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 InternatIonal
busIness
Geringer McNett Minor Ball
DEDICATION
Mike dedicates this book to his parents, Raymond and JoAnn, who have provided
continued support and encouragement for his writing and other life activities.

Jeanne dedicates this book to her best friends, Nick Athanassiou and Raven McCrory,
her finance professor, Dr. N. D. Qui, and her ION research buddies.

Michael dedicates this book to Angela R. Campbell, Anevay Garcia, Delsin Garcia,
and Amy E. Minor, and to the memory of his mother, father, and late wife.
ABOUT THE AUTHORS
J. Michael Geringer
J. Michael Geringer is the O’Bleness Professor of Inter-
national Strategy at Ohio ­University. He earned a BS in
business at Indiana University and MBA and Ph.D.
­degrees at the University of Washington. He has authored
or edited over 30 books and monographs, more than
140 published papers, and more than 40 case studies;
he serves on the editorial boards of several leading
­international academic journals including editor-in-chief
or ­associate editor for four journals; he served as the
­Saastamoinen Foundation chair at the Helsinki School
of Economics in Finland; he was the founding chair of
the Strategic ­Alliances Committee of the Licensing Ex-
ecutives Society; he served as the chair of both the Inter-
national Business and the Strategy and Policy divisions
of the Administrative Sciences Association of Canada;
and he is past chair of the Academy of Management’s
International Management division. His research has ap-
peared in Strategic Management Journal, Academy of
Management Journal, Journal of International Manage-
ment, Columbia Journal of World Business, Management
­International Review, Journal of Management Studies,
Human Resource Management Journal, Long Range
Planning, Organisation Studies, Thunderbird Interna-
tional Business Review, and Journal of Applied Psychol-
ogy, among others. He has received 11 “best paper”
awards for his research, including the Decade Award for
most influential article from the Journal of International
Business Studies. In addition to spending many years
­living abroad, he has traveled and worked in dozens of
nations worldwide. His teaching performance has earned
numerous awards in the United States, Canada, Asia,
­Africa, Australia, and Europe, including the University
Distinguished Teacher Award. In addition to many ser-
vice activities with various social and nongovernmental
organizations, Geringer is active in consulting and exec-
utive development for multinational corporations and
­executives from six continents.
Jeanne M. McNett
Jeanne M. McNett is a ­researcher at Northeastern
­University in the D’Amore-McKim College of Business
and Professor of Management, Emerita, at Assumption
­College. Dr. McNett also has taught at Morris College
and the University of Maryland in their Asian and
­European divisions. She earned her Ph.D. at the Univer-
sity of ­Massachusetts, Amherst, and her MBA at the Cass
School of Business, City University, London, UK. She
has had ­expatriate assignments in Germany, the UK,
Saudi Arabia, Japan, and Korea. Her interests ­include the
role of culture in international business and the pedagogy
of international management. Her publications include
the Blackwell Encyclopedia of Management, Interna-
tional Management, second and third editions (Blackwell,
2006; Wiley, 2015); The Blackwell Handbook of Global
Management (Blackwell, 2004); and A Primer on Sus-
tainability (Business Expert Press, 2014). Her teaching,
research, and presentations have ­received awards,
­including the Roethlisberger Best Paper of the Year
Award from the Journal of Management ­Education and
the Alpha Phi Alpha Teacher of the Year Award. She is
involved in community sailing on Cape Cod and in Open
University Wellfleet, a community ­education effort.
vii
viii About the Authors

Michael S. Minor Don A. Ball

Michael S. Minor is professor of marketing and interna- Don A. Ball, a consultant to multinational corporations,
tional business at the University of Texas Rio Grande was a professor of marketing and international business
Valley and interim chair of the marketing department. for several years after leaving ­industry. He has a degree
He previously served as director of the Ph.D. program in mechanical engineering from Ohio State and a doctor-
and as undergraduate program director there. He was ate in business administration from the University of
­educated at the University of North Carolina, American Florida. Ball has published articles in the Journal of
University, and Cornell and holds his Ph.D. from ­International Business Studies and other publications.
­Vanderbilt University. He began his international career Before obtaining his doctorate, he spent 15 years in vari-
in Asia, where he lived for several years. His current ous marketing and production management positions in
­research interests are in consumer neuroscience, social Mexico, South America, and Europe.
network behavior, and advertising. He has published in
Journal of Retailing, Journal of Advertising, Journal
of International Business Studies, Psychology and
­Marketing, International Studies of Management and
Organization, Cyberpsychology and Behavior, Journal
of Advertising Research, Academy of Management
Learning and Experience, the Wiley Encyclopedia of
Management, and elsewhere. He is the author of Flash
Marketing, and coauthor with John C. Mowen of Under-
standing Consumer Behavior and the forthcoming
­Consumer Behavior: A Managerial ­Approach. He is a
prolific collaborator with current and former Ph.D.
­students and has directed some 15 doctoral dissertations.
He is a former member of a country band and currently
plays in the band at his church. A member of BMI, he
has written nearly two dozen songs, some of which are
actually fairly good.
A LETTER TO STUDENTS

Welcome to International Business. We are enthusiastic about the field of international business
and the interesting challenges and opportunities it provides. In preparing International Business
for you, our goal is to create the most accessible and personal learning program, so that our read-
ers can share in the excitement we find in this field. Whether you are an undergraduate or are in
an MBA program, an international business course is a necessary venue for helping you explore
and understand the complexities that face us in today’s ever more global business world. Our
hope is that our content will answer questions about business in different cultures, the impact of
geography, why products are the same (or different) across cultures, why people have different
practices, the continued growth and effect of the Internet on international business, how you can
succeed in this global world and many, many more questions. The field of international business
is exciting and dynamic, so there are always new questions and sometimes there are new answers
to old questions.
Each of the 15 modules provides you with a condensed presentation of international business
topics. Within each module, contemporary, student-focused examples offer you an immediate
appreciation of the critical importance of the concept under discussion. Alongside more tradi-
tional developed-country applications throughout the text, we also integrate extensive examples
that apply to emerging-market contexts, and that highlight key changes occurring in the global
economy. All applications are current, relevant, readable, and challenging. Together they provide
you with a truly global view of business. Eye-catching photos, maps, and figures, plus exclusive
features like Get That Job! From Backpack to Briefcase vignettes and Culture Facts cultural high-
lights, reinforce the appeal and readability of the material, personalize the content, and enhance
your enjoyment and your learning. Looking for an even more personal experience, and an efficient
and effective way to study? Ask your Instructor how you can access this content via SmartBook®
or visit www.learnsmartadvantage.com.
We wish you an exciting journey of discovery within the field of international business, both
in your academic training and in your personal and professional careers!

Sincerely,

Mike        Jeanne         Michael    Don

geringer@ohio.edu     J.mcnett@northeastern.edu

ix
STORY OF THE LEARNING PROGRAM

International Business was developed to make international business more accessible and
the teaching and learning experience more personal in order to allow all students to
­become informed global citizens with a global mind-set.

FLEXIBLE LEARNING EXPERIENCE ACCESSIBLE TO ALL

• This new learning program presents the essential content in 15 compact modules
that are carefully written with today’s student reader in mind.
• The chapters are designed from the ground up to speak to your students by intro-
ducing them to international business concepts unfolding in the world around
them. Contemporary examples explore the decisions of businesses from around
the world, such as YouTube, Twitter, Walmart, Xiaomi, eBay, Nestlé, Mondelez,
Starbucks, Zara, Nissan, Mattel, Apple, McDonald’s, Cognizant, Kiva, Chobani,
and Google. Specific student-relevant features of every chapter include an intro-
ductory example that focuses on the chapter’s main ideas with a narrative to which
students can relate.
• In-text Global Debate material, eye-catching photos, maps, and figures reinforce
the appeal, build geography skills, and increase accessibility and readability.

PERSONAL LEARNING EXPERIENCE

• To provide a more personal connection with the student reader, the authors con-
nect the content to culture wherever appropriate in the narrative, and include
­additional fun Culture Facts cultural highlights to provide a stimulating set of
­examples to help intrigue and interest the students and make content more person-
ally relevant.
• Exclusive Get That Job! From Backpack to Briefcase vignettes feature ­recent
graduates succeeding in international roles within their organizations.
• The SmartBook® program provides students with an easy-to-use, effective, and
­efficient study experience. The adaptive learning platform paces and reinforces
learning, and supports a flipped classroom pedagogy in which students learn the
basic material outside of class and class time is dedicated to applications and
­problem solving.
• The authors have written the content in a unique, modular format allowing faculty
to personalize their course according to specific requirements and course goals.
Each module and the bonus modules have been written to stand on their own, a
unique feature that provides additional flexibility to the instructor and enhances
comprehension for students.

x
CURRENT AND RIGOROUS COVERAGE OF ESSENTIAL CONTENT
• The text’s presentation of basic concepts includes the latest research and theory
highlighted by engaging, student-centered applications. We believe rigor enriches
learning, and when combined with the exceptional readability and relevance of our
approach to the material, this rigor can motivate the learner to perform at a higher
level. Rigor, readability, and relevance differentiate our book.
• The growing role of emerging markets, including the BRIC countries of Brazil,
Russia, India, and China, is stressed in examples throughout the modules.

AUTHOR-CREATED RESOURCES FOR EVERY COURSE FORMAT

• Instructors adopting International Business will find it easy to deliver the course
in a variety of formats, including large lecture, online, hybrid, and flipped class-
rooms. The author team has carefully developed instructor support materials as
well as application exercises designed to involve students and bring them closer to
the concepts covered.
• An end-of-module mini-case is provided to spark class discussion and apply con-
cepts to the situation facing an international business or international manager.

xi
MODULE WALKTHROUGH

International Business is organized into three sections to maximize its utility to instructors
and students alike. The opening section, Module 1, defines the nature of international busi-
ness and the three environments in which it is conducted, as well as the nature and continu-
ing importance of international institutions and how they affect business. The ­second
section, comprised of Modules 2 through 8, focuses on the uncontrollable forces at work in
all business environments and discusses their inevitable impact on business practice. We
devote the third and final section, Modules 9 through 15, to a discussion of how managers
deal with all the forces affecting ­international business.

