global business

2009 Update

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60738_00_fm_pi-xxx.indd ii 3/20/09 6:18:26 PM
 global business
2009 Update

Dr. Mike W. Peng

University of Texas at Dallas

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

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 Global Business 2009 Update © 2010, 2009 South-Western Cengage Learning
Dr. Mike W. Peng
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 To Agnes, Grace, and James

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 2009 UPDATE

When I received my personal copy of Global Business on February 29, 2008 (a very
unusual leap day), I leapt into the air because, having labored on this new book
for so long, I felt greatly relieved when the beautiful product finally arrived.
I thought I wouldn’t need to update it for at least two years. Unfortunately, due
to dramatic changes in the global economy, I was wrong. Now 11 months later
(on January 31, 2009), the global economic crisis has worsened, recession has been
declared, and the United States has inaugurated a new president who promises to
deviate from the previous “free market” economic policy. All of these necessitate
a series of updates.
The good news is that not a single word in Global Business needs to be rewrit-
ten. Rest assured that nothing in the book has become obsolete. Obviously, a lot
of examples could be updated. For instance, on page 25, I wrote that “In India,
Tata Motors is striving to unleash a ‘one lakh’ car (one lakh equals 100,000 rupees,
roughly $2,500).” In early 2008, Tata Motors did successfully showcase the world’s
lowest-cost car, which was aptly named the Tata Nano. On page 50, Chapter 2’s
Closing Case, “The Russia Puzzle,” mentioned that Russia’s then-president Vladi-
mir Putin was taking a more autocratic, hard line both at home and abroad. In
May 2008, Dmitry Medvedev became the new president of Russia, and Putin,
intriguingly, stayed in power by naming himself the new prime minister, thus
continuing the relevance of the discussion in “The Russia Puzzle.” On page 413,
Chapter 15’s Closing Case featured Li Ning, China’s top sporting goods company.
Written before the Olympics, the case suggested: “All eyes are now on the Beijing
Olympics,” which Li Ning hoped would mark its coming of age as one of the top
global sporting brands. On August 8, 2008, I almost dropped my glasses when I
watched the opening ceremonies. Li Ning (the Olympian who founded his com-
pany using his name) was chosen to light the stadium’s flame for the Olympic
Games. Exactly as predicted by the case, Li Ning literally attracted all the eyeballs
of the global TV viewership.
Of course, a book like Global Business could never compete for up-to-the-
minute timeliness with NBC (Olympic broadcaster), Google, Business Week, or The
Economist. What this update can do, however, is to offer context and perspective
that will help business school students, who have been bombarded by news media
during the tumultuous 2008, make better sense of what has happened. Toward this
end, I have organized the discussion in four areas: (1) the global financial crisis,
(2) the enduring power of our unified framework, (3) the awards won by two lead-
ing scholars, Krugman and Dunning, and (4) debates old and new.

The Impact of the 2008 Global Financial Crisis

The year 2008 shows how interconnected the world economy has become. In the
United States, deteriorating housing markets, fueled by unsustainable subprime
lending practices, led to massive government bailouts of leading financial services
firms starting in September. The rest of the world initially held its breath, and
most people outside the United States probably shared the sentiment expressed
by Brazil’s president, Luiz Inacio Lula da Silva, that the crisis would be “Bush’s
crisis” that had nothing to do with “us.”
Unfortunately, mortgage defaults in Boston triggered bank losses in Beijing
and Berlin. The crisis quickly spread to Europe, forcing British, French, German,
and other EU governments to nationalize a large chunk of their banks that were

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 overstretched. Moreover, banks and capital markets throughout emerging econo-
mies were also pulled down, although not as badly as in developed economies.
The glow of bright spots such as Brazil, Russia, India, and China (known as
BRIC—see Chapter 1 Closing Case on page 24) dimmed as their growth slowed.
Weaker economies, such as Hungary, Iceland (see In Focus 2009.1), and Pakistan,
had to be rescued by the International Monetary Fund (IMF) to stay afloat.
Clearly, such an unprecedented global financial crisis requires a global response.
On November 14–15, 2008, for the first time, the G-20 Leaders Summit took place
in Washington, DC. G-20 refers to 19 of the world’s largest national economies and
the EU, which collectively comprise 90% of global GDP and 80% of world trade.
As a significant expansion of the old, rich-country-only G-7 summits, this G-20
summit was the first time this group of leaders from 19 developed and emerging
economies plus the EU met. The very fact that the G-20 leaders met and agreed to
enhance the voice of emerging economies (and to essentially phase out the G-7)
was widely regarded as significant progress toward combating the global crisis
and constructing a new Bretton Woods system (see Chapter 7 for the original Bret-
ton Woods system). The question is: How?

2009.1 Iceland’s Financial Crisis, 2008

In 2008, Iceland was engulfed in a banking crisis of Index and, with a per capita GDP of $54,100, was listed
extraordinary proportions. In October, the government as the fifth richest nation in the world on a PPP basis. The
nationalized the country’s three major banks, Glitnir, traditional source of economic growth was the export-
Landsbanki, and Kaupthing. The first takeover was driven fishing and related industries and the geothermal-
in response to Glitnir’s plea for help from the Central based hydro fuel sector, which attracted energy-intensive
Bank. Uncertainty regarding the ability to guarantee foreign investments in areas such as aluminum smelting.
deposits in Glitnir’s overseas subsidiaries, especially In the late 1990s, Iceland, with a population of just over
those in the UK, sparked a dramatic response from the 300,000, became an active participant in globalization,
British government, which froze assets of all Icelandic following deregulation, tax reforms, and the privatization
banks in the UK. In the days to follow, the remaining of the financial sector. Easy access to funding through the
internationally active banks were taken over by the Icelandic banks, which borrowed aggressively in global
Icelandic government. A month later, Iceland became markets, coupled with a strong currency, enabled Icelandic
the first developed nation in more than 30 years to firms to expand to neighboring countries mostly via
accept an emergency loan from the IMF, along with loan acquisitions.
support from neighboring Scandinavian countries. At The banking crisis had a severe impact on the value of
the same time, Iceland became known as an extreme the free floating Icelandic Krona (ISK). The currency, which
warning sign to overleveraged economies. The external showed signs of being overvalued by placing Iceland on top
private debts were more than five times the PPP adjusted of the Big Mac Index in 2007, lost more than half of its value
GDP of just under $12 billion, and the Central Bank did during 2008. As a result, the government implemented
not have adequate reserves to back the failed banks. strict currency controls and suspended all currency trading
Essentially, the Republic of Iceland was bankrupt. while looking for a long-term solution.
Although the history of the Icelandic nation and the
Icelandic language goes back to Viking explorations
Source: This case was written by Professor Eydis Olsen (Drexel University).
more than 1,000 years ago, the history of the Republic of I thank Professor Olsen, who has been an enthusiastic supporter of Global
Iceland is relatively short. Iceland declared independence Business since its inception, for proactively contacting me to contribute this
from Denmark in 1944 and soon emerged as a prosperous timely case. It is based on (1) Economist, 2007, The Big Mac Index, February 1;
(2) Economist, 2008, Kreppanomics, October 9; (3) G. Magnússon, Professor
Scandinavian-style welfare state. In 2007, Iceland ranked of Economics at the University of Iceland interviewed by the author, Novem-
number one on the United Nations Human Development ber 20, 2008; (4) Statistics Iceland, 2008, www.statice.is.

