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Guided Tour Cases, focus boxes, and exercises throughout the book make theories accessible and interesting and show how theory relates to the practice of international business. Country Differences Part 2 Indonesia—The Stumbling Giant 2 National Differences in Political Economy Introduction Political Systems Collectivism and Individualism Democracy and Totalitarianism Economic Systems Market Economy Command Economy Mixed Economy Legal Systems Different Legal Systems Differences in Contract Law Property Rights The Protection of Intellectual Property Product Safety and Product Liability The Determinants of Economic Development Differences in Economic Development Broader Conceptions of Development: Amartya Sen Political Economy and Economic Progress Geography, Education, and Economic Development States in Transition The Spread of Democracy The New World Order and Global Terrorism The Spread of Market-Based Systems The Nature of Economic Transformation Implications of Changing Political Economy Implications for Managers Benefits Costs Risks Overall Attractiveness Chapter Summary Critical Thinking and Discussion Questions Closing Case: The Poorest Continent Indonesia is a vast country. Its 220 million people are spread out over some 17,000 islands that span an arc 3,200 miles long from Sumatra in the west to Irian Jaya in the east. It is the world’s most populous Muslim nation— some 85 percent of the population count themselves as Muslims—but also one of the most ethnically diverse. More than 500 languages are spoken in the country, and separatists are active in a number of provinces from Aceh in the west to Irian Jaya in the east. For 30 years this sprawling nation was held together by the strong arm of President Suharto. Suharto was a virtual dictator who was backed by the military establishment. Under his rule, the Indonesian economy grew steadily, but there was a cost. Suharto brutally repressed internal dissent, most notably in East Timor where some 250,000 people are estimated to have been killed during a 25-year occupation by the Indonesian army. Suharto was also famous for “crony capitalism,” using his command of the political system to favor the business enterprises of his supporters and family. In the end, Suharto was overtaken by the massive debts that Indonesia had accumulated during the 1990s. In the wake of the 1997 Asian economic crisis, the Indonesian economy went into a tailspin. The International Monetary Fund (IMF) stepped in with a $43 billion rescue package. When it was revealed that much of this money found its way into the personal coffers of Suharto and his cronies, people took to the streets in protest and he was forced to resign. After Suharto, Indonesia moved rapidly toward a vigorous democracy, culminating in October 2004 with the inauguration of Susilo Bambang Yudhoyono, the country’s first directly elected president. The economic front has also seen progress. Public debt as a percentage of GDP has fallen from close to 100 percent in 2000 to less than 60 percent by 2004. Inflation fell from 12 percent annually in 2001 to 6 percent in 2004; real interest rates have reached their lowest level since Indonesia gained independence from the Dutch in 1949 (which should spur investment); and the country’s balance of payments are in surplus due to strong exports of commodities, particularly oil. But the country lags behind its Southeast Asian neighbors. Economic growth has averaged 4 percent since 2000, which while respectable by the standards of developed nations, trails that of China, Malaysia, and Thailand. Unemployment is on the rise and approached 10 percent in 2004, up from 4 percent in 1997. Growth in labor productivity has been nonexistent for a decade. Worse still, foreign capital is fleeing the country. Sony made headlines by shutting down an audio equipment factory in 2003, and a number of apparel enterprises have left Indonesia for China and Vietnam. In total, net flows of foreign direct in- vestment were minus $9 billion between 2000 and 2003 as foreign enterprises left the nation. There are multiple reasons for Indonesian’s mixed economic performance. One is the country’s poor infrastructure. Public infrastructure investment has been declining for years. It was about $3 billion in 2003, down from $16 billion in 1996. The road system is a mess, half of the country’s population has no access to electricity, the number of brownouts is on the rise as the electricity grid ages, and nearly 99 percent of the population lacks access to modern sewerage facilities. The tsunami that ravaged the coast of Sumatra in late 2004 has only made matters worse. Mirroring the decline in public