: IKEAThe Global Retailer 398
Contents
CHAPTER TWELVE
Entering Foreign Markets 400
Opening Case: General Electrics
Joint Ventures 400
Introduction 402
Basic Entry Decisions 402
Which Foreign Markets? 402
Timing of Entry 403
Scale of Entry and Strategic Commitments 404
Evaluating the Level of Risk 406
Entry Modes 407
Exporting 407
Turnkey Projects 408
Licensing 408
Franchising 410
Joint Ventures 411
Wholly Owned Subsidiaries 413
Selecting an Entry Mode 414
Core Competencies and Entry Mode 414
Pressures for Cost Reductions and
Entry Mode 415
Establishing a Wholly Owned Subsidiary:
Green-Field Venture or Acquisition? 416
Pros and Cons of Acquisitions 416
Pros and Cons of Green-Field Ventures 419
Green-Field Venture or Acquisition? 420
Key Terms 422
Summary 422
Research Task 424
Closing Case: Canadian Banks in the U.S.A. 424
CHAPTER THIRTEEN
Exporting, Importing, and Countertrade 426
Opening Case: Megahertz Communications 426
Introduction 428
The Promise and Pitfalls of Exporting 428
Improving Export Performance 429
An International Comparison 430
Export Information Sources 430
Utilizing Export Management Companies 432
Exporting Strategy 432
Export and Import Financing 435
Lack of Trust 435
Letter of Credit 437
Draft 438
Bill of Lading 437
A Typical International Trade Transaction 439
Countertrade 440
The Growth of Countertrade 441
Types of Countertrade 441
The Pros and Cons of Countertrade 443
Key Terms 445
Summary 445
Research Task 446
Closing Case: CAE Takes on the World
446
CHAPTER FOURTEEN
Global Marketing and R&D 448
Opening Case: Procter & Gamble in Japan: From
Marketing Failure to Success 448
Introduction 450
The Globalization of Markets and Brands 452
Market Segmentation 455
Product Attributes 455
Cultural Differences 455
Economic Development 456
Product and Technical Standards 457
Distribution Strategy 457
A Typical Distribution System 457
Differences between Countries 457
Choosing a Distribution Strategy 460
Communication Strategy 461
Barriers to International Communication 461
Push versus Pull Strategies 463
Global Advertising 466
Pricing Strategy 467
Price Discrimination 468
Strategic Pricing 470
Regulatory Influences on Prices 472
Configuring the Marketing Mix 473
New-Product Development 473
The Location of R&D 474
Integrating R&D, Marketing, and Production 475
Cross-Functional Teams 476
Key Terms 478
3rd Pass
Summary 478
Critical Thinking and Discussion Questions
Research Task 480
479
Closing Case: Levi Strauss Goes Local 480

CHAPTER FIFTEEN
Global Production, Outsourcing, and Logistics 482
Opening Case: Managing Timberlands Global Supply
Chain 482
Introduction 484
Strategy, Production, and Logistics 485
Where to Produce 487
Country Factors 487
Technological Factors 488
Product Factors 492
Locating Production Facilities 492
The Strategic Role of Foreign Factories 494
Outsourcing Production: Make-or-Buy Decisions 496
The Advantages of Make 496
The Advantages of Buy 498
Trade-offs 500
Strategic Alliances with Suppliers 501
Coordinating a Global Production System 502
The Power of Just-in-Time 502
The Role of Information Technology and the
Internet 502
Key Terms 503
Summary 503
Research Task 504
Closing Case: Foreign Direct Investment at the Source

of Raw Materials 505
Training and Management Development 517

Training for Expatriate Managers 517
Repatriation of Expatriates 518
Management Development and Strategy 519
Performance Appraisal 520
Performance Appraisal Problems 520
Guidelines for Performance Appraisal 521
Compensation 521
National Differences in Compensation 521
Expatriate Pay 524
International Labour Relations 526
The Concerns of Organized Labour 526
The Strategy of Organized Labour 526
Approaches to Labour Relations 527
Key Terms 528
Summary 528
Research Task 529
Closing Case: How Coca-Cola Retains

Employees 530
Sustainability in Practice: Interface: An Environmentally
Sustainable Commitment to Business and Material
Management 531
GLOSSARY
533
END NOTES 539

xi
NAME/COMPANY INDEX 558
Contents
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SUBJECT INDEX 562

CHAPTER SIXTEEN
Global Human Resource Management 506
Opening Case: Molex 506
Introduction 508
The Strategic Role of International HRM
Staffing Policy 510
Types of Staffing Policy 510
Expatriate Managers 513
509
3rd Pass
P R E FA C E
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THE GLOBAL BUSINESS TODAY

APPROACH
Global Business Today is intended for the first international business course at either the undergraduate or the MBA level. Our goal with this third
Canadian edition is to set new standards for international business textbooks. We have written a
book that (1) integrates the Canadian perspective
on international business and Canadas place
within the international business environment,
(2) is comprehensive and up-to-date, (3) goes beyond an uncritical presentation and shallow explanation of the body of knowledge, and (4) focuses
on implications for business and makes important
theories, issues, and practices accessible and interesting to Canadian students.
INTEGRATED COVERAGE OF THE CANADIAN

PERSPECTIVE
Although this book is geared to the Canadian
reader, this does not mean that all examples within
are Canadian examples. The authors have written
about those realities and examples that best portray chapter topical themes, as well as writing
about what the market wants, based upon market
research in the academic field. The textbook pays
particular attention to small- and medium-sized
enterprises and their push onto the international
business scene.
COMPREHENSIVE AND UP-TO-DATE

COVERAGE
To be comprehensive, an international business
textbook must clearly communicate
how and why the worlds countries differ;
why a comprehensive review of

economics and politics of international
trade and investment is necessary in
understanding international trade;
how the functions and form of the global

monetary system are tied into global trade;
how the strategies, objectives, and

international structures of international
business need to conform to certain
guidelines set out by international
organizations and other bodies; and
the special roles of an international

businesss activities.
This book pays close attention to these issues.

Ultimately, a successful business is an informed
business. It is our intention to cover, in an in-depth
manner, the linkages between success and knowledge on the global business stage. As time moves
forward, an increasing number of students will become international managers, and this book will
better equip them with knowledge about the strategies, operations, and functions of small and large
businesses alike.
The theories behind international trade help
students to grasp the scope and execution of international business. Many books convey an adequate task of communicating long-established
theories (e.g., the theory of comparative advantage and Vernons product life-cycle theory) but
they ignore important newer works included in
Global Business Today, such as
the new trade theory and strategic

trade policy;
the work of Nobel prize-winning

economist Amartya Sen on economic
development;
Samuel Huntingtons influential thesis

on the clash of civilizations;
the new growth of economic

development championed by Paul
Romer and Gene Grossman;
recent empirical work by Jeffrey Sachs

and others on the relationship between
international trade and economic growth;
Michael Porters theory of the

competitive advantage of nations;
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Robert Reichs work on national competitive

advantage;
the work of Douglas North and others on national

institutional structures and the protection of
property rights;
the market imperfections approach to foreign direct

investment that has grown out of Ronald Coase and
Oliver Williamsons work on transaction cost
economics;
Bartlett and Ghoshals research on the

transnational corporation;
the writings of C.K. Prahalad and Gary Hamel on

core competencies, global competition, and global
strategic alliances, and
Paul Samuelsons critique of free trade.
In addition to cutting-edge theory and the exponentially

quickening pace of the international business environment,
every effort has been made to ensure that this book is as current as possible when it goes to press. This Canadian edition
contains current data from the World Trade Organization, the
Organization for Economic Cooperation and Development
(OECD), the United Nations Commission on Trade and Development (UNCTAD), Statistics Canada, and Export Development
Canada, among others. This book provides readers with a fresh
insight into factors influencing Canada and other countries in
the world of international trade, Canadian businesses forays into
world markets, and reactions to ongoing economic structural
readjustments in 2010 and beyond. Here are some examples:
Chapter 2, Country Differences in Political