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 The Enduring Power of Our Unified Framework
Events such as the global crisis and the G-20 summit can be challenging to under-
stand, but Global Business provides a unified framework, consisting of one big ques-
tion and two core perspectives (see Figure 1.3 on page 9), that allows students to
analyze such events more effectively.1 In fact, in the middle of the economic crisis,
this framework shines. Our fundamental question—What determines the success
and failure of firms around the globe?—becomes even more relevant and timely.
Our first core perspective, the institution-based view (Chapters 2 and 3), can
help us understand the fundamental shift behind the changing rules of the game
on how market economies are governed (see In Focus 2009.2). On page 41 (Chap-
ter 2), you will see:
Overall, the economic system of most countries is a mixed economy. In practice,
when we say a country has a market economy, it is really a shorthand version
for a country that organizes its economy mostly (but not completely) by mar-
ket forces and that still has certain elements of a command economy. China,
Russia, Sweden, and the United States all claim to have a market economy
now, but the meaning is different in each country. In short, free markets are not
totally free. It boils down to a matter of degree.
Note these words were written before the massive government bailouts of
failed private firms in the United States and other developed economies. The best
example I could find at that time was the 1997–98 bailouts made by the Hong
Kong government, which has always been ranked as the most laissez faire govern-
ment (page 40). Although details differ, the 2008 bailouts throughout the devel-
oped world were similar in nature to the 1997–98 bailouts in Hong Kong—turning
private firms into state-owned enterprises (SOEs). Having said that, I believe that
we can still comfortably call the post-bailout US economy a “market economy,”
but it will be prudent to drop the “F word” (namely, “free”) in front of “market
economy.” Overall, while many governments took decisive actions in signing bail-
out packages into formal law within a few weeks or months, informal norms, such
as the taken-for-granted use of terms such as “free market economy,” will change
more slowly (see Chapters 2 and 3).
Our second core perspective, the resource-based view (Chapter 4), also sheds
considerable light on what we have been seeing lately. While the US automobile
industry is in deep trouble and GM and Chrysler have been begging for federal
help, Ford has decided not to ask for a government bailout. Clearly, “there must be
certain resources and capabilities specific to firms” such as Ford that are not shared
by competitors (page 88). Ford has not only sought to differentiate itself as a stron-
ger, greener, and more technologically advanced automaker, but also reminded
buyers that it has money to lend—in contrast to GM’s and Chrysler’s empty pock-
ets. This recent development updates Chapter 13’s Opening Case: “The Ups and
Downs at Ford” (page 335). It reveals that in the midst of the worst financial crisis
in recent times, Ford has indeed experienced a period of “ups.”
Ford is not alone. While most industries are suffering, not every firm in these
industries is equally hard hit. Some exceptionally managed ones have done better

1
M. W. Peng, D. Wang, S. L. Sun, & E. Pleggenkuhle-Miles, 2009, A unified framework for
international business, Working Paper, www.utdallas.edu/~mikepeng (in the Working
Papers area).

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 2009.2 Adam Smith versus Deng Xiaoping
Adam Smith would probably turn over in his grave if he Similarly, on October 8, 2008, the UK government
heard that in 2008 the fundamental principle of his theory, announced a £400 billion ($692 billion) rescue package to
laissez faire (the idea that governments should be hands- inject cash into UK banks. So used to being lectured by the
off when managing the economy), would be severely British about “free markets,” other EU governments were
challenged. Ironically, these challenges came from the reluctant to believe this initially. But they quickly followed
United States and Great Britain—two countries so deeply UK actions by bailing out their own troubled banks. By the
in love with Adam Smith that they often preached “free end of 2008, governments in most developed economies
market principles” around the world. became the largest shareholders in their banks, reversing
To be sure, the times were tough: Financial markets 20 years of deregulation.
were melting down, banks were failing left and right, and While these are extreme measures for extreme times, they
investor confidence reached an all-time low since the Great will be recorded as an important turning point in economic
Depression. Yet, the solutions turned the unthinkable into a new history, triggering a fundamental rethink regarding the
orthodoxy. Labeled “radical intervention” or even “financial proper boundaries between private and public ownership.
socialism,” the solutions centered on nationalization of failing The once-cherished assumptions about the superiority of
banks and financial services firms—the complete opposite of the US economic model, centered on more market forces
privatization, the prevailing trend since the 1980s. and less government intervention, are now in doubt.
On October 3, 2008, the Emergency Economic Stabili- “Forget Adam Smith. Whatever Works.” This was the title
zation Act, commonly known as the $700 billion bank bailout of a Business Week article in October 2008. On October 11,
plan or the Paulson plan (named after then-US Treasury Federal Reserve Bank of Dallas President Richard Fisher gave a
Secretary Henry Paulson), was passed and signed into law. speech at the Group of Seven (G-7) finance ministers meeting
The Congressional debate prior to its passage was ferocious, in Washington, and borrowed a line from the late Chinese
because critics argued that this would clearly violate the leader Deng Xiaoping: “Regardless of whether it is a white cat
enshrined free market principle of nonintervention. On or a black cat, as long as it can catch mice, it is a good cat.”
October 15, Paulson announced the first step of implemen- Of course, Deng in the early 1980s popularized his
tation by injecting $125 billion into Bank of America, Bank pragmatic “cat theory” in an effort to transform China from
of New York, Citigroup, Goldman Sachs, JP Morgan Chase, a command economy to a market economy. Interestingly,
Morgan Stanley, State Street, and Wells Fargo. In return, the nearly three decades later, the “cat theory” was being
US government, having turned these banks into state-owned invoked in another direction. The upshot is the point made
enterprises (SOEs), would take nonvoting preference shares in our text (see page 41): To the same extent that a pure
paying 5% interest. This action was so at odds with the free command economy does not exist, a pure free market
market tradition in the United States that even its principal economy does not exist either. No doubt the post-bailout
architect Paulson admitted it was “objectionable.” In Paulson’s United States and Great Britain still can be labeled “market
own words at a press conference: economies,” but it is prudent not to label them as “free
market economies” anymore.
Government owning a stake in any private US company
is objectionable to most Americans, me included. Yet Sources: Based on (1) Business Week, 2008. Forget Adam Smith. What-
ever works. October 27: 22–24; (2) Financial Times, 2008, US injection lifts
the alternative of leaving businesses and consumers confidence, October 15: 1; (3) Financial Times, 2008, Whatever it took,
without access to financing is totally unacceptable. October 15: 11.

and grabbed larger market shares, thanks to many rivals that have either dropped out
or dropped dead. In December 2008, for example, Wal-Mart’s US operations increased
their sales compared with December 2007 by 4.3%, and Wal-Mart’s sales world-
wide in the entire year of 2008 increased by 6.5%.2 From a VRIO standpoint (Chap-
ter 4), Wal-Mart’s abilities to increase sales in the downturn are admirable. Adding
another source of complication is the value of the Chinese yuan. Since a majority of

2
Wal-Mart, 2009, Wal-Mart reports December sales, January 8, www.walmartstores.com/news.

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 Wal-Mart’s merchandise is made in China and the yuan appreciated from 7.6 yuan
per dollar in July 2007 (see Chapter 7 Opening Case, page 171) to 6.8 yuan per dol-
lar now, Wal-Mart’s abilities to deliver value when going against such a “double
whammy” (economic downturn and yuan appreciation) become more remarkable.
Since the so-called “Wal-Mart effect” is controversial, every time I teach the
Wal-Mart case, I ask my students to raise their hands by identifying themselves as
(1) Wal-Mart lovers who shop at Wal-Mart, (2) Wal-Mart haters who nevertheless
shop at Wal-Mart, and (3) true Wal-Mart haters who don’t shop there. Guess what?
The number of my students belonging to the first and second groups has been
growing and the third group has been shrinking to a very small number. Keep
in mind that not all of my students are starving undergraduates who often have
no choice but to shop at Wal-Mart. Some of my students are mid- and high-level
executives at leading firms in the Dallas-Fort Worth area who are in our highly
respected UT Dallas Executive MBA (EMBA) program. Their average salary is
$150,000. The fact that more of these experienced executives told me in class (and
in front of their image-conscious EMBA peers) that they increasingly shop at Wal-
Mart speaks volumes about Wal-Mart’s valuable capabilities.

