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M I K E W. P E N G
GLOBAL Part 1: Laying Foundations

4
2
BRIEF
CONTENTS
1 Globalizing Business 2
2 Understanding Politics, Laws, & Economics 20
3 Emphasizing Cultures, Ethics, & Norms 36
4 Leveraging Resources & Capabilities 52
Part 2: Acquiring Tools 66

5 Trading Internationally 66
6 Investing Abroad Directly 86
7 Dealing with Foreign Exchange 102
8 Capitalizing on Global & Regional Integration 120
Part 3: Managing around the World 138

9 Growing & Internationalizing the Entrepreneurial Firm 138
10 Entering Foreign Markets 152
11 Making Alliances & Acquisitions Work 168
12 Strategizing, Structuring, & Learning around the World 184
13 Managing Human Resources Globally 202
14 Competing in Marketing & Supply Chain Management 220
15 Managing Corporate Social Responsibility Globally 234
Endnotes 248
Index 252
Tear-out Cards
PengAtlas Maps
SERGEY PETERMAN/SHUTTERSTOCK.COM
Brief Contents v
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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CONTENTS
Part 1 2-2 WHAT DO INSTITUTIONS DO? 23
Laying Foundations 2-3 AN INSTITUTION-BASED VIEW OF GLOBAL BUSINESS

2-4 POLITICAL SYSTEMS 24
23
2-4a Democracy 25
2-4b Totalitarianism 25
2-4c Political Risk 25
2-5 LEGAL SYSTEMS 28
2-5a Civil Law, Common Law, and Theocratic Law 28
2-6 PROPERTY RIGHTS AND INTELLECTUAL PROPERTY
RIGHTS 29
MARCIO MACHADO/GETTY IMAGES

2-6a Property Rights 29
2-6b Intellectual Property Rights 29
2-7 ECONOMIC SYSTEMS 30
2-7a Market, Command, and Mixed Economies 30
2-7b What Drives Economic Development? 31
2-8 MANAGEMENT SAVVY 32
1. Globalizing Business 2
Closing Case: Carlsberg Confronts Political Risk in Russia 33
Opening Case: Shanghai Disneyland 3 3. Emphasizing Cultures, Ethics,

1-1 WHAT IS GLOBAL BUSINESS? 4
& Norms 36
1-2 WHY STUDY GLOBAL BUSINESS? 6
1-3 A UNIFIED FRAMEWORK 7 Opening Case: Partying in Saudi Arabia and Xinjiang, China 37
1-3a One Fundamental Question 7 3-1 WHERE DO INFORMAL INSTITUTIONS COME FROM? 37
1-3b First Core Perspective: An Institution-Based View 9 3-2 CULTURE 38
1-3c Second Core Perspective: A Resource-Based View 10 3-2a Definition of Culture 38
1-3d A Consistent Theme 10 3-2b Language 38
1-4 WHAT IS GLOBALIZATION? 10 3-2c Religion 40
1-4a Three Views on Globalization 11 3-3 CLASSIFYING CULTURAL DIFFERENCES 40
1-4b The Pendulum View on Globalization 12 3-3a The Context Approach 40
1-4c Semiglobalization 13 3-3b The Cluster Approach 41
1-5 A GLANCE AT THE GLOBAL ECONOMY 15 3-3c The Dimension Approach 42
1-6 ORGANIZATION OF THE BOOK 16 3-4 CULTURE AND GLOBAL BUSINESS 45
Closing Case: Two Scenarios of the Global Economy in 2050 16 3-5 ETHICS 46
3-5a Definition and Impact of Ethics 46
2. Understanding Politics, Laws,

3-5b Managing Ethics Overseas 46
3-6 ETHICS AND CORRUPTION 47
& Economics 20 3-7 NORMS AND ETHICAL CHALLENGES 48
Opening Case: The Newest Transition Economy 21 3-8 MANAGEMENT SAVVY 49
2-1 UNDERSTANDING INSTITUTIONS 22 Closing Case: Monetizing the Maasai Tribal Name 50
vi Contents
4. Leveraging Resources
5-3 REALITIES OF INTERNATIONAL TRADE
5-3a Tariff Barriers 79
78
& Capabilities 52 5-3b Nontariff Barriers 81

5-3c Economic Arguments against Free Trade 82
Opening Case: LEGO’s Secrets 53
5-3d Political Arguments against Free Trade 82
4-1 UNDERSTANDING RESOURCES AND CAPABILITIES 54
4-2 RESOURCES, CAPABILITIES, AND THE VALUE CHAIN 55
Closing Case: The China Trade Debate 84
4-3 WHEN AND WHEN NOT TO OUTSOURCE 56
4-4 FROM SWOT TO VRIO
4-4a The Question of Value 59
59
6. Investing Abroad Directly 86
4-4b The Question of Rarity 60 Opening Case: Nordic Multinationals 87
4-4c The Question of Imitability 60 6-1 UNDERSTANDING THE FDI VOCABULARY 87
4-4d The Question of Organization 61 6-1a The Key Word Is Direct 88
4-5 MANAGEMENT SAVVY 62 6-1b Horizontal and Vertical FDI 88
Closing Case: The Rise of Alibaba 63 6-1c FDI Flow and Stock 88
6-1d MNE versus Non-MNE 89
Part 2 6-2 WHY DO FIRMS BECOME MNEs BY ENGAGING

IN FDI? 89
Acquiring Tools
6-3 OWNERSHIP ADVANTAGES 91
6-3a The Benefits of Direct Ownership 91
6-3b FDI versus Licensing 91
6-4 LOCATION ADVANTAGES 92
6-4a Location, Location, Location 92
6-4b Acquiring and Neutralizing Location Advantages 92
6-5 INTERNALIZATION ADVANTAGES 94
6-5a Market Failure 94
6-5b Overcoming Market Failure Through FDI 94
6-6 REALITIES OF FDI 95
HXDYL/SHUTTERSTOCK.COM
6-6a Political Views on FDI 95

6-6b Benefits and Costs of FDI to Host Countries 96
6-6c Benefits and Costs of FDI to Home Countries 99
Closing Case: FDI in the Indian Retail Industry 100
5. Trading Internationally 66 7. Dealing with Foreign

Opening Case: Why Are US Exports So Competitive? 67 Exchange 102
5-1 WHY DO NATIONS TRADE? 68
Opening Case: The All-Mighty Dollar 103
5-2 THEORIES OF INTERNATIONAL TRADE 70
7-1 WHAT DETERMINES FOREIGN EXCHANGE RATES? 104
5-2a Mercantilism 70
7-1a Basic Supply and Demand 104
5-2b Absolute Advantage 70
7-1b Relative Price Differences and Purchasing Power Parity 105
5-2c Comparative Advantage 71
7-1c Interest Rates and Money Supply 106
5-2d Product Life Cycle 73
7-1d Productivity and Balance of Payments 107
5-2e Strategic Trade 74
7-1e Exchange Rate Policies 108
5-2f National Competitive Advantage of Industries 75
7-1f Investor Psychology 109
5-2g Evaluating Theories of International Trade 76
Contents vii
Part 3
7-2 EVOLUTION OF THE INTERNATIONAL MONETARY
SYSTEM 109
Managing around the World