investment has been a slump in private investment. Investment in the country’s all-important oil industry fell from $3.8 billion in 1996 to just $187 million in 2002. Oil production has declined even though oil prices are at record highs. Investment in mining has also fallen from $2.6 billion in 1997 to $177 million in 2003. Declining private investment is due to bureaucratic red tape that makes it difficult to establish a business and undertake productive investments. According to a World Bank study, in Indonesia it takes 151 days on average to complete the paperwork necessary to start a business, compared to 30 days in Malaysia and just 8 days in Singapore. An equally serious problem is the endemically high level of corruption. Transparency International, which studies corruption around the world, ranks Indonesia among the most corrupt, listing it 133rd out of the 144 countries it tracks! Government bureaucrats, whose salaries are very low, inevitably demand bribes from any company that crosses their path—and Indonesia’s penchant for bureaucratic red tape means a long line of officials might require bribes. Abdul Rahman Saleh, the attorney general in Indonesia, has stated that the entire legal system, including the police and the prosecutors, is mired in corruption. The police have been known to throw the executives of foreign enterprises into jail on the flimsiest of pretexts, although some well-placed bribes can secure their release. Even though Indonesia has recently launched an anticorruption drive, critics claim it lacks any teeth. The political elite are reportedly so corrupt that it is not in their interests to do anything meaningful to fix the system. Meanwhile, legitimate business stagnates under the burden of corruption, and foreign enterprises are looking elsewhere to site their factories. Sources: “A Survey of Indonesia, Time to Deliver,” The Economist, December 11, 2005; A Survey of Indonesia: Enemies of Promise, The Economist, December 11, 2004, pp. 4–5; “A Survey of Indonesia, The Importance of Going Straight,” The Economist, December 11, 2004, pp. 6–7; World Bank, World Development Indicators Online, 2005; Transparency International, Global Corruption Report, 2005. Opening Case hil02555_walkthru.indd xxii 11/2/05 11:19:22 AM Cases Closing Case Wipro Ltd.—The New Face of Global Competition Fifteen years ago, Wipro Ltd. of India was a jumbled conglomerate selling everything from cooking oil and personal care products to knockoffs of Dell microcomputers and lightbulbs. Now it is a fast-growing information technology company at the forefront of India’s rapidly expanding technology sector. In the year ending March 2005, Wipro generated more than $1.87 billion in sales, the majority from export contracts in information technology services. Its sales have grown by more than 25 percent a year since 1997, and that growth shows no sign of slowing. The company is very profitable, earning $363 million in net income in the year ending March 2005. Wipro’s move into technology began in 1989 when General Electric entered into a joint venture with Wipro, Wipro GE Medical Systems, to make and sell GE ultrasound scanners under license in India. At the time, Wipro’s technology revenues were tiny, just $15 million. While sales of GE scanners in India did not take off as quickly as expected, GE quickly realized it had found a cheap source of talented engineers and programmers. India has a solid base of technologyfocused universities and colleges that turn out many engineers every year. The vast majority speak English. While software programmers in the United States with two to four years of experience make $64,000 a year, similarly skilled individuals in India can be had for as little as $2 an hour, and programmers at Wipro on average earn $10,000 a year. That might not sound like a lot, but in India, where the annual per capita income is still less than $500, it can translate into a very good living. CLOSING CASE information technology work to Indian companies. As a result, at one point during the mid-1990s Wipro was getting as much as 50 percent of its revenues from General Electric. However, along the way GE taught Wipro a hard lesson. GE was soon contracting out work to other Indian information technology companies, playing them off against each other in its drive for ever lower costs. To hold onto its GE business, Wipro found that it had to improve its own operating efficiency, so Wipro looked at what GE was doing, and copied it. Wipro’s joint venture with GE helped in this regard, since it gave Wipro a window into GE’s relentless push for operating efficiencies. Thus, following GE’s lead, Wipro was one of the first Indian companies to adopt the Six