Krugman and Dunning Won Major Awards

Not all news is gloomy. On the more positive side, I am pleased to report that
two leading scholars whose work has been featured prominently in Global Busi-
ness won major awards in 2008. First, Paul Krugman of Princeton University won
the Nobel prize in economics for his analysis of trade patterns and locations—in
particular, a new trade theory that has become known as strategic trade theory
(see Chapter 5, pages 122–125). Krugman’s work is not only cited when we dis-
cuss strategic trade theory, but also directly quoted at length on page 133, with a
six-line passage starting with “International trade is not about competition.” Since
the Integrative Case 1 The Chinese Menu (for Development) (page 468) was writ-
ten by Douglass North, the 1993 Nobel laureate in economics, you’ll now find the
words (not merely ideas and citations) of a second Nobel laureate (Krugman) grac-
ing the pages of Global Business (page 133).
A second major award in the IB community in 2008 was the Journal of Interna-
tional Business Studies (JIBS) Decade Award, which went to an article by John Dun-
ning of Rutgers University and the University of Reading published in 1998, “Loca-
tion and the Multinational Enterprise: A Neglected Factor?”3 Dunning’s research
has underpinned much of Chapter 6 (Investing Abroad Directly). Figure 6.5 on
page 148 has popularized Dunning’s ownership, location, and internationalization
(OLI) framework by visually summarizing his idea in one teachable slide. Dunning
is a leading guru in IB with whom I have met and worked directly. In December
2008, he graciously contributed his latest work, “Institutions and the OLI Paradigm
of the Multinational Enterprise” (coauthored with Sarianna Lundan), to the Asia
Pacific Journal of Management, a leading academic journal where I serve as Editor-in-
Chief.4 Unfortunately, Dunning passed away on January 29, 2009.

3
J. H. Dunning, 1998, Location and the multinational enterprise: A neglected factor? Journal of
International Business Studies, 29: 45–66.
4
J. H. Dunning & S. M. Lundan, 2008, Institutions and the OLI paradigm of the multinational
enterprise, Asia Pacific Journal of Management, 25: 573–593.

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 Debates Old and New: Political Risk,
Competitiveness, and Sovereign Wealth Funds
One unique feature found in every chapter of Global Business is the Debates and
Extensions section, and several of these have evolved since our initial publication.
First, the November 2008 terrorist attacks on Mumbai, India, have added new
fuel to the debate on political risk in Chapter 2 (pages 35 and 44–46). Although
Mumbai recently rebranded itself from the old image of Bombay (now read again
in a scary way, “bomb” “bay”), terrorists reminded all managers and businesses
in Mumbai—both Indian-owned and foreign-owned—that political risk cannot
be ignored. In a sobering article published on December 15, 2008, Business Week
concluded:
Overall, which India will prevail—the India that nurtures global industries
and rising affluence or the India of stalled hopes and endemic violence? A year
ago the answer was clear: The new India would win. That is probably still true,
but India now faces a struggle.5
Second, the debate on competitiveness, globalization, and job losses continues
to rage. In Focus 14.2 on page 377, “The Unemployment Act,” is a reprint of a full
article in Business Week authored by Jack Welch (former chairman and CEO of GE)
and Suzy Welch (former editor of Harvard Business Review) first published in 2007.
It labeled the Employee Free Choice Act (EFCA), a piece of impending legislation
that aims to facilitate more union membership in the United States, an “insidious”
blow to American competitiveness. In their Congressional hearings for bailouts,
GM and Chrysler executives blamed unionization and legacy costs for their finan-
cial difficulties.6
While President Obama supported EFCA when he was a candidate, he seemed
to have modified his position on the eve of his inauguration. When questioned
about a timetable for pushing EFCA, President Obama was quoted in a media
interview on January 16, 2009 (four days before his inauguration):
If we are losing half a million jobs a month then there are no jobs to unionize.
So my focus first is on those economic priority items.7
A new debate that has not yet been covered in Global Business centers on sover-
eign wealth funds (SWFs). An SWF is “a state-owned investment fund composed
of financial assets such as stocks, bonds, real estate, or other financial instruments
funded by foreign exchange assets.”8 Investment funds that we now call SWFs
(see Table 2009.1) were first created in 1953 by Kuwait. Both the United States and

5
Business Week, 2008, How risky is India? (p. 26), December 15: 24–26.
6
GM executives pointed out that in China, where GM enjoys a “level playing field” with little
legacy costs, GM has surged ahead of Toyota, Volkswagen, and other global rivals to become
the number one foreign automaker in less than a decade (see Integrative Case 11: Competing
in the Chinese Automobile Industry, on page 501).
7
The Atlantic, 2009, Obama on the Employee Free Choice Act, January 16, marcambinder.
theatlantic.com.
8
SWF Institute, 2009, About sovereign wealth fund, www.swfinstitute.org (accessed
January 19, 2009).

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 Table 2009.1 THE SIX LARGEST SOVEREIGN WEALTH FUNDS

Approximate wealth
Country Sovereign wealth fund Assets ($ billion) Inception
per citizen ($)

United Arab
Abu Dhabi Investment Authority $875 billion 1976 $100,000
Emirates

Norway Government Pension Fund of Norway $391 billion 1990 $81,500

Government of Singapore Investment

Singapore $330 billion 1981 $100,000
Corporation

Kuwait Kuwait Investment Authority $264 billion 1953 $80,000

China China Investment Corporation $200 billion 2007 $151

Stabilization Fund of the Russian

Russia $158 billion 2008 $1,130
Federation

Source: Adapted from Wikipedia, 2009, Sovereign wealth fund, en.wikipedia.org (accessed January 17, 2009).

Canada have had their own SWFs (at least at the state and provincial level—both
the Alaska Permanent Fund and the Alberta Heritage Fund were founded in 1976).
In the recent crisis, SWFs have come into the public’s spotlight by coming to
the rescue. In November 2007, the Abu Dhabi Investment Authority injected $7.5
billion (4.9% of equity) into Citigroup, followed by the December 2007 injection of
$9.75 billion (9% of equity) into UBS (formerly Union Bank of Switzerland) from
the Government of Singapore Investment Corporation. China Investment Corpo-
ration joined the fray in early 2008 by investing $5 billion for a 10% equity stake in
Morgan Stanley.
It is such large-scale investments that have brought SWFs to the center stage
of global business debates. On the one hand, SWFs (most of which are from the
oil-rich Middle East and foreign-exchange-surplus East Asia) have brought much
needed cash to desperate Western firms. On the other hand, a series of concerns
are raised by parties in host countries (which are typically developed economies).
One such concern is national security in that SWFs may be politically (as opposed
to commercially) motivated. Another concern is SWFs’ inadequate transparency.
Currently, Australia, France, and Germany, in fear of the “threats” from SWFs, are
erecting measures to defend their companies from SWF takeovers, and the United
States is considering tightening its regulations.
As discussed in Chapter 6 (see page 156), foreign investment certainly has both
benefits and costs to host countries. However, in the absence of any evidence that
the costs outweigh the benefits, the rush to erect anti-SWF barriers is indicative
of protectionist (or, some may argue, even racist) sentiments. For executives at
hard-pressed Western firms, it would not seem sensible to ask for government
bailouts on the one hand and to reject cash from SWFs on the other hand. Most
SWF investment is essentially free cash with few strings attached. For example,
China Investment Corporation, which now holds 10% of Morgan Stanley equity,
did not demand a board seat or a management role. For policymakers, it makes

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 little sense to spend taxpayers’ dollars to bail out failed firms, run huge budget
deficits, and then turn away SWFs. Commenting on inbound Chinese investment
in the United States (including SWF investment), two experts noted in a March
2009 publication:
It seems feckless on the part of US policymakers to stigmatize Chinese invest-
ment in the United States based upon imprecise and likely exaggerated esti-
mates of the relevant costs and risks of that investment.9
At least some US policymakers agree. In the September/October 2008 issue of
Foreign Affairs, then-Secretary of the Treasury Henry Paulson commented:
These concerns [on Chinese investment] are misplaced . . . the United States
would do well to encourage such investment from anywhere in the world—
including China—because it represents a vote of confidence in the US economy
and it promotes growth, jobs, and productivity in the United States.10
Lastly, it is important to note that before the more recent rise of SWFs, acqui-
sition attempts by SOEs from the United Arab Emirates (see Integrative Case 3
“DP World” on page 472) and from China (CNOOC’s bid for Unocal) were torpe-
doed by a hugely politicized process in the United States. Recent SWF investment
into US financial services firms ended up causing major losses for SWFs, thanks
to the deteriorating financial crisis in 2008. Such a “double whammy”—both the
political backlash and the economic losses—has severely discouraged government
officials and SWF managers in the host countries of these funds from making fur-
ther investment in developed economies. As a result, the expected FDI recession
in 2009 (on the magnitude of 20–30% reduction relative to the 2008 level) “puts a
premium on maintaining a welcoming investment climate.”11 As part of the efforts
to foster such a welcoming investment climate in times of great political and eco-
nomic anxiety, both US and Chinese governments confirmed the following in the
US-China Strategic Economic Dialogue on June 18, 2008:
The United States welcomes sovereign wealth fund investment, including that
from China. China stresses that investment decisions by its state-owned invest-
ment firms will be based solely on commercial grounds, and the United States
confirms that the CFIUS [Committee on Foreign Investment in the United
States—Editor] process ensures the consistent and fair treatment of all foreign
investment without prejudice to the country of origin.12
Note this agreement was reached in the last year of the Bush Administration.
Now with a new president who threatens to be tough on a number of China trade
issues (see page 135), stay tuned.

