Chapter 11 - Global and International Issues

Overview
Chapter 11 explains how to identify and manage global issues in formulating,
implementing, and evaluating strategies. Special topics include business culture,
business climate, labor unions, protectionism, tax rate variation, and management
style variation across countries. Chapter 11 describes how communication and
business practice vary across countries so that strategic planning can be more
effective.

Learning Objectives
The Chapter 11 Learning Objectives as stated in the textbook are as follows:

11-1. Discuss the nature of doing business globally, including language and labor
union issues.
11-2. Explain the advantages and disadvantages of doing business globally.
11-3. Discuss the global challenge facing firms and why this is a strategic issue.
11-4. Discuss tax rates and tax inversions as strategic issues.
11-5. Compare and contrast American business culture versus foreign business
cultures; explain why this is a strategic issue.
11-6. Discuss the business culture found in Mexico, Japan, China, and India; explain
why this is a strategic issue.
11-7. Discuss the business climate in Africa, China, Indonesia, India, Japan,
Mexico, and Vietnam; explain why this is a strategic issue.

Teaching Tips
1. Go to the author website at www.strategyclub.com and review the author video
for Chapter 11, as well as the updates for Chapter 11. Since students’ case analyses
are likely well along now in class, also go over a sample case analysis in class and
the case presentation guidelines, all at this website.

2. The topics on page 333 regarding different languages globally and labor unions
across Europe can represent strategic issues for many firms.

3. The section in this chapter on “Advantages and Disadvantages of Doing Business

Globally” on pages 334-335 is important because virtually all firms either have or
desire to have global customers.
4. Focus on the corporate tax rate and tax inversion sections on pages 337-338 so
students realize this is an important variable in deciding where to expand. The new
Academic Research Capsule 11-2 back on page 336 also addresses the “where to
expand” decision that commonly faces firms.

5. An important issue in this chapter is the “American vs. Foreign Business

Cultures.” Ask students who have traveled or lived outside the USA to speak about
differences between business cultures across countries. Tell students that being
knowledgeable of business culture across countries can help you be a more effective
businessperson – because almost all firms have global customers.

6. Draw attention to the “Communication Differences Across Countries” section,

which compares and contrasts key business factors across countries. This whole
chapter is important for AACSB purposes because most industries are becoming
more and more global each day.

7. Regarding culture across countries, go to http://www.worldbusinessculture.com/

and spend some time here viewing business culture in various countries. Draw
students’ attention to pages 341-344 regarding the business culture across countries
narrative.

8. The “Business Climate Across Countries” section that begins on page 344 is
important because many case companies will be considering expanding operations to
other countries.

9. At the end of Chapter 11, direct student attention to the “Implications for
Strategists” and “Implications for Students” sections because these provide
important information as student teams prepare and ultimately deliver their case
analysis presentation later in the course.

10. Regarding the end-of-chapter review questions, consider assigning one half of
them one day in class giving each student a question, and letting them tell the class
the answer, with you commenting on their answers. Do the other half another day.
This is a fun day in class and it goes pretty quickly.

11. Several of the end-of-chapter Assurance of Learning Exercises can be used as

excellent homework or classwork assignments to be completed as an individual or as
a group of students. We cover at least two of these exercises each semester in each
class.

Answers to End-of-Chapter 11 Review Questions

1. The total number of languages spoken globally is decreasing. Is this good
news for business? Why?
Answer: Pioneering work to document the number of different languages spoken
has been done by the Summer Institute of Linguistics (SIL) International. That
organization today publishes 2,508 translations of the Christian Bible, and has
compiled a catalog of the world’s languages, called the Ethnologue, which lists
6,909 distinct languages being spoken. By 2115, researchers say there will be only
600 languages left on the planet. This is good news for business. When businesses
consider offering their products or services globally, or manufacturing and securing
resources outside their own country, language barriers arise. Interacting with people
who speak a different language is one of many variables that complicate doing
business globally.

2. Compare the climate for doing business in India, pre-Prime Minister Modi
vs. post-Prime Minister Modi. What are the implications for companies?

Answer: By a landslide, India elected a new prime minister in May 2014, Narendra
Modi. Mr. Modi has introduced excellent policies to jump-start India’s economy,
boost profits at companies ranging from banks to cement makers. In support of Mr.
Modi and India’s future, money managers worldwide poured more than $17 billion
into Indian stocks in 2014, the most of any developing country tracked by the
Institute of International Finance. India’s S&P Index grew nearly 40 percent in
2014. India is the world’s 10th largest economy, but its economy pre-Mr. Modi was
stagnant due to cumbersome bureaucracy and poor infrastructure. India grew faster
(5.6%) in 2014 than any BRIC (Brazil, Russia, India, and China) country. India’s
economy is expected to grow 6.4 percent in 2015. Mr. Modi’s political party has the
ruling majority in the India legislature for the first time in 30 years. India is
benefiting greatly from low prices for oil and gas, India’s biggest import.

3. According to the International Monetary Fund (IMF), which country

generates more economic output than any other? What are the implications for
companies?

Answer: The International Monetary Fund (IMF) recently reported that China, the
world's most populous country, has overtaken the USA as the world's number one
economic powerhouse. China's economic output in 2014 reached $17.6 trillion,
compared to the USA’s $17.4 trillion. China now accounts for 16.5 percent of the
world economy, compared to the USA’s 16.3 percent. Experts have predicted this
monumental shift in economic power for years, but it has come much faster than
expected. Hundreds of companies are scurrying to set up business in China. China’s
economic growth has slowed to 7 percent, led especially by a domestic-property
slump that has dented construction activity and demand for materials such as steel
and cement. Ruling Communist Party leaders are calling the situation the “new
normal” of slower growth as the government tries to reduce widespread pollution
and conserve energy. Fixed-asset investment in China is poised to fall to 12.8
percent in 2015, down from 15.5 percent the prior year. Cantonese-speaking
demonstrators in Hong Kong, supported by millions of Mandarin-speaking mainland
Chinese, still hold out for democracy. More than 40 million Chinese visit Hong
Kong (population 7 million) annually.