Module 1: The Challenging Context of International Business: Discusses the impor-

tance of international business and how it differs from domestic business. Describes the
history of globalization and the internationalization of business and markets, including
the driving forces encouraging firms to internationalize their operations. Compares key
arguments in favor of and opposing the globalization of business.
Module 2: International Trade and Investment: Describes trends and traits of inter-
national trade and foreign direct investment. Introduces and distinguishes among the
theories that explain why certain goods are traded internationally. Describes the growth
of and explanations for foreign direct investment.
Module 3: Sociocultural Forces: Explores what culture is and its influence on busi-
ness. The module looks at how cultures show themselves, provides frameworks for ana-
lyzing cultures, describes the global mind-set and a model for building strength from
diverse cultures, and closes with advice for operating in other cultures.
Module 4: Sustainability and Natural Resources: Describes environmental sustain-
ability in a business context, provides frameworks for sustainability, examines the charac-
teristics of environmentally sustainable businesses, and then moves to a discussion of
natural resources that includes geography and energy options.
Module 5: Political Forces That Affect Global Trade: Looks at government involvement
in business, the importance of government stability to business, the role of country risk assess-
ment, and the ways governments impede trade through tariffs and other trade barriers.
Module 6: Intellectual Property Rights and Other Legal Forces: Reviews legal systems
and the rule of law, discusses legal concerns in international business, the ways intellectual
property can be protected, and the international standardization of some laws. Examines spe-
cific national-level legal approaches in competition, trade, tort, ethics, and accounting.
Module 7: Economic and Socioeconomic Forces: Explains the purpose of economic
analysis and discusses different categories of countries based on levels of national eco-
nomic development. Explores human-needs development and global population trends
involving urbanization, treatment of gender, ethnicity, and other sociocultural factors.
Module 8: The International Monetary System and Financial Forces: ­Describes
the development of the international monetary system from the gold standard through
today’s floating currency exchange rate system and describes the process of ­exchange
rate movement. Discusses the financial forces governments can exert and the significance
of the balance of payments to international business decisions.
Module 9: International Competitive Strategy: Examines international competitive
strategy and how companies use strategic planning to address international business
­opportunities and challenges. Discussion includes how companies develop competencies
to give them competitive advantage in national, regional, and global markets.

xii
Module 10: Organizational Design and Control: Explains why the design of organiza-
tions is important to international companies and the various dimensions managers must con-
sider when designing their organizations. Explains why and how decision making is allocated
across subsidiaries of an international company, both wholly owned and jointly owned.
Module 11: Global Leadership Issues and Practices: Covers issues associated with
global leadership, including the importance of creating a global mind-set, what is different
between global leadership and domestic leadership, and the competencies necessary for
effective global leadership. Identifies approaches for selecting and developing effective
global leaders, as well as the challenges of leading global teams and global change.
Module 12: International Markets: Assessment and Entry Modes: Provides approaches
to market screening and environmental analysis. Describes some of the issues market
r­ esearchers may encounter in foreign markets. Explains international market entry modes.
Module 13: Marketing Internationally: Looks at considerations associated with mar-
keting products internationally and ways in which these considerations differ from domestic
marketing activity.
Addresses issues including discussion of differences between the total product, the physi-
cal product, and the brand name; considerations in deciding which parts of the marketing mix
to standardize, localize, or “glocalize”; and international pricing and distribution strategies.
Module 14: Managing Human Resources in an International Context: Examines
worldwide labor conditions and the international human resource management approach,
including recruitment, selection, training and development, expatriation, and compensation.
Identifies some of the challenges and opportunities of an expatriate position, for the expat and
for his or her family members. Describes compensation packages for expatriate executives.
Module 15: International Accounting and Financial Management: Outlines the ma-
jor accounting issues related to operating in international currencies, explores the benefits
of triple bottom line accounting, reviews capital structure choices, describes why ICs
move funds. Reviews foreign exchange risks and their hedging. Looks at taxation as an
international financial force.

In addition to the 15 core modules discussed above, International Business provides

three additional bonus modules, to provide coverage of selected material that may be of
particular value to students and instructors.
Bonus Module A: International Institutions from a Business Perspective: ­Describes
why international institutions are important to business, including an introduction to insti-
tutional theory. Describes several significant international and regional institutions,
­including the UN, the IMF, the World Bank, and the OECD. Examines the major trading
blocks as successful institutions and their levels of economic integration.
Bonus Module B: Export and Import Practices: Examines practices and procedures
for engaging in exporting and importing, including sources of export counseling and sup-
port, key terms used in exporting and importing, sources of export financing, and export
documentation.
Bonus Module C: Global Operations and Supply Chain Management: An over-
view of important operations issues in conducting international business, including the
management of international supply chains, the relationship between design and supply
chain management, alternatives for global sourcing arrangements, and key issues in deci-
sions regarding global standardization of production processes and procedures.

xiii
STUDENT FOCUSED FEATURES

• Student focused introductory example focus on the module’s main ideas with a
narrative to which students can relate and develop a global mind-set.

Why You Need International Experience and How to Get It

Will international experience help you to get a cross-functional areas; and (3) the importance indicated
job? The answer is a definite “yes,” according in the preceding points was magnified for companies that
to Dan Black, director of campus recruiting for anticipated increasing importance of international activi-
the Americas for Ernst & Young, who says, “We ties in the next five years. For developing international
definitely see overseas experience as an skills, respondents believed that a number of courses in
the international business curriculum are relevant to their
advantage. . . . Our clients are demanding more
companies. In addition to an introduction to international
of us these days. They want diversity of thought
business course, the internationally oriented courses
and diversity of values.”a viewed as being the most important for early career posi-
tions included topics related to (1) international strategy
International experience is valuable not only for new and competitiveness, (2) international legal and political
hires, but also for mid-career individuals who aspireIB to IN issues,
PRACTICE (3) international negotiation, and (4) foreign
higher positions and greater responsibility. For example, language.d
as a young assistant controller at the Fortune 500 medical From our study it appears that CEOs of major U.S. firms
device company Medtronic, Gary Ellis was considered to doing business overseas are convinced that the business
be on the fast track for a top management position, Virtually
but Ripped Off?
graduates they Intellectual
hire should have Property Issues ininSecond
some education the Life
company executives felt he first needed broader experi- and Maple Story
international aspects of business. Clearly, they prefer busi-
ence. They sent Ellis to head their European headquarters The Second Life ness graduates
virtual world, once who know something
considered a haven for about markets, cus-
in Belgium, where he was responsible for many top-level geeks, celebrated toms, its and cultures inin June
tenth anniversary other2013, countries.
and As Peter Lacy of
duties. Two years later, when the corporate controller’s since then it Accenture
has claimed mainstream
stated, “Our success
clients withincreasingly
more operate seam-
position in Medtronic’s home office became vacant, than 36 million users worldwide.* Maple Story, originally
Ellis lessly across borders. Our people need to be able to do
Korean, is an animated game platform with localized ver-
was given the job due to the chief executive officer’s the same.
sions that maintains a cashThat shop mindset
where players comes can buy from being exposed to
(CEO) belief that successful executives of the future will bepets, avatars,
digital new businessand other items. culturesEach and of these experiences
virtual that come with
• IB in Practice illustrates
those who have lived for several years in another nation.
Today, Ellis is Medtronic’s chief financial officer and thing
worlds creates
senior
a self-sufficientplacements.”
international universe with almost
the real world has, including intellectual property
e

Did you note the reason for this emphasis on foreign

every-

rights and tax liability.

key international business
vice president.
Other leading companies share this view of the impor-
As the virtual
like the real the
experience
world,
world of Second
firm
for managers?
its inresidents’
international
Life has become
need for
It is more
business.
realism has
increased involvement of
What about companies
concepts as decision
tance of international experience. At FMC Corp., the
president for human resources suggested that by the
vice and
increased,
marked
end products
with
need
brandno owners
foreignareoperations
finding that of
appear online without their authorization.
theiranytrade-
this global perspective? They do indeed, because it
kind? Do their managers
Benjamin Duranske, a lawyer who specializes in virtual law,
makers apply them in
of the decade, anyone in a general management position
in his company will have had direct international exposure
found 15 shops
40 stores selling
will onhelp
sourcing
Second them Life not
opportunities
virtual Rolex
only to
advertising
and Chanelinwatches;
be cars;
Ferrari
foreignand
alert for both sales and
markets but was
the case alsoquietly
to beclosed. How to handle the issues
their practice of global
and experience. PwC, a professional services company,
predicts the next decade will see an increase of 50 percent
another 50 that carriedfor
watchful sunglasses
names of Gucci, Prada, Rayban, and Oakley.
new foreign carrying
their domestic market. InternationalMaple
the brand preparing
competitors raised by lawsuits
to invade in virtual worlds like Second Life and
Story remains an open question.
experience can
Creators of virtual goods for sale in virtual worlds are In Evans v. Linden Research, in November 2012, a
management.
in the number of workers accepting global assignments.
As Nicholas Platt, president emeritus of the Asia Society,
b
also worried increase
rights. Lindenwith
about violation
Lab, very
yourofrespect
which different
owns Second styles
for other
their intellectual
Life,ofwas
cultures,Northern
property
leadership,
sued by
teach you
and enhance
‘persons
to deal
District
whose assets,
of California judge “certified a class of
your including virtual items, virtual land,
explained, “To tackle the challenges of globalisation will
an entrepreneur who created
ability to manage virtual erotic “SexGen”
diversity beds teams.
within and/or currency
In addition,in lindens and/or U.S. dollars, have been
require a serious commitment to making international and other goods that he sold to Second Life residents. The deliberately and intentionally converted by Defendant
according to recruiters, foreign experience reflects inde-
entrepreneur claimed that Linden Lab permitted Second Linden’s suspension or closure of their Second Life
knowledge and skills a policy priority. . . . Knowledge Life of the
residentspendence,
to counterfeit resourcefulness,
his creations and selland thementrepreneurship.
for People thousand property owners lost
accounts.’”§ Fifty-seven
world is no longer a luxury, it is a necessity.”c Linden dollarswho (known work
as L$). and support
His lawsuit themselves
claimed that this is overseas
property, andtendthey tosettled
be for $172,000 or L$ 43 million to
Although many companies want their top headquarters like the imitation bags sold adaptive,
inquisitive, on Canal Street andin flexible—valuable
New York be sharedqualities
among them. in Linden Research argued that vir-
executives to have years of foreign experience, do City. Another entrepreneur who sells virtual clothing in
today’s work environment. Internationaltualexperience property was essentially code contained in computer
GLOBAL DEBATE of the major firms recognize the value of internationalized
CEOs
other marketers
• Global Debate contrasts different perspectives
Second Life joined the lawsuit, alleging that by allowing
important
to copy variable
and sell fake in explaining
versions of her better decision
A greater riskmaking
is an
software. Judge Donna Ryu didn’t buy it.
is that companies producing trademarked
business education for all employees in management?
Surveying CEOs of the 162 largest firms on Fortune’s
designs, Linden
These
andLabs
listtwo litigants on key international business issues, raises the
strategic
So sought
choices.onf her copyright.
was infringing
what class-action
can you do statusto inimprove
U.S.
goods and services in the real world may lose their ability
to exploit
your the virtual site
chances to for their own marketing purposes
District
theCourtobtainin California. They claimed, “Linden Lab has in the future. Further, when they try to renew their trade-

LENDING TO THE POOR: Charitable Activity or

of the 500 largest U.S. corporations, we found that
CEOs For-Profit
strongly believed Business?(1) an international orientation areaallows
in piracy, actively
pros and cons of ethical issues, and helps
an overseas post? You can take
created in Second Life a system in which it directly engages
of its international
users to engage business,
in piracy, pro- perhaps
classes in the
marks they may meet with opposition from rivals who say
they haveleading
abandoned to atheir rights by failing to police third-

You might think it is foolish to some have

should be an important part of college business educa-
tion; gone
(2) international
public, selling business
sharesskills and knowledge
to investors. The users’
degreeand
vides the capabilities,
stimulate classroom discussion.
in then
an international
benefits from its business–related
werepiracy.”tion, even while you are in school or shortly
own and its field.
party use.
trol. In after
In addi-
Finally,
a similar
there is simply the issue of loss of con-
situation, the British telecom company BT
gradua-
So, who cares? First, residents of Second Life and
lend money to the poor in a move toimportant not merely
private ownership that forseeks
promotion
a return to on
senior
invest-executive tion, consider going abroad to study, was unhappy to find that the central character in a
to work (whether
Maple Story do. These virtual knockoffs are bought and PlayStation 2 game, “The Getaway,” pretends to be a BT
developing country. How will positionsthe
ment changes butmicroloan
also for appointment
business model to entry-level
substan- positions,
sold there, and asalthough
a business virtual intern,
currencyas a teacher,
is used, holders or even
engineer in before
such carrying
posi- out a killing spree.
borrowers pay it back? But a andcharity
tially, from across a broadbusiness.
to for-profit array ofThe functional
charity model as well as
can exchange tions as bartender
it for real or childa virtual
currency or bitcoins, care cur-provider),Second
or to Life
volunteer
and Maple Story are just the tip of the virtual
tiny, or microfinance, loan to a uses donated funds and funds from international financial rency. (Check out the “Bretton Woods Agreement” for L$.†) world iceberg: there are many other virtual worlds out there,
new small-business owner or institutions such as the World Bank and the European Second Life reports over $500 million in transactions a such as China-based HiPiHi, Germany-based Twinity and

entrepreneur—a vegetable ped-

year.†† While the court was deciding on whether Second
Bank for Reconstruction and Development, and it has Life residents could be part of a class action suit, the • Get That Job! From Backpack
Smeet, New Zealand–based SmallWorlds, U.S.-based IMVU
3
and Kaneva, and Canada-based Utherverse. The U.S. Army
dler, tailor, or candle maker—can relatively low interest rates. Compartamos now charges
GET THAT JOB!
to Briefcase follows an actual
parties agreed to arbitration that led to a settlement, and recruits on Second Life, and real-world businesses are active
make both good charitable and its credit customers inFROM the range BACKPACK
of 100 percent TO (onBRIEFCASE
an
good business sense. Develop- annualized basis) to cover loan interest, fees, and taxes, 162
ment organizations around the three times the cost of borrowing from other microcredit student’s transition from college
world are finding that some RYAN of HOLTZMAN
lenders. To make IN DALIAN,
matters a CHINA:
little moreChallenge
complicated,Yourself many to Move beyond
the world’s poorest entrepre- Your Comfort Zone
of the shareholders
ger17226_mod01_002-027.indd 3 who profited greatly from the Com- to work in an international con- 5/23/15 3:19 PM
neurs, many of whom are women, repay their debts at partamos IPO are themselves microlenders, such as
rates approaching 100 percent. ACCION.
In China, I worked as an English teacher. I mostly taught
ger17226_mod06_150-179.indd 162
children 2–10 years old, but I also taught one adult class
text, through such activities as 5/12/15 5:11 PM