Economy, deals with critical forces affecting
Canadian businesses working in the global arena.
Chapter 5, International Trade Theories, explains

various international trade theories, while providing
practical explanations of their applications within
various international companies.
Chapter 9, The Foreign Exchange Market, provides

insights into how Canadian corporations can receive
payment in international transactions. Similarly,
foreign exchange risks and various economic theories
of exchange rate determination will prove helpful for
those individuals and corporations contemplating
doing business beyond Canadas borders.
Leveraging core competencies and formulating

global strategies through distributions channels and
more are comprehensively covered in Chapter 11,
Global Strategy.
Chapter 12, Entering Foreign Markets, offers insight

into reactions in other countries to privatization issues,
as described in the Country Focus, JCB in India.
Chapter 15, Global Manufacturing and Materials

Management, neatly clarifies the details of global
supply management through its opening case,
Managing Timberlands Global Supply Chain.
Significant explanations are provided on strategy,
manufacturing and logistics, the strategic roles of
foreign factories, and make-or-buy decisions.
Chapter 16, Global Human Resource

Management, underscores the benefits and
disadvantages of Human Resource Management in
terms of dealing with expatriate employees.
International labour relations complicates the
fabric of human resource departments for those
companies with foreign operations.
BEYOND UNCRITICAL PRESENTATION AND SHALLOW

EXPLANATION
Many issues in international business are complex and thus
necessitate considerations of pros and cons. To demonstrate
this concept to students, we have adopted a critical approach
that presents the arguments for and against economic theories, government policies, business strategies, organizational
structures, and so on.
Related to this, we have attempted to explain the complexities of the many theories and phenomena unique to international
business so the student might fully comprehend the statements
of a theory or the reasons a phenomenon is the way it is. These
theories and phenomena typically are explained in more depth
in Global Business Today than they are in competing textbooks.
FOCUS ON BUSINESS IMPLICATIONS AND

ACCESSIBLE PRESENTATION
The third Canadian edition of Global Business Today offers
many opportunities for students to engage with and apply the
material to their lives and their future careers. The features
listed below are explained in greater detail in the Learning
Features section beginning on page xviii.
Each chapter begins with an updated Opening

Case and concludes with a new or updated Closing
Case that illustrates the relevance of chapter
material for the practice of international business.
The opening case in Chapter 4, Imagine No
Metal, looks at mining and how big business in
northern Ontario is also an important and growing
sector worldwide. Chapter 12 opens with an
updated case about General Electric and its joint
ventures to gain entry into global markets. The new
closing case in Chapter 11, IKEAThe Global
Retailer, looks at the flexibility needed by a
successful, major corporation to adapt to change.
The case accentuates the need for a global
corporation to respect local preferences.
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Preface
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Another Perspective sidebars help students to

think critically about adjacent text material.
Each chapter concludes with an Implications for

Business section that explains the managerial
implications of the chapter material. This feature
helps business students to understand the linkage
between practice and theory.
Sustainability in Practice Part-Ending Cases help

students to understand how businesses are engaging
in the solutions to sustainable development challenges.
xiv
Preface
Each chapter also contains at least one type of focus

box. Updated Management Focus boxes, like the
updated cases, illustrate the relevance of the chapter
material for the practice of international business.
Examples include: Starbucks Wins Key Trademark
Case in China in Chapter 2, Four Seasons Hotels
and Resorts in Chapter 7, NAFTAFriend or Foe of
Canadian Business? in Chapter 8, Barrick Gold
in Chapter 9, and The Tragedy of the Congo (Zaire) in
Chapter 10. Country Focus boxes provide background
on the political, economic, social, or cultural aspects
of countries grappling with an international business
issue. For example, 50 Years of Corruption in
Nigeria in Chapter 2, Foreign Direct Investment in
China in Chapter 7, Trade Missions, A Vital Part of
the Canadian Governments Global Business
Strategy in Chapter 11, and Countries Want to Hold
on to Their Jobs in Chapter 16.
GlobalEdge Research Tasks allow students to

practise using real business data.
Could You Do This? Entrepreneurial Peer

Profiles featuring real students experiences with
starting their own global businesses are available
at the texts Online Learning Centre Web site at
www.mcgrawhill.ca/olc/hill.
THE STRUCTURE OF GLOBAL BUSINESS

TODAY, THIRD CANADIAN EDITION
Global Business Today, third Canadian Edition, offers a tight,
integrated flow of topics from chapter to chapter.
Part One: Globalization
Chapter 1 provides an overview of the key issues to be addressed and explains the plan of the book.
Part Two: Country Differences
Chapters 2, 3, and 4 focus on national differences in political
economy and culture and the implications of these differences
for ethical decision making. Most international business textbooks place this material later, but we believe it is vital to discuss
national differences first. After all, many of the central issues
in international trade and investment, the global monetary
system, international business strategy and structure, and international business operations arise out of national differences in
political economy and culture. To understand these issues, students must first appreciate the differences in countries and
cultures.
Part Three: Cross-Border Trade and Investment
Chapters 5 through 8 investigate the political economy of international trade and investment, fostering understanding of the
trade and investment environment in which international business occurs.
Part Four: Global Money System
Chapters 9 and 10 examine the global monetary system, while
detailing the monetary framework in which international business transactions are carried out.
Part Five: Competing in a Global Marketplace
Chapters 11 through 16 move away from the macro environment
of the international business realities into the workings of companies within this framework. How do companies adapt their
strategies to compete beyond their own borders? How do production and logistics proceed on a global scale? These chapters
explain how firms can perform their key functionsmanufacturing, marketing, R&D, and human resource managementto
compete and succeed in the international business environment.
WHATS NEW IN THE THIRD

CANADIAN EDITION?
This third Canadian edition not only explains theoretical aspects of international trade but, more importantly, attempts to
connect the practical applications involving international
trade into a framework of helpful understanding for those exporters, both new and experienced, in this field.
CHAPTER-BY-CHAPTER CHANGES
Chapter 1: Globalization. All of the statistics have been
updated to the most recent available at the time of this book going to production. Global Financial Services statistics updates
show a significant spike in the amount of foreign exchange
transactions since the data published in the first edition. This
chapter includes various introductory concepts that will further
substantiate the successes and challenges faced by Canadian
companies when doing business abroad. A new Management
Focus details the impact on businesses of the recent global
economic meltdown. The emergence of global institutions is
detailed. Also, the latest round of World Trade Organization talks
(WTO) and revised WTO membership numbers of the troubled,
yet growing membership of the WTO, are chronicled. Similarly,
the innovative spirit of one of Canadas best known corporations
shines through in a new closing case, Tim Hortons: A Canadian
Company Looking for New Markets,as this made-in-Canada
enterprise increases its forays into the American marketplace.
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The outcries resonating from some high-profile pro-Canada