4. What nation is Southeast Asia’s largest economy and what is that country’s
percent GDP (gross domestic product) growth annually? What are the
implications for companies?

Answer: A Pacific archipelago comprised of thousands of islands, Indonesia’s stock

market was the top performer in 2014 among all Asian countries, and was also the
top performer in five out of the last seven years in Asia. Indonesia’s currency is the
rupiah and their economy is one of the fastest growing in Asia, behind China and the
Philippines. Indonesia’s GDP is expected to grow 5.7 percent in 2014. As Southeast
Asia’s largest economy, Indonesia elected a new legislature and president in 2014.
Despite its large population and densely populated regions, Indonesia has the world’s
second highest level of biodiversity, with vast areas of wilderness and abundant
natural resources.

5. What country in Africa recently surpassed South Africa in annual GDP

(gross domestic product)? What are the implications for companies?

Answer: Nigeria (GDP = $510B) recently surpassed South Africa (GDP = $320B)
as having the continent’s largest gross domestic product. In 2014, Nissan Motor
assembled thousands of cars in Nigeria, General Electric began building $10 billion
worth of new turbines for power plants, and Procter & Gamble opened a second
diaper factory. Nigeria’s population will be seven times larger than South Africa by
2050, even though the country still has problems with infrastructure, unemployment,
crime, and poverty.

6. Recent statistics show that only 10 percent of managers in Japan are

currently women, compared with 31 percent in Singapore, 38 percent in
Germany, and 43 percent in the USA. What specifically is Japan doing about
this “problem,” if anything? What are the implications for companies?

Answer: Due to its dwindling workforce and aging population, Japan is increasingly
promoting women into managerial positions. Recent statistics show that only 10
percent of managers in Japan are currently women, compared with 31 percent in
Singapore, 38 percent in Germany, and 43 percent in the USA. Therefore, Prime
Minister Shinzo Abe of Japan has proclaimed a goal to fill 30 percent of leadership
positions in Japan with women by 2020. Mr. Abe recently filled five open positions
in his own cabinet with women. A key reason that Japanese women have historically
not advanced to managerial positions is the business culture of notoriously long
work hours. Although Japan’s powerful business lobby, Keidanren, currently has no
women on its 24-member board of directors, the body has mandated its member
companies to publicize their gender equity strategies and progress – and Keidanren
itself plans to appoint women into board positions. Suppression, exploitation, and
even persecution of women is a severe problem in many countries, especially in the
Middle East and to a lesser extent in the Far East. However, Japan is taking a
leadership role by aggressively reversing its historical underutilization of women in
business.

7. What country in Africa has the highest Internet penetration among all
countries? Hint: Its Internet penetration rate is 51 percent vs. Egypt’s 36
percent and South Africa’s 17 percent. What are the implications for
companies?

Answer: Morocco has the highest Internet penetration among all countries in Africa,
with 51 percent, followed by Egypt (36 %), Kenya (tied with Nigeria) at 28 percent,
Senegal (18%), South Africa (17%), Angola (15%), Algeria (14%), Ghana (14%),
and Tanzania (12%). All other African countries have less than 6 percent Internet
penetration among their residents. Recent research published by the consulting firm
McKinsey estimates that only 16 percent of Africans have access to the Internet.
McKinsey predicts that by 2025, 50 percent of Africans will be online. The
implication for companies is to seriously consider Africa as a place to do business.

8. According to the chapter, which country recently achieved its goal of having
the most business-friendly tax system of the Group of Seven (G-7) nations
(Canada, France, Germany, Italy, Japan, the United Kingdom, and the United
States)? What are the implications for companies?

Answer: Since the 1980s, most countries have been steadily lowering their tax rates,
but the USA has not cut its top statutory corporate tax rate since 1993. Canada
recently achieved its goal of having the most business-friendly tax system of the
Group of Seven (G-7) nations (Canada, France, Germany, Italy, Japan, the United
Kingdom, and the USA). In January 2014, Canada’s federal corporate tax rate
automatically fell to 15 percent from 16.5 percent as the last installment of a series
of corporate rate cuts launched in 2006 by the administration of Prime Minister
Stephen Harper, who had campaigned on the promise to lower Canada’s overall
federal corporate tax rate by one third. More recently, the United Kingdom lowered
its federal tax rate to 23 percent.

9. True or False: The USA requires companies to pay the difference between
lower foreign taxes and the USA corporate-tax rate of 35 percent when they
bring their international earnings home. In contrast, a territorial system that
many other countries use allows companies to pay little to no taxes on foreign
profits above what they have already paid abroad. The USA is the only nation
that imposes taxes on foreign earnings. Discuss implications of your answer.

Answer: The USA requires companies to pay the difference between lower foreign
taxes and the USA corporate-tax rate of 35 percent when they bring their
international earnings home. In contrast, the territorial system that many other
countries use allows companies to pay little to no taxes on foreign profits above what
they have already paid abroad. The USA is the only nation that imposes taxes on
foreign earnings. Thus, to avoid paying U.S. taxes on income made in other
countries, many U.S. companies are cash-rich outside the USA, but cash-poor inside
the USA, and they bring cash back to the USA only as needed. For example,
Microsoft has $15+ billion in cash reserves on its balance sheet, but only about 15
percent of that money is housed in the USA. General Electric and Apple have a
similar policy to avoid paying USA corporate taxes. Emerson Electric has $2 billion
in cash with almost all of it in Europe and Asia, so the firm borrows money in the
USA rather than bringing its cash back and paying a 35 percent corporate USA tax
on corporate profits minus whatever tax it has already paid overseas. Johnson &
Johnson keeps virtually all of its $24+ billion in cash outside the USA, as does
Illinois Tool Works, Inc. Whirlpool has 85 percent of its cash offshore. Bruce Nolop,
former CFO of Pitney Bowes explains it this way: “You end up with the really
peculiar result where you are borrowing money in the USA, while you show cash on
the balance sheet that is trapped overseas. It is a totally inefficient capital
structure.” The U.S. tax system, unfortunately for Americans, is structured so that
companies can cut their tax bill by shifting income offshore to lower-tax countries.
Implications for companies is to strive to maximize shareholders’ value, using all
means that are both legal and ethical, including keeping cash offshore consistent
with all laws.