7-2a The Gold Standard (1870–1914) 109
7-2b The Bretton Woods System (1944–1973) 110
7-2c The Post–Bretton Woods System (1973–Present) 110
7-2d The International Monetary Fund 111
7-3 STRATEGIC RESPONSES 111
7-3a Strategies for Financial Companies 113
7-3b Strategies for Nonfinancial Companies 115
SUCCESSO IMAGES/SHUTTERSTOCK.COM
Closing Case: Bellini Do Brasil’s Foreign Exchange Challenges 117
8. Capitalizing on Global
& Regional Integration 120
Opening Case: Brexit 121
8-1 INTEGRATING THE GLOBAL ECONOMY 122
8-1a Political Benefits for Global Economic Integration 122
8-1b Economic Benefits for Global Economic Integration 123 9. Growing & Internationalizing
8-2 ORGANIZING WORLD TRADE 124 the Entrepreneurial Firm 138
8-2a General Agreement on Tariffs and Trade: 1948–1994 124
Opening Case: Sriracha Spices Up American Food 139
8-2b World Trade Organization: 1995–Present 124
9-1 ENTREPRENEURSHIP AND ENTREPRENEURIAL FIRMS 140
8-2c Trade Dispute Settlement 125
9-2 INSTITUTIONS, RESOURCES, AND
8-2d The Doha Round: “The Doha Development Agenda” 125 ENTREPRENEURSHIP 140
8-3 INTEGRATING REGIONAL ECONOMIES 126 9-2a Institutions and Entrepreneurship 140
8-3a The Pros and Cons of Regional Economic Integration 126 9-2b Resources and Entrepreneurship 142
8-3b Types of Regional Economic Integration 127 9-3 GROWING THE ENTREPRENEURIAL FIRM 143
8-4 REGIONAL ECONOMIC INTEGRATION 9-3a Growth 143
IN EUROPE 128
9-3b Innovation 143
8-4a Origin and Evolution 128
9-3c Financing 144
8-4b The EU Today 128
9-4 INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 145
8-4c The EU’s Challenges 129
9-4a Transaction Costs and Entrepreneurial Opportunities 145
8-5 REGIONAL ECONOMIC INTEGRATION IN THE
AMERICAS 131 9-4b International Strategies for Entering Foreign Markets 146
8-5a North America: North American Free Trade Agreement 9-4c International Strategies for Staying in Domestic
(NAFTA) 131 Markets 148
8-5b South America: Andean Community, Mercosur, USAN/ 9-5 MANAGEMENT SAVVY 148
UNASUR, and CAFTA 132 Closing Case: Boom in Busts: Good or Bad? 150
8-6 REGIONAL ECONOMIC INTEGRATION IN THE ASIA
PACIFIC 133
8-6a Australia–New Zealand Closer Economic Relations Trade 10. Entering Foreign
Agreement (ANZCERTA or CER) 133 Markets 152
8-6b Association of Southeast Asian Nations (ASEAN) 133
Opening Case: Coca-Cola Pours into Africa 153
8-6c Asia–Pacific Economic Cooperation (APEC) and Trans–
Pacific Partnership (TPP) 133 10-1 OVERCOMING THE LIABILITY OF FOREIGNNESS 154
8-7 MANAGEMENT SAVVY 135 10-2 WHERE TO ENTER? 155
Closing Case: What If NAFTA Goes Away? 136 10-2a Location-Specific Advantages and Strategic Goals 155
viii Contents
10-2b Cultural/Institutional Distances and Foreign Entry 12-3 WORLDWIDE LEARNING, INNOVATION, AND KNOWLEDGE
Locations 158 MANAGEMENT 195
10-3 WHEN TO ENTER? 159 12-3a Knowledge Management 195
10-4 HOW TO ENTER? 160 12-3b Knowledge Management in Four Types of Multinational
10-4a Scale of Entry: Commitment and Experience 160 Enterprises 195
10-4b Modes of Entry: The First Step on Equity versus Nonequity 12-3c Globalizing Research and Development 197
Modes 161 12-4 MANAGEMENT SAVVY 198
10-4c Modes of Entry: The Second Step on Making Actual Closing Case: Moving Headquarters Overseas 198
Selections 163
10-5 MANAGEMENT SAVVY
Closing Case: Thai Union’s Foreign Market Entries
165
166
13. Managing Human Resources
Globally 202
11. Making Alliances Opening Case: IKEA Manages Human Resources in the United
States 203
& Acquisitions Work 168 13-1 STAFFING 204
Opening Case: Etihad Airways’ Alliance Network 169 13-1a Ethnocentric, Polycentric, and Geocentric Approaches in
11-1 DEFINING ALLIANCES AND ACQUISITIONS 169 Staffing 204
11-2 HOW INSTITUTIONS AND RESOURCES AFFECT ALLIANCES 13-1b The Role of Expatriates 207
AND ACQUISITIONS 170 13-1c Expatriate Failure and Selection 207
11-2a Institutions, Alliances, and Acquisitions 171 13-2 TRAINING AND DEVELOPMENT 208
11-2b Resources and Alliances 172 13-2a Training for Expatriates 208
11-2c Resources and Acquisitions 174 13-2b Development for Returning Expatriates (Repatriates) 209
11-3 FORMATION OF ALLIANCES 176 13-2c Training and Development for Host-Country Nationals 210
11-4 DISSOLUTION OF ALLIANCES 177 13-3 COMPENSATION AND PERFORMANCE APPRAISAL 210
11-5 PERFORMANCE OF ALLIANCES 178 13-3a Compensation for Expatriates 210
11-6 MOTIVES FOR ACQUISITIONS 178 13-3b Compensation for Host-Country Nationals 211
11-7 PERFORMANCE OF ACQUISITIONS 179 13-3c Performance Appraisal 212
11-8 MANAGEMENT SAVVY 181 13-4 LABOR RELATIONS 212
Closing Case: Fiat Chrysler: From Alliance to Acquisition 182 13-4a Managing Labor Relations at Home 212
13-4b Managing Labor Relations Abroad 213
12. Strategizing, Structuring, 13-5 INSTITUTIONS, RESOURCES, AND HUMAN RESOURCE

MANAGEMENT 213
& Learning around the 13-5a Institutions and Human Resource Management 213
World 184 13-5b Resources and Human Resource Management 215
Opening Case: Launching the McWrap 185
Closing Case: Chicago versus Shanghai 217
12-1 MULTINATIONAL STRATEGIES AND STRUCTURES 186
12-1a Pressures for Cost Reduction and Local
Responsiveness 186 14. Competing in Marketing
12-1b Four Strategic Choices 187
& Supply Chain
12-1c Four Organizational Structures 189
12-1d The Reciprocal Relationship between Multinational
Management 220
Strategy and Structure 191 Opening Case: Marketing Aflac in the United States and Japan 221
12-2 HOW INSTITUTIONS AND RESOURCES AFFECT 14-1 THREE OF THE FOUR Ps IN MARKETING 222
MULTINATIONAL STRATEGY, STRUCTURE, AND
LEARNING 191 14-1a Product 222
12-2a Institution-Based Considerations 191 14-1b Price 224
12-2b Resource-Based Considerations 193 14-1c Promotion 224
Contents ix
14-2 FROM DISTRIBUTION CHANNEL TO SUPPLY CHAIN 15-1c The Fundamental Debate on CSR 237
MANAGEMENT 225 15-2 INSTITUTIONS, RESOURCES, AND CORPORATE SOCIAL
14-3 TRIPLE As IN SUPPLY CHAIN MANAGEMENT 226 RESPONSIBILITY 240
14-3a Agility 226 15-2a Institutions and Corporate Social Responsibility 240
14-3b Adaptability 226 15-2b Resources and Corporate Social Responsibility 244
14-3c Alignment 228 15-3 MANAGEMENT SAVVY 245
14-4 HOW INSTITUTIONS AND RESOURCES Closing Case: The Ebola Challenge 245
AFFECT MARKETING AND SUPPLY CHAIN
MANAGEMENT 229
ENDNOTES 248
14-4a Institutions, Marketing, and Supply Chain
Management 229 INDEX 252
14-4b Resources, Marketing, and Supply Chain TEAR-OUT CARDS
Management 230 PENGATLAS MAPS
Closing Case: Online Shop Number One 232
15. Managing Corporate Social

Responsibility Globally 234
Opening Case: Foxconn 235
15-1 A STAKEHOLDER VIEW OF THE FIRM 236
15-1a A Big Picture Perspective 236
15-1b Primary and Secondary Stakeholder Groups 237
x Contents
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Interactive Resources! CH APTER
Globalizing Business
CH APTER
Understanding Politics, Laws,

& Economics
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PART
1 1 Globalizing Business
MARCIO MACHADO/GETTY IMAGES
LEARNING OBJECTIVES
After studying this chapter, you will be able to . . .
After you finish
1-1 Explain the concepts of international 1-4 Identify three ways of understanding what After you finish
business and global business. globalization is. this chapter, go to
this chapter, go to
1-2 Give three reasons why it is important to 1-5 Appreciate the size of the global economy
study global business.
1-3 Articulate the fundamental question that

and the strengths of multinationals.
1-6 Understand the organization of this book.