9
S. Globerman & D. Shapiro, 2009, Economic and strategic considerations surrounding
Chinese FDI in the United States (p. 180), Asia Pacific Journal of Management, 26: 163–183.
10
H. Paulson, 2008, The right way to engage China, Foreign Affairs, September/October, www.
foreignaffairs.org.
11
K. Sauvant, 2008, The FDI recession has begun, Columbia FDI Perspectives, No. 1,
November 22, www.vcc.columbia.edu.
12
US Treasury Department Office of Public Affairs, 2008, Joint Fact Sheet: Fourth US-China
Strategic Economic Dialogue (p. 4), June 18.

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 BRIEF CONTENTS

Part 1 Laying Foundations 1

1 Globalizing Business 2
2 Understanding Politics, Laws, and Economics 28
3 Emphasizing Cultures, Ethics, and Norms 54
4 Leveraging Capabilities Globally 86

Part 2 Acquiring Tools 111

5 Trading Across Borders 112
6 Investing Abroad Directly 142
7 Dealing with Foreign Exchange 170
8 Global and Regional Integration 196

Part 3 Strategizing around the Globe 227

9 Entering Foreign Markets 228
10 Entrepreneurial Firm 254
11 Alliances and Acquisitions 278
12 Managing Competitive Dynamics 308
13 Strategy and Structure 334

Part 4 Building Functional Excellence 363

14 Human Resource Management 364
15 Marketing and Supply Chain Management 390
16 Governing the Corporation 416
17 Corporate Social Responsibility 442
Integrative Cases 466

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 CONTENTS

Part 1 Laying Foundations 1 Classifying Cultural Differences 61

The Context Approach 61 / The Cluster Approach 62 /
Chapter 1 The Dimension Approach 64 / Culture and Global
Globalizing Business 2 Business 66

International Business and Global Business 4 Ethics 68

Why Study Global Business? 7 Definition and Impact of Ethics 68 / Managing Ethics
Overseas 69 / Ethics and Corruption 70
A Unified Framework 8
One Fundamental Question 9 / First Core Perspec- Norms and Ethical Challenges 72
tive: An Institution-Based View 10 / Second Core Debates and Extensions 73
Perspective: A Resource-Based View 10 / A Consis-
tent Theme 11 Economic Development: Western Values versus
Eastern Values 73 / Cultural Change: Convergence
What Is Globalization? 11 versus Divergence 74 / Opportunism versus
Individualism/Collectivism 75
Three Views of Globalization 12 / The Pendulum
View of Globalization 12 / Semiglobalization 13 Management Savvy 77
Global Business and Globalization Chapter 4
at a Crossroads 14 Leveraging Capabilities Globally 86
A Glance of the World Economy 14 /
The Globalization Debate and You 16 Understanding Resources and Capabilities 89
Analyzing the Value Chain: In-house versus
Organization of the Book 21
Outsource 91
Chapter 2 Analyzing Resources and Capabilities with
Understanding Politics, Laws, a VRIO Framework 95
and Economics 28
The Question of Value 95 / The Question of Rarity 96 /
Formal and Informal Institutions 31 The Question of Imitability 97 / The Question of
Organization 98
What Do Institutions Do? 32
Debates and Extensions 99
An Institution-Based View of Global Business 33
Domestic Resources versus International
Two Political Systems 34 (Cross-Border) Capabilities 99 / Offshoring versus Not
Democracy 34 / Totalitarianism 34 / Political Risk 35 Offshoring 100

Three Legal Systems 36 Management Savvy 102

Civil Law, Common Law, and Theocratic Law 36 /
Property Rights 37 / Intellectual Property Rights 38
Part 2 Acquiring Tools 111
Three Economic Systems 39
Chapter 5
Debates and Extensions 41 Trading Across Borders 112
Drivers of Economic Development: Culture,
Geography, or Institutions? 41 / Speed and Why Do Nations Trade? 114
Effectiveness of Institutional Transitions: China Theories of International Trade 117
versus Russia 43 / Measures of Political Risk:
Perception versus Objective Measures 44 Mercantilism 117 / Absolute Advantage 117 /
Comparative Advantage 119 / Product Life
Management Savvy 46 Cycle 122 / Strategic Trade 122 / National
Competitive Advantage of Industries 125 /
Chapter 3 Evaluating Theories of International Trade 126
Emphasizing Cultures, Ethics, and Norms 54
Realities of International Trade 128
Where Do Informal Institutions Come From? 56
Tariff Barriers 128 / Nontariff Barriers (NTBs) 129 /
Culture 57 Economic Arguments against Free Trade 130 /
Political Arguments against Free Trade 132
Definition of Culture 57 / Language 58 / Religion 59

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 Debates and Extensions 132 Debates and Extensions 186
Trade Deficit versus Trade Surplus 132 / Fixed versus Floating Exchange Rates 186 / A Strong
Classical Theories versus New Realities 133 Dollar versus a Weak Dollar 187 / Currency Hedging
versus Not Hedging 188
Management Savvy 136
Management Savvy 190
Chapter 6
Investing Abroad Directly 142 Chapter 8
Global and Regional Integration 196
Understanding the FDI Vocabulary 144
The Key Word Is D 145 / Horizontal and Vertical Global Economic Integration 199
FDI 145 / FDI Flow and Stock 146 / MNE versus Political Benefits for Global Economic
non-MNE 146 Integration 199 / Economic Benefits for Global
Economic Integration 200
Why Do Firms Become MNEs by Engaging
in FDI? 148 General Agreement on Tariffs and Trade:
1948–1994 201
Ownership Advantages 149
The Benefits of Direct Ownership 149 / FDI versus
World Trade Organization: 1995–present 201
Licensing 149 Trade Dispute Settlement 202 / The Doha Round:
The “Doha Development Agenda” 203
Location Advantages 151
Location, Location, Location 151 / Acquiring and Five Types of Regional Economic Integration 205
Neutralizing Location Advantages 152 The Pros and Cons for Regional Economic
Integration 205 / Types of Regional Economic
Internalization Advantages 153 Integration 207
Market Failure 153 / Overcoming Market Failure
through FDI 153 Regional Economic Integration in Europe 208
Origin and Evolution 208 / The EU Today 208 /
Realities of FDI 155 The EU’s Challenges 212
Political Views on FDI 155 / Benefits and Costs of
FDI to Host Countries 156 / Benefits and Costs of Regional Economic Integration in the Americas 213
FDI to Home Countries 158 North America: North American Free Trade
Agreement (NAFTA) 213 / South America: Andean
How MNEs and Host Governments Bargain 158 Community, Mercosur, FTAA, and CAFTA 214
Debates and Extensions 160 Regional Economic Integration in Asia Pacific 216
FDI versus Outsourcing 160 / Facilitating versus
Australia-New Zealand Closer Economic Relations
Confronting Inbound FDI 161
Trade Agreement (ANZCERTA or CER) 216 /
Management Savvy 162 Association of Southeast Asian Nations (ASEAN) 216 /
Asia-Pacific Economic Cooperation (APEC) 217
Chapter 7
Dealing with Foreign Exchange 170 Regional Economic Integration in Africa 218
Debates and Extensions 218
Factors behind Foreign Exchange Rates 173
Building Blocks versus Stumbling Blocks 218 /
Basic Supply and Demand 173 / Relative Price Does the WTO Really Matter? 220
Differences and Purchasing Power Parity 174 /
Interest Rates and Money Supply 176 / Productivity Management Savvy 220
and Balance of Payments 176 / Exchange Rate
Policies 178 / Investor Psychology 179
Part 3 Strategizing around
Evolution of the International Monetary System 180 the Globe 227
The Gold Standard (1870–1914) 180 / The Bretton
Woods System (1944–1973) 180 / The Post–Bretton Chapter 9
Woods System (1973–present) 180 / The International Entering Foreign Markets 228
Monetary Fund (IMF) 181
Overcoming Liability of Foreignness 230
Strategic Responses to Foreign Exchange
Where to Enter? 231
Movements 182
Location-Specific Advantages and Strategic
Strategies for Financial Companies 183 / Strategies
Goals 231 / Cultural/Institutional Distances and
for Nonfinancial Companies 185
Foreign Entry Locations 235
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 When to Enter? 236 Performance of Alliances 293
How to Enter? 237 Motives for Acquisitions 294
Scale of Entry: Commitment and Experience 238 / Performance of Acquisitions 295
Modes of Entry: The First Step on Equity versus
Nonequity Modes 238 / Modes of Entry: The Second Debates and Extensions 297
Step on Making Actual Selections 238 M&As + Alliances 297 / Majority JVs as Control
Mechanisms versus Minority JVs as Real Options 297
Debates and Extensions 243
Liability versus Asset of Foreignness 243 / Management Savvy 299
Global versus Regional Geographic Diversifi- Chapter 12
cation 243 / Cyberspace versus Conventional Entries 245
Managing Competitive Dynamics 308
Management Savvy 245
Competition, Cooperation, and Collusion 311
Chapter 10 War and Peace 311 / Cooperation and Collusion 311
Entrepreneurial Firm 254
Institutions Governing Domestic and
Entrepreneurship and Entrepreneurial Firms 256 International Competition 315
How Institutions and Resources Affect Formal Institutions Governing Domestic Competition:
Entrepreneurship 257 A Focus on Antitrust 315 / Formal Institutions
Governing International Competition: A Focus on
Institutions and Entrepreneurship 257 / Resources
Antidumping 316
and Entrepreneurship 258