10. For the first time in 2014, what country on the planet, with 39 percent,
overtook the USA, with 36 percent, of “the most innovative companies in the
world”? What are the implications for companies?

Answer: Few companies can afford to ignore the presence of international

competition. Firms that seem insulated and comfortable today may be vulnerable
tomorrow; for example, foreign banks do not yet compete or operate in most of the
USA, but this too is changing. Thomson Reuters annually compiles a list of the
world’s most innovative companies, using metrics that include patent activity, R&D
investment, success rate, globalization, and influence. For the first time ever, Japan
(39 percent) overtook the USA (36 percent) in 2014 as having the most innovative
companies in the world. Top USA firms making the list included Apple, Lockheed
Martin, Google, Microsoft, Intel, and IBM, whereas some top Asian companies on
the top 100 list included Samsung, Fujitsu, Hitachi, Canon, and for the first time, a
Chinese company, Huawei.

11. Why are some U.S. companies, such as Eaton, reincorporating in foreign
countries, such as to Dublin, Ireland, as did Eaton? What are the pros and cons of
that strategy?

Answer:
Pros
1. Avoid the 35% U.S. corporate tax rate.
2. Locate closer to new customers.
3. Take advantage of lower wage rates and/or being closer to raw materials.
Cons
1. Forgo many of the protections afforded by the U.S. federal law.
2. Forgo many of the conveniences in the USA, such as rising value of the dollar and
improving economic conditions.
3. Endure possible stigma that some Americans desire to buy American.

12. Give specifics regarding the nature and role of “Union Membership across
Europe.” What are the strategic implications of these facts and figures?

Answer: Europe in general is much more unionized than the USA. There is great
variation in Europe as per levels of union membership, ranging from 74 percent of
employees in Finland and 71 percent in Sweden to 9 percent in Lithuania and 8
percent in France. However, percent union membership is not the only indicator of
strength, because in France, for example, unions have repeatedly shown that despite
low levels of membership they are able to mobilize workers in mass strikes and
demonstrations to great effect.
The average level of union membership across the whole of the European
Union, weighted by the numbers employed in the different member states, is 23
percent compared to about 11 percent in the USA. The European average is held
down by relatively low levels of membership in some of the larger EU states,
Germany with 19 percent, France with 8 percent, Spain with 16 percent, and Poland
with 15 percent. The three smallest states, Cyprus, Luxembourg, and Malta, have
levels well above the average.
The three Nordic countries of Denmark, Sweden, and Finland are at the top
of the table with around 70 percent of all employees in unions. In part this is
because, as in Belgium – which also has above average levels of union density –
unemployment and other social benefits are normally paid out through the union.
High union density in the Nordic countries also reflects an approach that sees union
membership as a natural part of employment, as shown by the relatively high
proportion of employees – around 53 percent – who are union members in Norway,
where unemployment benefits are not paid through the unions.
Central and Eastern European nations generally have below average levels of
union membership. In Poland, for example, 16 percent of employees are estimated
to be union members. Level of union membership is clearly trending downward all
over Europe. Only eight states out of the 27 EU states plus Norway – Belgium,
Cyprus, Ireland, Italy, Luxembourg, Malta, Norway, and Spain – have seen a gain in
union members among the employed in recent years, and in most of these countries,
this growth has not kept pace with the overall growth in employment, meaning that
union density has drifted downward. The two exceptions appear to be Ireland and
Italy where union membership is slowly growing.

13. Give specifics regarding income tax rates and practices across countries, and
associated strategic implications.

Answer: The USA has the highest corporate income tax rate (35%) of all countries.
Bermuda has a zero corporate income tax rate. Ireland has a 12.5% corporate tax
rate. Many Internet companies have established headquarters and get the bulk of
their European revenue in Ireland. For example, although Google has 300+
employees in France, Google’s customers in France buy ads from Google Ireland
Ltd. – so Google pays France fees through a marketing agreement, rather than
paying the 34 percent corporate tax rate in France. Microsoft has a similar
arrangement in France as Google. To avoid paying USA taxes on income made in
other countries, many American companies are cash-rich outside the USA but cash-
poor inside the USA, and they bring cash back to the USA only as needed. For
example, in late 2012, Microsoft had $66.6 billion in total cash, but only $8.6 billion
in the USA. General Electric had $85.5 billion in total cash, but only $30.7 billion in
the USA. Emerson Electric has $2 billion in total cash with almost all of it in
Europe and Asia so the firm had to borrow money in the USA rather than bring its
cash back and pay a 35 percent corporate USA tax on corporate profits minus
whatever ax it has already paid overseas. A recent Wall Street Journal article (12-4-
12, p. B1) details this repercussion of the USA having the highest tax rate in the
world. The article reveals that Johnson & Johnson keeps virtually all of its $24.5
billion in cash outside the USA, as does Illinois Tool Works, Inc. Whirlpool has 85
percent of its cash offshore. Bruce Nolop, former CFO of Pitney Bowes, explains it
this way: “You end up with the really peculiar result where you are borrowing
money in the USA, while you show cash on the balance sheet that is trapped
overseas. It is a totally inefficient capital structure.” The U.S. tax system,
unfortunately for Americans, is structured so that companies can cut their tax bill by
shifting income offshore to lower-tax countries.