Sigma process for improving operating efficiency made famous by GE. Today, Wipro executives credit much of their success in the international market to the hard lessons it learned about efficiency as a GE vendor. By the late 1990s, GE began to turn its attention from simply buying software from India, to using the country as a base for data entry, processing credit card applications, and other clerical tasks that could be performed over the Internet. About this time, other Western companies such as American Express and British Airways began doing the same thing. GE estimates that it cut operating costs $300 million a year by shifting such work to India. Wipro was a major beneficiary. Today Wipro’s 39,000 technology employees write software, integrate back-office solutions, design semiconductors, debug applications, take orders, and field help calls for some of the biggest companies in the world. Its customers still include General Electric along with Financial Management in the International Business Chapter 20 697 Starbucks Corporation: Competing in a Global Market Starbucks Corporation is a Seattle, Washington-based coffee company. It buys, roasts, and sells whole bean specialty coffees and coffee drinks through an international chain of retail outlets. From its beginnings as a seller of packaged, premium specialty coffees, Starbucks has evolved into a firm known for its coffeehouses, where people can purchase beverages and food items as well as packaged whole bean and ground coffee. Starbucks is credited with changing the way Americans—and people around the world—view and consume coffee, and its success has attracted global attention. Starbucks has consistently been one of the fastest growing companies in the United States. Over a 10-year period starting in 1992, the company’s net revenues increased at a compounded annual growth rate of 20 percent, to $3.3 billion in fiscal 2002. Net earnings have grown at an annual compounded growth rate of 30 percent to $218 million in fiscal 2002, which is the highest reported net earnings figure in the company’s history (see Exhibit 1). As BusinessWeek tells it: On Wall Street, Starbucks is the last great growth story. Its stock, including four splits, has soared more than 2,200 percent over the past decade, surpassing Wal-Mart, General Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in total return. Now at $21 [September 2002], it is hovering near its all-time high of $23 in July [2002], before the overall market drop.1 324 Part 3 BACKGROUND In 1971, three Seattle entrepreneurs—Jerry Baldwin, Zev Siegl, and Gordon Bowker—started selling wholebean coffee in Seattle’s Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick.2 By 1982, the business had grown to five stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of U.S. operations for Hammarplast, a Swedish housewares company in New York, marketing coffeemakers to a number of retailers, including Starbucks. Through selling to Starbucks, Schultz was introduced to the three founders, who then recruited him to bring marketing savvy to their company. Schultz, 29 and recently married, was eager to leave New York. He joined Starbucks as manager of retail sales and marketing. A year later, Schultz visited Italy for the first time on a buying trip. He noticed that coffee is an integral part of the culture in Italy; Italians start their day at an espresso bar and later in the day return with their friends. There are 200,000 coffee bars in Italy, and about 1,500 in Milan alone. Schultz believed that, given the chance, Americans would pay good money for a premium cup of coffee and a stylish place to enjoy it. Enthusiastic about his idea, Schultz returned to tell Starbucks’ owners of his plan for a national chain of cafes styled on the Italian The Global Trade and Investment Environment Agricultural Subsidies and Development For decades the rich countries of the developed world have lavished subsidies on their farmers, typically guaranteeing them a minimum price for the products they produce. The aim has been to protect farmers in the developed world from the potentially devastating effects of low commodity prices. Although they are small in numbers, farmers tend to be politically active, and winning their support is important for many politicians. The politicians often claim that their motive is to preserve a historic rural lifestyle, and they see subsidies as a way of doing this. This logic has resulted in financial support estimated to exceed $300 billion a year for farmers in rich nations. The European Union, for example, has set a minimum price for butter of 3,282 euros per ton. If the world price for butter falls below that amount, the EU will make up the