PAGE
PAGE 18
xx for
for
the study of global business seeks to answer
and the two perspectives from which to
answer it.
STUDY
STUDY TOOLS
TOOLS
EMERGING MARKETS/ETHICAL DILEMMA
Opening Case: Shanghai Disneyland
O
n June 16, 2016, the world’s
biggest Disneyland opened
in Shanghai with a great deal of fanfare. It
shopping malls, and entertainment facilities—when completed
it would be three times the size of Hong Kong Disneyland.
Disney’s joint venture (JV) partner, the state-owned Shanghai
features a supersize castle that is 200-feet tall. In Shendi Group controlled by the Shanghai government, owned
comparison, the height for similar castles in Anaheim, a 57% stake. In the management company that actually ran the
California, and Orlando, Florida, is 77 feet and 180 feet, property, Disney gave up a 30% piece. In comparison, the Hong
respectively. Approximately 80% of the Shanghai rides, such as the Kong government gave a 48% share to Disney for the JV that
Tron Lightcycle Roller Coaster, are unique. Chinese elements are owned Hong Kong Disneyland, and the government itself took
extensively found. The flagship restaurant, the Wandering Moon 52%. Disney gave up no management control in Hong Kong.
Teahouse, has sections representing different regions of China. Why was Disney so eager to go to China? Although China’s
Some old staples found in other Disney parks, such as Main Street pull in terms of market size and potential is obvious, Disney is
USA, Jungle Cruise, and Space Mountain, have been banished—in also pushed by its lackluster performance in other areas such
fear of criticisms for cultural imperialism. “Authentically Disney and as cable, movies, and some of its other theme parks. In April
distinctly Chinese” is an interesting tagline coined by Robert Iger, 2011, Shanghai Disneyland broke ground, with Iger and Chinese
chairman and CEO of The Walt Disney Company (“Disney” hereafter). officials scooping up loose dirt, Mickey and Minnie Mouse
More than 330 million people live within a three-hour drive or train frolicking in Chinese costumes, and a children’s choir singing
ride. Disney is eager to turn them into lifelong customers not only When You Wish Upon a Star—in Mandarin. Despite such hoopla,
for the $5.5 billion theme park, but also for movies, games, toys, there was no guarantee that Disney’s high-profile entry would be
clothes, books, TV programs, cruises, and resorts. profitable. Exhibit A: Disneyland Paris, which opened in 1992, is
Mickey’s journey to the Middle Kingdom has been a tortuous still struggling to reach profitability.
one. The two-decade courtship started in the late 1990s, when For Shanghai Disneyland, the attention to detail was
Jiang Zemin was president of China and Michael Eisner chairman meticulous. In addition to the tremendous efforts to showcase
and CEO of Disney. At that time, Disney was starting to have local responsiveness, with 80% of the rides being uniquely
some success in China, with its cartoon series aired on Sunday tailored to local interests, Iger also pre-tasted the food (such as
evenings by major TV stations. Then Disney launched a movie Donald Duck-shaped waffles) and decided which characters
about the exiled Tibetan spiritual leader the Dalai Lama, Kundun, would appear in the parade. When first unveiled in March
which attracted the wrath of the Chinese government. “All of 2016, Shanghai Disneyland’s website registered 5 million
our business in China stopped overnight,” Eisner recalled. Out of hits within 30 minutes. The first two weeks of tickets sold
desperation, Disney hired as a consultant former Secretary of State out in hours.
Henry Kissinger, who spearheaded American efforts to establish Yet as Shanghai Disneyland celebrated its first Chinese
diplomatic ties with China in the 1970s and was regarded as New Year in January 2017, disappointing news came. In its first
a trustworthy friend by the Chinese. The Chinese government six months ending on December 31, 2016, 5.6 million guests
only agreed to reopen China after intense lobbying by Kissinger came. Although impressive, these numbers fell far short of rosy
and humiliating apologies by Eisner, who admitted Kundun was initial projections of an estimated 15 million visitors for the first
“a stupid mistake” in meetings with Chinese officials. Financially, year. If attendance continued at its current pace, then the first
Kundun was indeed a stupid mistake. It burned through a full-year result would barely reach over 10 million. In the Disney
$30 million budget to reap only $5 million box office receipts. universe, 10 million visitors in the first year would not be too
Eisner then introduced Iger, Disney’s international bad, as Hong Kong only attracted seven million in 2015—its
president at that time, to be in charge of negotiations for a 11th year. In comparison, in 2015, Tokyo reported 17 million;
theme park. The negotiations were slow and painful. Looking Anaheim 18 million; and Orlando 19 million. Although these
back, Iger, who succeeded Eisner as CEO in 2005 and as sister parks are a lot more established, Shanghai Disneyland
chairman in 2012, recalled in a New York Times interview that he clearly has a long way to go. As the Magic Kingdom embarks
had “engaged with three [Chinese] presidents, a few premiers, on its residence in the Middle Kingdom, one thing is clear: this
a number of vice premiers, a number of [Communist] Party China business is not going to be Mickey Mousy.
secretaries, and five or six mayors of Shanghai.”
Sources: “Disney gets a second chance in China,” Bloomberg Businessweek, 18 April 2011:
By 2009, the Chinese government finally gave its blessing, 21–22; “Middle Kingdom v Magic Kingdom,” Guardian, 15 June 2016: www.theguardian
but only after Disney agreed to be a minority partner. Disney took .com; “How China won the keys to Disney’s Magic Kingdom,” New York Times, 14 June
a 43% stake in the Shanghai Disney Resort. Shanghai Disney 2016: www.nytimes.com; M. W. Peng, “Mickey goes to Shanghai,” in Global Business,
4th ed. (Boston: Cengage, 2017) 339–340; “Shanghai Disneyland welcomes 5.6 million
Resort would not only include the flagship Shanghai Disneyland, visitors in first six months, is kind of a disappointment,” Shanghaiist, 17 January 2017:
but also two additional theme parks, two themed hotels, www.shanghaiist.com.
CHAPTER 1 Globalizing Business 3

H ow do firms such as Disney compete around the
globe? How can competitors such as Europa Park,
Happy Valley, Legoland, Lotte World, Sea World, Six Flags,
directly investing in, controlling, and managing value-
added activities in other countries.1 Of course, MNEs
and their cross-border activities are important. But they
Tivoli, and Universal Studios fight back? What determines cover only one side of IB—the foreign side. Students
the success and failure of these firms—and numerous educated by these books often come away with the im-
others—around the world? This book will address these pression that the other side of IB—namely, domestic
and other important questions on global business. firms—does not exist. But domestic firms obviously do
Ask yourself: Which country made the shirt you not just sit around in the face of foreign entrants such as
are wearing? Which country made the mobile device MNEs. They actively compete and/or collaborate with
you have? Why are Airbus jets, Apple iPhones, Corona foreign entrants.2 In other words, focusing on the foreign
beer, Microsoft software, Starbucks coffee, and Toyota entrant side captures only one side of the coin at best.
cars found in many places that you travel to? Can you There are two key words in IB: international (I) and
join the men and women who are the real movers and business (B). However, previous textbooks all focus on
shakers driving these successful firms? What are their the international aspect (the foreign entrant) to the ex-
secrets? Of course, there are numerous other firms tent that the business part (which also includes domestic
around the world that are not so successful. How can business) almost disappears. This is unfortunate because
you learn the lessons from these unsuccessful firms and IB is fundamentally about B in addition to being I. To
avoid the mistakes made by their managers? Tackling put it differently, the IB course in the undergraduate and
these interesting questions, GLOBAL 4 will be with MBA curricula at numerous business schools is probably
you as you embark on your global business studies and the only course with the word “business” in the course
launch your career. Enjoy the ride! title. All other courses you take are labeled manage-
ment, marketing, finance, and so on, representing one
functional area but not the overall picture of business.
1-1 WHAT IS GLOBAL BUSINESS? Does it matter? Of course! It means that your IB course
is an integrative course that has the potential to provide
you with an overall business perspective grounded in a
Traditionally, international business (IB) is defined as global environment (as opposed to a relatively narrow
a business (firm) that engages in international (cross- functional view). Consequently, it makes sense that your
border) economic activities. It can also refer to the ac- textbook should give you both the I and B parts, not just
tion of doing business abroad. A previous generation of the I part.
IB textbooks almost always takes the foreign entrant’s To cover both the I and B parts, global business
perspective. Consequently, such books deal with is- is defined in this book as business around the globe—
sues such as how to enter foreign markets and how to thus the title of this book: GLOBAL. For the B part,
select alliance partners. The most frequently discussed the activities include both international (cross-border)
foreign entrant is the multinational enterprise (MNE), activities covered by traditional IB books and domestic
defined as a firm that en- (non-IB) business activities. Such deliberate blurring
gages in foreign direct of the traditional boundaries separating international
international business (IB) investment (FDI) by and domestic business is increasingly important today,
(1) A business (firm) that engages because many previously na-
in international (cross-border)
economic activities or (2) the action
tional (domestic) mar-
of doing business abroad. kets are now
multinational enterprise
(MNE) A firm that engages in
foreign direct investment and
operates in multiple countries.
foreign direct investment

