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9781108422437 Bartlett & Beamish PPC C M Y K

EIGHTH EDITION

BEAMISH
BARTLETT &
“In this eighth edition, the authors have maintained the unique pedagogic philosophy
that has been a hallmark of this special book for so long. With a full suite of
companion teaching and learning materials, the three parts of the book, strategic
imperatives, the organizational challenge and managerial implications have captured
the tensions that continue to dominate cross-border management… This remains an
outstanding book.”
Peter W. Liesch, Professor of International Business, UQ Business School,
The University of Queensland

TRANSNATIONAL MANAGEMENT
“If I were an MBA student studying anywhere in the world this is the book I would
want as the textbook for my global strategy course. As a faculty member, this is the
book I would pick for my case-based global strategic management course.”
Lorraine Eden, Professor of Management, Texas A&M University.
President, Academy of International Business

“I have been using Transnational Management in my MBA International Competitive

Strategy Courses for over 10 years. Since then I have not been able to find another
text which compares with the relevance, applicability, and readability of this one.”
P. Roberto Garcia, Ph.D., Young-Jin Kim Distinguished Clinical Professor of International
Business. Director, Center for International Business Education & Research

Transnational Management offers an integrated framework describing the strategic

tasks, organizational capabilities, and management roles and responsibilities of
successful and responsible managers of international businesses in today’s global
environment.

NEW TO THIS EDITION:

TRANSNATIONAL
• Integrated conceptual framework
• Ten brand new cases have been added, and four others have been updated
• New academic and practitioner recommended readings have been added to
each chapter

Suitable for MBA, executive education, and senior undergraduate students studying
international management, international business, or global strategy courses,
Transnational Management offers a uniquely global perspective on the subject.
EDITION
EIGHTH
MANAGEMENT
Text and Cases in Cross-Border Management
cambridge.org/bartlett&beamish
CHRISTOPHER A. BARTLETT & PAUL W. BEAMISH
Cover images: ‘Silhouettes in a Meeting’, Rawpixel / iStock /
Getty Images. ‘World map’, roripond / iStock / Getty Images
Cover design by Zoe Naylor
vi Contents

4.3 Philips versus Matsushita: The Competitive Battle Continues 259

4.4 Beiersdorf AG: Expanding Nivea’s Global Reach 276

5 Creating Worldwide Innovation and Learning: Exploiting Cross-Border

Knowledge Management 293
Cases
5.1 P&G Japan: The SK-II Globalization Project 306
5.2 Applied Research Technologies, Inc.: Global Innovation’s Challenges 324
5.3 Cisco India (A): Innovation in Emerging Markets 333

6 Engaging in Cross-Border Collaboration: Managing Across Corporate

Boundaries 345
Cases
6.1 Nora-Sakari: A Proposed JV in Malaysia (Revised) 364
6.2 Eli Lilly in India: Rethinking the Joint Venture Strategy 376
6.3 Amazon and Future Group: Rethinking the Alliance Strategy 392

Part III The Managerial Implications 405

7 Building New Management Capabilities: Key to Effective Implementation 407
Cases
7.1 Levendary Café: The China Challenge 425
7.2 Unilever’s Lifebuoy in India: Implementing the Sustainability Plan 436
7.3 Silvio Napoli at Schindler India (A) 452
7.4 Larson Inc. in Nigeria 468

8 Shaping the Transnational’s Future: Defining an Evolving Global Role 476

Cases
8.1 IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A) 496
8.2 Barrick Gold Corporation – Tanzania 507
8.3 Unilever’s New Global Strategy: Competing Through Sustainability 520

Index 541
LIST OF FIGURES

Figure 1 The structure of the book page 5

Figure 1.1 A learning model of internationalization 23
Figure 1.2 Approaches to foreign market entry 24
Case 1.1 Exhibit 3 Evaluation of Global Sourcing 34
Case 1.3 Exhibit 1 Mabe’s Company History, 1946 to 2009 49
Case 1.3 Exhibit 2 Mabe’s Historical Revenues, 1987 to 2010 50
Case 1.3 Exhibit 3 Mabe Income by Region, 1990 to 2011 51
Case 1.3 Exhibit 9 Mabe’s Product Line in Russia 59
Case 1.3 Exhibit 10 Main Appliance Players in Russia 60
Case 2.1 Exhibit 2 Wine Industry Value Chain 88
Case 2.1 Exhibit 3 Wine Consumption Per Capita, Selected Countries
(1980–2014) 90
Case 2.1 Exhibit 5 Global Wine Sales by Volume and Value (1999–2013) 92
Case 2.1 Exhibit 8 Exports as % of Production Volume by Source: EU,
New World, and Globally, 1961–2009 96
Case 2.1 Exhibit 9a China Wine Sales Volume by Retail Sale Point and
Country of Origin, 2009 99
Case 2.1 Exhibit 9b Bottle Wine Positioning in China by Price Segment
and Area of Origin (%), 2014 99
Case 2.2 Exhibit 4 MTN’s Organizational Structure, 2014 110
Case 2.3 Exhibit 4 IMAX Corporation Stock Performance, 2008–2013 124
Case 2.3 Exhibit 6 Economic Comparison of the BRIC Economies 127
Case 2.3 Exhibit 7 Population and Average Household Income for 15 Most
Affluent Cities 128
Case 2.3 Exhibit 8 Country Culture Comparison of BRIC Countries 131
Case 2.3 Exhibit 10 BRIC Countries’ Governance Indicators (Percentiles) 133
Case 2.3 Exhibit 11 BRIC Population Age Distribution 2013 and 2020
(Projected) 133
Case 2.4 Exhibit 5 Mahindra and Mahindra – Business Segments 142
Figure 3.1 The integration–responsiveness framework 154
Figure 3.2 Category-specific strategies to help companies serve
middle-class consumers in emerging economies 157
Case 3.1 Exhibit 4 Organization Chart 175
Case 3.2 Exhibit 1 Yushan Bicycles Organizational Structure 178
Case 3.4 Exhibit 2 GE Corporate Structure 197
Case 3.4 Exhibit 3 GE’s Operating System 198
Case 3.4 Exhibit 4 Evolution Locomotive Product Specifications 201
viii List of Figures