difference to farmers in the form of a direct payment or subsidy. In total, EU dairy farmers receive roughly $15 billion a year in subsidies to produce milk and butter, or about $2 a day for every cow in the EU—a figure that is more than the daily income of half the world’s population. Overall, EU farmers receive $53 billion a year in subsidies. The EU is not alone in this practice. In the United States, subsidies are given to a wide range of crop and dairy farmers. Typical is the guarantee that U.S. cotton farmers will receive at least $0.70 for every pound of cotton they harvest. If world cotton prices fall below this hil02555_walkthru.indd xxiii the world market, U.S. cotton subsidies have depressed world prices for cotton by more than 50 percent since the mid-1990s. Low cotton prices cost Brazil some $600 million in lost export earnings in 2001–2002. India, another big cotton producer, has estimated that U.S. cotton subsidies reduced its export revenue from cotton by some $1 billion in 2001. According to the charitable organization Oxfam, the U.S. government spends about three times as much on cotton subsidies as it does on foreign aid for all of Africa. In 2001, the African nation of Mali lost about $43 million in export revenues due to plunging cotton prices, significantly more than the $37 million in foreign aid it received from the United States that year. Overall, the United Nations has estimated that while developed nations give about $50 billion a year in foreign aid to the developing world, agricultural subsidies cost producers in the developing world some $50 billion in lost export revenues, effectively canceling out the effect of the aid. As one UN official has noted, “It’s no good building up roads, clinics, and infrastructure in poor areas if you don’t give them access to markets and engines for growth.” Similarly, Oxfam has taken the unusual position for a charity of coming out strongly in support of the elimination of agricultural subsidies and price supports. If world prices were increased and production was shifted from high-cost, protected producers in Europe and America to lower-cost producers in the devel- Each chapter concludes with a closing case demonstrating the relevance of the chapter material to the practice of international business. Video Case For use with corresponding videos in the video package, these end-of-part cases explore current issues and examine how various companies, such as Starbucks and Boeing, compete in the international business market. Case Longer, end-of-part cases allow for more in-depth study of international companies such as Toyota and Procter & Gamble. 11/2/05 11:19:35 AM Focus Boxes and Exercises Building a Market Economy in India Each Country Focus example provides background on the political, economic, social, or cultural aspects of countries grappling with an international business issue. C O U N T RY F O C U S After gaining independence from Britain in 1947, India adopted a democratic system of government. The economic system that developed in India after 1947 was a mixed economy characterized by a large number of state-owned enterprises (of which there were almost 300 in 1991), centralized planning, and subsidies. This system constrained the growth of the private sector. Private companies could expand only with government permission. Under this system, dubbed the “License Raj,” private companies often had to wait months for government approval of routine business activities, such as expanding production or hiring a new director. It could take years to get permission to diversify into a new product. Much of heavy industry, such as auto, chemical, and steel production, was reserved for state-owned enterprises. Production quotas and high tariffs on imports also stunted the development of a healthy private sector, as did restrictive labor laws that made it difficult to fire employees. Access to foreign exchange was limited, investment by foreign firms was severely restricted, land use was strictly controlled, and the government routinely managed prices as opposed to letting them be set by market forces. By the early 1990s, it was clear that this system was incapable of delivering the kind of economic progress that many Southeastern Asian nations had started to enjoy. In 1994, India’s economy was still smaller than Belgium’s, despite having a population of 950 million. Its GDP per capita was a paltry $310; less than half the pop- w w w. m h h e . c o m / h i l l Country Focus ulation could read; only 6 million had access to telephones; only 14 percent had access to clean sanitation; the World Bank estimated that some 40 percent of the world’s desperately poor lived in India; and only 2.3 percent of