crusaders, such as Maude Barlow, in the sensitive area of job
losses in Canada due to outsourcing to companies in developing countries, such as India and Mexico, are detailed.
Chapter 2: Country Differences in Political Economy. The section on economic development includes a review
of the work of Nobel prize-winning economist Amartya Sen.
Sen has argued that development should be assessed less by
material output measures such as GNP per capita and more by
the capabilities and opportunities that people enjoy. The growing number of Internet users in Canada and around the world
sheds an insight into the broader picture of how the Internet
has changed the way people and enterprises communicate in
Canada and beyond. The discussion of differences in legal
systems provides insight into the linkage between corruption
and negative economics within a country. Intellectual property
is discussed in the framework of inroads being made into
allowing the sale of cheaper generic versions of patented
medicinesincluding a powerful new drug for AIDS, without
permission from the patent owner. A new Management Focus,
Starbucks Wins Key Trademark Case in China talks about the
legalities in country differences and a new closing case,
Chavezs Venezuela depicts a socialist system. McDonalds
around the World, details the corporations ability to adapt
internationally.
Chapter 3: The Cultural Environment. The Implications
for Business section covers a broad cross-section of topics ranging from cross-cultural literacy, to culture and competitive advantage, to culture and business ethics. These themes pose problems
for Canadians doing business abroad. In many cases, countries
now have legal frameworks in place to regulate and interpret
what constitutes proper ethics in doing business internationally.
Bill S-21, passed into law in the late 1990s, lays out ethical business standards to be adhered to by Canadian business people
when dealing abroad. The 2010 World Competitive Scoreboard
shows Canada lagging in areas of competitiveness when compared to other countries. In areas of literacy, Canada, unlike many
countries, earns strong grades, yet in terms of GDP per capita
spending on education, Canada lags. Other areas of cultural differences are described within this chapter. Various religions and
their significance within the world are discussed.
Chapter 4: Ethics in International Business. Canadian
examples such as the Talisman company in Sudan, SARS in
Toronto, Ivanhoe Mines in Myanmar, and the Conrad Black
trial, all with a global focus, are updated.
Chapter 5: International Trade Theories. Over the
past few years, numerous empirical studies have been published that look at the relationship between a countrys openness to international trade and its economic growth. This
work is discussed in this chapter. The work gives empirical
support to the theory of comparative advantage and a strong
example of trade disputes is showcased through a new case

on Pizza Wars between the United States and Canada.
Chapter 6: The Political Economy of International
Trade. The contentious bilateral trade issues that have periodically soured Canadian trade relations with the United States
over the past couple of decades are dealt with in the context of
the World Trade Organization and the North American Free
Trade Agreement. In particular, the unresolved softwood lumber
dispute is previewed in this chapter, further discussion of which
takes place in Chapter 14. In Chapter 14 we present a Canadian
success story, Clearwater Seafoods. We explore this corporations competitive advantage and relate it to Chinas overall
status as one of the worlds low-cost seafood producers.
Chapter 7: Foreign Direct Investment. Both up-todate international foreign direct investment (FDI) Flows and
FDI figures show the importance of FDI, in its different forms,
including mergers and acquisitions, in the economies of
Canada and other countries. In spite of Canadas growing presence on the world economic stage, it can still only boast two
transational corporations that manage to slip into the worlds
top 100 non-financial TNCs, ranked by foreign assets.
Chapter 8: Regional Economic Integration. On January 1, 2007, two new member states joined the European
Union, bringing its current membership to 27. This chapter covers the post-World War II levels of economic integration within
Europe, leading to the European Union and its monetary union,
while covering lesser initiatives, including the Free Trade
Agreement, now NAFTA, which includes Mexico, Canada, and
the United States. Other efforts of regional economic integration are also discussed and these include customs unions in
South America such as MERCOSUR and the Andean Pact countries (now the Community of Andean Nations) , along with
similar dynamic pro-business undertakings in Asia (Association of Southeast Asian NationsASEAN and the Asia Pacific
Economic CooperationAPEC) and Africa.
Chapter 9: The Foreign Exchange Market. The
Canadian dollars recent rise against the U.S. dollar and other
currencies is significant for Canadian importers and exporters.
Also, economic theories of exchange rate determination are
explained that are all vital to business people conducting business abroad. A new Closing Case on The Ultimate Source of
Wealth depicts the importance of gold as an investment.
Chapter 10: The Global Monetary System. One of
the more interesting phases of the development and growth of
the Canadian economy came during the period of time in which
Canada was under the gold standard from 18541914 and
19141926. Internationally, many policies and institutions have
influenced and shaped the value of currencies. The ever-increasing U.S. trade deficit and the fall of the U.S. dollar have
wreaked havoc on the international monetary system. Similarly,
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Preface
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after reaching record-breaking prices, gold and oil prices have