Microloans give thousands of small entrepreneurs Is it right to profit from loans to theforpoor? Dr.I had
Yunis
small spurts of working capital when they need it, allow thinks not and “refuses to mention the words
a month.
about aComparta-
preparation
only been accepted for this opportunity
month before I was supposed to start, so my
was fairly
study abroad, international
them to establish credit, and let them borrow again in mos and microfinance in the same breath.” But here’s an rushed. I had no background in
hard times. The money helps them start or expand their explanation from the two friends who founded
Mandarin, so I did what I could to learn some basic
Comparta-
phrases before I left. I asked around and found a couple of
­internship and volunteer work,
business and boosts the local economy. The microcredit mos in 1990. They suggest that, just likepeople food in a famine,
concept was developed by Muhammad Yunus, a U.S.- money exists in poor countries; the problem and is
who had previously spent time working in China
distribution.
I asked
they brings
them about their experiences and whether
had any private
advice for me. I did a lot of research on the
and early career decisions.
trained Bangladeshi economist, through the Grameen The potential for profit quickly and efficiently
city I was going to be living in and tried to learn all I could
Bank in Bangladesh, which he established to administer capital in touch with the people who need it, say the two.
about everyday life in China. Since I found this opportunity
his program, and by ACCION, a U.S. microcredit organi- They see going public as a way to align the world’s wealth
through AIESEC, my living arrangements and transporta-
zation. Dr. Yunus was awarded the Nobel Peace Prize in with the world’s poor. tion from the airport were already established before I left,
2006 for his work fighting poverty. View a PBS video that explores thiswhich issue wasfurther
a huge benefit.
at
The most important thing I did to help myself adjust to
Performance on microloan repayment shines when www.pbs.org/now/shows/338/. the Chinese culture when I was abroad was make a few
compared with the repayment rates of some sovereign friends I could really trust. I ended up living in a couple of
nations. It also looks very good compared with a default Qu estio n s different places with some great American and Canadian
rate of 13.8 percent among U.S. recipients of federally friends that I made, but it was invaluable having a couple of
1. Is profiting from lending to the poor an ethical
Chinese busi-on whom I could rely for help when
friends
guaranteed student loans. ACCION reports a default
ness model? I needed it. If I ever needed anything—from finding trans-
rate over the life of its program of 3 percent. A Mexican portation to learning how to ask for a haircut—my friends
microloan program, Compartamos, reports a 1 percent 2. Is for-profit microlending a way to reach
were willing of
more the their assistance.
to provide
default rate. Critics point out, though, that one micro- poorwith
I am a business major more effectively,inorinternational
a concentration a mistaken development?
I didn’t really run into any reverse culture shock upon
management and a minor in psychology. At this point, my my return to the United States. I think a large part of that
loan is not going to pull a budding entrepreneur out of Sources: “Yunus Blasts Compartamos,” BusinessWeek, December
major career goal is to spend an extended period of time was due to the fact that I spent only five months in the
poverty, let alone a whole country. A series of loans 13, 2007, http://www.businessweek.com/magazine/content/07_52/
(over a year) working in another country. I know that this country. My experience abroad definitely changed the way
is probably necessary, combined with training probably
and won’t b4064045920958.htm
happen right away, but (April
it is 21, 2014);that
something Haley IDillan, “Microfinance
view certain parts of my life, but I didn’t have any trouble
Leaders
I will surely work on the
toward. Global
I have Economic
always Crisis, Women,
been interested in and For-Profit
assimilating Lend-
back into the U.S. culture.
support. ing,” November
traveling and learning about 4, 2009, cultures,
different http://www.globalenvision.org/2009/10/20/
and inter- I had to leave my first job in China after two months due
Recently, because of their success, several not-for- microfinance-update-interview
national business seemed like a great starting (April
point20,
to be2014); and http://www.
to a contractual problem, so one of my biggest challenges
profit microloan programs have become banks, able andto eventually
ACCION.org (April 21, 2014).
xiv
work with people from different parts of was finding another place to work so I wouldn’t have to cut
the world. short my time abroad. Chinese culture is strongly based on
I worked in Dalian, China, for five months during the relationships, or guanxi, so I knew that my best shot for
summer and fall of my senior year. I worked with AIESEC finding another job was to ask everyone I knew if they were
(an acronym for the Association Internationale des Étudi- aware of any jobs that were available for me. After a month
ants en Sciences Économiques et Commerciales and the of searching, I was offered a job at a kindergarten because
translation exposure world’s largest student-led organization) to get an interna- my friend’s boss knew the owner of the school and they
Potential change in the TRANSLATION EXPOSURE tional internship, because I couldn’t afford to study were in need of a foreign English teacher.
value of a company’s financial abroad. I chose to go to China because I wanted to chal- Another bigatchallenge for me was getting around in
position due to exposure Translation exposure occurs when subsidiary financial statements are consolidated the
lenge myself. The culture is extremely different from what I China without really knowing the language. Hand gestures
created during the corporate level for the grew
companywide financial reports. Because
up with in the United States, and I wanted to live
the foreign subsidiaries
can get you pretty far in most cases, but other things like
 Use the globalEDGE website (http://globalEDGE.msu. 2. You work for a domestic cheese producer in the
edu/) to complete the following exercises: food and beverage industry and you are planning
to start exporting your products. As a starting
1. You are an executive who is in charge of new market
point you would like to examine trade patterns to
development for an international company. You are
identify the top-10 countries that import the high-
currently conducting an initial market research on
est amount of food and beverage goods. In the
Qatar, Vietnam, and New Zealand in order to under-
“Insights by Industry” section of globalEDGE,
stand their overall market attractiveness. Locate
locate the Food and Beverage Industry and check
each country in the “Insights by Country” section of
its “Trade Statistics” page. Which countries are
globalEDGE and check their “Ease of Doing Busi-
the top-10 importers in the industry; what are
ness” rankings in their respective “Indices” pages.
their import volumes? In the same page, check
Also check their “Economy” pages and take a brief
also the top-10 traded goods for this specific in-
look at their economic snapshot graphs. Which of
dustry. Is your product in the top-10 imported or
these three has a stronger economy? Which country
• End-of-module
is more promisingmini-case to market?
as a potential new sparksWhy?class exportedand
discussion products globally?
applies concepts
to a situation facing or international managers.

MINICASE
ARE YOU REALLY BUYING AMERICAN?
Consider the following scenario of a “typical” American fam- work, stopping for gas at the Shell station. At the grocery
ily: The Osbornes, Jesse and Ann, live in the suburbs of store, she fills her cart with a variety of items, including
Chicago. Jesse is a manager at Trader Joe’s specialty grocery Ragu spaghetti sauce, Hellmann’s mayonnaise, Carnation
store chain. Ann is an advertising executive for Leo Burnett Instant Breakfast drink, a case of Arrowhead water,
Worldwide. CoffeeMate nondairy coffee creamer, Chicken-of-the-Sea
Ann listens to the new Adam Lambert CD on her Alpine canned tuna, Lipton tea, a half-dozen cans of Slim-Fast,
car stereo in her Jeep Cherokee while driving home from Dannon yogurt, and several packages of Stouffer’s Lean
What Is International Business and What Is Different about It? 5