(FDI) Investment in, controlling,
“ISTOCK.COM/EVIRGEN”
and managing value-added

activities in other countries.
global business Business around

the globe.
4 PART I Laying Foundations
globalized. For example, not Note that this percentage
long ago, competition among is adjusted for purchasing
college business textbook power parity (PPP), which is
publishers was primarily on an adjustment to reflect the
a nation-by-nation basis. The NERTHUZ/SHUTTERSTOCK.COM differences in cost of living.
Big Three—Cengage Learn- Of many emerging economies, Brazil, Russia, India,
ing (our publisher), Prentice Hall, and McGraw-Hill— and China—commonly referred to as BRIC—command
primarily competed in the United States. A different more attention. With South Africa, BRIC becomes
set of publishers competed in other countries. As a BRICS. As a group, BRICS countries have 40% of the
result, textbooks studied by British students would world’s population, cover a quarter of the world’s land
be authored by British professors and published by area, and contribute more than 25% of global GDP (on
British publishers; textbooks studied by Brazilian stu- a PPP basis). In addition to BRICS, other interesting
dents would be authored by Brazilian professors and terms include BRICM (BRIC + Mexico), BRICET
published by Brazilian publishers; and so on. Now (BRIC + Eastern Europe and Turkey), and Next Eleven
Cengage (under British and Canadian ownership), (N-11—consisting of Bangladesh, Egypt, Indonesia,
Pearson Prentice Hall (under British ownership), Iran, Korea, Mexico, Nigeria, Pakistan, the Philippines,
and McGraw-Hill (under US ownership) have sig- Turkey, and Vietnam).
nificantly globalized their competition, thanks to Overall, the Great Transformation of the global
rising demand for high-quality business textbooks in economy is embodied by the tremendous shift
English. Around the globe, they compete against each in economic weight and engines of growth toward
other in many markets, publishing in multiple lan- emerging economies in general and BRIC(S) in
guages. For instance, GLOBAL and its sister books— particular. Led by BRIC(S), emerging economies
Global Business, Global Strategy, and International accomplished “the biggest economic transformation
Business (a European adaptation)—are published in modern economy,” according to the Economist.4
by different subsidiaries in Chinese, Spanish, and In China, per capita income doubled in about ten
Portuguese in addition to English, reaching custom- years, an achievement that took Britain 150 years
ers in over 30 countries. Despite such worldwide and the United States 50 years as they industrialized.
spread of competition, in each market—down to each Throughout emerging economies, China is not alone.
school—textbook publishers have to compete locally. While groupings such as BRIC(S) and N-11 are al-
In other words, no professor teaches globally, and ways arbitrary, they serve a useful purpose—namely,
all students study locally. This means that GLOBAL highlighting their eco-
has to win adoption for every class every semester. nomic and demographic
Overall, it becomes difficult to tell in this competi- scale and trajectory that
emerging economy (emerging
tion what is international and what is domestic. Thus, enable them to chal- market) A developing country.
“global” is a better word to capture the essence of this lenge developed econo-
gross domestic product (GDP)
competition. mies in terms of weight
The sum of value added by resident
GLOBAL also differs from other IB books because and influence in the firms, households, and governments
most focus on competition in developed economies. global economy. operating in an economy.
Here, by contrast, we devote extensive space to Of course, the Great purchasing power parity (PPP)
competitive battles waged throughout emerging Transformation is not a A conversion that determines the
economies, a term that has gradually replaced the linear story of endless equivalent amount of goods and
term “developing countries” since the 1990s. An- and uniform high-speed services different currencies can
purchase. This conversion is usually
other commonly used term is emerging markets growth. Most emerg-
used to capture the differences in
(see PengAtlas Map 1). How important are ing economies have cost of living in different countries.
emerging economies? Collectively, they experienced some
BRIC An acronym for the emerging
command 48% of world trade, attract significant slow economies of Brazil, Russia, India,
60% of FDI inflows, and generate 40% down recently.5 It and China.
FDI outflows. Overall, emerging econ- is possible that
BRICS An acronym for the
omies contribute approximately 50% they may not be emerging economies of Brazil,
of the global gross domestic product able to repeat Russia, India, China, and South
(GDP).3 In 1990, they accounted for less their extraordi- Africa.
than a third of a much smaller world GDP. ISTOCK.COM/HENRIK5000 nary growth sprint
people—make less than $2,000 a year and comprise the
EXHIBIT 1.1 THE GLOBAL ECONOMIC base of the pyramid (BoP). Most MNEs (and most tra-
PYRAMID ditional IB books) focus on the top and second tiers and
end up ignoring the BoP. An increasing number of such
low-income countries have shown increasingly more
Per economic opportunities as income levels have risen.6
capita
GDP/GNI Today’s students—and tomorrow’s business leaders—
> $20,000 will ignore these opportunities in BoP markets at their
Approximately
1 billion people own peril. This book will help ensure that you will not
ignore these opportunities.
Per capita GDP/GNI

$2,000–$20,000
Approximately 1 billion people
1-2 WHY STUDY GLOBAL BUSINESS?

Per capita GDP/GNI < $2,000 Global business (or IB) is one of the most exciting,
Approximately 5 billion people challenging, and relevant subjects offered by business
schools. There are at least three compelling reasons why
you should study it—and study hard (Exhibit 1.2). First,
you don’t want to be a loser. Mastering global business
Sources: C. K. Prahalad and S. Hart, “The fortune at the bottom of the pyramid,” Strategy- knowledge helps advance your employability and career
1Business 26 (2002): 54–67; S. Hart, Capitalism at the Crossroads (Philadelphia: Wharton
School Publishing, 2005) 111. GNI refers to gross national income.
in an increasingly competitive global economy. An igno-
rant individual is unlikely to emerge as a winner in global
competition.
Second, expertise in global business is often
during the decade between 1998 (the Asian economic cri- a prerequisite to join the top ranks of large firms,
sis) and 2008 (the global financial crisis). For example, in something many ambitious students aspire to. It is
2007, Brazil accomplished an annual economic growth of now increasingly difficult, if not impossible, to find
6%, Russia 8%, India 10%, and China 14%. In 2017, they top managers at large firms who do not possess sig-
would be very lucky if they could achieve half of these envi- nificant global competence. Eventually you will need
able growth rates. However, it seems that emerging econo- hands-on global experience, not merely knowledge
mies as a group are destined to grow both their absolute acquired from this course. However, in order to set
GDP and their percentage of world GDP relative to de- yourself apart as an ideal candidate to be selected for
veloped economies. The debate centers on how much and an executive position, you will need to demonstrate
how fast (or how slow) they will grow in the future (see that you are interested in global business and have
Closing Case). mastered such knowledge during your education. This
The global economy can be viewed as a pyramid is especially true if you are interested in gaining ex-
shown in Exhibit 1.1. The top consists of about one bil- perience as an expatriate manager (or “expat” for
lion people with per capita annual income of $20,000 or short)—a manager who works abroad (see Chapter 13
higher. These are mostly for details).
people who live in the
Triad Three regions of developed developed economies
economies (North America, Western of the Triad, which con-
Europe, and Japan).
sists of North America, EXHIBIT 1.2 WHY STUDY GLOBAL BUSINESS?
base of the pyramid (BoP) The Western Europe, and
vast majority of humanity, about five ▸▸ To advance your employability and your career in the global
Japan. Another billion
billion people, who make less than economy
$2,000 a year. people making $2,000
to $20,000 a year form ▸▸ To better prepare for possible expatriate assignments abroad
expatriate manager (expat)
the second tier. The ▸▸ To build stronger competence in interacting with foreign
A manager who works outside his
or her native country. vast majority of human- suppliers, partners, and competitors; and in working for
ity—about five billion foreign-owned employers in your own country
Thanks to globalization, low-level jobs not only largest employer in the UK, IBM is the second largest
command lower salaries, but are also more vulnerable. employer in India, and Coca-Cola is the largest
On the other hand, top-level jobs, especially those employer in Africa. Understanding how global business
held by expats, are both financially rewarding and decisions are made may facilitate your own career in
relatively secure. Expats often command a signifi- such firms. If there is a strategic rationale to downsize
cant international premium in compensation—a your unit, you would want to be prepared and start
significant pay raise when working overseas. In US polishing your résumé right away. In other words, it is
firms, their total compensation package can be approxi- your career that is at stake. Don’t be the last to know!
mately $300,000 to $400,000 (including benefits; not To avoid the fate humorously portrayed in Exhibit 1.3,
all is take-home pay). a good place to start is to study hard and do well in your
Even if you do not want to be a sought-after, globe- IB course. Of course, don’t forget to put this course on
trotting expat, we assume that you do not want to join your résumé as a highlight of your education. (In Focus
the ranks of the unemployed due to the impact of glo- has additional advice on what language and what fields
balization and technology (see Exhibit 1.3). to study.)
Lastly, even if you do not aspire to compete for the
top job at a large firm or work overseas, and even if you
work at a small firm or are self-employed, you may find
yourself dealing with foreign-owned suppliers and buy-
1-3 A UNIFIED FRAMEWORK
ers, competing with foreign-invested firms in your
home market, and perhaps even selling and investing Global business is a vast subject area. It is one of the
overseas. Alternatively, you may find yourself working few courses that will make you appreciate why your
for a foreign-owned firm, your domestic employer may university requires you to take a number of diverse
be acquired by a foreign player, or your unit may be courses in general education. We draw on major social
ordered to shut down for global consolidation. Any of sciences such as economics, geography, history, psy-
these is a very likely scenario, because approximately chology, political science, and sociology. We also draw
80 million people worldwide, including 18 million on a number of business disciplines such as finance,
Chinese, six million Americans, and one million Bri- marketing, and strategy. The study of global business is
tish, are employed by foreign-owned firms. In the pri- thus very interdisciplinary.7 It is easy to lose sight of the
vate sector, Taiwan-based Foxconn is the largest forest while scrutinizing various trees or even branches.
employer in China, India-based Tata Group is the The subject is not difficult, and most students find it to
be fun. The number-one student complaint is about the
overwhelming amount of information. Truth be told,
this is also my number-one complaint as your author.
EXHIBIT 1.3 THE IMPACT OF GLOBALIZATION You may have to read and learn this material, but I have
AND TECHNOLOGY to bring it all together in a way that makes sense and in
a compact book that does not go on and on and on for
900 pages. To make your learning more focused, more
manageable, and hopefully more fun, in this book we
develop a unified framework consisting of one funda-
mental question and two core perspectives (shown in
Exhibit 1.4).
1-3a One Fundamental Question8

What is it that we do in global business? Why is it so im-
portant that practically all students in business schools
around the world are either required or recommended
WWW.CARTOONSTOCK.COM
to take this course?

