International Business: Competing in the Global Marketplace, 5/e
Charles W. L. Hill,
University of Washington
ISBN: 0072873957 Copyright year: 2005
Preface
International Business: Competing in the Global Marketplace is intended for the first international business course at either the undergraduate or the MBA level. My goal in writing this book has been to set the standard for international business textbooks: I have attempted to write a book that (1) is comprehensive and up-to-date, (2) goes beyond an uncritical presentation and shallow explanation of the body of knowledge, (3) maintains a tight, integrated flow between chapters, (4) focuses on managerial implications, and (5) makes important theories accessible and interesting to students.
Comprehensive and Up-to-Date
To be comprehensive, an international business textbook must:
Explain how and why the world's countries differ.
Present a thorough review of the economics and politics of international trade and investment.
Explain the functions and form of the global monetary system.
Examine the strategies and structures of international businesses.
Assess the special roles of an international business's various functions.
This textbook does all these things. Too many other textbooks pay scant attention to the strategies and structures of international businesses and to the implications of international business for firms' various functions. This omission is a serious deficiency because the students in these international business courses will soon be international managers, and they will be expected to understand the implications of international business for their organization's strategy, structure, and functions. This book pays close attention to these issues.
Comprehensiveness and relevance also require coverage of the major theories. Although many international business textbooks do a reasonable job of reviewing long-established theories (e.g., the theory of comparative advantage and Vernon's product life-cycle theory) they often tend to ignore important newer work. It has always been my goal to incorporate the insights gleaned from recent academic work into the text. Consistent with this goal, over the years I have added insights from the following research:
The new trade theory and strategic trade policy.
The work of Nobel Prize-winning economist Amartya Sen on economic development.
Samuel Huntington's influential thesis on the "clash of civilizations."
The new growth theory of economic development championed by Paul Romer and Gene Grossman.
Empirical work by Jeffrey Sachs and others on the relationship between international trade and economic growth.
Michael Porter's theory of the competitive advantage of nations.
Robert Reich's work on national competitive advantage.
The work of Nobel Prize winner 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 Williamson's work on transaction cost economics.
Bartlett and Ghoshal's research on the transnational corporation.
The writings of C. K. Prahalad and Gary Hamel on core competencies, global competition, and global strategic alliances.
I have incorporated all relevant state-of-the-art work at the appropriate points in this book. For example, in Chapter 2, "National Differences in Political Economy," reference is made to the new growth theory, to the work of North and others on national institutional structures and property rights, and to the work of Sen. In Chapter 4, "International Trade Theory," in addition to such standard theories as the theory of comparative advantage and the Heckscher-Ohlin theory, there is detailed discussion of the new trade theory and Porter's theory of national competitive advantage. The empirical work on the relationship between trade and economic growth is also examined in this chapter. In Chapter 5, "The Political Economy of International Trade," the pros and cons of strategic trade policy are discussed. In Chapter 6, "Foreign Direct Investment," the market imperfections approach is reviewed. Chapters 12, 13, and 14, which deal with the strategy and structure of international business, draw extensively on the work of Bartlett, Ghoshal, Hamel, and Prahalad.
In addition to including leading-edge theory, in light of the fast-changing nature of the international business environment, every effort is being made to ensure that the book is as up-to-date as possible when it goes to press. A significant amount has happened in the world since the first edition of this book was published in 1993. The Uruguay Round of GATT negotiations was successfully concluded, and the World Trade Organization was established. In 2001, the WTO embarked upon another major round of talks aimed to reduce barriers to trade, the Doha round. The European Union moved forward with its post-1992 agenda to achieve a closer economic and monetary union, including the establishment of a common currency in January 1999. The North American Free Trade Agreement passed into law, and Chile indicated its desire to become the next member of the free trade area. The Asia Pacific Economic Cooperation forum (APEC) emerged as the kernel of a possible future Asia Pacific free trade area. The former Communist states of Eastern Europe and Asia continued on the road to economic and political reform. As they did, the euphoric mood that followed the collapse of communism in 1989 was slowly replaced with a growing sense of realism about the hard path ahead for many of these countries. The global money market continued its meteoric growth. By 2002, over $1.5 trillion per day was flowing across national borders. The size of such flows fueled concern about the ability of short-term speculative shifts in global capital markets to destabilize the world economy. These fears were fanned by the well-publicized financial problems of a number of organizations that traded derivatives through the global money market, such as Baring's Bank. The World Wide Web emerged from nowhere to become the backbone of an emerging global network for electronic commerce. The world continued to become more global. Several Asian Pacific economies, including most notably China, continued to grow their economies at a rapid rate. New multinationals continued to emerge from developing nations in addition to the world's established industrial powers. Increasingly, the globalization of the world economy affected a wide range of firms of all sizes, from the very large to the very small. And, unfortunately, in the wake of the September 11, 2001, terrorist attacks on the United States, global terrorism and the attendant geopolitical risks emerged as a threat to global economic integration and activity.