the population had a household income in excess of $2,484. In 1991, the lack of progress led the government to embark on an ambitious economic reform program. Much of the industrial licensing system was dismantled, and several areas once closed to the private sector were opened, including electricity generation, parts of the oil industry, steelmaking, air transport, and some areas of the telecommunications industry. Investment by foreign companies, formerly allowed only grudgingly and subject to arbitrary ceilings, was suddenly welcomed. Approval was made automatic for foreign equity stakes of up to 51 percent in an Indian enterprise, and 100 percent foreign ownership was allowed under certain circumstances. Raw materials and many industrial goods could be freely imported and the maximum tariff that could be levied on imports was reduced from 400 percent to 65 percent. The top income tax rate was also reduced, and corporate tax fell from 57.5 percent to 46 percent in 1994, and then to 35 percent in 1997. The government also announced plans to start privatizing India’s state-owned businesses, some 40 percent of which were losing money in the early 1990s. India’s privatization program has had a bumpy record and was often slowed by political opposition; in 1999 some Map 2.6, the world’s freest economies are (in rank order) Hong Kong, Singapore, Luxembourg, Estonia, Ireland, New Zealand, United Kingdom, Denmark, and Iceland. The United States was ranked 12; Japan at 39; France at 44; Mexico, 63; Brazil, 90; China, 112; India, 118; and Russia, 124. The economies of Cuba, Laos, Iraq, Zimbabwe, Turkmenistan, Myanmar; and North Korea are to be found at the bottom of the rankings.53 Economic freedom does not necessarily equate with political freedom, as detailed in Map 2.6. For example, 3 of the top 16 states in the Heritage Foundation index, Hong Kong, Singapore, and Bahrain, cannot be classified as politically free. Hong Kong was reabsorbed into Communist China in 1997, and the first thing Beijing did was shut down Hong Kong’s freely elected legislature. Singapore is ranked as only partly free on Freedom House’s index of political freedom due to practices such as widespread press censorship, while Bahrain is classified as least free due to the monopolization of political power by a hereditary monarchy. THE NATURE OF ECONOMIC TRANSFORMATION The shift toward a market-based economic system often entails a number of steps: deregulation, privatization, and creation of a legal system to safeguard property rights.54 74 Piracy in the Video Game Market Management Focus Over the past decade the video game industry has grown into a global colossus worth more than $25 billion a year in revenues. For the three biggest players in the industry, Sony with PlayStation, Microsoft with Xbox, and Nintendo, this potentially represents a huge growth engine, but the engine is threatened by a rise in piracy, which cost the video game industry an estimated $4 billion in 2004. The piracy problem is particularly serious in East Asia excluding Japan, where video game consoles are routinely “chipped”—sold with modified chips, called mod chips, that override the console’s security system, allowing it to play illegally copied games and CDs. Importers or resellers, who charge a small markup for making the modification, illegally install the mod chips. In some areas, such as Hong Kong, it is almost impossible to find a console that hasn’t been modified. Because they allow users to play illegally copied games, consoles with mod chips offer a gaping gateway for software pirates, and they directly threaten the profitability of console and game makers. The big three in the industry all follow a razor and razor blades business model, where the console (razor) is sold at a loss and profit is made on the sale of the game (razor blades). In the case of Microsoft’s Xbox, estimates suggest the company loses as much as $200 on each Xbox it sells. To make profits, Microsoft collects royalties on the sale of games developed under license, in addition to producing and selling some games itself. Games typically retail for about $50 and Microsoft must sell 6 to 12 games to each Xbox user to recoup the $200 loss on the initial sale and start making a profit. If those users purchase pirated games and play them on “chipped” Xbox consoles, Microsoft collects nothing in royalties and may never reach the break-even point. Sony and Nintendo face similar problems. In East Asia, some 70 percent of game software may be pirated thanks to the popularity of “chipped” consoles and the low price of pirated games, which may sell for one-third the price of the legal game. Historically, all the big video game companies tried