While there are certainly
a lot of questions to raise, international premium A
significant pay raise commanded by
a relentless interest in expatriates when working overseas.
what determines the

▸IN FOCUS: Emerging Markets
What Language and What
Fields Should I Study?
On September 3, 2007, Markéta Straková of Tabor, the Czech
MAXX-STUDIO/SHUTTERSTOCK.COM
Republic, wrote to BusinessWeek columnists Jack Welch
and Suzy Welch:
I am thinking of studying Portuguese, but in your opinion, what language
should I learn to succeed in the world of business? And what fields of study
hold the most potential?
Jack Welch was the former chairman and CEO of General

Electric (GE), and Suzy Welch was the former editor of Harvard
Business Review. They wrote back in the same issue of
BusinessWeek: on alternative sources of energy. Or learn everything you can about the
confluence of three fields: biotechnology, information technology, and
You’re on to something with Portuguese, since it will give you a leg up in
nanotechnology. For the foreseeable future, the therapies, machines,
several markets with good potential, such as Brazil and some emerging
devices, and other products and services that these fields bring to market
African nations. Spanish is also a good choice, as it will allow you to
will revolutionize society—and business.
operate with more ease throughout Latin America, and, increasingly,
the United States. But for our money—and if you can manage the much That said, when it comes to picking an education field and ultimately a
higher order of commitment—Chinese is the language to learn. China is career, absolutely nothing beats pursuing the path that truly fascinates
already an economic powerhouse. It will only gain strength. Anyone who your brain, engages your energy, and touches your soul. Whatever you do,
can do business there with the speed and intimacy that fluency affords will do what turns your crank. Otherwise your job will always be just work, and
earn a real competitive edge. how dreary is that?
As for what to study—and if you want to be where the action is now Source: J. Welch and S. Welch, “Ideas: The Welch way,” BusinessWeek, 3 September
and for the next couple of decades—consider the industries focused 2007: 104.
EXHIBIT 1.4 A UNIFIED FRAMEWORK FOR success and failure of firms around the globe serves to
focus the energy of our field. Global business is fun-
GLOBAL BUSINESS damentally about not limiting yourself to your home
country. It is about treating the global economy as your
potential playground (or battlefield). Some firms may
Institution-Based View: be successful domestically but fail miserably overseas.
Formal and informal
rules of the game Other firms successfully translate their strengths from
their home markets to other countries. If you were ex-
pected to lead your firm’s efforts to enter a particular
Fundamental Question: foreign market, wouldn’t you want to find out what
What determines the
success and failure of drives the success and failure of other firms in that
firms around the globe? market?
Overall, the focus on firm performance around the
globe defines the field of global business (or IB) more
Resource-Based View: than anything else. Numerous other questions all relate
Firm-specific
resources and capabilities in one way or another to this most fundamental question.
Therefore, all chapters in this book are centered on this
fundamental question: What determines the success and
failure of firms around the globe?
ESB PROFESSIONAL/SHUTTERSTOCK.COM
Given its equal treatment of companies no matter where they’re from, it is not surprising that Hong Kong
attracts businesses from all over the world.
1-3b First Core Perspective: only possible after its regulations changed from confron-
tational to accommodating. Prior to 1991, India’s rules
An Institution-Based View9 severely discriminated against foreign firms. For ex-
An institution-based view suggests that the success and ample, in the 1970s, the Indian government demanded
failure of firms are enabled and constrained by institu- that Coca-Cola either hand over the recipe for its secret
tions. By institutions, we mean the rules of the game. syrup, which it does not even share with the US govern-
Doing business around the globe requires intimate knowl- ment, or get out of India. Painfully, Coca-Cola chose to
edge about both formal rules (such as laws) and informal leave India. Its return to India since the 1990s speaks
rules (such as values) that govern competition in various volumes about how much the rules of the game have
countries as an institutional framework. Firms that do changed in India.
not do their homework and thus remain ignorant of the Informal institutions include cultures, ethics, and
rules of the game in a certain country are not likely to norms. They also play an important part in shaping the
emerge as winners. success and failure of
Formal institutions include laws, regulations, and firms around the globe institution-based view A leading
(see Opening Case). For perspective in global business that
rules. For example, Hong Kong’s laws are well known suggests that firm performance is,
for treating all comers, whether from neighboring main- example, individualistic at least in part, determined by the
land China (whose firms are still technically regarded as societies, particularly the institutional frameworks governing
“nondomestic”) or far-away Chile, the same as they treat English-speaking coun- firm behavior around the world.
indigenous Hong Kong firms. Such equal treatment tries such as Australia, institution Formal and informal
enhances the potential odds for foreign firms’ success. Britain, and the United rules of the game.
It is thus not surprising that Hong Kong attracts a lot States, tend to have a
institutional framework Formal
of outside firms. Other rules of the game discriminate relatively higher level of and informal institutions that govern
against foreign firms and undermine their chances for entrepreneurship as re- individual and firm behavior.
success. India’s recent attraction as a site for FDI was flected in the high number

of business start-ups. Why? Because the act of founding a disadvantage that foreign firms experience in host countries
new firm is a widely accepted practice in individualistic because of their nonnative status.11 Just think about all the
societies. Conversely, collectivistic societies such as Japan differences in regulations, languages, cultures, and norms.
often have a hard time fostering entrepreneurship. Most Think about the odds against Toyota and Honda when they
people there refuse to stick their neck out to found new tried to eat some of General Motors’ and Ford’s lunch in
businesses because it is contrary to the norm. the American heartland. Against such significant odds, the
Overall, an institution-based view suggests that in- primary weapons that foreign firms such as Toyota and
stitutions shed a great deal of light on what drives firm Honda employ are overwhelming resources and capabili-
performance around the globe. Next, we turn to our sec- ties that can offset their liability of foreignness. Today, many
ond core perspective. of us take it for granted that the best-selling car in the
United States rotates between the Toyota Camry and the
1-3cSecond Core Perspective: Honda Civic, that Coca-Cola is the best-selling soft drink in
Mexico, and that Disney is the world’s number-one theme
A Resource-Based View10 park operator (see Opening Case). We really shouldn’t.
The institution-based view suggests that the success and Why? Because it is not natural for these foreign firms to
failure of firms around the globe are largely determined by dominate nonnative markets. These firms must possess
their environment. However, insightful as this perspective some very rare and powerful firm-specific resources and
is, there is a major drawback. If we push this view to its capabilities that drive these remarkable success stories.
logical extreme, then firm performance around the globe This is a key theme of the resource-based view, which fo-
would be entirely determined by environments. The valid- cuses on how winning firms develop unique and enviable
ity of this extreme version is certainly questionable. resources and capabilities and how competitor firms imi-
The resource-based view helps overcome this draw- tate and then innovate in an effort to outcompete the win-
back. While the institution-based view primarily deals with ning firms.
the external environment, the resource-based view focuses
on a firm’s internal resources and capabilities. It starts with 1-3d A Consistent Theme
a simple observation: In a harsh, unattractive environment,
Given our focus on the fundamental question of what
most firms either suffer or exit. However, against all odds,
determines the success and failure of firms around the
a few superstars thrive in such an environment. For in-
globe, we will develop a unified framework by organizing
stance, despite the former Soviet Union’s obvious hostility
the material in every chapter according to the two core
toward the United States during the Cold War, PepsiCo
perspectives, namely, the institution-based and resource-
began successfully operating in the former Soviet Union
based views.12 For example, our Opening Case on Shang-
in the 1970s (!). In another example, airlines often lose
hai Disneyland illustrates both views at work. From an
money. But a small number of players, such as Southwest
institution-based view, it is clear that Disney needs to
in the United States, Ryanair in Ireland, Hainan in China,
thoroughly understand the rules of the game in China.
and IndiGo in India, have been raking in profits year after
Being insensitive about local politics and norms (such as
year. In the fiercely competitive fashion industry, Zara has
the Kundun incident) can land the firm in big trouble.
been defying gravity. How can these firms succeed in such
From a resource-based view, Disney needs to possess
a challenging environment? What is special about them?
valuable and rare capabilities that the Chinese, who are
A short answer is that Hainan, IndiGo, PepsiCo, Ryanair,
craving for world-class entertainment, cannot get else-
Southwest, and Zara must
where. With our unified framework—an innovation in IB
resource-based view A leading have certain valuable and
textbooks—we will not only explore the global business
perspective in global business that unique firm-specific re-
suggests that firm performance is, “trees,” but also see the global business “forest.”
sources and capabilities
at least in part, determined by its
internal resources and capabilities.
that are not shared by
liability of foreignness The

inherent disadvantage that foreign
competitors in the same
environment. 1-4 WHAT IS GLOBALIZATION?
firms experience in host countries Doing business out-
because of their nonnative status. side one’s home country is Globalization, generally speaking, is the close integra-
challenging. Foreign firms tion of countries and peoples of the world. This abstract
globalization The close
integration of countries and peoples have to overcome a five-syllable word is now frequently heard and debated.
of the world. liability of foreignness, Those who approve of globalization count its contributions
which is the inherent to include greater economic growth, higher standards of
ISTOCK.COM/MIPAN
living, increased technology sharing, and more exten- through MNEs. The arguments against globalization fo-
sive cultural integration. Critics argue that globalization cus on an ideal world free of environmental stress, social
undermines wages in rich countries, exploits workers in injustice, and sweatshop labor, but present few clear alter-
poor countries, gives MNEs too much power, destroys natives to the present economic order. Advocates and anti-
the environment, and undermines national sovereignty. globalization protesters often argue that globalization needs
So what exactly is globalization? This section outlines to be slowed down, if not stopped.
three views on globalization, recommends the pendulum A second view contends that globalization has always
view, and introduces the idea of semiglobalization. been part and parcel of human history. Historians debate
whether globalization started 2,000 or 8,000 years ago.
1-4a Three Views on Globalization MNEs existed for more than two millennia, with their earli-
est traces discovered in Phoenician, Assyrian, and Roman
Depending on what sources you read, globalization
could be one of the following:
▸▸ A new force sweeping through the world in recent
times
▸▸ A long-run historical evolution since the
dawn of human history
▸▸ A pendulum that swings from one
SLO
AO
extreme to another from time to time

