Global Business Today 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 a new standard for international business textbooks: I have attempted to write a book that (1) is comprehensive and up-todate, (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 tend to ignore such important newer work as:

• 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.
• Recent 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 Douglass 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.

The failure of many books to discuss such work is a serious deficiency considering how influential these theories have become, not just in academic circles, but also in the world at large. A major proponent of strategic trade policy, Laura Tyson served for a time as chairperson of President Clinton’s Council of Economic Advisors. Robert Reich served as secretary of Labor in the Clinton administration. Ronald Coase won the 1992 Nobel Prize in economics, giving the market imperfections approach new respectability. Two years later, Douglass North won the Nobel Prize in economics for his work showing how a nation’s economic history influences its contemporary institutions and property rights regime. More recently still, Amartya Sen won the Nobel Prize for his work on economic development. The work of Bartlett, Ghoshal, Hamel, and Prahalad is having an important impact on business practices.

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 5, "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 6, "The Political Economy of International Trade," the pros and cons of strategic trade policy are discussed. In Chapter 7, "Foreign Direct Investment," the market imperfections approach is reviewed. Chapter 11, which deals with the strategy of international business, draws 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. The Uruguay Round of GATT negotiations was successfully concluded and the World Trade Organization was established. 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 2001, more than $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 Barings 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 at a rapid rate. New multinationals continued to emerge from developing nations in addition to the world’s established industrial powers. And increasingly, the globalization of the world economy affected a wide range of firms of all sizes, from the very large to the very small.

Reflecting this rapid pace of change, in this edition I have tried to ensure that all material and statistics are as up-to-date as possible as of 2004. 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/hillgbt4e. 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.

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, 3, and 4 focus 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 5 through 8 investigate 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 and 10 describe and explain the global monetary system, laying out in detail the monetary framework in which international business transactions are conducted.

Part Five
In Chapters 11 through 16, attention shifts 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. These chapters explain how firms can perform their key functions—manufacturing, marketing, R&D, and human resource management—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 soon will 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 5, "International Trade Theory," ends with a detailed discussion of the various trade theories’ implications for international business management.

In addition, each chapter begins with an opening 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 the challenges faced by people in sub-Saharan Africa because of lack of economic development due in large part to corrupt government and bad economic politics.

I have also retained the closing cases 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 changing political economy in India. This case helps to illustrate the impact of foreign direct investment on the economic growth of the country.

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 piracy in the video game industry threatens the growth of the entire industry.

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 3, for example, one Country Focus box discusses how large banking institutions are offering Islamic financial services for their customers in Pakistan.

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.

WHAT’S NEW IN THIS EDITION

The success of the first three editions of Global Business Today 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 this revision have been threefold:

1. Incorporate new insights from recent scholarly research wherever appropriate.
2. Make sure the content of the text covers all appropriate issues.
3. 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. In addition, I am introducing four significant changes to this edition.

Chapter 4, "Ethics in International Business," was added due to an outcry for more expansive coverage of the important role that ethics plays. Ethical dilemmas arise frequently in international business because of the many cultural differences among countries. This chapter discusses the challenges companies face when forced to deal with human rights issues, environmental pollution, and corruption. There are also sections dealing with social responsibility and the sources of unethical behavior. The Management Focus addresses the risky nature of testing pharmaceuticals in developing nations. There is also a discussion about the unethical behavior of the leaders of large corporations, such as the frequently publicized Enron scandal. Throughout the chapter, current examples are interwoven with ethical theories to demonstrate the complex challenges that companies face.

"Another Cultural Perspective" boxes have been added to enhance the already popular "Another Perspective" boxes to further expand upon how culture is deeply embedded in the way companies operate internationally. For an example, see the Another Cultural Perspective box in Chapter 4, which highlights the importance of expatriate managers adhering to the cultural norms of the countries in which they work.

In every part, we have added a new feature called "Sustainability in Practice," compiled by Debra Rowe, professor of Environmental Systems and Behavioral Sciences at Oakland Community College. Dr. Rowe is also the Senior Fellow of University Leaders for a Sustainable Future. By offering this new feature on business and sustainable development, global business educators have a unique opportunity to help students understand how businesses are engaging in the solutions to sustainable development challenges. Sustainable development is about the triple bottom line—simultaneously fostering healthy economies, vibrant communities, and viable ecosystems. It requires using the best available knowledge and critical thinking about complex systems and how they can be maintained, even enhanced, over time. See Part 5 for a vignette
about a carpet and textile company that changed its entire business philosophy in order to function in a more socially responsible manner.