to deal with the piracy problem in East Asia by ignoring the market. Sony launched its PlayStation II in East Asia two years after its Japanese launch, and Microsoft delayed its East Asian launch for a year after it launched elsewhere w w w. m h h e . c o m / h i l l MANAGEMENT FOCUS in the world. But this tactic is increasingly questionable in a region where there may soon be more gamers than in the United States. Industry estimates suggest Asian gamers spent more on video game software in 2004 than U.S. gamers, much of it on low-priced pirated games. Another tactic that both Sony and Microsoft are now using is to regularly alter the hardware specifications of its consoles, rendering the existing mod chips useless. But the companies have found this is just a temporary solution, for within a few weeks mod chips made to override the new specifications are available on the market. A third tactic is to push local authorities to enforce existing intellectual property rights law that in theory outlaws the mod chip practice. In late 2002, Microsoft, Sony, and Nintendo joined forces to sue the Hong Kong company Lik Sang, which sold mod chips through its Web site and is one of the world’s largest distributors of the chips. Some observers question the value of this, however; they argue that if Lik Sang is shut down, many others in Hong Kong may be willing to take its place. What is needed, they argue, is concerted government action to stop the pirates, and so far East Asian governments have not been quick to act. A final way of dealing with piracy is to change the business model. All three main players in the industry are now starting to push online games where customers pay a subscription fee to play online, as opposed to a onetime fee to purchase a game. This business model makes piracy much less of an issue and it may drive growth in places such as China where piracy is endemic. Indeed, current estimates suggest there are already 29 million gamers in China, most of whom play pirated games, and this figure will increase to 55 million by 2009. If a good percentage switch to online gaming, the revenues could be significant. Management Focus examples further illustrate the relevance of chapter material for the practice of international business. Sources: S. Yoon, “The Mod Squad,” East Asian Economic Review, November 7, 2002, pp. 34–36; R. Cunningham, “Controversy as Sony Loses Mod-Chip Verdict,” Managing Intellectual Property, September 2002, pp. 15–18; A. Pham, “Video Game Losses Nearly $2 Billion,” Los Angeles Times, February 18, 2002, p. C8; Andy Holloway, “License to Plunder,” Canadian Business, November 10, 2003, p. 95; and R. Grover et al., “Game Wars” BusinessWeek, February 28, 2005, pp. 60–66. 58 hil02555_walkthru.indd xxiv 11/2/05 11:19:40 AM The Foreign Exchange Market Chapter 10 357 when a country’s currency is nonconvertible. For example, consider the deal that General Electric struck with the Romanian government in 1984, when that country’s currency was nonconvertible. When General Electric won a contract for a $150 million generator project in Romania, it agreed to take payment in the form of Romanian goods that could be sold for $150 million on international markets. In a similar case, the Venezuelan government negotiated a contract with Caterpillar in 1986 under which Venezuela would trade 350,000 tons of iron ore for Caterpillar heavy construction equipment. Caterpillar subsequently traded the iron ore to Romania in exchange for Romanian farm products, which it then sold on international markets for dollars.23 More recently, in a 2003 deal the government of Indonesia entered into a countertrade with Libya under which Libya agreed to purchase $540 million in Indonesian goods, including textiles, tea, coffee, electronics, plastics, and auto parts, in exchange for 50,000 barrels per day of Libyan crude oil.24 How important is countertrade? Twenty years ago, a large number of nonconvertible currencies existed in the world, and countertrade was quite significant. However, in recent years many governments have made their currencies freely convertible, and the percentage of world trade that involves countertrade is probably below 10 percent.25 Implications for Managers At the end of each chapter in Parts 2, 3, and 4—where the focus is on the environment of international business, as opposed to particular firms—sections titled Implications for Managers clearly explain the managerial implications of the material discussed in the chapter. IMPLICATIONS FOR MANAGERS This chapter contains a number of clear implications for business. First, it is critical that international businesses understand the influence of exchange rates on the profitability of trade and