ROM
M/
An understanding of these views helps put

.C O
OCK
the debate about globalization in per-

IS T
spective. First, opponents of glo-

balization suggest that it is a new
phenomenon beginning in the
late 20th century, driven by
recent technological inno-
vations and a Western ideo-
logy focused on exploiting
and dominating the world
times. International competition from low-cost Inspired by the Four Tigers, more countries and
countries is nothing new. In the first century regions—such as China in the early 1980s,
A.D., the Roman emperor Tiberius was so Latin America in the mid 1980s, Central
concerned about the massive quantity of and Eastern Europe in the late 1980s, and
Brazil
low-cost Chinese silk imports that he imposed India in the 1990s—realized that joining the
the world’s first known import quota of textiles. To- world economy was a must. As these coun-
day’s most successful MNEs do not come close to wield- tries started to emerge as new players in the
ing the historical clout of some earlier MNEs, such as the world economy, they became collectively known
East India Company during colonial times. In a nutshell, as “emerging economies.” As a result, globalization
globalization is nothing new and will always exist. rapidly accelerated.
A third view suggests that globalization is the “closer However, globalization, like a pendulum, is un-
integration of the countries and peoples of the world able to keep going in one direction. Rapid globaliza-
which has been brought about by the enormous reduction in the 1990s and the 2000s saw some significant
tion of the costs of transportation and communication backlash. First, the rapid growth of globalization led
and the breaking down of artificial barriers to the flows to the historically inaccurate view that globalization
of goods, services, capital, knowledge, and (to a lesser is new. Second, it created fear among many people
extent) people across borders.”13 Globalization is neither in developed economies that they would lose jobs.
recent nor one-directional. It is, more accurately, a pro- Finally, some factions in emerging economies com-
cess similar to the swing of a pendulum. plained against the onslaught of MNEs, alleging that
they destroy not only local companies, but also local
cultures and values.
1-4b The Pendulum View on Globalization The December 1999 protests in Seattle and the
The third, pendulum view probably makes the most September 2001 terrorist attacks in New York and
sense, because it can help us understand the ups and Washington are undoubtedly some of the most visible
downs of globalization. The cur- and most extreme acts of anti-globalization forces at
rent era of globaliza- work. As a result, international travel was curtailed,
tion originated and global trade and investment flows slowed in the
Russia in the aftermath early 2000s. Then in the mid 2000s, worldwide GDP,
of World War II, cross-border trade, and per capita GDP all soared to
when major West- historically high levels. It was during that period that
ern nations committed “BRIC” became a buzzword.
to global trade and investment. However, between the Unfortunately, the party suddenly ended in 2008.
1950s and the 1970s, this view was not widely shared. The 2008–2009 global economic crisis was unlike any-
Communist countries, such as the former Soviet Union thing the world had seen since the Great Depression
and China, sought to develop self-sufficiency. Many (1929–1933). The crisis showed, for better or worse, how
noncommunist developing countries such as Argen- interconnected the global economy has become. Dete-
tina, Brazil, India, and Mexico focused on fostering and riorating housing markets in the United States, fueled by
protecting domestic industries. But refusing unsustainable subprime lending practices, led to massive
to participate in global trade and investment government bailouts of failed firms. The crisis quickly
ended up breeding uncompetitive industries. spread around the world, forcing numerous governments
In contrast, four developing to bail out their own troubled banks. Global output,
economies in Asia—namely, trade, and investment plummeted while unemployment
India
Hong Kong, Singapore, skyrocketed. The 2008–2009 crisis be-
South Korea, and came known as the Great Recession.
Taiwan—earned their Many people blamed globalization
stripes as the “Four Tigers” by for the Great Recession.
participating in the global After unprecedented gov-
economy. They became the ernment intervention in developed
China
only economies once recog- economies, confidence was growing that
nized as less developed (low-income) the global economy had turned the corner.14
by the World Bank to have subsequently However, starting in 2010, the Greek debt
achieved developed (high-income) status. crisis and then the broader PIGS debt crisis
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TARTAR HORSES AND HORSEMEN.
The people of Toorkistan, or Independent Tartary, are splendid