remained elevated through 2011, and their effect on the global
monetary system remains noteworthy.
Chapter 11: Global Strategy. Multinational corporations have long recognized the importance of leveraging skills,
strategic alliances, and competencies in their foreign locations for improved business practices at home and abroad.
How Canadian companies apply their know-how in foreign
situations is discussed in several sections within this chapter,
including how the Canadian Managers Abroad component of
the former Team Canada has been reincarnated. The expanding presence of IKEA stores, numbering 230 worldwide, with
more openings planned for China, depicts the growth of an increasingly popular home furnishings brand.
Chapter 12: Entering Foreign Markets. The ways
through which companies enter foreign markets is covered
through a look at the pros and cons of greenfield investments and
other forms of alternative strategies for entering foreign markets.
The Management Focus highlights the Jollibee Foods Corporation
from the Philippines and its ambitious expansion to the U.S.
Preface
xvi
Chapter 13: Exporting, Importing, and Countertrade. The discussion on export assistance to Canadian companies provides a detailed look at the institutional means and
mechanisms through which many Canadian companies engage
in export, for example, Export Development Canada and the
Canadian Commercial Corporation. The Another Perspective box
shows how innovative Board of Trade offices, such as the one
featured (Brampton Board of Trade), partner with the private
sector to enhance business opportunities for companies.
Chapter 14: Global Marketing and R&D. Global marketing and R&D are what makes or breaks a company. The
Management Focus Jean Coutu GroupMarketing to the
North American Consumer, depicts one successful Canadian
companys evolving foray into markets beyond our borders.
Distribution and communication strategies are also discussed
within this chapter. American-Canadian softwood lumber
irritants are further explained in the context of NAFTA and
WTO rulings on this evolving and contentious issue.
Chapter 15: Global Production, Outsourcing, and
Logistics. Web-based IT systems now play a vital role in
materials management around the world. Global tracking systems enable goods to be located within a 45-metre (50-yard)
radius as they travel to their destination. Cashier entries in
local supermarkets are tied into inventory data that signals
when certain goods should be replenished by the manufacturer. An innovative look into global manufacturing and materials management can be seen in the updated Management
Focus on Having Fun Making Money.
Chapter 16: Global Human Resource Management. Employment legislation can have both positive and
negative impacts for foreign businesses operating abroad and
companies must be aware of rules and guidelines so they can
act accordingly. A new Another Perspective box about expatriate employees was added based on an interview with the
Consul General of Uruguay in Toronto. The prickly issue of
countries wanting to keep jobs at home is detailed in a Country
Focus. This chapter also discusses the complete range of factors affecting human resource management in other countries.
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SUPERIOR SERVICE
Your Integrated Learning Sales Specialist is a McGraw-Hill Ryerson representative who has the experience, product knowledge, training, and support to help you assess and integrate any of the belownoted products, technology, and services into your course for optimum teaching and learning
performance. Whether its using our test bank software, helping your students improve their grades,
or putting your entire course online, your iLearning Sales Specialist is there to help you do it. Contact
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teaching. For additional information visit http://www.mcgrawhill.ca/highereducation/iservices.
Teaching & Learning Conference Series
The educational environment has changed tremendously in recent years, and McGraw-Hill Ryerson
continues to be committed to helping you acquire the skills you need to succeed in this new milieu.
Our innovative Teaching & Learning Conference Series brings faculty together from across Canada
with 3M Teaching Excellence award winners to share teaching and learning best practices in a collaborative and stimulating environment. Pre-conference workshops on general topics, such as teaching large classes and technology integration, will also be offered. We will also work with you at your
own institution to customize workshops that best suit the needs of your faculty.
INSTRUCTORS SUPPLEMENTS
Instructors Online Learning Centre (OLC)
xvii
Preface
The OLC at www.mcgrawhill.ca/olc/hill includes a password-protected Web site for instructors. The
site offers downloadable supplements, including an Instructors Manual and Microsoft PowerPoint slides.
Instructors Resources:
Instructors Manual The Instructors Manual contains lecture notes and teaching suggestions for
each chapter, and is written by the text author, Thomas McKaig, to ensure accurate and current material, relevant to text content.
Test Bank in Rich Text Format The test bank contains approximately 100 questions per chapter
and is written by the text author, Thomas McKaig, to ensure tight alignment to text content.
Computerized Test Bank. This flexible and easy-to-use electronic testing program allows instructors to create tests from book-specific items. It accommodates a wide range of question
types and instructors may add their own questions. Multiple versions of the test can be created
and printed.
Microsoft PowerPoint Slides These presentations offer approximately 15 to 20 slides per
chapter and were created by Tim Richardson, Seneca College of Applied Arts and Technology/
University of Toronto.
Video Collection
A video collection, consisting of news footage and original business documentaries for each chapter, is
available through your sales representative.
Course Management
McGraw-Hill Ryerson offers a range of flexible integration solutions for WebCT and Blackboard platforms.
Please contact your local McGraw-Hill Ryerson iLearning sales specialist for details.
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Create Online
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few mouse clicks, you can create customized learning tools simply and affordably. McGraw-Hill
Ryerson has included many of its market-leading textbooks within Create Online for eBook and print
customization as well as many licensed readings and cases. For more information, please visit
www.mcgrawhillcreate.com.
CourseSmart
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format providing unique benefits to students and faculty. By purchasing an eTextbook, students can
save up to 50 percent off the cost of a print textbook, reduce their impact on the environment, and gain
access to powerful Web tools for learning, including full text search, notes and highlighting, and email
tools for sharing notes among classmates. For faculty, CourseSmart provides instant access to review
and compare textbooks and course materials in their discipline area without the time, cost, and environmental impact of mailing print examination copies. For further details, contact your i Learning sales
specialist or visit www.coursesmart.com.
STUDENT SUPPLEMENTS
Student Online Learning Centre
The OLC at www.mcgrawhill.ca/olc/hill includes learning and study tools such as quizzes, a searchable glossary, streaming video, Globe and Mail headlines, interactive exercises, Web links, and more,
created by Tim Richardson, Seneca College of Applied Arts and Technology/University of Toronto.
Preface
xviii
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ACKNOWLEDGEMENTS
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Numerous people deserve recognition for their assistance in preparing this book.
First and foremost, I would like to thank my parents, Dorothy and Russell McKaig, for always being
my greatest supporters. My father did not live to see this third edition of the book, but was an enthusiastic supporter of my efforts with all previous editions. Many thanks also to my sister, Janet McKaig,
and brother, Woody McKaig, for their support and advice.
I couldnt have been more fortunate to have my Research Directors, Susanna Boehm and Jim Helik.
They were able to handle my endless requests for massive amounts of research information, and synthesize it to meet my demanding time lines. They exceeded my expectations in the quality of their input. They
knew exactly what I wanted and made this massive mission of creating a Canadian-focused textbook on
global business a Mission Possible. Their dedication, can-do attitude, patience, intelligence, and sense
of humour is humbling to me and I can only say that I have found the best researchers possible.
A textbook on global business needs a global team, and I was fortunate that my colleagues here in
Canada, as well as in Uruguay, Panama, and elsewhere were so generous with their time and knowledge. I would like to offer a special thanks to Nick Barisheff, (Chief Executive Officer), Paul de Sousa, VP
Business Development BMG Bullion Funds, Marc Farmer, VP Business Development BMG BullionBars, for
their unique global vision and understanding on doing business internationally and on the value of gold,
silver, and platinum bullion. The privilege of working internationally with Nick, Paul, and Marc, as well as
with the entire BMG team, is indeed an honour. I would like to offer a sincere thanks to Geoff Kelly; Michael,
Monique, and Maddisyn Wegner; Aqeel Mohammad; Sallie L. Storey; and Jaime Rozinsky for their kind
assistance through the years. I would like to specially thank Fernando Lopez-Fabregat, Consul General of
Uruguay in Toronto, for providing insights on international business. Also, thanks to Mr. Bosco Vallarino
Jr.,Consul General of Panama in Toronto, for his kind assistance and insights pertaining to Panama.
I would like to thank Charles W. L. Hill, for creating an excellent textbook and strong base from
which this Canadian edition was made possible. Trevor Buss similarly epitomizes the spirit of entrepreneurship. His business travels to China formed the basis for his insightful article Doing Business in
China in the Management Focus box in Chapter 3. As well, I would like to thank Dr. George Bragues,
Program Head, Business and Assistant Vice Provost, University of Guelph-Humber, for his continued
support and assistance. I would like to thank the Department of Marketing and Consumer Studies of
the University of Guelph for its support throughout the years. I also wish to thank Alexander Fry, Partner, KPMG Montevideo, and Rodrigo F. Ribeiro, CFA, Partner, Advisory Services KPMG, Montevideo,
Uruguay, for the time spent interviewing them for confirmation of certain economic data. I would also
like to thank Charles Janthur for his international business support.
Market feedback indicated that more expansive coverage of the important role that ethics plays in the
international business arena was necessary. We called upon Tim Richardson, who teaches at Seneca
College of Applied Arts and Technology and the University of Toronto, Department of Management,
www.witiger.com. Tim enthusiastically and ably responded to this request, providing Chapter 4, Ethics
in International Business, rich in Canadian content and current research. We thank him for his invaluable and ongoing contribution to this text.
The team at McGraw-Hill Ryerson was also superb, including Kim Brewster, Executive Sponsoring
Editor; Lori McLellan, Developmental Editor; Cathy Biribauer, Supervising Editor; and Cat Haggert, Copy
Editor.
Finally, I extend sincere thanks to the reviewers of the third Canadian edition, who provided insightful feedback that helped to shape this book:
Laurie Grant, BCIT
Ramon Baltazar, Dalhousie University
Sheng Deng, Brock University
Shanker Seetharam, Centennial College
of Applied Arts and Technology
Ronald Camp, University of Regina
Pavel Vacek, University of Alberta
Che-hui Lien, Thompson Rivers University
Linda Stockton, McMaster University

Carlyle Farrell, Ryerson University
Minna Allarkakhia, University of Waterloo
Wasi Khan, Seneca College of Applied Arts
and Technology
Chris Houliez, University of Saskatchewan
Raymond Leduc, University of
Western Ontario
Thomas McKaig
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LEARNING FEATURES
Learning Objectives
Learning Objectives tell students what they
will know after completing the chapter.
Global Business Today, Third

Canadian Edition, has a rich
selection of learning features
that highlight companies ups
and downs in the international business arena, stimulate
learning and understanding,
and challenge students to
respond.
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LEARNING OBJECTIVES
1. Explore the three basic decisions that a rm contemplating foreign expansion must make:
whichmarkets to enter, when to enter those markets, and on what scale.
2. Review the different modes that rms use to enter a foreign market.
3. Demonstrate the advantages and disadvantages of each entry mode.
4. Analyze the relationship between strategy and a rms choice of entry mode.
5. Illustrate some pitfalls of exporting.
6. Give examples of the steps a rm can take to improve its export performance.
7. Explain the mechanics of export and import nancing.
INTRODUCTION
Opening Case
This chapter is concerned with two closely related topics: (1) the decision of which
foreign markets to enter, when to enter them, and on what scale, and (2) the choice
of entry mode. Any rm contemplating foreign expansion must rst struggle with
the issue of which foreign markets to enter and the timing and scale of entry. The
choice of which markets to enter should be driven by an assessment of relative longrun growth and prot potential.
The choice of mode for entering a foreign market is another major issue with
which international businesses must wrestle. For example, the opening case described
GEs change of strategy toward entering foreign markets through joint ventures. The
various modes for serving foreign markets are exporting, licensing or franchising to
host-country rms, establishing joint ventures with a host-country rm, setting up
a new wholly owned subsidiary in a host country to serve its market, or acquiring
an established enterprise in the host nation to serve that market. Each of these
options has advantages and disadvantages. The magnitude of the advantages and
disadvantages associated with each entry mode is determined by a number of factors,
including transport costs, trade barriers, political risks, economic risks, costs,
and rm strategy. The optimal entry mode varies by situation, depending on these
factors. Thus, whereas some rms may best serve a given market by exporting, other
rms may better serve the market by setting up a new wholly owned subsidiary or
by acquiring an established enterprise.
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PART 5 Competing in a Global Marketplace
402
Each chapter begins with an engaging opening

case that sets the stage for the chapter. These brief
case studies introduce students to critical issues and
often challenge their preconceptions. For actual
countries/organizations providing rich, introductory examples, look to each chapters opening case.
BASIC ENTRY DECISIONS