C
• Culture Facts appear in the margin of each module, helping to build your
CULTURE CULTURE FACTS @internationalbiz
interest as you read and to stimulate
you alreadyclass
know, ofdiscussion by illuminating
every introductory course. To assist you in learning theFACTS
Key Terms
international
23 @CompanyName Text for what
business language, we’ve included a glossary at the end of the book and listed the most
company is referencing. Tas asja
­cultural differences international managers face.
important terms at the end of each module. They also appear in bold print where they are asd asd #culture #funfacts #cool
SUMMARY
first used in the text, with their definitions in the margin.
8 Module 1 The Challenging Context of International Business
import penetration, plus the massive amounts of overseas
• Quotations
What from
LO the 1-1 notable thinkers ­highlight
andkey points.
“
investment, means that firms of all sizes face competitors
ger17226_mod01_002-027.indd 24
WE HAVE to SEND OUR
of China and
Is International
Show how
in the international Business
foreign environment of India and therefore is working
international
environment. business organizations
International differs from whose ac- from everywhere in the world. This increasing internation-
5/23/15 3:23 PM
LO 1-1
alization of business is requiring managers to have a
BEST AND BRIGHTEST What Is Different about It?
domestic business.
tions affect the international environment are also properly part of it.
These organizations include (1) worldwide bodies (e.g., World Bank),
global business perspective gained through experience,
Show how international
business differs from
education, or both.
OVERSEAS AND MAKE SURE (2) regional economic groupings of nations (North American Free Trade
International business is business whose activities are
domestic business.
Agreement,carried European Because
out across national
Union, international
Mercosur), borders.
and (3) business
International
organizations is abound
busi- relatively new discipline and is extremely dynamic, you
THEY HAVE THE TRAINING by industryness differs
agreements willfrom finditsthat
(Organization domestic
the counterpart
of definitions
Petroleum in
ofthat
Exporting a number itCoun- of terms vary among users. To avoid confusion due
involves three environments—domestic, foreign, and LO 1-4
THAT WILL ALLOW THEM to tries, or OPEC). to the range of ofone.different
Although definitions
the kinds of ofIdentify termsthe in kinds
international business, wefirmswill employ the
BE THE GLOBAL LEADERS • Key Terms are highlighted and defined in
Decision Making
international—instead
forces Isare following same indefinitions,
the Complex
More the domestic
Those who work which
and in theare
foreign envi-generally
international accepted by
to internationalize
of drivers that
their
are leading
operations.International business is
managers. international business
WHO WILL MAKE GE the margin of the text.
purely domestic
ronments,
environment find that their
business
valuesenvironment.
of foreign forces
values
decision making often
that
Consider
isdiffer,
is more
carried
are atmanagers
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and changes
complex outthan
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a home to
in
acrossthe
it is innational
as- who
office
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The five major kinds of drivers, all based on change, that
FLOURISH in THE sess. Theinternational
must make decisions international
affecting tradeinand
environment
subsidiaries justis10foreign
defined
different asmanufacturing
the
countries are leading but also the
international firms growing
to globalizeservice industry in areas across national borders
their operations
(many ICs are interactions
in 20 or suchmore(1) as
between
countries). theThey
transportation, domestic
not only environmental
tourism,must take advertising,
into ac- are as follows,
consulting,with an example for each kind:
construction, (1) political—
retailing, wholesaling, foreign business
FUTURE.
”
forces and the foreign environmental
count the domestic forces but also must evaluate the influence of 10 for- forces and preferential trading agreements, (2) technological—
eign national(2)environments.
between andthe mass foreign
Instead communications.
ofenvironmental
having to consider forces Foreign
the ofeffects
two of business
advances
a indenotes
communications the operations of a company outside The operations of a company
technology, (3) market—global
—Jack Welch, outside its home or
single set ofcountries
10 forces, itsas home
when doan or domestic
affiliate
their domesticin one country
counterparts, market;
does they many
business
have to con- refer
firms becometo this as customers,
global business(4)conducted cost—globalization withinof a foreign
former CEO of General Electric tend with 10with setscustomers
of 10 forces, in another.
both individually and collectively,isbecause product lines and production helps reduce costs by achiev- domestic market
country. This term sometimes used ing
interchangeably
economies of scale,
with
and (5)
“international are
competitive—firms
business” by
there may be some interaction.
For example, if management agrees someto writers,labor’s demands although at onethat foreign will not be
subsidiary, our practice.
defending their home An markets international
from foreign competitorscompany (IC) is a international company (IC)
chances are it will have to LO offer 1-2 company
a similar settlement with operations
at another subsidiary in because
multiple of the by entering the foreign competitors’ markets.
nations. A company with operations in
tendency of unions to exchange Describe the history
information andborders.
across future ofFurthermore,
international 24 as we shall Module 1 The Challenging Context of International Business multiple nations
observe throughout this text, business. International business
not only are there many sets of forces, but there are also differs from domestic business in that a firm operating across
extreme differences among them. borders must deal with the forces ofLO three1-5 kinds of environments—domestic, foreign,
International business has a long and Inimportant CRITICAL
history, firmCompare THINKINGthe key arguments QUESTIONS for and are against the out within
• Icons in the margin highlight where each learning objective is addressed, identify
Self-Reference Criterionextending
and
Anotherthousands
international.
common cause of years of theintoadded
contrast,
the past. Politics,ofthe
complexity
aforeign whose business
globalization of business.
activities carried
environments is managers’ arts, the borders
agriculture,
unfamiliarity industry,
with other ofcultures.
public one
health, country
Toandmakeother needs
sectors
matters to beis concerned
worse, essentially with only6. the domestic
content relevant to social media and culture, and call out related material in
some managers will ascribe of tohuman LO 2-1
othersenvironment.
life have
their own been However,
profoundly
preferences andinfluenced no domestic
reactions. by
1. Business
Thus,the a for-
ways firm
Economic
to
business, and every firm has to find
produce isglobalization
entirely
and market its free
refers
goods.tofrom
the
Why, foreign
tendency
then, toward an
“A nation whose GNI is smaller than the sales volume
or international
of a global firm is in no position to enforce its wishes
eign production manager, goods facingand ideas that
a backlog have come
of orders, maywith offer international
her workers trade.
extra pay
­McGraw-Hill Connect to further enhance your comprehension and learning.
for overtime. When they fail Rapid Appreciate the magnitude
environmental
to urbanization
show up, theofmanager
populations isforces
combined
perplexed: because
with
“Back industri-
homethe might
thethey
international
managers beintegration
possibility
technology,
techniques and
unable
of having
information,
concepts they
to and interdependency
successfully
to
labor,have
face
andlearned
apply
competition
capital, in
of goods,
or the process
on the
fromlocal subsidiary
for- of that firm.” Is this statement
true or false? Please explain your rationale.
always want to earn more alization
money.” This eign
in imports
themanager
emerging or from
hasmarkets
failed foreign
tois understand
quickly shifting competitors
that thethe work-
their of making
own country that
this set areas
to integration
other up happen.
operations
of the world? The merits in of itsglobal-
own
7. What market
of international trade andexamplesisof globalization can you identify
ers prefer time off to more world’s
money. economic center
This unconscious
always present. of gravity Letfrom
reference ustoEurope and
the manager’s
first 2.the
examine Give own thesehave
ization
examples forces
to been how
show theand an then
subject see how
of many
international busi- they
heated debates operate
in
within your in community?
the How would you classify
self-reference criterion
Unconscious reference to your
cultural values, called the self-Americas
national business blunders. Successful
referenceand back
three
to Asia.
criterion , is probably the biggest cause ofness
environments.
managers are careful to examine a problem
inter- recent years.
manager
in
might Key argumentsone
manipulate in support
of the con- how it has grown.
of the globaliza- each of these examples (as international invest-
own cultural values when tion of business include
trollable forces in answer to a change in the (1) free trade enhances socioeco- ment, international trade, other)?
judging behaviors of others in terms of the local cultural traits as well as their own. nomic development
uncontrollable forces. and (2) free trade promotes more 8. Why is there opposition to globalization of trade
A solid understandingLO of the 1-3business concepts and techniques employed in the and better
a new and different
3. Although forces jobs.in theKey concerns
foreign with the are
environment globalization of and integration of the world’s economy? Is there a
environment United States and other advanced Discussindustrial
the dramatic nations internationalization
is a requisite for success of in interna- business include (1) globalization has produced uneven
THE INFLUENCE OF EXTERNAL AND the same as those in the domestic environment, way the debate can move beyond a simplistic argu-
• A summary, key terms, critical thinking questions, and a globalEDGE
tional business. However, business.because transactions take place across national borders, results across nationsWhyand people,
so? (2) globalization has
CFACTS
INTERNAL ENVIRONMENTAL FORCES
CULTURE CULTURE FACTS @internationalbiz
People living in cultures in which
three environments—domestic, foreign, and international—may be involved,
­research assignment wrap up the module.
unequal wealth and power are instead of just one. Thus, Globalincompetition
international business, as
is mounting thethe international
number of interna-
4. Why,
manager
they operate
has
differently. is this
had deleterious effects on labor and labor standards, and
in your opinion, do the authors regard the
(3) globalization has contributed to a decline in environ-
ment for or against globalization and toward how
best to strengthen the working of the global econ-
omy in order to enhance the welfare of the world
use of the self-reference criterion as “probably the
more acceptable, such as China, three choices in deciding tional what The
companiesto do termwith
expands environment
a concept
rapidly.orThe as
a technique
huge used here
employed
increase in means
biggest
in
mental and all the
health forces
conditions. influencing the life and
and itsdevelop- environment
inhabitants? What might this require?
Russia, and India, are less likely domestic operations: (1) transfer it intact, (2) adapt it to local conditions, or cause of international business blunders”?
to help people in need or donate ment of the firm. The forces themselves
Can you think can
of an be classified
example? as external or9. internal.
You have decided All the
The to take forces
a job in yourinfluencing
hometown
to charitable causes than are (3) not use it overseas. International managers who have discovered that there are
Key Terms 23
after graduation. the
forces Why should life and
you development
study interna- of
people from nations with low differences in the environmental KEYexternal forces areforces
TERMS are commonly
better prepared
scores on inequality acceptance, to follow. To be sure, no one can be an expert on all these forces for all nations,
to decide which called
5. Discuss
option uncontrollable
some possible conflicts
ernments and foreign-owned companies.
forcesbetween , whichhost gov- are the external
tional business? the firm
such as Canada, Australia, the that management has no direct control over, although it can exert influence—such as lob-
UnitedSUMMARY
States, and Ireland. but just knowing that differences may exist will cause people to “work with their
#unequalwealth #unequalpower In other bying
antennas extended.” controllable forceswhen
words, for a change
(p. 6) they in foreign
enter internationala lawbusiness and heavily
business, (p.they
5) promotinginternational a new product company (IC) that requires a change uncontrollable forces
(p. 5)
domestic environment (p. 6) foreign direct investment (FDI) (p. 13)
#acceptable #nodonations will know they must look outin foraimportant
cultural theyconsist of the international environment (p. 7) The external forces that
(p. 17)attitude. External forces following:criterion
variations in many of the forces
economic globalization
take as given in the domestic import
environment. penetration, plus
It is to the study of the foreign
massive environment
these three amounts environ- of(p. 6)
overseas RESEARCH
self-reference TASK http://globalEDGE.msu.edu/
(p. 8)
management has no direct
LO 1-1 ments that
environment (p.
24 this text isexporting
directed.(p. 13)
5)
investment, means that firms importing
of all sizes(p. 13)
face competitors transnational corporation (p. 12)
control over
Show how international business differs from 1. everywhere
Module
from
1
Competitive: The Challenging
in the kinds
world.
Context
This and
international of numbers
International
business
increasing
Use the
(p. 5)of competitors,
Business
internation-
globalEDGE website
their forces
uncontrollable
(http://globalEDGE.msu.
locations,
(p. 5) and2. their
You work for a domestic cheese producer in the
The relationships among the forces in the three environments we have been discussing
domestic business. form the basis of our international business alization activities.
of business is requiring edu/)
environments model, shown in managers
Figure to havethe
to complete
1.1. a following exercises: food and beverage industry and you are planning
global business perspective gained through experience, to start exporting your products. As a starting
The external or CRITICAL
uncontrollable forces THINKING in both theQUESTIONS
domestic and the
2. Distributive: foreign environments
national and 1. You international
are an executiveagencies who is in charge available
of new market for distributing goods
International business is business whose activities are education, or both. point you would like to examine trade patterns to
surround the internal forces controlled by management. The domestic environment of
development for an international company. You are
carried out across national borders. International busi- and services. identify the top-10 countries that import the high-
ness differs from its domestic counterpart 1. Business is business,
in that it and every firm has to find 6. “Acurrently
nation whose conducting an initial
GNI is smaller thanmarket
the salesresearch
volumeon est amount of food and beverage goods. In the
involves three environments—domestic, ways to produce
foreign, and andLO
3. 1-4
market Economic:
its goods. Why, variables
then, (such aas
ofQatar,globalgross firm isnational
Vietnam, and
in noNew
position income
Zealand in order
to enforce [GNI],
itstowishes
under- unit labor“Insights cost, and by Industry” section of globalEDGE,
might managers be unable to successfully apply on stand
the theirsubsidiary
local overall marketof that attractiveness.
firm.” Is this Locate
statement
international—instead of one. Although the kinds
ger17226_mod01_002-027.indd 23 of
Identify personal
the kindsconsumption
of drivers that are expenditure)
leading firms that influence a firm’s ability to 5/23/15
each country in the “Insights by Country” section of
do business.
locate the Food and Beverage Industry and check
3:23 PM
forces are the same in the domestic and theforeign
techniques envi-and concepts they have learned
to internationalize in
their operations. true or false? Please explain your rationale. its “Trade Statistics” page. Which countries are
ronments, their values often differ, and their own country
changes
4. Socioeconomic: characteristics
in the to other areas of the world? 7. What globalEDGE andand
examples distribution
of check their “Ease
globalization of
canthe of
you human
Doing Busi- population.
identify the top-10 importers in the industry; what are
2. Give examples ness” your rankings in their respective “Indices” pages.
values of foreign forces are at times more difficult to as-to show The5. how an international
Financial:
five major kinds of busi- all based
variables
drivers, such within
onas
Also interest
change,
check
community?
that
their rates,
“Economy”
How would
inflation
pages and
you
rates,
take
classify
a and
brief taxation.
their import volumes? In the same page, check
sess. The international environment is ness manager
defined as themightare manipulate one of thefirms
leading international con- to globalizeeach their
look
of these examples (as international invest-
operations
at their economic snapshot graphs. Which of
also the top-10 traded goods for this specific in-
interactions
ger17226_mod01_002-027.indd 8 (1) between the domestictrollable environmentalforces in are 6.as Legal:
answer to a change
follows, theanmany
with in the foreign
example for each kind: and
ment, (1)domestic
international
political— laws
trade,
5/23/15 governing
3:20 other)?
PM
these three has a stronger economy? Which country
how international dustry.firms
Is your product in the top-10 imported or
uncontrollable
forces andforces. exported products globally?
forces and the foreign environmental must trading
preferential operate. agreements, (2) 8. Why is there opposition to globalization of trade
technological—
is more promising as a potential new market? Why?
(2) between the foreign environmental 3. Although
forces offorces two in the foreign
advances environment are
in communications technology, (3) and integration of the world’s economy? Is there a
market—global
countries when an affiliate in one countrythe same
does as those infirms
business 7. Physical:
the become
domestic elements
environment,
global customers, (4) ofcost—globalization
nature way the suchdebate as
ofcan topography,
move beyond a simplisticclimate, and natural resources.
argu-
they operate differently.
with customers in another.
8.Why
product is this
lines
Political:
ingdoeconomies
andso?production helps reducement
elements
of regard
scale, and
of nations’ costsfor or against globalization and toward how
by achiev-
political
best to strengthen
climates such as nationalism, forms of
are the working of the global econ-
4. Why, in your opinion, the authors the (5) competitive—firms
use of the self-reference defending government,
criterion their home markets
as “probably and
the international Momy
from foreign I Ncompetitors
IC
in organizations.
orderA StoEenhance the welfare of the world
LO 1-2 biggest cause of international by entering the foreign
business competitors’ markets.
blunders”? and its inhabitants? What might this require?
ARE YOU REALLY BUYING AMERICAN?
Describe the history and future of international Can you think of an example? 9. You have decided to take a job in your hometown
business. 5. Discuss some possible conflicts between host gov-
ernments and foreign-owned LO 1-5companies.
Consider
ily:tional
the followingWhy
after graduation. scenario
should of a “typical”
you study American
interna- fam- work, stopping for gas at the Shell station. At the grocery
business? Jesse and Ann, live in the suburbs of store, she fills her cart with a variety of items, including
The Osbornes, xv
International business has a long and important history, Chicago. Jesse is a manager at Trader Joe’s specialty grocery Ragu spaghetti sauce, Hellmann’s mayonnaise, Carnation
Compare the key arguments for and against the
store chain. Ann is an advertising executive for Leo Burnett Instant Breakfast drink, a case of Arrowhead water,
extending thousands of years into the past. Politics, the globalization of business. Worldwide. CoffeeMate nondairy coffee creamer, Chicken-of-the-Sea
arts, agriculture, industry, public health, and other sectors
of human life have been profoundly influenced by the RESEARCH TASK
Economic globalization refers to the tendency
Ann listens to the new Adam Lambert CD on her Alpine canned tuna, Lipton tea, a half-dozen cans of Slim-Fast,
http://globalEDGE.msu.edu/
toward
car stereo in her anJeep Cherokee while driving home from Dannon yogurt, and several packages of Stouffer’s Lean
goods and ideas that have come with international trade. international integration and interdependency of goods,
Rapid urbanization of populations Use combined with industri-website
the globalEDGE (http://globalEDGE.msu.
technology, information, labor, and capital, 2. You work
or the for a domestic cheese producer in the
process
alization in the emerging markets ger17226_mod01_002-027.indd
is quickly shiftingthe thefollowing 5 5/23/15 3:20 PM
edu/) to complete exercises: food and beverage industry and you are planning
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• Superior Instructor Resources Because we understand how critically important