Reflecting this rapid pace of change, in this edition of the book I have tried to ensure that all material and statistics are as up-to-date as possible as of 2003. However, being absolutely up-to-date is impossible since change is always with us. What is current today may be outdated tomorrow. Accordingly, I have established a home page for this book on the World Wide Web at www.mhhe.com/hill. From this home page, the reader can access regular updates of chapter material and reports on topical developments that are relevant to students of international business. I hope readers find this a useful addition to the support material for this book.
What's New in the Fifth Edition
The success of the first four editions of International Business was based in part upon the incorporation of leading-edge research into the text, the use of the up-to-date examples and statistics to illustrate global trends and enterprise strategy, and the discussion of current events within the context of the appropriate theory. Building on these strengths, my goals for the fifth revision have been threefold:
Incorporate new insights from recent scholarly research wherever appropriate.
Make sure the content of the text covers all appropriate issues.
Make sure the text is as up-to-date as possible with regard to current events, statistics, and examples.
As part of the revision process, changes have been made to every chapter in the book. All statistics have been updated to incorporate the most recently available data. New examples, several cases, and boxes have been added and older examples updated to reflect new developments. New material has been inserted wherever appropriate to reflect recent academic work or important current events. For example, Chapter 2 now contains a section on "The New World Order and Global Terrorism," which discusses the nature of global terrorism and its implication for international business in the wake of the September 11, 2001, attacks on the United States. Chapter 5 has been updated to discuss the new round of talks sponsored by the WTO that are aimed at reducing barriers to trade, particularly in agriculture (the Doha round). Chapter 6 now discusses the slump in foreign direct investment flows that took place in 2001 and 2002. The section on the European Union in Chapter 8 has been revised to reflect the plans to admit 10 more member states into the EU on May 1, 2004. In Chapter 12, there have been additions to the section discussing how multinationals can gain a competitive advantage by leveraging skills between subsidiaries. This addition reflects the substantial academic research addressing this issue that has been published in recent years.
Beyond Uncritical Presentation and Shallow Explanation
Many issues in international business are complex and thus necessitate considerations of pros and cons. To demonstrate this to students, I 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, I 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 are typically explained in more depth in this book than they are in competing textbooks, the rationale being that a shallow explanation is little better than no explanation. In international business, a little knowledge is indeed a dangerous thing.
Integrated Progression of Topics
Many textbooks lack a tight, integrated flow of topics from chapter to chapter. In this book students are told in Chapter 1 how the book's topics are related to each other. Integration has been achieved by organizing the material so that each chapter builds on the material of the previous ones in a logical fashion.
Part One, Chapter 1, provides an overview of the key issues to be addressed and explains the plan of the book.
Part Two, Chapters 2 and 3, focuses on national differences in political economy and culture. Most international business textbooks place this material later, but I 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 fully understand these issues, students must first appreciate the differences in countries and cultures.
Part Three, Chapters 4 through 8, investigates the political economy of international trade and investment. The purpose of this part is to describe and explain the trade and investment environment in which international business occurs.
Part Four, Chapters 9 through 11, describes and explains the global monetary system, laying out in detail the monetary framework in which international business transactions are conducted.
Part Five, Chapters 12 through 14, shifts attention from the environment to the firm. Here the book examines the strategies and structures that firms adopt to compete effectively in the international business environment.
Part Six, Chapters 15 through 20, narrows the focus further to investigate business operations. These chapters explain how firms can perform their key functions-manufacturing, marketing, R&D, human resource management, accounting, and finance-in order to compete and succeed in the international business environment.