This edition welcomes the addition of new GlobalEdge™ Research Tasks. By using the text and the GlobalEdge Website, 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.

Chapter 1: Globalization. All the statistics pertaining to globalization (such as the growth of world trade, output, and foreign direct investment) have been updated to incorporate the most recently available data. The chapter has been revised to include new material on the growing wave of protests against globalization, which began at the World Trade Organization meeting in Seattle in December 1999 and have continued at a steady pace since. The section dealing with the debate between scholars on the merits and drawbacks of globalization has been expanded. This debate is concerned with the impact of globalization on job security, income levels, labor policies, economic growth, the environment, and national sovereignty.

Chapter 2: National Differences in Political Economy. Thesection on economic development has been expanded to include a review of the work of Amartya Sen, who recently won the Nobel Prize in economics. 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 discussion of differences in legal systems has been rewritten to give greater emphasis to the negative impact of corruption in a country on its economic development. There is also an expanded discussion dealing with the protection of intellectual property rights, which takes into account some recent developments, such as the decision by some governments to allow the sale of cheap generic versions of patented medicines—including a powerful new drug for treating AIDS—without permission from the patent owner.

Chapter 3: Differences in Culture. The Implications for Business section of this chapter has been expanded to incorporate a more detailed discussion of the implications of difference in culture for business ethics. Although many ethical principles are universal, some are culturally bounded. When this is the case, international businesses may be confronted with some difficult ethical dilemmas.

Chapter 5: International Trade Theory. Over the past few years, a number of empirical studies have been published that look at the relationship between a country’s "openness" to international trade and its economic growth. This work is now discussed in this chapter. The work gives empirical support to the theory of comparative advantage.

Chapter 6: The Political Economy of International Trade. The chapter has been significantly updated to reflect the recent activities of the World Trade Organization (WTO). This includes an assessment of the record of the WTO in resolving trade disputes between nations. There is also a review of recent multinational agreements, brokered by the WTO, to liberalize cross-border trade and investment in financial services and telecommunications. There is a discussion of the decision to allow China to enter the WTO. Finally, the revised chapter contains a discussion of the future of the WTO in the aftermath of the Seattle protests against globalization.

Chapter 7: Foreign Direct Investment. The chapter has been updated to include all recent statistics of trends in foreign direct investment. Recent data emphasize the important fact that the majority of cross-border investments in recent years have taken the form of mergers and acquisitions, rather than greenfield investments. The reasons for this empirical phenomenon are now discussed in the chapter.

Chapter 8: Regional Economic Integration. In January 1999, 11 member states of the European Union officially adopted a common currency unit, the euro. This chapter has been revised to include an expanded discussion of the merits and drawbacks of the euro, and a review and assessment of the early history of the euro. The chapter also includes a new discussion of the competition policy of the European Commission. This has become increasingly important to international businesses in recent years. For example, in 2001 the European Commission ruled against a proposed merger between two U.S. companies, General Electric and Honeywell, on the grounds that it would reduce competition in the European Union.

Chapter 11: The Strategy of International Business. An emerging theme in the strategy literature has been the extent to which multinational companies can leverage the skills and competencies of their foreign subsidiaries, using them to benefit the entire corporation. A new section has been added to Chapter 10 to discuss this important benefit of international expansion.

Chapter 12: Entering Foreign Markets. A new section in this chapter looks at the choice between acquisitions and greenfield ventures as alternative strategies for entering foreign markets and establishing a wholly owned subsidiary. The pros and cons associated with each alternative are now discussed in depth in the chapter.

Chapter 15: Global Marketing and R&D. Web-based information systems now play a crucial role in materials management in the international business. By tracking component parts as they make their way across the globe toward an assembly plant, Web-based information systems enable a firm to optimize its production scheduling according to when components are expected to arrive. A new section has been added to this chapter to discuss this trend.