Country Corporate Tax Rate (%)

USA 35
Brazil 34
France 33.33
Germany 33
India 30
Mexico 30
Italy 27.5
Japan 25.5
Israel 25
Austria 25
China 25
Portugal 25
Finland 24.5
U.K. 24
Ukraine 21
Estonia 21
Russia 20
Greece 20
Croatia 20
Libya 20
Netherlands 20
Turkey 20
Poland 19
Czech Republic 19
Hungary 19
Singapore 17
Canada 16.5
Hong Kong 16.5
Romania 16
Latvia 15
Lithuania 15
Ireland 12.5
Serbia 10
Bulgaria 10
Cyprus 10

14. Exports from the USA comprise about 11 percent of GDP, compared to about 35
percent of Germany’s GDP. What are implications of this for American firms doing
business globally?

Answer: With exports comprising only 11 percent of GDP, the USA is still largely a
domestic, continental economy, and what happens inside the USA largely determines the
strength of the U.S. economy. The USA has substantial room for improvement in doing
business globally, although many large companies already obtain 50+ percent of their
revenues from outside the USA.

15. A company is planning to begin operations in Switzerland. That company’s EFE

Matrix includes 20 factors. How much weight (1.0 to 0.01) would you place on the
corporate tax rate factor? Discuss.

Answer: The appropriate weight likely would be a bit below the average of 0.05 for 20
factors since so many factors impact the choice of where to do business globally.

16. Explain how awareness of business culture across countries can enhance strategy
implementation.

Answer: Language, culture, and value systems across countries differ significantly,
and many domestic firms do substantial business in other countries. This means that
millions of American managers and employees are interacting with people in other
countries on a daily basis. Being knowledgeable of differences in culture across
countries can therefore enable American managers and employees to be more
effective in doing business with people and companies in other lands. Regarding
culture across countries, go to http://www.worldbusinessculture.com/
and spend some time here viewing business culture in various countries.

17. Describe the business culture in China.

Answer: In China, greetings are formal and the oldest person is always greeted first. Like in the
USA, handshakes are the most common form of greeting. If invited to a Chinese person’s
home, foreigners should consider this a great honor and should arrive on time. The Chinese
rarely do business with companies or people they do not know. Like in the USA and Germany,
punctuality is very important in China. The Chinese are shrewd negotiators, so an initial offer or
price should leave room for negotiation. The Chinese have an excellent sense of humor.
Gender bias is usually not an issue in China. Unlike Americans and Europeans, the Chinese do
not mix business and socializing. Regarding culture across countries, go to
http://www.worldbusinessculture.com/ and spend some time here viewing business culture
in various countries.

18. Describe the business culture in India.

Answer: India’s rate of female participation in the labor force is quite low, since Indian women
are expected to let their careers take a back seat to caring for their families. Like in many Asian
cultures, people in India do not like to say “no,” verbally or nonverbally. Indians believe that
giving gifts eases the transition into the next life. Be mindful that neither Hindus nor Sikhs eat
beef, and many are vegetarians. Indians prefer to do business with those with whom they have
established a relationship built upon mutual trust and respect. Titles such as professor, doctor, or
engineer are very important in India, as is a person’s age, university degree, caste, and
profession. There is significant sexual harassment in India, but recent cases have gone viral and
prompted new laws and penalties. India is in the news of late about their laws regarding women
that are raped having the option of marrying their rapist, and convictions for a rapist being
lighter for any women believed not to be a virgin, etc. Regarding culture across countries, go
to http://www.worldbusinessculture.com/ and spend some time here viewing business
culture in various countries.

19. Describe the business culture in Mexico.

Answer: Mexico is an authoritarian society in terms of schools, churches, businesses, and

families. Employers seek workers who are agreeable, respectful, and obedient, rather than
innovative, creative, and independent. Mexican workers tend to be activity oriented rather than
problem solvers. Mexican employers are paternalistic, providing workers with more than a
paycheck, but in return, they expect allegiance. In Mexico, business associates entertain each
other at restaurants rather than at their homes. Mexicans do not feel compelled to follow rules
that are not associated with a particular person in authority. Life is slower in Mexico than in the
USA. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and
spend some time here viewing business culture in various countries.

20. Describe the business culture in Japan.

Answer: The Japanese place great importance on group loyalty and consensus, a
concept called wa. Most corporate activities in Japan encourage wa among managers
and employees. Wa requires that all members of a group agree and cooperate; this results
in constant discussion and compromise. Most Japanese managers are reserved, quiet,
distant, introspective, and other oriented, whereas most U.S. managers are talkative,
insensitive, impulsive, direct, and individual oriented. Regarding culture across
countries, go to http://www.worldbusinessculture.com/ and spend some time here
viewing business culture in various countries.

21. List in prioritized order the top four countries in Africa that are safe, worthwhile,
and potentially lucrative for opening new business operations. Give a rationale for
each.

Answer: According to Table 11-5, the top four African countries in terms of ease-of-
doing-business are: 1) South Africa, 2) Tunisia, 3) Ghana, and 4) Egypt. South Africa and
Ghana have rich resources and a stable political and economic situation. Recent regime
changes in Egypt and Tunisia may spur further investment in Africa as democracy and
capitalism strengthens.

22. What percentage of the people living in Vietnam have and use the Internet? Why
is this a strategic issue?

Answer: Internet penetration has grown to 44% among Vietnam’s 90 million

people, up from 12% a decade ago. Unlike another communist country, North Korea,
Vietnam is booming for business. The market for e-commerce in Vietnam generates
$4 billion in revenue annually and is growing dramatically. Telecommunications
companies in Vietnam, such as Viettel Mobile and Vietnam Mobile Telecom
Services, provide the lowest data prices in the world at just over $3 per gigabyte.
Vietnamese are among the most prevalent watchers of videos on smartphones in the
world. The number of active mobile social-media accounts in Vietnam rose 41%
from January 2014 to January 2015—a higher growth rate than China, India, or
Brazil. Facebook has over 30 million active users in Vietnam, up from 8.5 million in
2012. Even the smallest businesses in the USA (and elsewhere) can easily reach and
sell to consumers in Vietnam, who yearn for new products and services.