riders. They have fine horses, of which they take the greatest care.
But their way of taking care of horses is very different from ours.
The saddles are never taken off, night or day; and many Tartars
will not allow their horses to lie down at all because they say the corn
settles in their legs, and makes them lame! They are walked about a
great part of the time they are not on the road, sometimes for four or
five hours after coming in. At the beginning of the day’s march they
are allowed a full drink of water, but none during the day, while the
sun is hot. On first coming in from a journey, they are walked up and
down a long time, after which without being unsaddled, the bit is
taken out, and they are tied up, and covered from head to tail with
thick horse cloths, even in hot weather. Then they are fed with
barley, and Indian corn, and a very little grass.
We would think it cruel to keep a horse saddled and tied up in this
way, but the Tartar horses seem to thrive on this treatment. Their
saddles are more comfortable for the horse than ours, being well
raised above the back bone. These saddles are of wood, with a high
peak in front; and the rich Tartars cover them with embroidered
cloths, and silver mountings.
The horses are kept beautifully clean, and their coats are as
smooth and glossy as satin. In order to test whether his horse has
been properly groomed, the owner will wet the white sleeve of his
shirt, and rub it upon the horse’s coat. If there is not the least mark
on the sleeve he is satisfied.
The Tartars hunt birds on horseback, with great success. In the
case of partridges they gallop after the birds until they run them
down, and tire them out, when they can catch them alive.
TARTAR HORSES AND HORSEMEN.
They have several games which they play on horseback. In one of
them the riders all try to get possession of each other’s turbans! This
seems rather childish, but it is no child’s sport to accomplish this,
and the players perform most surprising feats of horsemanship.
They also have wrestling matches on horseback, trying to dislodge
one another from the saddle, while the horses are galloping furiously
and jumping ditches.
I suppose it would be almost an impossibility for a horse to throw a
Tartar rider.
TWO HAPPY MEN.
When we have our minds set upon some pursuit in which we are
resolved to excel, we are likely to forget any little disagreeable thing
that troubles us at other times, and we are happy in our work. What
pleasure a boy takes in fashioning his kite! What delight is it to a girl
to put together ends of silks, ribbons and laces into a pretty bonnet
for her doll! There is even pleasure in learning a Latin lesson, or in
working out a difficult problem when we are interested, and are
determined to do it well. The reason why so many grown persons
are unhappy is because they have no occupation at all, or because
they are engaged in some business which they do not like.
The best cure for this is to take up some business, and make up
your mind you will like it, and try to do your very best.
When a man’s business is in any branch of what we call Art he is,
perhaps, happier than he could be at anything else; for, besides the
satisfaction of doing the work, it is a pleasure to see beautiful things
grow under our hands.
I am going to tell you about two very happy men, who both lived in
the same place—a small city in Peru. One was an artist, who spent
all his time painting pictures. Let me introduce you into his home,
that you may see in what kind of place this happy mortal passed his
days.
THE ARTIST AT WORK.
The room in which he painted—his studio—was below the level of
the ground. To reach it from the street you went down three broken
stone steps. Pretty much all the light the artist had came from the
ever-open doorway. The floor was covered with straw, and scraps of
vegetables, among which chickens and guinea-pigs picked up a
living. His two best friends, a dog and a cat, usually shared the room
with him. The cat had lost its ears and its tail, but was not the less
liked by her master on that account. She was very fond of getting on
his shoulder as he bent over his work, and sometimes would take a
quite comfortable nap there.
Certainly it was not a beautiful home that made the artist happy.
He had the misfortune to be married to a woman who would have
made most men miserable. She scolded from morning to night. The
artist never could please her. No matter what he did, it was sure to
be wrong in her eyes. She would stop while stirring the pot, and rail
at him, shaking her greasy spoon to give emphasis to what she was
saying. But the artist answered her never a word. He was so
absorbed in his work that it is probable he did not hear her, half the
time.
And so it was not pleasant companionship, and loving words that
made him happy.
He could not even procure the proper materials for the work he
loved so much. There were no shops in all that region where such
things were sold. In our cities there are shops in which an artist can
buy everything he needs. But our happy man could only pick up a
few colors from the apothecary—the others he got himself from
earths and stones he found among the mountains. From the grocer
he obtained oil. The smoke of his candle furnished him with black,
and his brushes he manufactured himself from the hair of the dogs
killed in the city. Instead of canvas he used white cotton cloth, which
he prepared in some sort of fashion; and then stretched, and tacked
to a board.
With these materials, and under such disadvantages did our artist
work. And he painted very good pictures too. Some of them were
taken to Europe, and to the United States, and sold for twenty times
more than was paid to our artist for them. But he did not know this;
and the small sums he received sufficed for his simple wants.
He was always happy because his painting was to him a perpetual
delight. His business was his pleasure.
THE SCULPTOR AT WORK.
The other happy man was also an artist. He was a sculptor. His
statues were very singular-looking; and to our eyes, very ugly. But
the people in that Peruvian town admired them greatly, and the
sculptor himself thought them beautiful, and so it was all the same,
as far as he was concerned, as if they really had been beautiful.
Clothed in rags and tatters, he worked faithfully in his studio,
piecing together legs, and arms, and bodies, and heads, until he had
an image of a man, woman, or child, that satisfied him. His room was
a little better than the painter’s, but the walls were of rough stone;
and, as for furniture, he would have laughed at the idea of having
any.
He had such strongly marked Indian features that his face was not
pleasant at first sight, but he was always in such a good humor that
one soon forgot he was not handsome.
This sculptor worked in plaster. He moulded different parts of the
body, and hung them up on his walls. The legs, arms, &c. were
provided with wooden pegs, so that they could be properly fastened
together. When he wanted to make an image he would take down
the different members he required, and put them together. If they did
not fit properly he would cut out blocks of plaster, and patch them up.
These statues were all colored, and the sculptor had as much
difficulty in getting his colors as the painter, only he did not require so
many.
One of the queer things about his statues was that they all had
glass eyes! And this is the way he made them. He put fragments of
window glass, cut in the shape of eyes, into a frying pan pierced with
holes about an inch in diameter. As soon as the heat softened the
glass sufficiently he would press the pieces down into the holes with
a metal stick, and thus they would be rounded like eyes.
He procured his tools how and where he could. Old nails, old
brushes, worn-out knife blades, and even sheep bones, furnished
him materials.
But he took great pleasure in making these images that he thought
so lovely, and which charmed his neighbors. And, occupied in this
fascinating business, he had no time to think of his poverty, and
troubles. He was as happy as the day is long.
THE WONDERFUL ASH TREE.
The people who used to live in the northern parts of Europe were
not very pleasant people, if we are to believe all the blood-thirsty
stories we have heard about them, but they had a religion, although
it was rather a queer one. There is one thing, however, to be said of
their gods and goddesses, which is very much in their favor. They
were generally honest, and tolerably strong-minded, which is much
more than we can say about some of the gods of ancient Greece
and Rome. Mercury, you know, was a great thief, and even Jupiter
was none too good.
The Scandinavians believed
that Ymer was the very first god
of all, and he made his
appearance in the following
manner. Before the world was
created heavy mists filled all the
dark space. This space must
have been have been very cold,
for the frosty air condensed the
mists, and out of this
compressed fog, the god Ymer
came into existence.
But his brain does not seem to
have been at all foggy; for, after a
short time, becoming tired of
being alone, he set his wits to
work to find out how he could
have the company of other
beings like himself. He made a
very good guess as to how he
had taken shape; and, gathering
THE GOD YMER. the mists around him into foggy
masses, he shaped them into forms like his own; and then waited to
see what would happen. Soon the cold winds came and congealed
the mists, and behold! a number of gigantic companions for the
lonely god! He took good care, however, to make them smaller than
himself; for, although they were twice the height of the tallest
mountains on our earth, yet Ymer himself, when he laid down (if he
ever did lie down) required about half the world for his bed.
Ymer was so much pleased with his success that he concluded he
would make some more things out of the mists. He spread some of it
out in great smooth surfaces, some he collected in small piles, and
some he heaped up in great masses of many curious shapes. And
that is the way the valleys, mountains, and hills were created.
The foggy material that was left fell down to an immense depth,
and became the ocean.
Ymer made nothing more, for he did not know how to work in
anything but mists, and they were all gone.
What he and his companions did in the way of employment or
amusement I cannot say. Let us hope they took comfort in striding
around the world—a walk of an hour or so—and in talking with each
other. They could not see anything except by occasional gleams of
lightning, for there was no light anywhere.
Monstrous creatures, such as dragons, hydras, griffins, and the
like, now made their appearance in the world, but there is no account
of their creation, and they must have come of their own accord.
One day a marvelous thing happened. Ymer and his giants saw a
pink flush spreading over the black sky. This grew brighter, and
brighter, until the whole firmament was a brilliant flame color. And,
while they were wondering what this could mean, whizz! came in
sight a great ball of fire! This was nothing less than a new god,
named Odin. Where he came from nobody knew, but there he was.
He descended upon the mountains, and took possession of Ymer’s
world.
He brought with him the Sun, the Moon, and the Stars. He told the
Sun to light up the world, and to warm up things generally, and to be
sure to melt the ice that covered a great part of the earth. The Moon
and the Stars were to take care of the earth during the night.
Odin brought with him also, a large number of followers; and,
according to the invariable rule of all discoverers of new countries,
he proceeded to kill all the original inhabitants; beginning with great
Ymer himself, and ending with the land and sea monsters. That is,
he intended to kill them all, and he thought he had. But one of the
giants escaped, and also a wolf, named Fenris (a terrible creature
that made nothing of crushing a mountain with his teeth). And the
great sea-serpent Iormungandur was not slain.
The warmth of the sun soon called into life the grasses, the
flowers, and the trees; springs welled up in the woods; and brooks
and rivers flowed through the plains to the sea; and a great variety of
animals took possession of the world, now so beautiful.
Odin was charmed with all this, but not quite satisfied. He wanted
some beings on the earth that should be less than gods, and yet of a
finer intelligence than the beasts. Thinking about this one day, as he
walked by the sea-shore, his eyes chanced to fall upon a large
branch that had blown off a tree into the water. This put a bright idea
into his mind. He drew the wood towards him; and, splitting it in two,
made a man and a woman out of the two parts. From this couple,
according to the Scandinavian legends, all the people in the world
are descended.
People increased so fast, and were so rude and savage, and
quarrelled and fought so much, that Odin found he had his hands too
full of business, and he thought it was about time for his lazy
followers to help him. So he set them all to work.
Forseti was to make peace among men. Vali was to teach them
the use of the bow, not for the purpose of killing each other, but for
slaughtering game for food. Uller was to teach skating. The goddess
Gefione taught men to labor, and how to break up the earth for seed,
and to raise crops. I think you will agree with me that she was one of
the very best of all the Scandinavian gods, and goddesses.
THE GOD EGIR.
Egir was a very important god. He showed men how to build ships,
and how to manage the sails, and the rudder. And not only did he do
this, but, he very obligingly, blew the vessels along with his powerful
breath, so that men were not afraid to trust themselves on the rivers
in these frail-looking crafts, but even boldly launched out upon the
ocean.
Widar taught people a most excellent thing—when to hold their
tongues. This he did by his example, for he was dumb, and could not
talk at all.
Balder was called the Bright God. He was the most beloved of
them all. He put good thoughts into the hearts of men, and
encouraged them to be loving and patient with each other. A
beautiful silvery light always shone around him.
Now, where do you suppose all these gods lived? You would
probably answer that they dwelt up in the sky, or on the tops of high
mountains. No. They lived in an ash tree!
This wonderful tree bore the name of Ygdrasil. Its branches
overshadowed the whole world; its top supported the sky, and its
roots went so far down that no one could find the end. This tree was
the home of Odin and his gods, and there they stayed, except when
business called them elsewhere.
This is the way the gods found out what was going on in the world,
while they were having a good time in Ygdrasil. Two ravens were
always flying to and fro through the Universe, and, once a day, they
would perch on Odin’s shoulders and tell him the news. A little
squirrel darted swiftly up and down the tree, and picked up all the
scraps of gossip it could. Near the top of the tree a great eagle kept
perpetual watch, and on the very topmost branch perched a vulture;
and these birds, which could see to the horizon on every side cried
out, and flapped their wings when any strange thing happened.
Besides all these there was the watch-god, Heimdall. His sight and
hearing were marvelous. He could hear the grass grow in the fields,
and hear the wool grow on the backs of the sheep. He could not only
watch a fly from the one end of the world to the other, but could
count the spots on its wings, and the joints in its little legs, if it was at
the opposite side of the universe from himself. He could see the
smallest atom that moved at the bottom of the ocean. And, what was
the most astonishing of all, he could see in the darkest night as well
as in the brightest day.
It is a pity this god is not living now, for he could describe to us the
bottom of the ocean, and tell us if there is an open sea at the North
Pole, and an icy continent at the South Pole, and a great many
things we want very much to know, and have not been able to find
out.
THE YOUNG GOD JARL.
This Heimdall had golden teeth. He had also a son, named Jarl,
who was a very famous god. When he was only a child he could give
heavy blows with a great club, and swim like a fish, and ride on
horseback as swiftly as the wind. And he understood the language of
birds and beasts, and could converse with them.
There were some very queer things about these gods. We might
suppose these powerful beings would be perfectly formed, but they
were not. Heimdall, as we have seen, had false teeth; Tyr had but
one hand; Widar was dumb; Hoder was blind; and the great Odin
himself had but one eye. And it seems, too, that they did not know
everything there was to be known, as the following story will show
you.
There lived in the world, in those days, a very wise man, named
Kvasir. He noticed how much trouble men had in expressing their
thoughts in any way but speech. If one wanted to send a message to
another he could only make a rude drawing on a piece of stone to
represent what he wanted to say, or paint it in certain colors that
stood for certain things. There was not much of this done, for not
only was this process troublesome, but it was easy to misunderstand
these messages; and they caused a great deal of confusion, and
many quarrels, and much fighting. Kvasir wanted to remedy this;
and, after a great deal of hard study, and many experiments he
invented the art of writing. He also invented poetry. He called his
verses runes, and he wrote them on beech bark, which he made into
tablets.
The gods had never thought of doing anything like this.
There is no knowing how much Kvasir would have done if he had
lived longer. Perhaps he would have invented printing and paper;
which, as matters turned out, nobody thought of doing until many
hundred years later.
But this wise and good man was killed by two wicked dwarfs. They
did this in order to steal from him this treasure of poetry, and the art
of writing. You may wonder how they were going to get at the
treasure, for, after they had killed him, there could be no more
poetry; and they could not pick it out of his brain as a thief takes a
pocket-book out of the pocket. But these dwarfs were magicians,
and such people, you know, have a pretty good idea what they are
about. They collected his blood, and mixed it with honey in three
separate proportions. These they put into three jars which they
closely sealed, and buried in a cave which had never been seen
either by gods or men.
These three compounds were Logic, Eloquence, and Poetry. We
shall never know what the dwarfs were going to do with them, for I
am happy to say that they were not allowed to keep them.
THE THREE PRECIOUS JARS.
Odin’s two ravens had witnessed the whole performance of the
dwarfs, and the sensible birds concluded this must be a great
treasure, or it would not be worth so much trouble. So they flew
straight to Odin, and told him all about it. Odin sent the squirrel up
the tree Ygdrasil with an order for the eagle to leave his post, to fly to
the cave, and to bring the jars to him.
This the eagle accomplished in a very short space of time, and
Odin immediately opened each jar, and tasted the contents. He at
once commenced reasoning eloquently in the most ravishing strains
of poetry. His daughter Saga, and his son Bragi, were with their
father; and, seeing how he enjoyed these new dishes, they wanted
some too. Odin politely offered the first jar to Saga, but it probably
did not taste pleasantly, as she declined to do more than just touch
its contents to her lips. But Bragi drank up all his father had left, and
immediately began to sing a magnificent chant. From that time he
was called the god of poetry.
Bragi was not stingy with his treasure, but gave some of it to men,
and thus the invention of the good Kvasir was used as he would
have used it had he lived; and men learned to write, and to sing.
The greatest of the gods, next to Odin, was his son Thor. He was
the god of tempests. He held thunderbolts shut up in his fists, and
flung lightning from his fingers’ ends. He had a mighty hammer with
which he reconstructed the world after Ymer had been killed. He
splintered up the mountains, and made them all over again, and he
knocked away at the crust of the earth, and made valleys and caves,
and sometimes he amused himself by splitting open the earth, and
tumbling a mountain or two into the abyss. And that was the way
earthquakes came about. He made holes in some of the mountains,
and let the imprisoned fire out of them.
Odin gave Thor three wonderful gifts. The first was his great
hammer. It would go out of his hand to do his bidding, and then
return of its own accord. The second was a pair of iron gloves. He
had only to put these on, and his spear would come back into his
hand after having destroyed his victim. The third was a war belt,
which made him stronger than any other being while he wore it.
It is no great wonder that with all these things to help him Thor
succeeded in killing off Ymer, and his race of giants, for he did most
of this work.
THE GOD THOR.
But, you remember, in the account given of the destruction of the
giants, and the land and sea monsters, that one giant escaped, and
the wolf Fenris, and the great sea-serpent, Iormungandur. And, by
these three, after a great number of years, Odin and his gods came
to grief.
The gods all understood that their fates depended upon the god of
love, the bright and beautiful Balder. If he died they must die. Think
then how troubled they must have been, when, one day, they heard
a great cry ringing through the earth, and up to the very top of the
ash tree, where was placed their highest heaven, called Walhalla.
This piercing cry was: “Balder, fair Balder is going to die!” They had
never thought before that their beloved Balder could die, but now
they were sore afraid, not only for him, but for themselves. They
were told by some wise woman that Balder would surely die unless
all substances that could inflict death were made powerless. Upon
hearing this his mother, Frigg, travelled over the whole world, and
asked the rocks, and the pebbles, frost and rain, and wood and iron;
everything, in short, to spare her son. And they all promised not to
hurt him.
There was great joy among the gods when Frigg returned with this
good news. So Balder was not to die, after all. And there was a great
feast held in Walhalla to celebrate the glad tiding. In the midst of the
merriment it was proposed to try some of these things that had
promised not to hurt Balder, to see how they would avoid injuring
him. One of the gods threw a clod of earth at Balder, and it broke into
a cloud of dust before it reached him. Another poured a pitcher of
water over him, and the water formed a cascade over him without
wetting his clothes. Then they tried more dangerous weapons; a
rock; a club; a sword; and Vali shot an arrow at him. All passed by
him, or fell harmless. Even Thor’s mighty hammer refused to hit
Balder.
At last a brother of Balder’s approached, holding in his hand a
small bunch of leaves. All laughed at the sight of this harmless
weapon. But alas! when the leaves struck Balder’s breast he fell,
and died instantly. They were mistletoe leaves, and when Frigg had
asked the oak tree to spare her son, she forgot to ask the mistletoe,
which grows upon the oak. So the mistletoe had given no promise;
and now Balder was dead. The brother who had thrown the leaves
was greatly distressed, and all Walhalla was filled with mourning.
Balder being dead, the other gods must die. The giant, who had
escaped Thor’s hammer, killed some of them, and others died in
various ways. Finally Thor was killed by the sea-serpent; and the
great Odin was torn in pieces by the wolf Fenris.
And that was the end of the Scandinavian gods.
Then the Druid priests brought their religion into the country; and,
after many years, the Romans came, and taught the Scandinavians
the gospel of Jesus Christ.
WORK AND WATER.
It is so easy for most of us to get a drink of water when we feel