In this section, we look at three basic decisions that a rm contemplating foreign
expansion must make: which markets to enter, when to enter those markets, and on
what scale.1
WHICH FOREIGN MARKETS?
In 2010, there were 195 nation-states in the world, but they do not all hold the same
prot potential for a rm contemplating foreign expansion.2 Ultimately, the choice
must be based on an assessment of a nations long-run prot potential. This potential is
a function of several factors, many of which we have already studied in earlier chapters.
In Chapter 2, we looked in detail at the economic and political factors that inuence the
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potential attractiveness of a foreign market. There we noted that the attractiveness of a
country as a potential market for an international business depends on balancing the
benets, costs, and risks associated with doing business in that country.
CHAPTER
International
Trade Theories
IT IS 6:20 A . M . FEBRUARY 7 IN THE ECUADOREAN TOWN OF CAYAMBE, and

Maria Pacheco has just been dropped off for work by the company bus. She pulls on
thick rubber gloves, wraps an apron over her white, traditional embroidered dress,
and grabs her clippers, ready for another long day. Any other time of year, Maria would
work until 2 P. M ., but its a week before Valentines Day, and Maria along with her
84co-workers at the farm are likely to be busy until 5 P. M . By then, Maria will have cut
more than 1000 rose stems.
A few days later, after they have been refrigerated and shipped via aircraft, the
roses Maria cut will be selling for premium prices in stores from New York to London.
Ecuadorean roses are quickly becoming the Rolls-Royce of roses. They have huge
heads and unusually vibrant colours, including 10 different reds, from bleeding heart
crimson to a rosy lovers blush.
Most of Ecuadors 460 or so rose farms are located in the Cayambe and Cotopaxi
regions, 10 000 feet up in the Andes about an hours drive from the capital, Quito. The
rose bushes are planted in huge flat fields at the foot of snowcapped volcanoes
thatrise to more than 20 000 feet. The bushes are protected by 20-foot-high canopies
of plastic sheeting. The combination of intense sunlight, fertile volcanic soil, an
equatorial location, and high altitude makes for ideal growing conditions, allowing
roses to flower almost year-round. Ecuador apparently has a comparative advantage
in the production of roses.
Ecuadors rose industry started some 20 years ago and has been expanding rapidly
since. Ecuador is now the worlds fourth largest producer of roses. Roses are the
nations fifth largest export, with customers all over the world. Rose farms generate
$240 million in sales and support tens of thousands of jobs. In Cayambe, the population
has increased in 10 years from 10 000 to 70 000, primarily as a result of the rose
industry. The revenues and taxes from rose growers have helped to pave roads, build
schools, and construct sophisticated irrigation systems.
Maria works Monday to Saturday, and earns $210 a month ($US), which she says is
an average wage in Ecuador and substantially above the countrys $120 a month
minimum wage. The farm also provides her with health care and a pension. By
employing women such as Maria, the industry has fostered a social revolution in
which mothers and wives have more control over their familys spending, especially
on schooling for their children.
For all of the benefits that roses have bought to Ecuador, where the gross national
income per capita is only $1080 a year, the industry has come under fire from
environmentalists. Large growers have been accused of misusing a toxic mixture of
pesticides, fungicides, and fumigants to grow and export unblemished pest-free
flowers. Reports claim that workers often fumigate roses in street clothes without
protective equipment. Some doctors and scientists say that many of the industrys
50 000 employees have serious health problems as a result of exposure to toxic
chemicals. A study by the International Labour Organization reported that women in
the industry had more miscarriages than average and that some 60 percent of all
workers suffered from headaches, nausea, blurred vision, and fatigue. Still, the
critics acknowledge that their studies have been hindered by a lack of access to
thefarms, and they do not know what the true situation is. The International Labour
Organization has also said that some rose growers in Ecuador use child labour, a
claim that has been strenuously rejected by both the growers and Ecuadorean
government agencies.
In Europe, consumer groups have urged the European Union to press for improved
environmental safeguards. In response, some Ecuadorean growers have joined a
voluntary program aimed at helping customers identify responsible growers. The
certification signifies that the grower has distributed protective gear, trained
workers in using chemicals, and hired doctors to visit workers at least weekly.
Other environmental groups have pushed for stronger sanctions, including trade
O P E N I N G
The Ecuadorean
Rose Industry
CROSS-BORDER TRADE AND INVESTMENT
C A S E
PART THREE
Veer
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A NOTHER
PERSPECTIVE
Technology and knowledge transfer: a benefit

and a danger
A joint venture is like a party where everyone
brings something and takes something. In a joint
venture located in a developing country, the
company with the business brings knowledge
about the business and its processes, while
often the local partner brings knowledge about
the market and long-standing relationships,
along with personnel. In its early preparation
forentry into South Korea, KFC (then known as
Kentucky Fried Chicken) selected a joint-venture
partner, began training the partner, and began
tobring in its systems and layout, including the
pressure-cooked process, special equipment,
and the 11 herbs and spices, to share with its
new Korean partner. Imagine the Americans
surprise when they found hundreds of Kentucky
Fried Chicken stores already up and running in
and around Seoul. They were tiny mom-and-pop
shops, a result of a familys U.S. vacation, and
although they didnt prepare chicken the same
way or offer the same product line, they did
confuse the public about the KFC concept for a
while. Even today, you can nd little Kentucky
Fried Chicken stalls in the middle of Seoul.
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Another Perspective
With multiple examples per chapter, Another Perspective
boxes provide students with an alternate way of thinking
about important global issues presented in the text. These
not only hone students critical thinking skills but also give a
deeper understanding of chapter topics.
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COUNTRY FOCUS
ENHANCING FINANCING POSSIBILITIESTHE BUSINESS
DEVELOPMENT BANK OF CANADA
Businesses and governments working together is not a new idea. For example, the Business Development
Bank of Canada (BDC), formed on July 13, 1995, under the Business Development Bank of Canada Act, has
a broadened and dynamic public interest mandate, particularly focusing on Canadian exporting businesses
in the technology sector. It does provide assistance to non-export ventures, but increasingly small
businesses are using its services for export-specic purposes.
The BDC took root during the end of the World War II era when, in September 1944, the Canadian
Parliament proclaimed the Industrial Development Bank of Canada (IDB), which was at that time an arm of
the Bank of Canada. Its primary purpose was to assist manufacturing-based companies. Over the next few
years, the IDB Act was amended several times, expanding its ability to grant loans to many companies
across a variety of industry sectors. By 1964, the bank had 22 cross-Canada branches.
The basic premise of the BDCs original set up in 1944 was to focus on providing nancial loans to
companies. During the 1970s, it began to acknowledge that companies needed more than money. It added
to its roster of services to Canadian business areas such as counselling, training, and planning for small
business owners. Another innovative concept to be injected into the IDB in the 1970s turned it into a sort of
one-stop shop for small businesses in need of nancing, export advice, and business planning counsel. It
then evolved into a separate Crown corporation and the Federal Business Development Bank took over
from the IDB in October 1975. The bank then decentralized and opened up more branches across Canada.
In April 2002, the BDCs mandate was renewed for a period of ten years and the partnership between
Canadian small businesses and the BDC continues. Doing business abroad is difcult enough and
mostCanadian small businesses need all the help they can get. By 2008, the BDC boasted 93 branches
across Canada and in 2008, ranked 15th of the 100 best employers in Canada. Companies with a loan
withBDC can access an online Web site, BDC Connex, a virtual branch for Canadians, further expanding
the BDCs presence.
Its activities are similar to those of a regular chartered bank, such as the CIBC or the Royal Bank of
Canada. The BDCs key activities involve granting exible business loans with oating and xed interest
rates for up to 20 years. It also has a micro-business program. This arm of the bank assists small business
owners with mentoring and continued management support for as long as two years after the initial signed
agreement between the small business owner and the BDC. It can provide term nancing of up to $25 000
to new businesses and up to $50 000 to existing companies with solid and realistic plans. There are several
other types of services that enable eligible Canadian businesses to extend their business beyond Canadas
borders. A Productivity Plus Loan assists well-established manufacturing companies to acquire various
types of up-to-date equipment in the range of $100 000 to $5 million. In addition to this, the BDC might offer
an extra 25 percent nancing for installation, assembly, and personnel training.
Innovation Loans, geared primarily towards helping entrepreneurs grow their businesses, assist with
the organizational logistics and implementation of innovation strategies, frequently in training for R&D,
andInternational Organization for Standardization (ISO) standards training. Entrepreneurs can top up an
Innovation loan for up to $100 000 with a Working Capital for Exporters loan for amounts up to $250 000.
BDC also provides Venture Capital loans in amounts ranging from $500 000 to $5 000 000 irrespective
ofthe company life cycle. The BDC Tourism Investment Fund has funds available to those entrepreneurs
with good track records and future prospects in amounts ranging from $250 000 to $10 000 000 as well as
Growth Capital for Aboriginal Business for loans ranging between $25 000 and $100 000, also with exible
repayment turns. For costs relating to Web solutions, companies could be eligible to receive nancing from
$25 000 to $50000 to meet the various costs related to the implementation of a Web solution.
Country Focus
Country Focus boxes provide real-world
examples of how different countries
grapple with political, economic, social,
or cultural issues.
MANAGEMENT FOCUS
Sources: BDC at http://www.bdc.ca/EN/about/overview/history/Pages/default.aspx and http://www.bdc.ca/EN/about/overview/Pages/

