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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
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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
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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
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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
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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!
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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.
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11/2/05 11:19:55 AM