it is for all resources to work together seamlessly to help instructors teach a better
course, whether within a face-to-face, online, or flipped classroom delivery mode,
the resource package includes these author-developed resources:
• Instructor Guide The Instructor Guide includes an overview and summary of
each module, teaching approaches and other teaching-related comments drawn
from our experience with the material, lecture notes, suggestions for encourag-
ing lively in-class discussions, and supplemental activities that will engage and
challenge students. The Instructor Guide also contains suggestions for using the
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• Instructor and Student PowerPoints High-quality PowerPoint presentations
for both instructor and student use accompany each of the modules of the book,
enabling faculty to be more efficient and effective in preparing for their classes
and providing useful content for face-to-face, hybrid, and online delivery. The
­student set of PowerPoints offers a review of the main module content to sup-
port student review and presentations.
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­questions for each module will allow faculty to efficiently and effectively pre-
pare assessment activities for their classes, including face-to-face, hybrid, and
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• Updates The author team will provide additional materials drawing on current
business news, new scholarship, and new pedagogical trends that assist with
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glance information regarding student performance, which is immediately
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­results together with a time metric that is easily visible for aggregate or individ-
ual results, Connect Insight gives the user the ability to take a just-in-time
­approach to teaching and learning, which was never before available. Connect
Insight presents data that empowers students and helps instructors improve
class performance in a way that is efficient and effective.
xvii
COURSE DESIGN AND DELIVERY

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xviii
ASSURANCE OF LEARNING READY
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xix
ACKNOWLEDGMENTS
Any effort to create a valuable new package of learning
materials such as International Business involves the
­efforts not only of the authors and their invaluable editorial
team, but also the insights, support, and encouragement of
numerous other individuals and institutions. To the long list
of individuals to whom we are indebted, we want to add
Rachida Aissaoui, Ohio University; ­Nicholas Athanassiou,
Northeastern University; Joseph R. Biggs, California Poly-
technic State University—San Luis Obispo; Lorna Jean
­Edmonds, Ohio University; Paul Frantz, Long Beach State
University; Colette Frayne, California Polytechnic State
University—San Luis Obispo; Wendell ­McCulloch, Long
Beach State University; Bill Pendergast, California Poly-
technic State ­University—San Luis Obispo; Jere Ramsey,
California Polytechnic State U­ niversity—San Luis Obispo;
Hugh ­Sherman, Ohio ­University; Mary Tucker, Ohio Uni-
versity; Ike U
­ zuegbunam, Ohio University; Ed Yost, Ohio
University; and . . . we also wish to acknowledge ­Melinda
Zuniga and Yana Saltaeva, who helped with research.
We would like to offer our special thanks to the out-
standing editorial and production staff from McGraw-
Hill Higher Education who worked so hard and so well
to make this project succeed and stay on schedule, par-
ticularly Anke Weekes, Gabriela G. Velasco, Elisa
­Adams, Michael Gedatus, Mary E. Powers, Sharon
O’Donnell, and Karen Nelson. We feel honored to work
with such a talented and professional team.
xx
Many thanks go to the reviewers who provided their
valuable feedback in the development of this first
edition.
Brad Ward, Kellogg Community College
Bruce D. Keillor, Youngstown State University
Chin-Chun Hsu, University of Nevada—Las Vegas
Constant Cheng, School of Management, George Mason University
Denny McCorkle, University of Northern Colorado
Eugene Lyle Seeley, Utah Valley University
Francis Sun, Woodbury School of Business at UVU and Goodman
School of Business at Brock University
Hormoz Movassaghi, School of Business, Ithaca College
John Finley, Columbus State University
Linda C. Ueltschy, Dept. of Marketing, Florida Gulf Coast
­University, Fort Myers, Florida
Lynn Wilson, DIBA, Saint Leo University
Mamoun Benmamoun, Saint Louis University
Mandeep Singh, Western Illinois University
Mark Fenton, University of Wisconsin—Stout
Michael Engber, Columbia College
Mitchell L Lautenslager, Fox Valley Technical College
Paul J. Myer, University of Maine Business School
Sam C. Okoroafo, University of Toledo
Stanford A. Westjohn, University of Toledo
Thomas Lynn Wilson, Saint Leo University
Yusufu Jinkiri, Belhaven University
CONTENTS
module 1 Which Nations Account for the Most Exports and
Imports? 32
The
Direction of Trade 32
Challenging
Context of The Increasing Regionalization of Trade 32 | Major
Trading Partners: Their Relevance for Managers 33 |
International Major Trading Partners of the United States 33
Business Explaining Trade: International Trade Theories 35
What Is International Mercantilism 35 | Theory of Absolute Advantage 35 |
Business and What Is Theory of Comparative Advantage 37 | How Exchange
Different about It? 5 Rates Can Change the Direction of Trade 38 | Some
The Influence of External and Internal Environmental Newer Explanations for the Direction of Trade 41 |
Forces 5 | The Domestic Environment 6 | The Foreign Summary of International Trade Theory 45
Environment 6 | The International Environment 7
Foreign Investment 45
Is Internationalization of Business a New Trend, and Will It Portfolio Investment 46 | Foreign Direct Investment
Continue? 10 (FDI) 46 | Does Trade Lead to FDI? 51
The Growth of International Firms and International Explaining FDI: Theories of International Investment 51
Business 11
Monopolistic Advantage Theory 52 | Strategic Behavior
Expanding Number of International Companies 12 | Theory 52 | Internalization Theory 52 | Dynamic
Foreign Direct Investment and Exporting Are Growing Capabilities 53 | Eclectic Theory of International
Rapidly 13 Production 53
What Is Driving the Internationalization of Business? 14 Summary 55 | Key Terms | Critical Thinking Questions |
Political Drivers 14 | Technological Drivers 14 | Market globalEDGE Research Task | Minicase | Notes
Drivers 15 | Cost Drivers 15 |Competitive Drivers 15
What Is Globalization and What Are the
Arguments for and against the Globalization of
module 3
Business? 17 Sociocultural
Arguments Supporting Globalization 17 | Concerns with Forces
Globalization 18
What Is Culture
Summary 23 | Key Terms | Critical Thinking Questions | and Why Is It
globalEDGE Research Task | Minicase | Notes Important? 61

Culture Affects All Business Functions 63

module 2
International
Trade and
Investment
International Trade 30
Volume of International
Trade 30 | How Evenly
Has Trade Grown? 30 |
Marketing 63 | Human Resources 63 | Production and
Procurement 65 | Accounting and Finance 65 |
Preferred Leadership Styles 65
How Culture Shows Itself 66
Aesthetics 66 | Religion 67 | Material Culture 69 |
Language 69 | Societal Organization 70 | Special
Focus: Gift Giving in Business 73
Culture Frameworks 73

xxi
xxii Contents

Hall’s High and Low Context 74 | Kluckhohn and

Strodtbeck’s Cultural Orientations Framework 75 |
module 5
Hofstede’s Six Dimensions 77 | Trompenaars’s Seven Political
Dimensions 80 Forces That
When Does Culture Matter? The Global Mind-set 82 Affect Global
Going Forward: Cultural Paradoxes and a Caution 83 Trade
Rules of Thumb for Managers Doing Business across Governments and
Cultures 83 the Ownership of
Business 124
Summary 85 | Key Terms | Critical Thinking Questions |
globalEDGE Research Task | Minicase | Notes
Nationalization: Why Governments Get Involved 124 |
Privatization: Why Governments Sell Businesses 125
module 4 Government Stability and Protection 126
Sustainability Stability: Issues with Lack of Peace and Predictability 126 |
and Natural Protection from Unfair Competition 127 | Protection from
Terrorism, Cybercrime, and Other Threats 127
Resources
Country Risk Assessment and Countermeasures
Sustainability in the
to Threats 133
Business Context 91
Government Intervention in Trade 135
Systems for Achieving
Sustainability 92 Reasons for Restricting Trade 136 | Tariff Barriers 140 |
Nontariff Barrriers 141
Life Cycle Assessment 92 |
Cradle-to-Cradle Design 93 Summary 144 | Key Terms | Critical Thinking Questions |
globalEDGE Research Task | Minicase | Notes
Tools for Measuring Sustainability 94
United Nations Global Compact 94 | Global Reporting
Initiative 94 | Carbon Disclosure Project 95 | module 6
Footprinting 95 Intellectual
Characteristics of Environmentally Sustainable Property
Business 95
Rights and
Limits as Part of the Sustainability Context 95 | Other Legal
Interdependence as Part of the Sustainability Context 96 |
Equity in Distribution as Part of the Sustainability Forces
Context 98
Types of Legal Systems 152
The Stakeholder Model for Sustainable Business 99
Civil Law 152 | Common Law 152 | Religious Law 153
Geography: Describing Our Natural Capital 101
International Legal Forces 153
Location: Political and Trade Relationships 101 |
Topography 102 | Climate 106 Rule of Law 153 | What Is International Law? 154 |
Sources of International Law 155
Natural Resources 107
General Legal Concerns in Global Business 155
Nonrenewable Energy Sources 108 | Renewable Energy
Sources 110 | Nonfuel Minerals 115 Extraterritoriality 155 | Performance of Contracts 156 |
Litigation 156
Summary 117 | Key Terms | Critical Thinking Questions |
globalEDGE Research Task | Minicase | Notes Intellectual Property Rights 157
 Contents xxiii