overview1.aspx; Canada Business at http://www.canadabusiness.ca/eng/.
THE REEL THREAT TO THE CANADIAN FILM INDUSTRY

As avid moviegoers, many Canadians might not realize the magnitude of the lm business, both foreign and
domestic, operating within Canada. Movie trailers and lm lights are a common sight in Canadas major
cities to small towns. Many major American television series and movies, such as Haven and The Twilight
Saga have been filmed in Canada. However, this industry has been put at risk with the recent rise of the
Canadian dollar, which makes lming in Canada, compared to the United States, far less attractive than it
has been.
In 2008 and 2009 the Canadian lm industry decreased by 4.3 percent for a total volume of $5 billion in
total volume of production. The arts and entertainment industry makes up 1.07 percent of GDP, employing
over 776 000 Canadians. Nearly one quarter of all Hollywood lms are now shot in Canada, with many
Canadians showing front stage in this lucrative industryJames Cameron, Ivan Reitman, and Norman
Jewison, with the latter having founded the Canadian Film Centre. Canadians also make movies outside the
Hollywood system including such renowned directors as Rock Demers, Deepa Mehta, David Cronenberg,
Denys Arcand, and Atom Egoyan.
Provincial and federal lm tax credits do their share of the work in keeping the business of lming in
Canada. Over the years, governments in Canada have come to power on pledges to protect and to bolster
the Canadian lm and cultural industries. In the early 1990s, the Liberals now famous Liberal Handbook,
and their accompanying pledge to strengthen and protect the Canadian cultural industries against incursions
by the American cultural juggernautclaimed by some to be all talk and no actionwere well-known
trademarks of Liberal party cultural heritage policy. Sheila Copps, the former Minister of Canadian Heritage,
became associated with shining the beacon on Canadian culture, even if some pro-Canada culture interests,
such as the CBC, seemed to weaken during her time in power.
The Canadian governments intervention or intention to intervene in the business of Canadian culture
has met with culture shock in American media circles, where culture is not viewed as a national heritage,
but as a prot-making industry. Labour unrest in the Hollywood lm industry has frequently been a byproduct of the actors union, up in arms about lost jobs to cheaper and perhaps, friendlier climes, particularly
in the Great White North. Ed Asner, as head of the Screen Actors Guild and union activist, has spoken out
over the decades about the outow of Hollywood movie productions to Canada.
One who joined this chorus was Arnold Schwarzenegger, then-Governor of California, who threatened
the Hollywood movie industry with punitive measures for those companies filming in Canada and
elsewhere. It is clear that government intervention or lack thereof can play a determining role in the
future of this lucrative Canadian industry. To those American studios filming in Canada, there are many
attractive features built into the equation. However, one of the major factors is the currency question.
The Canadian dollar has been rising relative to the U.S. dollar for many years now, and became on par in
December 2010. This movement has gradually made filming in Canada far more expensive than it used to
be. Canadian concerns about a higher dollar intermittently send shivers through the Canadian film
industry as the thoughts of losing productions due to a more expensive Canadian dollar subconsciously
resonate.
The fact that the Canadian lm industry and the government have been able to make huge gains in spite
of the American cultural giants over the past century lends a degree of expectation about the continuation
of highly successful Canadian cultural industries. However, no industry is immune to competitive threats.
A continued strong Canadian dollar and a weak U.S. dollar may be enough to reverse the trend of the past
several decades.
Sources: Statistics Canada, Gross domestic product at basic prices, by industry, http://www40.statcan.gc.ca/l01/cst01/econ41-eng.htm;
Statistics Canada, Distribution of employed people, by industry, by province, http://www40.statcan.gc.ca/l01/cst01/labor21a-eng.htm;
L. McNulty, Canadas lm industry is A-list celebrity hot, July 9, 2010, http://mediacentre.canada.travel/content/travel_story_ideas/
lm_in_canada_2010; Canadian Media Production Association, Statistical Indicators of Film and Television Production in Canada, http://
www.cftpa.ca/newsroom/fact_sheet/, accessed December 12, 2010.
434
Management Focus
Management Focus boxes illustrate the
relevance of chapter concepts for the
practice of international business.
350
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R E S E A R C H TA S K |
GlobalEDGE/CIBER Research Task
globaledge.msu.edu
Use the globalEDGE site to complete the following exercises:

1. The Internet is rich with resources that provide guidance
for companies that wish to expand their markets through
exporting. GlobalEDGE provides links to these tutorial
Web sites. Identify ve of these sources and provide a
description of the services available for new exporters
through each of these sources.
Using the text and the GlobalEDGE Web site,

http://globaledge.msu.edu, students solve realistic
international business problems related to each
chapter. These exercises expose students to the
types of tools and data sources international managers use to make informed business decisions.
2. Utilize the globalEDGE Glossary of International Business

Terms to identify the denitions of the following exporting
terms: air waybill, certicate of inspection, certicate of
product origin, wharfage charge, and export broker.
Visit the Global Business Today Online Learning Centre at

www.mcgrawhill.ca/olc/hill to access quizzes, interactive exercises, a Business Around the
World interactive map, and other learning and study tools related to this chapter.
Critical Thinking and