23. Do some research on Singapore to determine whether you agree that the country
merits its #1 ranking globally in attractiveness for doing business.

Answer: Singapore has a very high per capita GDP ($49,321) compared to other countries
and a very low inflation rate (.2 percent). It also has perhaps the busiest harbor in the
world, very low crime, excellent education facilities, very modern infrastructure, and
wonderful weather.

24. To what extent do you feel political unrest in the Middle East will spread outside
the region? Would that be a good or bad thing for global business? What countries
do you feel may experience political unrest? Why?

Answer: Violence and political unrest in the Middle Eastern countries is a bad thing for
global business because it deters investment by companies into that region of the world,
and because businesses are afraid the violence could spill over into other regions. The civil
war in Syria, ISIS having killed thousands, and the leadership in Iran still pose a major
problem for Iranian people. Other vulnerable countries include Turkey, Saudi Arabia,
Egypt, and Lebanon.

25. About 53 percent of people in Belgium are members of a labor union. Compare
and contrast the labor union situation across European countries and comment on the
positive and negative impact this factor has on attracting business investment into
those countries.

Answer: There is great variation in Europe as per levels of union membership,

ranging from 74 percent of employees in Finland and 71 percent in Sweden to 9
percent in Lithuania and 8 percent in France. However, percent union membership is
not the only indicator of strength, because in France for example, unions have
repeatedly shown that despite low levels of membership they are able to mobilize
workers in mass strikes and demonstrations to great effect.
The average level of union membership across the whole of the European
Union, weighted by the numbers employed in the different member states, is 23
percent compared to about 11 percent in the USA. The European average is held
down by relatively low levels of membership in some of the larger EU states,
Germany with 19 percent, France with 8 percent, Spain with 16 percent, and Poland
with 15 percent. The three smallest states, Cyprus, Luxembourg, and Malta, have
levels well above the average.
The three Nordic countries of Denmark, Sweden, and Finland are at the top
of the table with around 70 percent of all employees in unions. In part this is
because, as in Belgium – which also has above average levels of union density –
unemployment and other social benefits are normally paid out through the union.
High union density in the Nordic countries also reflects an approach that sees union
membership as a natural part of employment, as shown by the relatively high
proportion of employees – around 53 percent – who are union members in Norway,
where unemployment benefits are not paid through the unions. Most European
workers are unionized and enjoy more frequent vacations and holidays than U.S.
workers. A 90-minute lunch break plus 20-minute morning and afternoon breaks are
common in European firms. Guaranteed permanent employment is typically a part of
employment contracts in Europe. In socialist countries such as France, Belgium, and
the United Kingdom, the only grounds for immediate dismissal from work is a
criminal offense. Many Europeans resent pay-for-performance, commission salaries,
and objective measurement and reward systems.

26. Explain why consumption patterns are becoming similar worldwide. What are the
strategic implications of this trend?

Answer: As a result of improvements in global communications, technology, smartphones,

and travel, consumers across the world are increasingly exposed to the same advertising,
the same cultural events, the same news, and the same forms of entertainment. As a result,
the tastes of consumers across the world are converging. This development helps to
explain why consumption patterns are becoming similar worldwide. One implication is
that your rival firms may be gaining economies of scale and learning on you by engaging in
operations and sales outside the USA more so than you, which could become a problem for
you.

27. What are the major differences between U.S. and multinational operations that affect
strategic management?

Answer: Language, cultural, and value systems differ among countries, as do the number
and nature of competitors. There are also different currencies, tariffs, laws, taxes,
regulations, suppliers, distributors, monetary policies, and infrastructure. Therefore, the
external audit part of strategic management is much more complicated if the firm does
substantial business outside the USA.

28. Why is globalization of industries a common factor today?

Answer: The following are trends that are contributing to the globalization of industries around
the world:

 Markets are converging in terms of tastes, trends, and prices.

 More and more countries are welcoming foreign investment and capital.
 Advancements in telecommunications and smartphones are drawing countries, cultures, and
organizations worldwide closer together.
 Growth in demand for goods and services outside the USA is higher than inside.
 95% of the world’s population live outside the USA, and firms can gain economies of scale
by selling to those people.

29. Compare and contrast U.S. versus foreign cultures in terms of doing business.

Answer: Americans tend to emphasize time while other cultures tend to place more value on
relationships. Americans also tend to have larger areas of personal space than many other
cultures. Material wealth is important to Americans. In some other countries, men are valued
more than females, and in many countries females are restricted from being business owners and
managers. Quality of life and family time may be more important in other countries, while
Americans tend to focus on personal achievement. Americans value competitiveness and
individualism, while other cultures often value modesty, team spirit, collectivity, and patience
more. Regardless of where someone is doing business and with whom, it is important to study
cultural differences and adapt, be cognizant, and be respectful of cultural differences.
Regarding culture across countries, go to http://www.worldbusinessculture.com/
and spend some time here viewing business culture in various countries.

30. List six reasons that strategic management is more complex in a multinational firm.
Answer: Reasons that strategic management is more complex in a multinational firm are: 1)
risk of expropriation of assets, 2) potential for currency losses through exchange rate
fluctuations, 3) possibility of unfavorable foreign court interpretations of contracts and
agreements, 4) social/political disturbances, 5) import/export restrictions, 6) tariffs, and 7)
trade barriers.

31. Do you feel that protectionism is good or bad for the world economy? Why?

Answer: Protectionism refers to countries imposing tariffs, taxes, and regulations on firms
outside the country to favor their own companies and people. Many countries are protectionist
in some industries, some countries much more than others. Most economists argue that
protectionism harms the world economy, because it inhibits trade among countries and invites
retaliation.