Growing the Entrepreneurial Firm 260 Resources Influencing Competitive Dynamics 317
Value 317 / Rarity 318 / Imitability 318 /
Growth 260 / Innovation 260 / Financing 261
Organization 318 / Resource Similarity 319
Internationalizing the Entrepreneurial Firm 263
Attack, Counterattack, and Signaling 320
Transaction Costs and Entrepreneurial
Three Main Types of Attack 320 / Attack and
Opportunities 263 / International Strategies for
Counterattack 321 / Cooperation and Signaling 322
Entering Foreign Markets 264 / International
Strategies for Staying in Domestic Markets 267 Local Firms versus Multinational Enterprises 323
Debates and Extensions 268 Debates and Extensions 325
Traits versus Institutions 268 / Slow Internationalizers Competition versus Antidumping 325 / Managers
versus Born Global Start-Ups 269 / Antifailure Bias versus versus Antitrust Policymakers 325
Entrepreneur-Friendly Bankruptcy Laws 270
Management Savvy 326
Management Savvy 271
Chapter 13
Chapter 11 Strategy and Structure 334
Alliances and Acquisitions 278
Multinational Strategies and Structures 336
Defining Alliances and Acquisitions 280 Pressures for Cost Reductions and Local Respon-
How Institutions and Resources Affect siveness 336 / Four Strategic Choices 337 / Four
Alliances and Acquisitions 282 Organizational Structures 339 / The Reciprocal
Relationship between Multinational Strategy
Institutions, Alliances, and Acquisitions 282 / and Structure 342
Resources and Alliances 283 / Resources and
Acquisitions 285 How Institutions and Resources Affect
Multinational Strategy, Structure, and Learning 343
Alliances and Acquisitions 287
Institution-Based Considerations 343 / Resource-
Formation of Alliances 288 Based Considerations 346
Stage One: To Cooperate or Not to Cooperate? 288
/ Stage Two: Contract or Equity? 289 / Stage Three:
The Challenge of Managing Learning,
Specifying the Relationship 290 Innovation, and Knowledgement Worldwide 346
Knowledge Management 346 / Knowledge Manage-
Evolution of Alliances 291 ment in Four Types of MNEs 347 / Globalizing
Combating Opportunism 291 / From Corporate Research and Development 348 / Problems and
Marriage to Divorce 291 Solutions in Knowledge Management 350

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 Debates and Extensions 351 Institutions, Marketing, and Supply Chain
Management 403 / Resources, Marketing, and
Corporate Controls versus Subsidiary Initiatives 351
Supply Chain Management 405
/ Customer-Focused Dimensions versus Integration,
Responsiveness, and Learning 352 Debates and Extensions 406
Management Savvy 353 Manufacturing versus Services 406 / Market
Orientation versus Relationship Orientation 407

Management Savvy 408

Part 4 Building Functional
Excellence 363 Chapter 16
Governing the Corporation 416
Chapter 14
Human Resource Management 364 Owners 419
Concentrated versus Diffused Ownership 419 /
Staffing 366 Family Ownership 419 / State Ownership 420
Ethnocentric, Polycentric, and Geocentric
Approaches to Staffing 367 / The Role of
Managers 420
Expatriates 368 / Expatriate Failure and Principal-Agent Conflicts 420 / Principal-Principal
Selection 369 Conflicts 421

Training and Development Needs 370 The Board of Directors 423

Training for Expatriates 370 / Development for Key Features of the Board 423 / The Role of Boards
Returning Expatriates (Repatriates) 371 / Training of Directors 424
and Development for Host Country Nationals 372
Governance Mechanisms as a Package 425
Compensation and Performance Appraisal 372 Internal (Voice-Based) Governance Mechan-
Compensation for Expatriates 373 / Compensation isms 425 / External (Exit-Based) Governance
for Host Country Nationals 374 / Performance Mechanisms 426 / Internal Mechanisms + External
Appraisal 376 Mechanisms = Governance Package 427

Labor Relations 376 A Global Perspective on Governance

Managing Labor Relations at Home 376 / Managing Mechanisms 427
Labor Relations Abroad 377 How Institutions and Resources Affect
How Institutions and Resources Affect Human Corporate Governance 429
Resource Management 378 Institutions and Corporate Governance 429 /
Resources and Corporate Governance 431
Institutions and Human Resource Management 378 /
Resources and Human Resource Management 381 Debates and Extensions 432
Debates and Extensions 381 Opportunistic Agents versus Managerial
Stewards 432 / Global Convergence versus
Best Fit versus Best Practice 381 / Expatriation
Divergence 432
versus Inpatriation 382 / Across-the-Board Pay
Cut versus Reduction in Force 382 Management Savvy 434
Management Savvy 383 Chapter 17
Chapter 15 Corporate Social Responsibility 442
Marketing and Supply Chain Management 390 A Stakeholder View of the Firm 445
Three of the Four Ps in Marketing 392 A Big Picture Perspective 445 / Primary and
Secondary Stakeholder Groups 448 / A Funda-
Product 393 / Price 395 / Promotion 396 mental Debate 448
From Distribution Channel to Supply Chain Institutions and Corporate Social Responsibility 450
Management 398
Reactive Strategy 451 / Defensive Strategy 452 /
The Triple As in Supply Chain Management 399 Accommodative Strategy 452 / Proactive Strategy 453
Agility 399 / Adaptability 399 / Alignment 400 Resources and Corporate Social Responsibility 454
How Insititutions and Resources Affect Value 454 / Rarity 455 / Imitability 455 / Organi-
Marketing and Supply Chain Management 403 zation 455 / The CSR-Economic Performance Puzzle 456

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 Debates and Extensions 456 8 The LG-Nortel Joint Venture 489 / 9 Ocean Park
Confronts Hong Kong Disneyland 492 / 10 Global Know-
Domestic versus Overseas Social Responsibility 456 /
ledge Management at Accenture 498 / 11 Competing in the
Race to the Bottom (“Pollution Haven”) versus Race
Chinese Automobile Industry 501 / 12 Kalashnikov: Swords
to the Top 457 / Active versus Inactive CSR
into Vodka 507 / 13 Shakira: The Dilemma of Going
Engagement Overseas 458
Global 509 / 14 Shakti: Unilever Collaborates with Women
Management Savvy 459 Entrepreneurs in Rural India 511 / 15 Computime 519

Integrative Cases 466 Glossary 528

1 The Chinese Menu (For Development) 466 / Name Index 541
2 Tips about Corruption around the Pacific 467 /
3 DP World 470 / 4 Private Military Companies: Dogs Organization Index 553
of War or Pussycats of Peace? 474 / 5 Soybeans in Subject Index 559
China 476 / 6 AGRANA: From a Local Supplier to a
Global Player 479 / 7 DHL Bangladesh 483 / Credits 575

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60738_00_fm_pi-xxx.indd xx 3/20/09 6:19:07 PM
 PREFACE

Global Business intends to set a new standard for international business (IB) text-
books. Written for undergraduate and MBA students around the world, this book
will make IB teaching and learning (1) more engaging, (2) more comprehensive,
(3) more fun, and (4) more relevant.