Discussion Questions
CRITICAL THINKING AND DISCUSSION QUESTIONS

1. The interest rate on one-year Canadian government
securities is 6 percent and expected inflation rate for the
coming year is 2 percent. The U.S. one-year government
security instrument interest rate is 4 percent with
expected inflation for this coming year of 1 percent. The
exchange rate for the US$/Cdn$ as of mid-June 2008 is
US$1 5 Cdn$1.02296 (US$100 5 Cdn$102.27). What is the
spot exchange rate a year from now? What is the forward
exchange rate a year from now? Explain the logic of your
answers.
These questions are suited for in-class

discussion or personal reflection.
may still be preferable to enter via a greeneld venture. Things such as skills and
organizational culture, which are based on signicant knowledge that is difcult
to articulate and codify, are much easier to embed in a new venture than they
are in an acquired entity, where the rm may have to overcome the established
routines and culture of the acquired rm. Thus, as our earlier examples suggest,
rms such as McDonalds and McCain prefer to enter foreign markets by establishing
greeneld ventures.
Large but
manageable
Companies had executives

who were extremely fond of
the Chinese culture. Hire local
Chinese to bridge the gap.
Foreign exchange
Extremely
important
Help the Chinese apply for Export

Development Corporation
funding.
Quality of local
employees
Very important
High-quality local employees are

available. Higher pay to attract
quality people.
Training needs for the

Chinese
Extremely
important
Written into the employment

contract for the Chinese employees
to get training in Canada. Very
good motivational tool.
High cost of doing

business in China
The cost is
reasonable
Hiring as many local Chinese as

possible to lower the cost.
Expatriates
Not critical
None of the operations required

full-time expatriate to be
stationed in China.
Each company had an individual
who spent about six months out
of a year in China.
Culture difference
Finding connections
to help navigate
the system
Very important
Connections and local employees

help to do it.
c. Given your answers to parts a and b, if the current interest

rate in the United States is 10percent, what would you
expect the current interest rate to be in Canada?
At the end of every chapter, this section

spotlights the managerial implications of
the chapter material.
TABLE 12.2
Common Problems and
Solutions Regardless of
Entry Mode
Source: Department of Foreign
Affairs and International Trade
Canada, 2004. Reproduced
with the permission of Her
Majesty the Queen in Right of
Canada, represented by the
Minister of Public Works and
Government Services Canada,
2005.
Key Terms and Summary

421
These resources help students review

key concepts.
CHAP TER 12 Entering Foreign Markets
HOW DID THE COMPANY DEAL WITH IT?
b. Suppose the price of beef is expected to rise to $3.50

per kilogram in the United States and to $4.75 per
kilogram in Canada. What should the one-year forward
US$/Cdn$ exchange rate be?
I M P L I C AT I O N S F O R B U S I N E S S
EVALUATION
a. According to the PPP theory, what should the spot

exchange rate be?
Implications for Business
Several means of entering foreign markets have been detailed in this chapter. For example, in
some instances if a Canadian rm were considering overseas expansion, and depending on how
aggressively it wanted the business, a host country could stipulate that the Canadian rm
relinquish majority ownership in favour of host country majority ownership (equity joint venture).
Socialist countries or developing nations have been known to require this type of market entry
strategy to ensure that they derive benet from foreign corporations. In other words, more prots
can be retained within the host countrys borders. Table 12.2, although representative of common
problems and potential solutions to market entry modes in any and all countries, refers to China in
this instance.
Certain businesses have found that equity joint ventures can be helpful in enhancing business
goals after entering China, while others nd that export and contractual joint ventures are more
exible. Export and contractual joint ventures can be useful to those companies with made in
Canada technology, products, or manufacturing processes. Export and contractual joint ventures
allow for low risk, minimal upfront cash outlay from the exporter, and a quick exit from the local
market should business or political conditions change.
AREAS OF MAIN
CONCERN
2. Two countries, Canada and the United States, produce

just one good: beef. Suppose the price of beef in the
United States is $3 per kilogram and in Canada it is $4 per

kilogram.
KEY TERMS
caste system, p. 98
individualism versus
collectivism, p. 113
power distance, p. 113
class consciousness, p. 100

class system, p. 99
karoshi, p. 98
social mobility, p. 98
Confucian dynamism, p. 115
long-term vs. short-term

orientation, p. 114
social strata, p. 98
ethical systems, p. 100

ethnocentric behaviour, p. 118
folkways, p. 92
group, p. 95
masculinity versus femininity, p. 113

mores, p. 93
norms, p. 92
religion, p. 100
society, p. 92
uncertainty avoidance, p. 113
values, p. 92
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L A K S H M I M I T TA L A N D T H E G R O W T H
O F M I T TA L S T E E L
In 2007 ArcelorMittal was created in a controversial
merger between Mittal Steel and Arcelor. The merger
was the brainchild of Mittal CEO Lakshmi Mittal and his
son, Aditya. Under Lakshmis leadership, the family-owned
Mittal Steel had grown from obscure origins in India to
become the largest steel company in the world. The story
dates to the early 1970s. At that time, the company was
facing limited growth opportunities in India. Regulations
constrained expansion opportunities, and Mittal competed
with both a state-owned rival, SAIL, and a private national
champion, Tata Steel. So Lakshmis father financed the
start-up of a steelmaking plant in Indonesia in 1975.
To reduce costs in his Indonesian plant, Mittal did not
smelt iron ore, but instead purchased direct reduced
iron pellets. The supplier was a struggling state-owned
steel firm in Trinidad. Impressed by Mittals success in
Indonesia, the Trinidadians asked him to turn their firm
around under a contract. Mittal set up another company
to run the Trinidad plant. In 1989, after a successful
turnaround, Mittal purchased the Trinidadian plant.
Now the company that had been born in India had two
major foreign operations, but it was just the beginning. The
global steel industry had been in a slump for 25 years due
to excess capacity and slow demand growth as substitute
materials replaced steel in a number of applications, but
Mittal saw opportunity in purchasing the assets of
distressed companies on the cheap. He believed that the
global steel industry was about to turn a corner, driven
in large part not only by sustained economic growth in
developed nations, but also by growing demand in newly
industrializing nations including China and his own native
India. He saw all sorts of opportunities for buying poorly
run companies as they came up for sale, injecting them
with capital, improving their efciency by getting them to
adopt modern production technology, and taking advantage
of the coming boom in steel demand. He also saw the
opportunity to use the purchasing power of a global steel
company to drive down the price it would have to pay for
raw-material inputs.
In 1992 Mittal made his next move, buying Sibalsa of
Mexico, a state-owned steel company that was being
privatized. This was followed in 1994 by the purchase of the
fourth largest Canadian steelmaker from the government of
Quebec. Then in 1995 Mittal Steel purchased a midsized
German steelmaker and Kazakhstans largest steelmaker,
which was at the time in something of a shambles as the
country transitioned from a socialist system to a more
market-based economy. By this time, Mittal was hungry for

more international growth, but his company was capitalconstrained. So he decided to take it public, but not in his
native India or Indonesia, where the liquidity of the capital
markets was limited. Instead, in 1997 he moved the
companys headquarters to Rotterdam, and then offered
stock in Mittal Steel for sale to the public through both
the Amsterdam and New York stock exchanges, raising
$776million in the process.
With capital from the initial public offering (IPO), Mittal
purchased two more German steelmakers in 1997. This
was followed in 1998 by the acquisition of Inland Steel
Company, a U.S. steelmaker. Over the next few years, more
acquisitions followed in France, Algeria, and Poland among
other nations. In 2005, Mittal Steel purchased International
Steel, a company formed from the integration of troubled
U.S. steelmakers that had been in bankruptcy. By this time
Mittals prediction had come true; global demand for steel
was booming again for the rst time in a generation, driven
in large part by demand in China, and steel prices were
hitting record highs. Mittal Steel was now the worlds
largest steelmaker. This set the scene for Mittal Steels
$32 billion hostile acquisition of Arcelor, a European rm
formed from the merger of steelmakers from Luxembourg,
France, and Spain. The acquisition was bitterly contested,
with the management of Arcelor and many European
politicians opposing the acquisition of a European company
by an Indian enterprise (although Mittal Steel was legally a
Dutch company). Arcelors shareholders, however, saw
value in the deal and ultimately approved it in late 2006.
Today it is the worlds largest steel company, and ranks
99th on the 2010 Fortune Global 500 list. (ArcelorMittal
Mines Canada, formed in 2008, is one of Canadas leading
suppliers of iron ore to steel markets around the world.)
Sources: Mittalic Magic, The Economist, February 16, 2008, p. 80; K. Gopalan,
Steel Czar, Business Today, January 13, 2008, pp. 10206; S. Daneskhu, FDI
into Richest Countrys Set to Rise 20% This Year, Financial Times, June 22,
2007, p. 7; and historical information archived at ArcelorMittal Web site,
www.arcelormittal.com/, accessed March 17, 2008.
Closing Case
The closing case wraps up the material in the
chapter by relating the experience of a company to the practice of international business.
CHAP TER 7 Foreign Direct Investment
CLOSING CASE
CASE DISCUSSION QUESTIONS