investment deals. Adverse changes in exchange rates can make apparently profitable deals unprofitable. As noted, the risk introduced into international business transactions by changes in exchange rates is referred to as foreign exchange risk. Foreign exchange risk is usually divided into three main categories: transaction exposure, translation exposure, and economic exposure. TRANSACTION EXPOSURE Transaction exposure is the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. Such exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies. For example, suppose in 2001 an American airline agrees to purchase 10 Airbus 330 aircraft for m120 million each for a total price of m1.20 billion, with delivery scheduled for 2005 and payment due then. When the contract was signed in 2001 the dollar/euro exchange rate stood at $1 ⫽ m1.10 so the American airline anticipates paying $1.09 billion for the 10 aircraft when they are delivered (m1.2 billion/1.1 ⫽ $1.09 billion). However, imagine that the value of the dollar depreciates against the euro over the intervening period, so that one dollar only buys m0.80 in 2005 when payment is due ($1 ⫽ m0.80). Now the total cost in U.S. dollars is $1.5 billion (m1.2 billion/0.80 ⫽ $1.5 billion), an increase of $0.41 billion! The transaction exposure here is $0.41 billion, which is the money lost due to an adverse movement in exchange rates between the time when the deal was signed and when the aircraft were paid for. TRANSLATION EXPOSURE Translation exposure is the impact of currency exchange rate changes on the reported financial statements of a company. Translation exposure is basically concerned with the present measurement of past events. The resulting accounting gains or losses are said to be unrealized—they are “paper” gains and losses—but they globalEDGE™ Research Task 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. Global Marketing and R&D Chapter 17 611 Critical Thinking and Discussion Questions 1. Imagine you are the marketing manager for a U.S. manufacturer of disposable diapers. Your firm is considering entering the Brazilian market. Your CEO believes the advertising message that has been effective in the United States will suffice in Brazil. Outline some possible objections to this. Your CEO also believes that the pricing decisions in Brazil can be delegated to local managers. Why might she be wrong? 2. Within 20 years, we will have seen the emergence of enormous global markets for standardized consumer products. Do you agree with this statement? Justify your answer. 3. You are the marketing manager of a food products company that is considering entering the Indian market. The retail system in India tends to be very fragmented. Also, retailers and wholesalers tend to have long-term ties with Indian food companies, which makes access to distribution channels difficult. What distribution strategy would you advise the company to pursue? Why? Research Task 4. Price discrimination is indistinguishable from dumping. Discuss the accuracy of this statement. 5. You work for a company that designs and manufactures personal computers. Your company’s R&D center is in North Dakota. The computers are manufactured under contract in Taiwan. Marketing strategy is delegated to the heads of three regional groups: a North American group (based in Chicago), a European group (based in Paris), and an Asian group (based in Singapore). Each regional group develops the marketing approach within its region. In order of importance, the largest markets for your products are North America, Germany, Great Britain, China, and Australia. Your company is experiencing problems in its product development and commercialization process. Products are late to market, the manufacturing quality is poor, costs are higher than projected, and market acceptance of new products is less than hoped for. What might be the source of these problems? How would you fix them? globaledge.msu.edu Use the globalEDGE™ site to complete the following exercises: 1. Locate and retrieve the most current ranking of global brands. Identify the criteria that are utilized in the ranking. Which country dominates the top 100 global brands list? Prepare a short report identifying the countries that possess global brands and the potential reasons for success. 