Patents 158 | Trademarks 160 | Trade Names 160 | The Floating Currency Exchange Rate System 212
Copyrights 161 | Trade Secrets 161
Current Currency Arrangements 213 | The Bank for
Standardizing Laws around the World 163 International Settlements 215

Some Specific National Legal Forces 165 Financial Forces: Fluctuating Currency Values 216

Competition Laws 165 | Trade Obstacles 167 | Tort Fluctuating Currency Values 216 | Why Foreign
Law 167 | Miscellaneous Laws 170 | Foreign Corrupt Currency Exchange Occurs 217 | Exchange Rate
Practices Act 171 | Accounting Law 173 Quotations and the FX Market 218 | Causes of Exchange
Rate Movement 219 | Exchange Rate Forecasting 220
Summary 175 | Key Terms | Critical Thinking Questions |
globalEDGE Research Task | Minicase | Notes Financial Forces Governments Can Exert 222
Currency Exchange Controls 222 | Taxation 222 |
Inflation and Interest Rates 224
module 7
Balance of Payments 226
Economic and
Socioeconomic Summary 229 | Key Terms | Critical Thinking Questions |
globalEDGE Research Task | Minicase | Notes
Forces
International Economic
Analyses 181 module 9
Levels of Economic Development 183 International
Dimensions That Describe the Economy and Their
Competitive
Relevance for International Business 186 Strategy
Measuring the Size of an Economy 186 | Economic What Is International
Growth Rate 190 | Income Distribution 191 | Private Strategy, and Why Is It
Consumption 193 | Unit Labor Costs 195 | Other Necessary? 233
Economic Dimensions 197
Why Plan Globally? 234
Socioeconomic Dimensions of the Economy and Their
Relevance for International Business 200 The Process of Global
Strategic Planning 234
Total Population 200 | Age Distribution 201 |
Population Density and Distribution 203 | Other Step 1: Analyze
Socioeconomic Dimensions 203 Domestic, International,
and Foreign
Summary 205 | Key Terms | Critical Thinking Questions | Environments 235 | Step 2: Analyze Corporate
globalEDGE Research Task | Minicase | Notes Controllable Variables 236 | Step 3: Define the
Corporate Mission, Vision, and Values Statements 238 |
Step 4: Set Corporate Objectives 240 | Step 5: Quantify
module 8 the Objectives 240 | Step 6: Formulate the Competitive
Strategies 240 | Step 7: Prepare Tactical Plans 246
The
International Strategic Plan Features and Implementation
Facilitators 246
Monetary
Sales Forecasts and Budgets 246 | Facilitation Tools for
System and Implementing Strategic Plans 246 | Performance
Financial Measures 247
Forces Kinds of Strategic Plans 247
The International Monetary System: A Brief History 209 Time Horizon 247 | Level in the Organization 248 |
The Gold Standard 210 | The Bretton Woods Methods of Planning 249
System 211 | The Central Reserve/National Currency New Directions in Planning 250
Conflict 212
Another random document with
no related content on Scribd:
 I am very anxious to know how your Highness is progressing with the Latin [he
wrote on one occasion]. I say this, Señora, because a certain style of Latin is too
difficult to be mastered by those who are much occupied with other matters.
Nevertheless my belief in your powers of intelligence is so great that, if you really
make up your mind to do it, I am convinced you will succeed as you have done with
other languages.

The courtier here permits himself to eulogize; but the compliment

if insincere was yet grounded in sincerity. Peter Martyr found in his
royal mistress a correspondent ready to grant his letters their due
meed of appreciation, a patroness moreover eager to plant the fruits
of the classical renaissance in the somewhat arid soil of Castile.
Two other Italians of note at that time in the world of scholarship,
Antonio and Alessandro Geraldino, were appointed as tutors to the
young princesses; and from their instructions Isabel’s daughters
emerged fitting contemporaries of the famous D’Este sisters of
Ferrara. It is said that Joanna, the second of the Castilian Infantas,
astonished the Flemish Court by immediately replying to the Latin
oration of some learned scholar in the same tongue; while the
youngest, Catherine, won from the great Erasmus the comment,
whether intended as praise or otherwise, that she was “egregiously
learned.”
Castilian chroniclers, when recording with pride the intelligence
and learning of Isabel and her daughters, make a point of showing
that such ability did not entirely quench more feminine tastes. The
Queen’s visits to the unruly convents of her kingdom in company
with her needle and her spinning-wheel have been already
mentioned; while many were the gifts of elaborate vestments and
altar-cloths that she and her ladies worked for the new Cathedral of
Granada, and the other churches and religious houses founded
during her reign. That her share in such employment was no mere
occasional easy stitch we may perhaps assume when we learn from
Father Florez that “her husband never wore a shirt she herself had
not woven and worked.” Ferdinand’s chivalry was hardly of the type
that would suffer rough or badly-fitting clothes for sentimental
reasons.
 AVILA, TOMB OF PRINCE JOHN, SON OF FERDINAND AND
ISABEL

FROM A PHOTOGRAPH BY LACOSTE, MADRID

“With such a mother,” adds Florez, “the daughters could hardly be

idle. They learned to sew, to spin, and to embroider.”
Well-brought-up mediæval princesses, indeed, could have little in
common with the daughters of kings in fairy-tale romances,
condemned to luxurious sloth in high-walled gardens or
battlemented towers. From their earliest days they must prepare to
play their part in the future destiny of the nation, to tread the
matrimonial measure not according to their fancy but at the parental
wish; and then, their marriage achieved, to unite with the rôle of wife
and mother the arduous task of political agent, maintaining friendly
relations, often at the price of nerve-racking strain, between their old
home and their new.
To Ferdinand his children were veritable “olive-branches,”
emblems and instruments of the web of peace that his diplomacy was
slowly spreading over Europe till France his old enemy should stand
defenceless before his network of alliances. The foreign policy of
Spain developed naturally under his guidance on Aragonese lines;
yet Castile, though absorbed into his anti-French hostility against the
traditional friendship of centuries, never entirely disregarded her
own ambitions. The conquest of Granada and the discovery of the
New World had been mainly Castilian triumphs, the one the
extension of her border southwards, the other a successful stage in
her rivalry with Portugal on the high seas.
Yet a third Castilian ambition was the maintenance of the status
quo with Portugal at home, an end by no means permanently
achieved by the Treaty of Lisbon in 1479. By its terms Joanna “La
Beltraneja” had entered a convent at Coimbra and taken vows that
were to separate her for ever from the world; but she was too
valuable a puppet in the hands of her mother’s people to be allowed
to remain long in such seclusion. More than once she quitted her
cloister for the palace at Lisbon, posing according to her own
signature as “I the Queen,” though the Portuguese preferred to
recognize her by the less provocative title of “the Excellent Lady.”[6]
6. She died in Lisbon in 1530 in her sixty-ninth year.
Without once more committing themselves in an open manner to
her claims as “Queen of Castile,” they could employ her name in
projects of alliance with Navarre and elsewhere to the indignation
and discomfiture of Ferdinand and Isabel. The latter during the
earlier part of their reign were too fully occupied in their war against
the Moors to show practical resentment at this infringement of their
treaty. Realizing that a conquest of Portugal was beyond their
powers, they turned to diplomacy; and in April, 1490, betrothed their
eldest daughter Isabel to Alfonso, son and heir of John II., and
grandson of the Queen’s old suitor, Alfonso V.
 AVILA, THE CATHEDRAL

FROM A PHOTOGRAPH BY HAUSER AND MENET

Isabel was their favourite child,—her gentle, sweet-tempered yet

somewhat melancholy nature so recalling her invalid grandmother,
that the Queen in private would teasingly address her as “Mother.” It
would not be a far journey to the Court of Lisbon; and nothing but
rejoicing filled her parents’ hearts at the gorgeous festivities in
Seville, which were the background of her formal betrothal. Not only
had peace been established on a firm foundation, but one more link
was forged in the chain between the Houses of Portugal and Castile,
that might at some future date unite all Spain under a single
sovereign.
In the autumn of 1490 the young Princess departed to her new
home; but contrary to the general expectations she was to reap
sorrow rather than joy. A few months of happiness with her
bridegroom, whose memory she never ceased to cherish, and the
Castilian Infanta was left a widow. She returned to her parents,
seeking only a sanctuary, where she might indulge in her grief; and it
was with genuine horror, on King John of Portugal’s death in 1495,
that she repudiated the offer made for her hand by his cousin and
successor, the new King, Emmanuel. To Ferdinand and Isabel the
proposed match was both politically and personally agreeable. Their
daughter was too young to let a single sorrow eat away her joy of life;
while Emmanuel’s obvious anxiety to please and win her augured
well for their future domestic peace. They therefore pressed his suit,
hoping once more to consummate the union so dear to Castilian
ambitions, but at first quite without avail.

We must tell you [wrote the Queen to her ambassador in England] that the
Princess, our daughter, is very determined not to marry; on which account we are
obliged to give the Infanta, Doña Maria, to the King of Portugal.

Emmanuel, however, preferred the elder sister to the younger; and

Maria was destined to wait for her bridegroom till a more formidable
barrier than mere disinclination had removed her rival. In the
meanwhile, when the Portuguese alliance still hung in the balance,
proposals for other marriages, no less fateful for Spain, were
occupying the sovereigns’ attention. Where should they find a fitting
bride for their son and heir?
 ISABEL, QUEEN OF PORTUGAL,
ELDEST DAUGHTER OF FERDINAND
AND ISABEL