1. ArcelorMittal has grown in the past by making multiple foreign direct
investments. Are there other ways for the company to grow in the future?
2. Can a company ever become too big to be effective? Could this happen to
ArcelorMittal?
3. Hamilton, Ontario, had been home to Dofasco Steel since 1912. In 2006,
Dofasco was bought by Arcelor. Does the foreign ownership of such a major
industry make a difference to Hamilton, or to Canada?
259
www.mcgrawhill.ca /olc/hill
Sustainability in Practice
Located at the end of each part, these
vignettes illustrate how businesses are
engaging in the solutions to sustainable
development challenges.
S U S TA I N A B I L I T Y I N P R A C T I C E
I N T E R F A C E : A N E N V I R O N M E N TA L LY S U S TA I N A B L E
C O M M I T M E N T T O B U S I N E S S A N D M AT E R I A L M A N A G E M E N T
The following case study describes a companys efforts
to be both profitable and environmentally sustainable.
Interface, Inc. is the worlds largest manufacturer
of carpet tiles and upholstery fabrics for commercial
interiors. But Interfaces core vision is not about carpet
or fabrics per se; it is about becoming a leading example
of a sustainable and restorative enterprise by 2020,
measured across five dimensions: people, place (the
planet), product, process, and profits. That is a
substantial challenge for a company that in 2000 had 27
factories, sales offices in 110 countries, annual sales of
$1.3 billion, over 7000 employees, and a supply chain
heavily dependent on petrochemicals.
Founder and Chairman Ray Anderson presented this
challenge to the organization in 1994. After 21 years of
unwittingly plundering the earth, I read Paul Hawkens
book The Ecology of Commerce (Harper 1993). . . . It
convicted me on the spot, not only as a plunderer of
Earth, but also as part of an industrial system that is
destroying Earths biosphere, the source and nurturer of
all life. . . . I was struck to the core by Hawkens central
point, that only business and industry, the major culprit,
is also large enough, powerful enough, pervasive enough,
wealthy enough, to lead humankind away from the abyss
toward which we are plunging. It was an epiphanal
experience for me, a spear in the chest. . . . I myself
became a recovering plunderer. At Interface we call this
new direction, climbing Mount Sustainability, the point at
its peak symbolically representing zero environmental
footprintour definition of sustainability for ourselves,
to reach a state in which our petro-intensive company
(energy and materials) takes nothing from the earth that
is not naturally and rapidly renewable, and does no harm
to the biosphere: zero footprint.
As a result, Interface has undergone considerable
transformation in its effort to reorient the entire
organization. Some positive results were achieved in
the beginning. Through its waste elimination drive, the
company has saved $165 million over five years, paying
for all of its sustainability work and delivering 27 percent
of the groups operating income over the period. Over
and above that, since 1994, Interface, Inc. has reduced
its carbon intensityits total supply chain virgin
petrochemical material and energy use in raw pounds
per dollar of revenueby some 31 percent. However,
Interface recognized that sustainability means far more
than that.
The company developed a shift in strategic orientation
based on a seven-step sustainability framework, using
the systems thinking of The Natural Step (www.
naturalstep.org/). These steps include eliminating waste
(not just physical waste, but the whole concept of

waste); eliminating harmful emissions; using only
renewable energy; adopting closed loop processes;
using resource-efficient transportation; energizing
people (all stakeholders) around the vision; and
redesigning commerce so that a service is sold that
allows the company to retain ownership of its products
and to maximize resource productivity.
Throughout Interface, all employees were trained in
the principles of systems thinking. They were required
to examine the impact of their work and how they
could work more sustainably in their business area.
Training was necessary, according to Anderson, because
traditional education continues to teach economics
students to trust the invisible hand of the market, when
the invisible hand is clearly blind to the externalities. . . .
The truth is, we have an essentially illiterate populace
when it comes to the environment. The feedback on
this training has been very positive and a great deal
of progress has been made as a result. However, there
were three areas where Interface could have improved
the process.
The first is always establishing a positive environment
for inspired employees, fresh from their training courses,
to return to. The company found that employees became
passionate as their understanding of sustainability grew,
and they needed an outlet for action. Although there
were many areas of good supportive management
across the business, there were also too many areas
where local managers were not prepared well enough
to facilitate motivated employees wanting to make a
difference. Issues of management and leadership explain
why some of the expected progress did not happen in
certain areas.
Second, people engage in different ways with
sustainability issues, and learning programs need to
provide the space to explore these differences. Programs
need to be flexible enough to go into detail on a hot issue
such as climate change, while the next question may
well be about equity of resource use. To keep people
motivated, programs need to maintain this flexibility.
Third, follow-up was not quick enough; it takes much
more than two days for people to really understand
sustainability. Sustainability issues need to be revisited
again and again, as employees begin to understand how
it impacts their daily lives. It is a big commitment to
revisit these issues on an ongoing basis, but the company
recognized that it was vital for employees to continually
buy in.
Interface has also learned the importance of making
sustainability a whole company approach. Those who
531
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Global Business Today

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For June and Mike Hill, my parents.

ABOUT THE AUTHORS

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Charles W. L. Hill is the Hughes M. Blake Professor of International Business at the

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Country Differences in Political Economy

The Cultural Environment

Ethics in International Business

PART THREE Cross-Border Trade and Investment

International Trade Theories

The Political Economy of International Trade

Foreign Direct Investment

Regional Economic Integration

Global Money System

The Foreign Exchange Market

The Global Monetary System

Competing in a Global Marketplace

Entering Foreign Markets

Exporting, Importing, and Countertrade

CHAPTER FOURTEEN Global Marketing and R&D

Global Production, Outsourcing, and Logistics

Global Human Resource Management

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Critical Thinking and Discussion

Closing Case: Tim HortonsA Canadian

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Closing Case: Chavezs Venezuela 86

Closing Case: Etch-A-Sketch Ethics 158

Closing Case: Walmarts Foreign Expansion 124

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Implications for Business 187

Closing Case: The Rise of the Indian Software

Closing Case: When Do Government Tax Incentives

The Form of FDI: Acquisitions versus Green-Field

Closing Case: Lakshmi Mittal and the Growth

Central American Common Market and

Closing Case: Deutsche Banks Pan-European Retail

PART FOUR Global Money System 298

Closing Case: The Ultimate Store of Wealth 327

Closing Case: Chinas Managed Float 362

Competing in a Global Marketplace 366

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Pressures for Cost Reductions and Local

Closing Case: IKEAThe Global Retailer 398

Closing Case: Canadian Banks in the U.S.A. 424

Closing Case: CAE Takes on the World

Closing Case: Levi Strauss Goes Local 480

Closing Case: Foreign Direct Investment at the Source

Training and Management Development 517

Closing Case: How Coca-Cola Retains

END NOTES 539

NAME/COMPANY INDEX 558

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SUBJECT INDEX 562

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THE GLOBAL BUSINESS TODAY

INTEGRATED COVERAGE OF THE CANADIAN