32. Why are some industries more “global” than others? Discuss.

Answer: Different industries become global for different reasons. For example, the need to
amortize R&D investments over many markets is a major reason why the aircraft manufacturing
industry became global. When firms manufacture a product, they select the lowest-cost source.
For the semiconductor industry, this may be Japan, for the textile industry, Sri Lanka may be the
best location. For simple electronics, Malaysia may be selected. For precision machinery,
Europe may be the best option. Thus, companies try to take advantage of whatever resources
(natural, physical, or human) particular firms have to offer, so that spurs globalization in some
industries more so than others. It is particularly risky as a strategy to stay domestic in an
industry that is largely global.

33. Wa, quanxi, and inhwa are important management terms in Japan, China, and South
Korea, respectively. What would be analogous terms to describe American management
practices?

Answer: In Japan, business relations operate within the context of Wa, which stresses group
harmony and social cohesion. An analogous American term could be team spirit or collegiality.
In China, business behavior revolves around guanxi, or personal relationships. An analogous
American term could be trust or confidentiality. In South Korea, activities involve concern for
inhwa, or harmony based on respect of hierarchical relationships, including obedience to
authority. An analogous American practice could be to follow the chain of command.

34. Why do many Europeans find the notion of “team spirit” in a work environment
difficult to grasp?
Answer: Many Europeans find the notion of team spirit difficult to grasp because the unionized
environment has dichotomized worker-manager relations throughout Europe.

35. In China, feng shui is important in business, whereas in Japan, nemaswashio is

important. What are analogous American terms and practices?

Answer: Feng shui is the practice of harnessing natural forces, whereas nemaswashio is the
expectation that supervisors will alert employees privately of changes, rather than informing
them in a meeting. Proxemics is an analogous American business term. This term deals with
the spatial arrangement of furniture for various types of meetings, and even the location of
meetings in various places (your office or golf course, for example) to create an environment for
the most effective communication. American managers strive to be considerate and respectful,
so both private and public meetings are widely utilized to enhance communication.

36. Compare tax rates in the USA versus other countries. What impact could these
differences have on “keeping jobs at home”?

Answer: The lowest tax rates among developed countries reside in Europe, with an average
corporate tax rate among European countries at 26 percent. In comparison, 30 percent is the
average tax rate among Asia-Pacific countries, and 38 percent is the tax rate for the United
States and Japan. Many countries are lowering tax rates to attract investment. A low corporate
tax rate will encourage business investment, whereas a high corporate tax rate will discourage
business investment.

37. Discuss the business climate in Vietnam.

Answer: Internet penetration has grown to 44% among Vietnam’s 90 million people,
up from 12% a decade ago. Unlike another communist country, North Korea,
Vietnam is booming for business. The market for e-commerce in Vietnam generates
$4 billion in revenue annually and is growing dramatically. Telecommunications
companies in Vietnam, such as Viettel Mobile and Vietnam Mobile Telecom
Services, provide the lowest data prices in the world at just over $3 per gigabyte.
Vietnamese are among the most prevalent watchers of videos on smartphones in the
world. The number of active mobile social-media accounts in Vietnam rose 41%
from January 2014 to January 2015—a higher growth rate than China, India, or
Brazil. Facebook has over 30 million active users in Vietnam, up from 8.5 million in
2012. Even the smallest businesses in the USA (and elsewhere) can easily reach and
sell to consumers in Vietnam, who yearn for new products and services.

38. Make a good argument for keeping the statutory corporate tax rate in the USA
the highest in the world. Make the counter argument.
Answer: The primary argument for keeping the statutory corporate tax rate in the USA is
that it generates revenue that benefits American citizens, organizations, and communities
and helps keep America safe and strong. Portions of this revenue go toward programs that
further promote domestic development initiatives. Portions go to making the USA
arguably the nicest place in the world to live and work. The counter argument, however, is
that many domestic and foreign-based companies locate facilities, operations, and
headquarters outside the USA to avoid high taxes. The USA would become more
competitive in attracting business and industry if it cut tax rates, as other countries have
been doing for that very reason.

39. What are the advantages and disadvantages of beginning export operations in a
foreign country?

Answer: The following are the primary advantages and disadvantages of initiating export
operations in a foreign country.

Advantages:
 International operations can absorb excess capacity, reduce unit costs, and spread
economic risks over a wider number of markets.
 Firms can gain new customers for their products and services, thus increasing
revenues.
 Competitors in foreign markets may not exist, or competition may be less intense
than in domestic markets.

Disadvantages:
 Firms confront different and often little understood social, cultural, demographic,
and competitive forces when doing business overseas.
 Weaknesses of competitors in foreign lands are often overestimated, and strengths
are often underestimated.
 Language, cultural, and value systems differ among countries, and this can create
barriers of communication and other problems.
 There are different currencies, tariffs, laws, taxes, regulations, suppliers, distributors,
monetary policies, and infrastructure.

OPTIONAL QUESTION NOT IN THE BOOK

40. What are several especially attractive aspects of the Philippines for beginning
business operations in that country? What are some drawbacks?

Answer: The Philippines is a highly educated, English-speaking country, whose people love
Americans (for rescuing them in WWII); Filipinos do not mind working from 12 midnight to 8
in the morning since that coincides with the U.S. 8 to 5 workday. The country recently overtook
India in the number of call-center jobs, and also recently overtook Indonesia as the world’s
biggest supplier of voice-based call-center services. The Philippines has about 98 million
people, making it the world’s 12th largest in population. The business culture in the Philippines
is “to deliver absolutely fantastic service.” Drawbacks of beginning business operations in the
Philippines include the fact that, although unemployment is at 6.9 percent, underemployment is
18 percent. Also, the Philippines has only a 9 percent Internet penetration rate among its
population.