FROM “ICONOGRAFIA ESPAÑOLA” BY

VALENTIN CARDERERA Y SOLANO

Since the days, when still almost in his cradle, he had been
suggested as a husband for Joanna “La Beltraneja,” both gossip and
statesmanship had been busy weaving his matrimonial fate. The
threads were often broken abruptly; but one design ran clear through
all, the circumvention of the growing power of France.
We have already noticed Louis XI.’s desire to establish his
influence over Navarre, as shown in his support of Eleanor, Countess
of Foix, and her French husband, and in the marriage of his sister
Madeleine with their son Gaston.[7] His hopes were realized by
Eleanor’s accession to the throne on the death of her father, John II.
of Aragon in 1479, though she did not live to enjoy for more than a
few weeks the sovereignty she had purchased at the price of a sister’s
blood. She was succeeded by her grandson, Francis Phœbus, and he
on his death in 1483 by his sister, Catherine.
7. See page 43.
Ferdinand and Isabel at once suggested the marriage of this
eligible heiress of thirteen with their five-year-old son; but her
mother Madeleine of Valois, infinitely preferred to ally her child with
one of her own race; and Catherine carried her inheritance to the
French House of Albret. Spain was for the moment foiled; but a
wedding many years later, its more than doubtful claims on Navarre
enforced by arms, was yet to gain for Ferdinand the southern half of
the mountain kingdom, whose double outlook across the Pyrenees
had been the source of so much crime and bloodshed.
Another alliance proposed for Prince John was with Anne of
Brittany, heiress of a duchy, whose independence had always
threatened the peace of France. It would have been a fitting revenge
for French interference in Navarre and Aragon; but here again Spain
was forestalled; and Anne of Beaujeu, regent of France on the death
of her father Louis XI., succeeded in marrying her younger brother,
Charles VIII., to Anne of Brittany thus linking to the French Crown
the most important of its great provincial dependencies.
As it happened, this marriage was to set free a bride for the
Spanish Infante, Margaret of Hapsburg, daughter of Maximilian,
King of the Romans, a Princess betrothed in her early youth to the
Dauphin Charles and even sent to France for her education, but now
repudiated in favour of a more advantageous match. Maximilian was
by no means a proud man, but even his careless nature burned with
resentment at his daughter’s return home under such circumstances;
and he welcomed the idea of her union with a son of Ferdinand the
Catholic, France’s antagonist for so many years. To make this
Hapsburg-Aragonese friendship the more obvious and complete, the
wedding became a double one; and Philip, Archduke of Austria and
Count of Flanders, Maximilian’s son and heir, took as his bride the
Spanish sovereigns’ second daughter, Joanna.
With many misgivings Isabel bade the latter good-bye and
consigned her to the grand fleet in the harbour of Lerida that was to
convey her to the Netherlands and bring back from thence the Prince
of Asturias’ betrothed. The Infanta Joanna, in spite of her careful
training, had shown at times an alarming lack of mental balance. She
could be clever and witty, but also morose or, if roused, recklessly
passionate in her speech. From a home, where the air breathed
decorum and self-control, she now went to a pleasure-loving Court
presided over by a fickle Adonis. Would she cling tenaciously to the
orthodox views in which she had been bred amid surroundings
palpably lax and cynical? Would she know how to keep her jealousy
in leash, if Philip “the Fair,” as in all probability, proved faithless?
Would she hold her head high and steer her course with dignity amid
the many political pitfalls, that would be laid for her in a strange
land?
The Queen could only sigh in answer to these questions. Joanna in
many ways resembled her grandmother and namesake, the Admiral’s
daughter, Joanna Enriquez, and that passionate temperament would
in a moment of crisis be its own councillor. Advice and warning were
of little avail.
The Spanish bride in her ship of state sailed away northwards; and
Isabel watched the clouds gather with gloomy forebodings. Weeks
passed, and she was tortured with anxiety till at length news came
that, although the fleet had been compelled to shelter in English
harbours and several of the vessels had been lost, yet her daughter
was safe in Flanders and soon to be married at Lille.
Early in March, 1497, Margaret of Austria after an equally
adventurous voyage, whose dangers induced her to compose light-
heartedly her own epitaph, landed in Spain and was welcomed with
all the state and ceremony befitting a future Queen.
How this matrimonial venture, introducing into the close air of the
Spanish Court a Paris-bred gaiety and insouciance, would have stood
the test of time we cannot tell. The Prince and his bride were young;
and, if her contempt of convention scandalized the Castilian grandee,
he could blame her youth and build hopeful arguments on feminine
adaptability. Thus the brief honeymoon, a triumphal progress from
one large town of the kingdom to another, was a period of unmixed
rejoicing in Spain. All promised well. Even the Princess Isabel had
put aside her long mourning and consented at last to share the
throne of Portugal with her patient suitor, demanding however with
the fanaticism of her race, so strangely in contrast with her natural
sweetness, that Emmanuel’s wedding-gift to her should be the
expulsion of the Jews from the land to which she went.
The glory of the Faith! The glory of Spain! Were they in truth
achieved? the Queen must have asked herself, as she and Ferdinand
attended their daughter’s second wedding in the border town of
Alcantara.

Fortune’s wheel never stands still in this world [says Bernaldez sorrowfully]. It
gives and it takes away; it exalts and it humbles; to the poor and miserable it grants
long years of which in their weariness they would fain be quit; while to the wealthy,
to Princes, to Kings, and great lords,—to all for whom according to human
understanding life is a boon, it decrees naught but death.

In the very midst of the wedding rejoicings came the news that the
Prince of Asturias, never robust, had fallen ill of a fever in
Salamanca; and Ferdinand, hurrying as fast as he could to his
bedside, only arrived when the end was all too certain. On October 4,
1497, at the age of nineteen, Prince John died. Apart from the private
grief of his parents for a son, whose character had held the promise
of all that is best in manhood, his death was a national calamity; and
for weeks the shadow of mourning hung alike over cottage and
castle.

I never heard [says Commines] of so solemn and so universal a mourning for any
Prince in Europe. I have since been informed by ambassadors that all the
tradesmen put themselves into black clothes and shut up their shops for forty days
together; the nobility and gentry covered their mules with black cloth down to their
very knees, so that there was nothing of them to be seen but their eyes; and set up
black banners on all the gates of the cities.

Even the hope that an heir at least would be left to their Prince was
destroyed when the young widow, nerve-stricken at her sudden loss,
gave birth a few months later to a still-born daughter.
 AVILA FROM BEYOND THE CITY WALLS

FROM A PHOTOGRAPH BY LACOSTE, MADRID

The succession to the throne now devolved on the young Queen

Isabel of Portugal; and early in 1498 she and her husband appeared
in Toledo to receive the homage of the Castilian Cortes. The
Aragonese Cortes however utterly declined to follow this example,
declaring that they owed allegiance to Ferdinand and his male heirs
alone; their obstinacy producing a public tension only relieved when
in August, 1498, the young Queen gave birth to a son, whom all were
willing to acknowledge.
The longed-for Prince, heir of Castile, Aragon, and Portugal was
born at last; the highest ideals of Spanish unity seemed on the eve of
fulfilment; but, almost within the hour that gave him life, his mother
died; and the Infante Miguel, weak and fragile, was not destined to
reach his second year.
Three deaths within three years and those the most precious in the
land!

The first keen blade of sorrow that transfixed the Queen’s soul [says Bernaldez]
was the death of the Prince; the second the death of Doña Isabel her eldest
daughter, Queen of Portugal; the third the death of her grandson Don Miguel, for
in him she had found consolation. From this time the life of the famous and very
virtuous Queen Isabel, protector of Castile, was without pleasure; and her days and
her health were alike shortened.
 CHAPTER XII
THE ITALIAN WARS
1494–1504

A cloud of grief hung over Spain, but abroad her sun was rising. The
union of Castile and Aragon, the Conquest of the Moors, the
campaign against heresy, the discovery of unknown islands in the
West—all these had brought her prominently before the eyes of
Europe; while yet another harvest of glory still remained for
Ferdinand’s diplomacy to reap on foreign shores.
In the early years of his rivalry with France the Pyrenees had
formed his battleground, but for all his efforts, political or military,
he had never succeeded in regaining Roussillon or Cerdagne nor in
undermining French influence in Navarre. Diplomacy is a game
where the practised hand will always be at an immense advantage;
and Louis XI. proved more than a match for the young Aragonese
opponent who was to succeed him eventually as the craftiest
statesman in Europe.
Qui nescit dissimulare nescit regnare is said to be the only
paternal sermon to which the Dauphin Charles was ever subjected;
but since Louis XI.’s craven fear of his son denied the boy all but the
most rudimentary education, there was little likelihood that he
would be able to make use of so subtle a maxim. Ill-developed in
brain as in body, his weak but obstinate nature nourished its vanity
on schemes requiring the strength of a Hannibal or an Alexander for
their realization. His father had with tireless energy extended the
boundaries of France north, east, and south; employing the weapons
of force, bribery, and lies, as the moment demanded. His success,
save on moral grounds, might have prompted the continuation of his
policy; but Charles chafed not at its immorality only its apparent
pettiness of scope. To make peace with his neighbours, if necessary,
by the surrender of lately-won possessions; and then, freed from
Christian molestation, to lead an army in person that should add the
kingdom of Jerusalem to French dominions—this was the fantasy
that floated ever before his eyes.
A crusade! Mediæval Europe had heard that project discussed for
many centuries. It had seen warriors take the Cross for reasons true
and false, had watched their victories and their failures, and, by the
end of the fifteenth century, was sufficiently disillusioned to smile in
private when the idea was mentioned. The recovery of the Holy
Sepulchre was a good excuse for governments to impose extra taxes,
or for Venice to induce the weak-minded to wage her trade-wars in
the Levant. If the Turk, as he threatened, grew stronger it might
indeed become a matter of serious politics; but in the meantime, save
in Spain or Bohemia, religious fervour stood at a discount.
Yet European statesmen were ready enough to twist the young
French monarch’s desire for high-sounding glory to their own
advantage. Ludovico, “Il Moro,” virtual ruler of Milan for his nephew
Duke Gian Galeazzo Sforza, saw in an alliance with Charles VIII. a
way of extricating himself from political troubles that were likely to
overthrow the balance of power in Italy, and with it his own
dominion.
“This Ludovico was clever,” says Philip de Commines who knew
him, “but very nervous and cringing when he was afraid; a man
without faith if he thought it to his advantage to break his word.”
At the time when Charles VIII., grown to years of manhood if not
discretion, was centring his hopes on Jerusalem, Ludovico Sforza
lived in a perpetual state of fear. Of old in alliance with the
Aragonese House of Naples and the Medici at Florence, he had
regarded with calm eyes the hostility of Venice on the eastern border
of his duchy and the growing ambitions of the Papacy in Romagna.
These five Powers,—Milan, Naples, Rome, and the republics of
Venice and Florence, had controlled the peninsula, and in
Machiavelli’s words made it their object “first that no armed
foreigner should be allowed to invade Italy, second, that no one of
their own number should be suffered to extend his territory.”
Slowly the balance thus established had been shaken, and mutual
suspicion began to darken the relations between Naples and Milan.
King Ferrante’s grand-daughter Isabella was wife of the rightful
Duke, Gian Galeazzo, and in her letters home made piteous
complaints of his uncle’s tyranny. Her husband was fully old enough
to reign but was kept instead a prisoner at Pavia, his natural delicacy
of constitution aggravated by this restraint. She herself was relegated
to a merely secondary position; and her relations, who had intended
her to act as their political agent, not unnaturally resented the forced
seclusion in which she lived.
The usurper on his side, noting the coldness of Ferrante and his
son Alfonso, Duke of Calabria, was haunted by a perpetual nightmare
of his own downfall through Neapolitan intervention. Such a
revolution would please Venice, who liked nothing better than to see
her ambitious neighbour involved in trouble, while little help could
be expected from the selfish Papacy, or from Florence which, torn by
factions since the death of the wise Lorenzo de Medici in 1492, was
too weak to prove either a formidable foe or ally.
In his need of support Ludovico looked beyond the Alps, and
instantly his quick brain suggested the rôle which Charles VIII.
might play. It was little more than half a century since the last
representative of the Angevin claims on Naples had been defeated
and driven away from that southern kingdom by his Aragonese rival,
Alfonso V.[8] Since that date the House of Anjou had been
incorporated with the French Crown, and thus Charles stood heir to
its Italian ambitions; Naples but a stepping-stone on the road to his
conquest of Jerusalem.
8. See page 25.

If you will be ruled by me [declared Ludovico enthusiastically] I will assist in

making you greater than Charlemagne; for, when you have conquered the
Kingdom of Naples, we will easily drive the Turk out of the Empire of
Constantinople.