thirsty, that we are not apt to even think of the vast amount of
thought and labor and money that is necessary in many parts of
every country in the world in order to give people a glass or a cup of
water when they want it.
And yet water is often a very costly thing, so much so indeed that
there are lands where people, and civilized people too, cannot afford
a drink of it every time they feel thirsty.
If we live in the country we go to our well, or our spring, or our
pump from the cistern, and we get all the water we want. If we live in
the city we have our hydrants, and perhaps have the water carried to
every floor of the house. This is because we are Americans, and, as
a nation, we believe that we cannot spend too much money in
making ourselves comfortable, and having thing’s convenient around
us.
We build great reservoirs and conduct into them the pure water
from the streams, often far distant from our cities, and we have pipes
running through every street, and into every house, so that even the
poorest people can always have plenty of water, no matter what else
they may have to go without.
But in many countries that were civilized and enlightened long
before America was ever thought of, there are to-day no such
conveniences for obtaining a drink of water.
In some places in Europe water is carried about from house to
house, as the milk-man brings us milk, and some of the plans of
carrying it are very curious.
In parts of Holland where the canals serve as roads, there are
water-boats, that go up and down the canals serving water to
everyone who wishes to buy it, and has money to pay for it. And
sometimes it is pretty stale water when the last families get their

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(Original PDF) GLOBAL 4 (with

GLOBAL Online, 1 term (6 months) 4th

GLOBAL Part 1: Laying Foundations

Part 2: Acquiring Tools 66

Part 3: Managing around the World 138

Laying Foundations 2-3 AN INSTITUTION-BASED VIEW OF GLOBAL BUSINESS

MARCIO MACHADO/GETTY IMAGES

Opening Case: Shanghai Disneyland 3 3. Emphasizing Cultures, Ethics,

2. Understanding Politics, Laws,

& Capabilities 52 5-3b Nontariff Barriers 81

Part 2 6-2 WHY DO FIRMS BECOME MNEs BY ENGAGING

6-6a Political Views on FDI 95

5. Trading Internationally 66 7. Dealing with Foreign

Managing around the World

12. Strategizing, Structuring, 13-5 INSTITUTIONS, RESOURCES, AND HUMAN RESOURCE

12-2a Institution-Based Considerations 191 14-1b Price 224

12-2b Resource-Based Considerations 193 14-1c Promotion 224

15. Managing Corporate Social

Includes Videos & Other GLOBAL4

Understanding Politics, Laws,

Access GLOBAL4 ONLINE at www.cengagebrain.com

1-3 Articulate the fundamental question that

1-6 Understand the organization of this book.

CHAPTER 1 Globalizing Business 3

foreign direct investment

and managing value-added

global business Business around

4 PART I Laying Foundations

Per capita GDP/GNI

1-2 WHY STUDY GLOBAL BUSINESS?

6 PART I Laying Foundations

1-3a One Fundamental Question8

to take this course?

CHAPTER 1 Globalizing Business 7

Jack Welch was the former chairman and CEO of General

CHAPTER 1 Globalizing Business 9

liability of foreignness The

extreme to another from time to time

An understanding of these views helps put

the debate about globalization in per-

spective. First, opponents of glo-

The people of Toorkistan, or Independent Tartary, are splendid

It is so easy for most of us to get a drink of water when we feel

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