Answers to the End-of-Chapter 11 Assurance of

Learning Exercises
ASSURANCE OF LEARNING EXERCISE 11A:
BUSINESS CULTURES ACROSS COUNTRIES: A HERSHEY COMPANY
ANALYSIS

ANSWER:
Students can use this website to answer this assignment:
http://www.kwintessential.co.uk/tools/resources/country-profiles.html
This is an excellent, fun homework assignment that gives students an opportunity to
develop an understanding of business culture in countries different from their own.
Perhaps let every student select a different country. Basic headings in each student’s
report to the class could be:

Social etiquette and customs

 Meeting and greeting
 Mixing between genders
 Names and titles
 Gift-giving etiquette
 Dining etiquette

Business etiquette and customs

 The relationship
 Business cards
 What to wear
 Business meetings
 Negotiating

ASSURANCE OF LEARNING EXERCISE 11B:

HERSHEY COMPANY WANTS TO ENTER AFRICA. HELP THEM.

ANSWER:
Students can use this website to answer this exercise:
http://www.doingbusiness.org/rankings
or this website
http://en.wikipedia.org/wiki/Lists_of_universities_and_colleges_by_country

Students can see from the above website all countries in Africa and their relative
attractiveness for doing business – and select their eight countries from the list. This
exercise is more about Africa than about Hershey, but Hershey has business
relationships in Africa, especially in the cocoa growing areas. But there are large,
mass retailers in Africa that would welcome Hershey products.

ASSURANCE OF LEARNING EXERCISE 11C:

DOES MY UNIVERSITY RECRUIT IN FOREIGN COUNTRIES?

ANSWER:
To complete this exercise, students can use the website
http://en.wikipedia.org/wiki/Lists_of_universities_and_colleges_by_country
to select a country, and for AACSB information across countries, they can use
http://www.aacsb.edu/accreditation/AccreditedMembers.asp

ASSURANCE OF LEARNING EXERCISE 11D:

ASSESS DIFFERENCES IN CULTURE ACROSS COUNTRIES

ANSWER:
Students may find the template below useful in completing this exercise.

1st 2nd Interviewee 3rd Interviewee 4th

Interviewee Interviewee
Interviewee Name

Foreign Country

Time spent in
country
Differences in
speaking customs
Differences in
meeting customs
Differences in
meal customs
Differences in
relationship
customs
Differences in
friendship customs
Differences in
communication

ASSURANCE OF LEARNING EXERCISE 11E:

HOW WELL TRAVELED ARE BUSINESS STUDENTS AT MY UNIVERSITY?

ANSWER:
This is a great exercise to offer students for extra credit. Perhaps ask every student
in class to complete this survey, and for extra credit, have a marketing major that has
completed marketing research do the analyses and report back to the class his/her
findings and conclusions. The ten survey questions listed in the textbook or this
exercise are as follows:
1 How many states in the USA have you visited?
2 How many states in the USA have you lived in for at least three months?
3 How many countries outside the USA have you visited?
4 List the countries outside the USA that you have visited.
5 How many countries outside the USA have you lived in for at least three
months?
6 List the countries outside the USA that you have lived in for at least three
months.
7 To what extent do you feel that traveling across the USA can make a person a
more effective businessperson? Use a 1-10 scale, where 1 is “Cannot make a
difference” and 10 is “Can make a tremendous difference.”
8 To what extent do you feel that visiting countries outside the USA can make
a person a more effective businessperson? Use a 1-10 scale, where 1 is
“Cannot make a difference” and 10 is “Can make a tremendous difference.”
9 To what extent do you feel that living in another country can make a person a
more effective businessperson? Use a 1-10 scale, where 1 is “Cannot make a
difference” and 10 is “Can make a tremendous difference.”
10 What three important ways do you feel that traveling or living outside the USA
would be helpful to a person in being a more effective businessperson?

Answers to End-of-Chapter 11 Mini-Case Questions

1. How does a company such as Domino’s decide what countries to begin
operating in next?

Answer: As presented and discussed in Chapter 11, nearly fifty factors impact this
decision, ranging from political stability of countries to infrastructure, tax rates,
unemployment rates, availability of resources, and nature of competition.
 2. How concerned should Domino’s be about rising commodity prices?
Why?

Answer: Rising commodity prices is both an opportunity and a threat. It is an

opportunity in that as commodity food prices rise, rival food businesses increase
prices more than Domino’s increase prices, making pizza comparatively less
expensive and thus more desirable, thus benefiting Domino’s. Also, as commodity
prices rise, people have less disposable income, so they choose Domino’s more
often. Both factors are external opportunities for Domino’s. However, Dominos
purchases tons of tomatoes, olives, mushrooms, etc., so its prices too rise when
commodity food prices increase, and in this sense the rise in commodity prices is a
threat to Domino’s.

3. Why would the franchise approach potentially be better for global

expansion than the company-owned approach? What are the pros and
cons of each approach?

Answer: The franchise approach enables Domino’s to minimize its long-term debt
and long-term leases. Franchising also enables Domino’s to minimize its health care
benefits to be paid and its number of employees. Franchising reduces Domino’s risk
by “employing” local, knowledgeable people to run their own businesses, to the
benefit of Domino’s, which simply collects royalties. In contrast, company-owned
restaurants provide Domino’s with higher revenues and profits, and enable the
company greater control over operations, and greater assurance of uniformity in
quality and policies across regions, countries, and continents.

NOTE – THE FOLLOWING IS AN EXCELLENT, FUN, NOT-IN-THE-BOOK,

ADDITIONAL ASSURANCE OF LEARNING EXERCISE FOR CHAPTER 11

EXERCISE TITLE: How Important Are Various Potential Advantages to Initiating,

Continuing, or Expanding a Firm’s International Operations: Individual versus Group
Decision Making?