More Engaging
For the first time in the history of IB textbooks, a unified framework integrates all
chapters. Given the wide range of topics in IB, most textbooks present the discipline
in a fashion that “Today is Tuesday, it must be Luxembourg.” Very rarely do authors
address: “Why Luxembourg today?” More important, what is it that we do in IB?
What is the big question that the field is trying to address? Our unified framework
suggests that the discipline can be united by one big question and two core perspec-
tives. The big question is: What determines the success and failure of firms around
the globe? This focus on firm performance around the globe defines our field. To
address this question, we introduce two core perspectives: (1) an institution-based
view and (2) a resource-based view, in all chapters. It is this relentless focus on our big
question and core perspectives that enables this book to engage a variety of IB topics
in an integrated fashion. This provides great continuity in the learning process.
Global Business further engages readers through an evidence-based approach. I
have endeavored to draw on the latest research, as opposed to the latest fads. As
an active researcher myself, I have developed the unified framework not because
it just popped up in my head when I wrote the book. Rather, this is an extension
of my own research that consistently takes on the big question and leverages the
two core perspectives. This work has been published in the Journal of International
Business Studies and other leading academic journals.1
Another vehicle used to engage students is debates. Virtually all textbooks
uncritically present knowledge “as is” and ignore debates. However, it is debates
that drive the field of practice and research forward. Obviously, our field has no
shortage of debates, ranging from outsourcing to social responsibility. It is the
responsibility of textbook authors to engage students by introducing cutting-edge
debates. Thus, I have written a beefy “Debates and Extensions” section for every
chapter (except Chapter 1, which is a big debate in itself).
Finally, this book engages students by packing rigor with accessibility. There
is no “dumbing down.” No other competing IB textbook exposes students to an
article authored by a Nobel laureate (Douglass North—Integrative Case 1), com-
mentary pieces by Jack Welch (former GE chairman—In Focus 14.2) and Laura
Tyson (former economic advisor to President Clinton—In Focus 5.3), and a Harvard
Business Review article (authored by me—In Focus 11.2). These are not excerpts but
full-blown, original articles—the first in an IB (and in fact in any management)
textbook. These highly readable short pieces directly give students a flavor of the
original insights. In general, the material is presented in an accessible manner to
facilitate learning.

1
M. W. Peng, 2004, Identifying the big question in international business research, Journal of
International Business Studies, 35: 99-108; M. W. Peng, D. Wang, & Y. Jiang, 2008, An institu-
tion-based view of international business strategy: A focus on emerging economies, Journal
of International Business Studies (in press); M. W. Peng, 2001, The resource-based view and
international business, Journal of Management, 27: 803-829.

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 More Comprehensive
Global Business offers the most comprehensive and innovative coverage of IB top-
ics available on the market. Unique chapters not found elsewhere are:
• Chapter 10 on entrepreneurship and small firms’ internationalization
• Chapter 12 on competitive dynamics
• Chapter 16 on corporate governance
• Chapter 17 on corporate social responsibility (in addition to one full-blown
chapter on ethics, cultures, and norms, Chapter 3)
• Half of Chapter 11 (alliances and acquisitions) deals with the under-covered
topic of acquisitions. Approximately 70% of market entries based on foreign
direct investment (FDI) around the world use acquisitions. Yet, no other IB
textbook has a chapter on acquisitions—a missing gap that Chapter 11 fills.
The most comprehensive topical coverage is made possible by drawing on the
most comprehensive range of the literature. Specifically, every article in each issue
in the past ten years in the Journal of International Business Studies and other lead-
ing IB journals has been read and coded. In addition, I have endeavored to consult
numerous specialty journals. For example:
• The trade and finance chapters (Chapters 5–7) draw on the American Economic
Review and Quarterly Journal of Economics
• The entrepreneurship chapter (Chapter 10) consults with the Journal of Busi-
ness Venturing and Entrepreneurship Theory and Practice
• The human resource chapter (Chapter 14) heavily cites from Human Resource
Management, International Journal of Human Resource Management, Journal of
Applied Psychology, and Personnel Psychology
• The marketing and supply chain chapter (Chapter 15) draws heavily from the
Journal of Marketing, Journal of International Marketing, and Journal of Operations
Management
• The corporate governance chapter (Chapter 16) is visibly guided by research
published in the Journal of Finance and Journal of Financial Economics
• The corporate social responsibility chapter (Chapter 17) borrows from work
that appeared in the Journal of Business Ethics and Business Ethics Quarterly
As research for the book progressed, my respect and admiration for the diver-
sity of insights of our field grew tremendously. The end result is the unparalleled,
most comprehensive set of evidence-based insights on the IB market. While citing
every article is not possible, I am confident that I have left no major streams of
research untouched. Feel free to check the authors found in the Name Index to
verify this claim.
Finally, Global Business also has the most comprehensive set of cases contrib-
uted by scholars from around the world—an innovation on the IB market. Virtu-
ally all other IB textbooks have cases written by book authors. In comparison, this
book has been blessed by a global community of case contributors who are based
in Canada, China, Hong Kong, Singapore, and the United States. Many of them are

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 experts who are located in or are from the countries in which the cases take place—
for example, among all IB textbooks, Global Business has the very first China case
written by China-based case authors (see Integrative Case 5, Soybeans in China).
Additionally, the Video Cases bring you the insights and expertise of noted busi-
ness leaders from England, Scotland, India, France, and the United States.

More Fun
In case you think that this book must be very boring because it draws so heavily on
current research, you are wrong. I have used a clear, engaging, conversational style
to tell the “story.” Relative to rival books, my chapters are generally more lively
and shorter. For example, most books use two chapters to go over topics such
as trade, FDI, and foreign exchange. I cut out a lot of “fat” and use one chapter
to cover each of these topics, thus enhancing the “weight-to-contribution” ratio.
Some reviewers (other professors) commented that reading my chapters is like
reading a good magazine. Just check out any chapter to see for yourself.
Throughout the text, I have woven a large number of interesting, non-
traditional anecdotes, ranging from ancient Chinese military writings (Sun Tzu) to
the Roman Empire’s import quotas, and from quotes in Anna Karenina to mutually
assured destruction (MAD) strategy in the Cold War. Popular movies, such as High
School Musical, Lord of the Rings, The Full Monty, and The Hunt for Red October are
also discussed.
In addition, numerous Opening Cases, Closing Cases, and In Focus boxes spice
up the book. Check out the following fun-filled features:

• The Dell theory of world peace (Chapter 2, In Focus 2.1)

• Comparative advantage and you (Chapter 5, In Focus 5.1)
• Who wants to be a trillionaire? (Chapter 7, In Focus 7.3)
• Sew What? (Chapter 9, Opening Case)
• A fox in the hen house (Chapter 12, In Focus 12.2)
• Blunders in international HRM (Chapter 14, Table 14.6) and in international
marketing (Chapter 15, Table 15.2)
• List in New York? No, thanks! (Chapter 16, Opening Case)
• Have you offset your carbon emission? (Chapter 17, Closing Case)
Finally, there is one video case to support every chapter. While virtually all
competing books have some videos, none has a video package that is so integrated
with the learning objectives of every chapter.