Such glib assurance awoke no answering belief amongst the older

and more experienced of the French King’s councillors; but Charles
was in the mood of Rehoboam and welcomed only the advice of the
young and reckless, which confirmed his own strong desire to
undertake the invasion. Commines, shaking his head over the many
difficulties to be encountered, concludes that Providence must
certainly have guided and protected the expedition, “for,” he adds,
“the wisdom of the contrivers of this scheme contributed but little.”
The first step was for Charles to secure the goodwill of his
neighbours; and, having decked out the glory of a crusade against the
Turks in its brightest colours, he proceeded to buy the complaisance
of England, Flanders, and Spain towards his project by various
concessions and gifts. In the case of Spain the price demanded was
the surrender of Roussillon and Cerdagne; and it is said that
superstition as well as his anxiety for a settlement gained the French
King’s final consent to this bargain. Two friars, whether bribed by
Ferdinand or no, declared that Louis XI. had sinned grievously in
ever taking possession of these provinces, seeing that his rival,
though he had failed to redeem the mortgage on them, had spent his
funds instead on a holy war against the Moors. Charles, they urged,
must make instant restoration or run the risk, when he died, that his
soul should dwell for ever in Purgatory.
By the Treaty of Barcelona (January, 1493) Roussillon and
Cerdagne passed back therefore into Spanish hands, and Ferdinand
with many compliments and protestations of friendship agreed to an
alliance with France against all enemies and to assist him in his
crusade on the understanding that such terms should not affect his
relations with the Holy See. His allegiance to the “Vicar of Christ”
must stand before all other claims.
Satisfied that he might now proceed on his road to fame without
the interference of the great Powers of Europe, Charles crossed the
Alps early in September, 1494. His forces, which comprised not only
the chivalry of France eager to prove its metal but also companies of
Swiss and German mercenaries armed with pike, halberd, and
arquebus, were further strengthened by a formidable array of
artillery, mounted on carriages drawn by horses. These could be
moved almost as fast as the infantry; and Italy, accustomed to the
old-fashioned heavy guns dragged across the country by teams of
oxen, heard the report of the invader’s superior ordnance with
amazement, even with incredulity.
In Naples, the idea of a new Angevin expedition had at first
aroused laughter, and only the old King Ferrante had treated it as a
serious issue. In January, 1494, he died, and his son Alfonso II.,
realizing at last that Ludovico’s threats were no mere cry of “wolf!”
leagued himself with the Pope and Florence to protect the frontiers
of Romagna and Tuscany.
The campaign that followed is perhaps the most amazing in the
history of European warfare. In September, Charles was at Asti,
indulging as Ludovico’s guest in festivities and excesses scarcely in
keeping with the ideal of a Christian crusader. Pleasure thus delayed
him a month; but from November, when he entered Florence, master
of her principal fortresses and acclaimed as a conquering hero by the
populace, his triumphant progress southwards was almost
unimpeded. January, 1495, found him in Rome, at peace with the
Pope on the strength of a hastily-constructed agreement, and by
February, he had reached the northern boundary of the kingdom of
Naples.
The abdication of Alfonso in favour of his son Ferrante II.; the
latter’s retreat from San Germano, where he had intended to make a
determined stand against the enemy; and finally a revolution in the
town of Naples itself to overthrow its Aragonese defenders—these
completed the downfall of what might truly be called a “House of
Cards.” Ferrante, declaring that the sins of his fathers and not his
own had been visited on his head, fled to Sicily; and on February
22d, Charles, clad in imperial purple and holding a golden sceptre in
his hand, entered the capital in triumph and was duly crowned as
“King of Naples and Jerusalem and Emperor of the East.”
Almost without the loss of a soldier and in less than six months he
had achieved his stepping-stone. Alexander VI., referring to the
campaign, remarked sarcastically that the French needed only a
child’s wooden spurs to urge on their horses, and chalk to mark their
lodgings for the night. For all their previous scoffing the armies of
Italy had melted away like mist before the despised “Barbarians,” or
else had fled in terror at the first encounter.
Contemporary historians are ready enough with their
explanations. The wars in the peninsula, says the Florentine
Guicciardini, had been waged hitherto chiefly in the study or on
paper; and his fellow-citizen, Machiavelli, elaborates this theory. The
luxury, the civilization, and the culture, that made the cities of Italy
the admiration and the desire of the rest of Europe, had produced an
enervating atmosphere in which the healthy virtues of patriotism and
hardihood withered away. States grew to rely for their defence not on
their own subjects but on mercenary armies enrolled by Condottieri
generals; and these, actuated by no motive save to secure their pay
for as many weeks as possible, converted war from a grim struggle
for existence into an intricate but nearly bloodless pastime.

They spared no effort to relieve themselves and their men from fatigue and
danger, not killing one another in battle, but making prisoners who were
afterwards released without ransom. They would attack no town by night, nor
would those within make sorties against their besieging foe. Their camps were
without rampart or trench. They fought no winter campaigns.

Little wonder if men used to a warfare of courtesies shrank

appalled from a ferocity that, once aroused, spared neither young nor
old, women nor invalids. In the early stages of the invasion the Duke
of Orleans had defeated Federigo, brother of King Alfonso of Naples,
at Rapallo; and the town, daring to resist the conquerors, had been
put to the sack with all the brutality attending a general massacre. Its
fate had a paralysing effect on future attempts to hinder the French
advance, especially in Naples, where devotion to the reigning House
of Aragon was never more than half-hearted.
Ferrante I. and his son, Alfonso II., had been typical Italian
despots, ruling by fear rather than by love, and to satisfy their own
caprice rather than to win their land prosperity or glory. Ferrante II.
was gentle and well-intentioned but too little known to be popular.
Thus the Neapolitans, cynically assured that the sovereign did not
exist for whom it was worth while to risk their lives, threw open their
gates to the French and joyfully acclaimed them as long-hoped for
saviours.
In a century that witnessed the perseverance and daring of the
Moorish struggle, the campaign of Charles VIII. stands out like a
monstrous caricature of triumph. Founded in vanity, its success had
startled Europe, but was to prove as evanescent as it was cheaply
won. The fault lay to a large extent with the conquerors.

At our first entrance into Italy [says Commines sadly] we were regarded like
saints, and everybody thought us people of the greatest goodness and sincerity in
the world; but that opinion lasted not long for our own disorders and the false
reports of our enemies quickly convinced them of the contrary.

The Frenchman and the Swiss or German mercenary, conscious of

their easy victory, fell into the trap of regarding the Italians as
cowards whom it was scarcely worth while to conciliate; and Charles
on his part, too little of the statesman to secure what he had won,
abandoned himself to idle pleasure. Tyranny and licence worked
hand in hand to teach the Neapolitans that a change of dynasty may
not be always for the better, and as they groaned under the taxation
and insolence of foreign officials they began to remember Ferrante in
his exile in Sicily.
Elsewhere in Italy there were also signs of reaction. Ludovico “Il
Moro” had swept his Aragonese rivals from his path; and death, not
without his assistance if there was any truth in rumour, had removed
the young Duke Gian Galeazzo; but it was now the all-conquering
French who filled him with dismay. Before the Sforza had established
their rule in Milan, the Visconti, had reigned there, and Louis, Duke
of Orleans, cousin of Charles VIII. and a near heir to the throne, was
a descendant of the Visconti in the female line.[9] Since the French
had found how easy it was to invade Italy, what should prevent them
from claiming not only Naples but Milan?
9. Louis, Duke of Orleans, afterwards Louis XII. of France, was grandson of
Valentina Visconti, sister of Duke Filippo Maria.
Ludovico, in terror for his duchy, was now as eager to drive out the
invaders as formerly to welcome them, and soon persuaded Venice
and the Papacy to join him in an alliance for this purpose. Outside
Italy, Maximilian, who had been elected Holy Roman Emperor on
the death of his father in 1493, was also alarmed at the signal
triumph of the House of Valois; but since his promises usually outran
their fulfilment the real organization of an effective opposition
devolved on Spain.
Ferdinand, in spite of the outward amity signed and sealed at
Barcelona, had worked secretly from the first to prevent the success
of Charles VIII.’s ambitions. Roussillon and Cerdagne once secured,
he had no inducement to keep his bargain; and, when the French
King on the eve of the invasion sent to remind him of his promise to
help in the crusade, the elder statesman, though apparently
enthusiastic, proceeded craftily to withdraw his support. Charles had
placed the idea of ultimate war against the Turks well in the
foreground of his public programme, with merely a casual allusion to
his designs on Italy; and this enabled Ferdinand, while acclaiming
war on the Infidel as the one ambition of his life, to denounce the
rest of the proposal with mingled surprise and horror.
His ambassador, Don Alonso de Silva, begged the French King in
moving terms to desist from an expedition that could only prove the
scandal of Christianity; but still more forcible was his argument that,
since Naples was a fief of the Church, any attack made on that
kingdom would at once absolve his master from his alliance with
France. The allegiance of Ferdinand to the Holy See had been an
item of too frequent recurrence in the Treaty of Barcelona for Charles
to miss the point; and, as he turned from De Silva in fury, he realized
that he had been badly duped.

One of the greatest strokes of good fortune for a man [says Guicciardini] is to
have an opportunity of showing that in the things he does for his own interest he is
moved by the thought of the public good. This is what shed glory on the enterprises
of the Catholic King. What he did for his own security and aggrandizement often
looked as if it were done for the advancement of the Christian Faith or the defence
of the Church.

Ferdinand may appear a consummate scoundrel to modern minds,

but in his own day it can be seen that he was not without admirers.
From grief at an injury offered to a Papal fief, his opposition to
France on the Pope’s behalf grew so rapidly that Alexander VI. was
induced in 1494, not only to grant to him and his Queen, as we have
already noticed, the title of “Catholic Kings,” but to concede to them
as part of their revenue two-ninths of the Spanish tithes and rights of
sovereignty over most of the North African coast. Nor was this
cordial relationship affected by the peace with France, into which
Alexander was temporarily driven when Charles VIII. hammered at
the gates of Rome; for hardly had this second Charlemagne and his
army vanished southwards than the plots for his undoing were
redoubled.
 In March, 1495, the “League of Venice” made it patent to Europe
that the Empire, Spain, Rome, Milan, and Venice had pledged
themselves to unite for the mutual preservation of their dominions.
Secret stipulations explained that this end would be secured by
Ferdinand dispatching an army to Sicily to help Ferrante II. in
recovering his kingdom, the Venetian fleet meanwhile, attacking the
Neapolitan coast-towns in French hands. Spanish and Imperial
forces would also assault France on her southern and eastern
boundaries; while Ludovico Sforza employed the mercenary levies of
Milan in holding the passes of the Alps against any further inroad of
“Barbarians.”
To Charles, idling at Naples, the menace of the League came like a
thunderclap. As timid now as formerly self-confident, he cast
Jerusalem from his thoughts, and in May, 1495, turned his face
homewards at the head of some ten thousand men. The rest of his
army remained to guard his newly acquired kingdom, with the Count
of Montpensier as Viceroy and Stuart d’Aubigny, a Scotch soldier of
repute, as Governor-General of Calabria.
At Fornovo, in Milanese territory, the retreating invaders were
attacked by Ludovico’s troops in combination with the Venetians, but
succeeded in repulsing them and making their way safely across the
frontier. Much of their baggage, however, fell into Italian hands, and
the Allies loudly proclaimed their victory. Fortune, hitherto so
indulgent, was tired of her incapable protégé, and at her frown his
dominion quickly crumbled away. As he quitted Neapolitan territory
Ferrante II., supported by a Spanish army under Gonsalvo de
Cordova, left Sicily for the mainland, and though at first held at bay
by D’Aubigny, had regained the greater part of his inheritance before
a year had passed. In July, 1496, Naples “the fickle” opened her gates
to him; while later in the same month the Viceroy, Montpensier,
whose frantic appeals to his master for reinforcements had been
ignored, was driven to capitulate at Atella.
“Of the expedition of Charles VIII.,” says a French historian, “no
more trace remained than of the exploits of Amadis de Gaula.”
Judging by merely tangible results, or rather by the lack of them, it
may appear at first sight that in a biography of Isabel of Castile, this
campaign has received unmerited attention. The French meteor had
come and gone; and the balance of power in Italy, although badly