Throughout the book, the relationship of new material to topics discussed in earlier chapters is pointed out to the students to reinforce their understanding of how the material comprises an integrated whole.
Focus On Managerial Implications
Many international business textbooks fail to discuss the implications of the various topics for the actual practice of international business. This does not serve the needs of business school students who will soon be practicing managers. Accordingly, the usefulness of this book's material in the practice of international business is discussed explicitly. In particular, at the end of each chapter in Parts Two, Three, and Four-where the focus is on the environment of international business, as opposed to particular firms-there is a section titled Focus On Managerial Implications. In this section, the managerial implications of the material discussed in the chapter are clearly explained. For example, Chapter 4, "International Trade Theory," ends with a detailed discussion of the various trade theories' implications for international business management.
In addition, each chapter begins with a case that illustrates the relevance of chapter material for the practice of international business. Chapter 2, "National Differences in Political Economy," for example, opens with a case that describes how changes in the political and economic institutions of India are making it a more attractive location for international businesses to operate.
I have also added a closing case to each chapter. These cases are also designed to illustrate the relevance of chapter material for the practice of international business. The closing case to Chapter 2, for example, looks at the battle against piracy in the global market for video games. This case helps to illustrate the important role that national differences in the protection of intellectual property rights can play in international business.
Another tool that I have used to focus on managerial implications are Management Focus boxes. There is at least one Management Focus in each chapter. Like the opening case, the purpose of these boxes is to illustrate the relevance of chapter material for the practice of international business. The Management Focus in Chapter 2, for example, looks at how the South African government has adopted laws that allow the sale of cheap generic versions of patented medicines, including powerful new drugs for treating AIDS, without permission from the patent owners, which in this case are large multinational pharmaceutical firms.
New to this edition are GlobalEdge Research Tasks that appear at the end of each chapter. Created by the CIBER Group at Michigan State University headed by Tomas Hult and Tunga Kiyak, these application exercises challenge students to research, collect, and analyze data acting as a manager working for an international firm. From exploring differences in business etiquette to using data sources such as the World Investment Directory to identifying tariff restrictions in different countries, these exercises will expose students to the types of sources and tools international managers use to make informed business decisions.Accessible and Interesting
The international business arena is fascinating and exciting, and I have tried to communicate my enthusiasm for it to the student. Learning is easier and better if the subject matter is communicated in an interesting, informative, and accessible manner. One technique I have used to achieve this is weaving interesting anecdotes into the narrative of the text-stories that illustrate theory. The opening cases and focus boxes are also used to make the theory being discussed in the text both accessible and interesting.
Each chapter has two kinds of focus boxes-a Management Focus box (described above) and a Country Focus box. Country Focus boxes provide background on the political, economic, social, or cultural aspects of countries grappling with an international business issue. In Chapter 2, for example, one Country Focus box discusses the process of privatizing state-owned businesses in Taiwan.
Just how accessible and interesting this book actually is will be revealed by time and student feedback. I am confident, however, that this book is far more accessible to students than its competitors. For those of you who view such a bold claim with skepticism, I urge you to read the sections in Chapter 1 on the globalization of the world economy, the changing nature of international business, and how international business is different.
Acknowledgments
Numerous people deserve to be thanked for their assistance in preparing this book. First, thank you to all the people at McGraw-Hill/Irwin who have worked with me on this project:
John Biernat, Editorial Director
Ryan Blankenship, Sponsoring Editor
Laura Hurst Spell, Managing Development Editor
Lisa Nicks, Marketing Manager
Laura Griffin, Project Manager
Debra R. Sylvester, Production Supervisor
Kami Carter, Designer
Jeremy Cheshareck, Photo Research Coordinator
Second, my thanks go to the reviewers, who provided good feedback that helped shape this book.
Sergio Castello, University of Mobile
Howard Ellis, Millersville University
Diane D. Hathaway, University of Cincinnati
Kanata A. Jackson, Hampton University
H. Lynn Moretz, Central Piedmont Community College
Joseph W. Leonard, Miami University
Behnam Nakhai, Millersville University
Mike W. Peng, The Ohio State University
Kenneth R. Tillery, Middle Tennessee State University
Berry K. Wilson, Pace University
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