More Relevant
So what? Chapters in most textbooks leave students (and professors) to figure
out the crucial “so what?” question for themselves. In contrast, I conclude every
chapter with an action-packed section titled Management Savvy. Each section
has at least one table (sometimes two or three tables) that clearly summarizes the

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 key learning points from a practical standpoint. No other competing IB book is so
savvy and so relevant.
Further, ethics is a theme that cuts through the book, with each chapter having
at least one Ethical Dilemma feature and a series of Critical Discussion Questions
on ethics to engage students.
Finally, many chapters offer career advice for students. For example:
• Chapter 4 develops a resource-based view of the individual—that is, about
you, the student. The upshot? You want to make yourself into an “untouch-
able,” who adds valuable, rare, and hard-to-imitate capabilities indispensable
to an organization. In other words, you want to make sure your job cannot be
outsourced.
• Chapter 14 offers tips on how to strategically and proactively invest in your
career now—as a student—for future international career opportunities.

Support Materials
A full set of supplements is available for students and adopting instructors, all
designed to facilitate ease of learning, teaching, and testing.
• Instructor’s Manual—Written by John Bowen (Ohio State University, New-
ark and Columbus State Community College), this valuable, time-saving
Instructor’s Manual includes comprehensive resources to streamline course
preparation, including teaching suggestions, lecture notes, and answers to all
chapter questions. Also included are discussion guidelines and answers for
the Integrative Cases found at the end of each part. The Instructor’s Manual
files can be found at www.cengage.com/international.
• Testbank—Prepared by Ann Langlois (Palm Beach Atlantic University), the
Global Business Testbank in ExamView® software allows instructors to create
customized texts by choosing from 25 True/False, 25 Multiple Choice, and at
least 5 short answer/essay questions for each of the 17 chapters. Ranging in
difficulty, all questions have been tagged to the text’s Learning Objectives and
AASCB standards to ensure students are meeting the course criteria. The Test
Bank files can be found at www.cengage.com/international.
• PowerPoint® Slides—Mike Giambattista (University of Washington) has cre-
ated a comprehensive set of more than 250 PowerPoint® slides that will assist
instructors in the presentation of the chapter material, enabling students to
synthesize key global concepts. The PowerPoint files can be found at www.
cengage.com/international.
• Video Cases—Perhaps one of the most exciting and compelling bonus fea-
tures of this program, these 17 short and powerful video clips, produced by
50 Lessons, provide additional guidance on international business strategies.
The video clips offer real-world business acumen and valuable learning expe-
riences from an array of internationally known business leaders. The Video
Cases can be found at www.cengage.com/international.
Product Support Website. We offer a Global Business product support web-
site at www.cengage.com/international, where instructors can download files for

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 the Instructor’s Manual, Testbank, ExamView® software, and PowerPoint® slides.
Also through this website, students will have access to their own set of Power-
Point® slides, as well as the Glossary. Found only on the Product Support Website,
a set of auto-gradable, interactive quizzes—written by Yi Jiang (California State
University, East Bay)—will allow students to instantly gauge their comprehension
of the material. The quizzes are all tagged to the book’s Learning Objectives and
AACSB standards.
WebTutor on BlackBoard® and WebTutor on WebCT™. Available on two dif-
ferent platforms, Global Business WebTutor enhances students’ understanding of
the material by featuring the Opening Cases and Video Cases, as well as e-lectures,
the Glossary, study flashcards, and a set of four engaging, interactive maps that
delve more deeply into key concepts presented in the book.
CengageNOW™ Course Management System. Designed by instructors for
instructors, CengageNOW™ mirrors the natural teaching workflow with an easy-
to-use online suite of services and resources, all in one program. With this system,
instructors can easily plan their courses, manage student assignments, automati-
cally grade, teach with dynamic technology, and assess student progress with pre-
and post-tests tagged to AACSB standards. For students, study tools including
e-lectures, flashcards, PowerPoint® slides, and a set of four interactive maps enhance
comprehension of the material, while diagnostic tools create a personalized study
plan for each student that focuses their study efforts. CengageNOW™ operates
seamlessly with WebCT™, Blackboard®, and other course management tools.

Acknowledgments
Undertaking a project of this magnitude makes me owe a great deal of debt—intel-
lectual, professional, and personal—to many people, whose contributions I would
like to acknowledge. Intellectually, I am grateful to Charles Hill (University of
Washington), my former PhD advisor, who inspired my interest in global business.
At UT Dallas, I thank my colleagues George Barnes, Tev Dalgic, Dave Deeds, Anne
Ferrante, Dave Ford, John Fowler, Richard Harrison, Jonathan Hochberg, Mari-
lyn Kaplan, Seung-Hyun Lee, John Lin, Livia Markoczy, Kumar Nair, Joe Picken,
Orlando Richard, Jane Salk, Eric Tsang, Davina Vora, Habte Woldu, Laurie Ziegler,
and the leadership team—Hasan Pirkul (dean), Varghese Jacobs (senior associate
dean), and Greg Dess (area coordinator)—for creating and nurturing a support-
ive intellectual environment. In addition, this research has been supported by a
National Science Foundation Faculty Career Grant (SES 0552089) and a Provost’s
Distinguished Research Professorship, for which I am grateful.
At South-Western Cengage Learning (formerly South-Western Thomson),
I thank the dedicated team that turned this book from vision to reality: Melissa
Acuna, Editor-in-Chief; Michele Rhoades, Senior Acquisitions Editor; Joe Sabatino,
Senior Acquisitions Editor; John Abner, Managing Developmental Editor; Jennifer
King, Developmental Editor; Kimberly Kanakes, Executive Marketing Manager;
Clinton Kernen, Marketing Manager; Sara Rose, Marketing Coordinator; Tippy
McIntosh, Senior Art Director; and Terri Coats, Executive Director, International.
In the academic community, I thank Ben Kedia (University of Memphis) for
inviting me to conduct faculty training workshops in Memphis every year since
1999 on how to most effectively teach IB and Michael Pustay (Texas A&M Univer-
sity) for co-teaching the workshops with me—known as the “M&M Show” in the

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 field. Interactions and discussions (and debates) with more than 120 colleagues
who have come to these faculty workshops over the last eight years have helped
shape this book into a better product.
I would also like to thank the text reviewers, who provided excellent and
timely feedback:

Richard Ajayi (University of Central Florida, Orlando)

Lawrence A. Beer (Arizona State University)
Tefvik Dalgic (University of Texas at Dallas)
Tim R. Davis (Cleveland State University)
Norb Elbert (Eastern Kentucky University)
Ann L. Langlois (Palm Beach Atlantic University)
Ted London (University of Michigan)
Martin Meznar (Arizona State University, West)
Dilip Mirchandani (Rowan University)
William Piper (Alcorn State University)
Tom Roehl (Western Washington University)
Bala Subramanian (Morgan State University)
Susan Trussler (University of Scranton)

In addition, I thank a number of friends and colleagues, who informally com-

mented on and critiqued certain chapters:

Irem Demirkan (Northeastern University)

Greg Dess (University of Texas at Dallas)
Dharma deSilva (Wichita State University)
Kiran Ismail (St. Johns University)
Yung Hua (University of Texas at Dallas)
Seung-Hyun Lee (University of Texas at Dallas)
Klaus Meyer (University of Bath)
Bill Newburry (Florida International University)
Mine Ozer (SUNY Oneonta)
Barbara Parker (Seattle University)
Jane Salk (University of Texas at Dallas)
Muthu Subbiah (University of Texas at Dallas)
Sunny Li Sun (University of Texas at Dallas)
Paul Vaaler (University of Illinois at Urbana-Champaign)
Davina Vora (SUNY New Paltz)
Habte Woldu (University of Texas at Dallas)
Fang Wu (University of Texas at Dallas)
Yasu Yamakawa (University of Texas at Dallas)
Toru Yoshikawa (McMaster University)
Kevin Zheng Zhou (University of Hong Kong)
Jessie Qi Zhou (Southern Methodist University)

My students’ contributions have been invaluable to me. Most of my ideas in this

book have been classroom tested in Beijing, Columbus, Dallas, Hanoi, Hong Kong,
Honolulu, Memphis, Seattle, and Xian. A number of PhD students have worked
on this book as my assistants and made the book significantly better. They are

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 Ted Khoury, Kenny Oh, Erin Pleggenkuhle-Miles, and Sunny Li Sun. In addition,
the following PhD students volunteered to help me proofread: Ramya Aroul, Hao
Chen, Martina Quan, Yasu Yamakawa, and David Weng.