Purpose

Chapter 11 discusses potential advantages (and disadvantages) to initiating,

continuing, or expanding international operations. Some important advantages are
as follows:

1. Firms can gain new customers for their products.

2. Foreign operations can absorb excess capacity, reduce unit costs, and spread
economic risks over a wider number of markets.
3. Foreign operations can allow firms to establish low-cost production facilities in
locations close to raw materials or cheap labor.
4. Competitors in foreign markets may not exist, or competition may be less intense
than in domestic markets.
5. Foreign operations may result in reduced tariffs, lower taxes, and favorable
political treatment.
6. Joint ventures can enable firms to learn the technology, culture, and business
practices of other people and to make contacts with potential customers, suppliers,
creditors, and distributors in foreign countries.
7. Economies of scale can be achieved from operation in global rather than solely
domestic markets. Larger-scale production and better efficiencies allow higher sales
volumes and lower-price offerings.
8. A firm’s power and prestige in domestic markets may be significantly enhanced if
the firm competes globally. Enhanced prestige can translate into improved
negotiating power among creditors, suppliers, distributors, and other important
groups.

The purpose of this exercise is to examine more closely eight potential

advantages for a firm to initiate, continue, or expand international operations. In
addition, the purpose of this exercise is to examine whether individual decision
making is better than group decision making. Academic research suggests that
groups make better decisions than individuals about eighty percent of the time.

Instructions

Rank the eight potential advantages for a firm to initiate, continue, or expand
international operations, as to their relative importance, where 1 = most important, to
8 = least important). First, rank the advantages as an individual. Then, rank the
advantages as part of a group of three. Thus, determine what person(s) and what
group(s) here today can come closest to the expert ranking. This exercise enables
examination of the relative effectiveness of individual versus group decision making in
strategic planning.

The Steps

1. Fill in Column 1 in Table 1 to reveal your individual ranking of the relative

importance of the eight advantages (1 = most important, 2 = next most
important, etc.). For example, if you think Advantage 1 (New Customers) is
the 2nd most important advantage, then place a 2 in Table 1 in Column 1 by
the first advantage listed (new customers).
2. Fill in Column 2 in Table 1 to reveal your group’s ranking of the relative
importance of the eight advantages (1 = most important, 2 = next most
important, etc.).
3. Fill in Column 3 in Table 1 to reveal the expert’s ranking of the eight
advantages for a firm to initiate, continue, or expand international operations.
4. Fill in Column 4 in Table 1 to reveal the absolute difference between Column
1 and Column 3 to reveal how well you performed as an individual in this
exercise. (Note: For absolute difference, disregard negative numbers.)
 5. Fill in Column 5 in Table 1 to reveal the absolute difference between Column
2 and Column 3 to reveal how well your group performed in this exercise.
6. Sum Column 4. Sum Column 5.
7. Compare the Column 4 sum with the Column 5 sum. If your Column 4 sum
is less than your Column 5 sum, then you performed better as an individual
than as a group. Normally, group decision making is superior to individual
decision making, so if you did better than your group, you did excellent.
8. The Individual Winner(s): The individual(s) with the lowest Column 4 sum
is the WINNER.
9. The Group Winners(s): The group(s) with the lowest Column 5 score is the
WINNER.

Table 1 – How Important Are Various Potential Advantages to Initiating, Continuing, or

Expanding a Firm’s International Operations: Comparing Individual versus Group
Decision Making?

Advantages of Doing Business Globally Col.1 Col.2 Col.3 Col.4 Col.5

1. Firms can gain new customers for their products.
2. Foreign operations can absorb excess capacity,
reduce unit costs, and spread economic risks over a
wider number of markets.
3. Foreign operations can allow firms to establish low-cost
production facilities in locations close to raw materials or
cheap labor.
4. Competitors in foreign markets may not exist, or
competition may be less intense than in domestic markets.
5. Foreign operations may result in reduced tariffs, lower
taxes, and favorable political treatment.
6. Joint ventures can enable firms to learn the technology,
culture, and business practices of other people and to make
contacts with potential customers, suppliers, creditors, and
distributors in foreign countries.
7. Economies of scale can be achieved from operation in
global rather than solely domestic markets. Larger-scale
production and better efficiencies allow higher sales
volumes and lower-price offerings.
8. A firm’s power and prestige in domestic markets may
be significantly enhanced if the firm competes globally.
Enhanced prestige can translate into improved negotiating
power among creditors, suppliers, distributors, and other
important groups.

Sums

Answer: The Expert Ranking

Authors’ Ranking
(1= most important; 8 = least important)

Potential Advantages To Doing Business Globally

1. Firms can gain new customers for their products. 1
2. Foreign operations can absorb excess capacity, 6
reduce unit costs, and spread economic
risks over a wider number of markets.
3. Foreign operations can allow firms to establish 2
low-cost production facilities in locations close to
raw materials or cheap labor.
4. Competitors in foreign markets may not exist, or 3
competition may be less intense than in domestic markets.
5. Foreign operations may result in reduced tariffs, lower 7
taxes, and favorable political treatment.
6. Joint ventures can enable firms to learn the technology, 5
culture, and business practices of other people and to make
contacts with potential customers, suppliers, creditors,
and distributors in foreign countries.
7. Economies of scale can be achieved from operation in 4
global rather than solely domestic markets. Larger-scale
production and better efficiencies allow higher sales volumes
and lower-price offerings.
8. A firm’s power and prestige in domestic markets may be 8
significantly enhanced if the firm competes globally.
Enhanced prestige can translate into improved negotiating
power among creditors, suppliers, distributors, and other
important groups.

Rationale: The expert rankings are based on the authors’ experience and their reading of
relevant research articles listed at the end of Chapter 11. As indicated above, the most
important potential advantage of engaging in global operations is that firms can gain new
customers for their products. Fully 95 percent of the world’s people live outside the
USA; that is a lot of potential customers. The second most important advantage of doing
business globally is that foreign operations can allow firms to establish low-cost
production facilities in locations close to raw materials or cheap labor. Apple attributes
much of its success to its far-flung production operations. Third most important is that
competitors in foreign markets may not exist, or competition may be less intense than in
domestic markets. The fourth through eighth most important advantages are given
above.