2. Identify the fifteen organizations with the highest research and development (R&D) expenditures in the world. Prepare a short report regarding the country of origin of the companies with the most R&D spending, as well as the distribution of R&D expenditures by industry. Astro Boy—Marketing Japanese Anime to the World C L O S I N G C A S E In the 1980s, Japan was known for its manufacturing prowess. In those days, the stereotypical Japanese corporation, staffed by gray-suited “salarymen,” dominated global markets. These corporations were the engines of Japan’s export-oriented economy, producing a wide range of high-quality, low-cost standardized manufactured goods from automobiles to semiconductors and consumer electronics for global consumption. However, a decade of economic recession pummeled Japan’s manufacturing sector. While the salaryman suffered, Japan’s hil02555_walkthru.indd xxv hip youth rejected the formal gray attire of their fathers in favor of dyed hair, Japanese neo-punk clothing, and an obsession with cartoon characters known as anime. Today this cultural shift is paying back economic dividends as Japan becomes a global center for fashion, video games, music, and anime. In 2003, Japan’s new economy cultural exports of clothes, video games, and anime exceeded $14 billion, three times the value of the country’s exports of TV sets. At the leading edge of Japan’s cultural export boom are anime cartoons such as Pokémon, Sailor Moon, and 11/2/05 11:19:51 AM Supplements for the Instructor Instructor’s Resource CD Videos ISBN-10: 0-07-310257-1 ISBN-13: 978-0-07-310257-3 DVD ISBN-10: 0-07-310263-6 DVD ISBN-13: 978-0-07-310263-4 An updated Instructor’s Manual and Video Guide (prepared by Jeanne McNett of Assumption College) includes course outlines, chapter overviews and teaching suggestions, lecture outlines, ideas for student exercises and projects, teaching notes for all cases in the book, and video notes. VHS ISBN-10: 0-07-310259-8 VHS ISBN-13: 978-0-07-310259-7 A new video collection features original business documentaries as well as footage from sources such as PBS that tie in to cases in the text. Featured titles include “Yukos: Sale or Seizure,” “Three Billion New Capitalists,” and “Traveling to Thailand for Treatment,” to just name a few. PowerPoint Over 500 revamped PowerPoint slides (prepared by Kris Blanchard of North Central University) feature original materials not found in the text in addition to reproduction of key text figures, tables, and maps. Classroom Performance System (CPS) Test Bank The Test Bank (prepared by Veronica Horton) contains about 120 questions per chapter, each tagged with the level of difficulty, correct answer, and page reference to the text. hil02555_walkthru.indd xxvi New! Bring more energy and interactivity into your classroom or lecture hall. Our student response system uses wireless connectivity and gives both instructors and students immediate feedback from the entire class. Each of the 20 chapters of the text has 8 to 10 interactive CPS activities (also prepared by Kris Blanchard) written specifically for International Business. Ask your McGraw-Hill/Irwin sales representative for more information! 11/2/05 11:19:54 AM For the Student International Business with The Wall Street Journal Online Learning Center with PowerWeb: www.mhhe.com/hill The Student Online Learning Center now includes the dynamic activities which were previously offered on a student CD. Now students have access to Interactive Exercises, the Global Business Plan Project, and Video Cases. Using the latest in Flash technology, these study tools will give students the edge needed to compete in the global marketplace. From the book Web site, students can also access chapter review materials, self-tests, key term flash cards, Internet exercises, Web links, and more. With each new book, students also receive access to the International Business PowerWeb site, which now offers current articles, weekly updates, informative and timely world news, referred Web links and research tools. This package lets you provide a 15-week subscription to The Wall Street Journal for students at a specially discounted rate. In addition to their subscription, students will receive a “How to UseThe Wall Street Journal” handbook. Order ISBN-10: 0-07-343403-5 ISBN-13: 978-0-07-343403-2 International Business with the Financial Times Keep students on top of today’s global economy with the insightful, unbiased reporting of the Financial Times. Order this packet and your students will receive a 15-week subscription at a specially discounted rate. Students enjoy the full benefits of a Financial Times subscription, including access to FT.com In-Depth, an online portal featuring breaking news, special reports, portfolio tools, and more. Free subscription for adopting instructors. If you’d like your students to receive this package, order ISBN-10: 0-07-325037-6 ISBN-13: 978-0-07-325037-3 A password-protected portion of the book Web site is available to adopters of the book, offering additional online and downloadable teaching resources. hil02555_walkthru.indd xxvii 11/2/05 11:19:55 AM