A total of 33 colleagues have contributed cases that have significantly enhanced

this book. They are:

Bill Bentz (University of Texas at Dallas)

Steve Caudill (University of Texas at Dallas)
Masud Chand (Simon Fraser University)
David Choi (Loyola Marymount University)
Bee-Leng Chua (Hawaii Pacific University)
Andrew Delios (National University of Singapore)
C. Gopinath (Suffolk University)
Yi Jiang (California State University, East Bay)
Ted Khoury (Oregon State University)
Donald Liu (University of Washington)
Yi Liu (Xi’an Jiaotong University, China)
Ted London (University of Michigan)
Hemant Merchant (Florida Atlantic University)
John Ness (Newsweek)
Douglass North (Washington University)—Nobel laureate
Kenny K. Oh (University of Missouri at St. Louis)
Yongsun Paik (Loyola Marymount University)
Christine Pepermintwalla (University of Texas at Dallas)
Erin Pleggenkuhle-Miles (University of Texas at Dallas)
Amber Galbraith Quinn (University of Tennessee)
Anne Smith (University of Tennessee)
Charles Stevens (Ohio State University)
Sunny Li Sun (University of Texas at Dallas)
Tom Tao (Lehigh University)
Bill Turner (University of Texas at Dallas)
Maulin Vakil (University of North Carolina at Chapel Hill)
Ken Williamson (University of Texas at Dallas)
Chris Woodyard (USA TODAY)
Wei Yang (Xi’an Jiaotong University, China)
Arthur Yeung (University of Michigan/China Europe International
Business School)
Michael Young (Hong Kong Baptist University)—2 cases
Xi Zou (Columbia University)

I would also like to thank the following academicians, who provided input and
guidance on the presentation of the material:

Basil Al-Hashimi (Mesa Community College)

John Anderson (Christopher Newport University)
Brian Bartel (Mid-State Technical College, Steven’s Point)
Tim Bryan (University of West Florida)
Martin Carrigan (University of Findlay)

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 Ping Deng (Maryville University)
Zahi Haddad (Georgetown College)
Pol Herrmann (Iowa State University)
Joe Horton (University of Central Arkansas)
H. Rika Houston (California State University, Los Angeles)
Samira Hussein (Johnson County Community College)
Ralph Jagodka (Mount San Antonio College)
Larry Maes (Davenport University, Warren)
Bill Motz (Lansing Community College)
Lilach Nachum (Baruch College, CUNY)
Braimoh Oseghale (Fairleigh Dickinson University, Teaneck)
Daria Panina (Texas A&M University)
Diane Scott (Wichita State University)
Amit Sen (Xavier University)
Gladys Torres-Baumgarten (Kean University)

Last, but by no means least, I thank my wife Agnes, my daughter Grace, and my
son James—to whom this book is dedicated. Grace was three and James was one
when the book was conceived. Grace is now a five-year-old. She calls this book
“Daddy’s storybook,” and she has told me that she wants to become a writer when
she grows up (so that she doesn’t have to go to sleep at night!). My three-year-old
James has now developed a strong body of knowledge in fish and all kinds of sea
creatures. As a third-generation professor in my family, I can’t help but wonder
whether one (or both) of them will become a fourth-generation professor. A great
deal of thanks also go to my two in-laws, who came to help. Without such instru-
mental help, the writing of this book would have been significantly delayed. To all
of you, my thanks and my love.

MWP

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 AUTHOR

Mike W. Peng is the Provost’s Distinguished Pro-

fessor of Global Business Strategy at the University of
Texas at Dallas. At UT Dallas, he founded the Center
for Global Business, where he serves as the Executive
Director. He holds a bachelor’s degree from Winona
State University, Minnesota and a PhD degree from
the University of Washington, Seattle, where he was
advised by Professor Charles Hill. Prior to joining
UTD, Professor Peng had been on the faculty at the
Ohio State University, Chinese University of Hong
Kong, and University of Hawaii. In addition, he has
held visiting or courtesy appointments in Australia
(University of Sydney and Queensland University
of Technology), Britain (University of Nottingham),
China (Xi’an Jiaotong University, Sun Yat-sen Uni-
versity, and Cheung Kong Graduate School of Business), Denmark (Copenhagen
Business School), Hong Kong (Chinese University of Hong Kong and Hong Kong
Polytechnic University), Vietnam (Foreign Trade University), and the United States
(University of Memphis, University of Michigan, and Seattle Pacific University).
Professor Peng is widely regarded as one of the most prolific and most influen-
tial scholars in global business—both the United Nations and the World Bank have
cited his work in major publications. Truly global in scope, his research focuses
on firm strategies in regions such as Asia, Central and Eastern Europe, and North
America, covering countries such as China, Hong Kong, Japan, Russia, South
Korea, Thailand, and the United States. He has published approximately 50 arti-
cles in leading academic journals and previously authored three books. The first
two are Behind the Success and Failure of US Export Intermediaries (Quorum, 1998)
and Business Strategies in Transition Economies (Sage, 2000). His third book is Global
Strategy (Thomson South-Western, 2006), which has become the world’s best-
selling global strategy book and has been translated into Chinese (Posts and Tele-
com Press, 2007). Global Business builds on and leverages the success of Global
Strategy.
Professor Peng is active in leadership positions in his field. At the Academy
of International Business, he was a Co-Program Chair for the Research Frontiers
Conference in San Diego (2006) and is currently guest editing a Journal of Interna-
tional Business Studies special issue on “Asia and global business.” At the Strategic
Management Society, he was the first elected Program Chair of the Global Strategy
Interest Group (2005-07). At the Academy of Management, he was in charge of
the Junior Faculty Consortium for the International Management Division at the
Atlanta meetings (2006). Professor Peng has served on the editorial boards of the
Academy of Management Journal, Academy of Management Review, Journal of Interna-
tional Business Studies, Journal of World Business, and Strategic Management Journal.
He has also guest edited the Journal of Management Studies. At present, he is Editor-
in-Chief of the Asia Pacific Journal of Management.
On a worldwide basis, Professor Peng has taught students at all levels—under-
graduate, MBA, PhD, EMBA, executive, and faculty training programs. Some of
his former PhD students are now professors at California State University, Chi-
nese University of Hong Kong, Georgia State University, Hong Kong University
of Science and Technology, Lehigh University, Northeastern University, Southern

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 Methodist University, St. John’s University, University of Colorado at Boulder, and
University of Texas at Dallas.
Professor Peng is also an active faculty trainer and consultant. He has provided
on-the-job training to over 200 professors around the world. Every year since 1999,
he has conducted faculty training workshops on how to teach international busi-
ness at the University of Memphis with faculty participants from around the coun-
try. He has consulted for organizations such as BankOne, Berlitz International,
Chinese Chamber of Commerce, Greater Dallas Asian American Chamber of
Commerce, Hong Kong Research Grants Council, Manufacturers Alliance/MAPI,
National Science Foundation, Nationwide Insurance, Ohio Polymer Association,
SAFRAN, US-China Business Council, and The World Bank. His practitioner ori-
ented research has been published in the Harvard Business Review, Academy of Man-
agement Executive, and China Business Review.
Professor Peng has received numerous awards and recognitions. He has been
recognized as a Foreign Expert by the Chinese government. One of his Academy
of Management Review papers has been found to be a “new hot paper” (based on
citations) representing the entire field of Economics and Business by the Institute
for Scientific Information (ISI), which publishes the Social Sciences Citation Index
(SSCI). One of his Babson conference papers won a Small Business Administration
(SBA) Award for the best paper exploring the importance of small businesses to
the US economy. Professor Peng is a recipient of the Scholarly Contribution Award
from the International Association for Chinese Management Research (IACMR).
He has also been quoted in Newsweek, The Exporter Magazine, Business Times (Sin-
gapore), and Voice of America.
In addition, Professor Peng’s high-impact, high-visibility research has also
attracted significant external funding, totaling more than half a million dollars
from sources such as the (US) National Science Foundation, Hong Kong Research
Grants Council, and Chinese National Natural Science Foundation. At pres-
ent, his research is funded by a five-year, prestigious National Science Founda-
tion CAREER Grant. At $423,000, this is reportedly the largest grant the NSF has
awarded to a business school faculty member.

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