Case 3.4 Exhibit 6 CECOR Tool Kit 204

Case 3.4 Exhibit 7 GE Transportation Organizational Chart 207
Case 3.4 Exhibit 8 Comte’s Marketing Organization 209
Figure 4.1 Stopford and Wells’ international structural stages model 216
Figure 4.2 Organizational configuration models 220
Figure 4.3 Integrated network model 226
Figure 4.4 Integration and differentiation needs at Unilever 227
Figure 4.5 Model I: the traditional change process 231
Figure 4.6 Model II: the emerging change process 232
Case 4.1 Exhibit 2 KCP International Division Organizational Chart, 2000 238
Case 4.1 Exhibit 3 Kent Chemical Products Organizational Chart, 2006 240
Case 4.1 Exhibit 4 Decision Matrix for Resource-Allocation Decisions on the
European Fire Protection Business 244
Case 4.3 Exhibit 5 Organization of METC, 1985 270
Figure 5.1 Mobilizing knowledge 305
Case 5.1 Exhibit 2 P&G European Organization, 1986 308
Case 5.1 Exhibit 3 P&G’s Worldwide Organizational Structure, 1990 309
Case 5.1 Exhibit 5 P&G Organization, 1999 (Post O2005 Implementation) 314
Case 5.1 Exhibit 6 Beauty Counselor Work Flow 315
Case 5.1 Exhibit 7 In-Store SK-II Counter Space 316
Case 5.1 Exhibit 8 Representation of Global Cleansing Cloth Development
Program 318
Case 5.1 Exhibit 9 Illustration of Part of SK-II Product Line 319
Case 5.2 Exhibit 1 ART Organization with Filtration Unit Detail 326
Case 5.3 Exhibit 2 Cisco India R&D Evolution 337
Case 5.3 Exhibit 3 Indian Telecom Industry 338
Case 5.3 Exhibit 4 Telecom Network Structure 340
Case 5.3 Exhibit 5 Cisco’s R&D Project Approval Process 342
Figure 6.1 Range of strategic alliances 347
Figure 6.2 Partner selection: comfort vs. competence 357
Case 6.1 Exhibit 1 How 4G LTE (And Mobile Broadband) Works:
A Simplified Network Representation 366
Case 7.1 Exhibit 1 Levendary Organizational Chart 427
Case 7.2 Exhibit 2 Lifebuoy’s Indian Relaunch, February 2002 440
Case 7.2 Exhibit 3 Unilever Sustainable Living Program (USLP): Original
Targets 2010 444
Case 7.2 Exhibit 4 Unilever Corporate Organization Structure 445
Case 7.2 Exhibit 5 Lifebuoy Core Claim: Protection against Germs 446
Case 7.2 Exhibit 6 Unilever Behavior-Change Model 449
Case 7.3 Exhibit 2 Schindler Organization Chart, Elevator and Escalator
Division 457
Case 7.3 Exhibit 4 Schindler India Organization Chart 461
Case 7.3 Exhibit 5 Indian Elevator Market, Structure, and Product
Segmentation 462
Case 7.3 Exhibit 6 Market Research on Indian Elevator Market, 1996 463
List of Figures ix

Case 7.4 Exhibit 1 The Ridley Report 470

Case 8.2 Exhibit 2 Barrick Spending on Corporate Social Responsibility
in Tanzania 517
Case 8.3 Exhibit 2 Unilever’s Compass Vision and USLP Goals 523
Case 8.3 Exhibit 3 Unilever’s Virtuous Cycle Business Model 525
Case 8.3 Exhibit 4 Unilever Corporate Organization Chart 527
Case 8.3 Exhibit 5 Persil/ Omo “Dirt Is Good” Campaign 530
Case 8.3 Exhibit 6 Unilever’s Transformational Change Priorities 533
Case 8.3 Exhibit 7 Unilever’s Stock Price vs. DJIA and P&G, 2009–2014 535
Case 8.3 Exhibit 8 Unilever’s USLP Achievements, 2014 536
LIST OF TABLES

Table 1.1 Selected indicators of FDI and international

production, 2010–2015 page 14
Table 1.2 Internationalization statistics of the 100 largest non-financial
MNEs worldwide and from developing and transition economies 15
Table 1.3 Comparison of top MNEs and selected countries: 2016 16
Case 1.1 Exhibit 1 NHL Share of Hockey Stick Brands and their
Manufacturing Sites 32
Case 1.1 Exhibit 2 Types of Global Sourcing 34
Case 1.1 Exhibit 4 Hourly Compensation Costs in Manufacturing (US$) 36
Case 1.2 Exhibit 1 Income Statements 41
Case 1.2 Exhibit 2 Balance Sheets 44
Case 1.2 Exhibit 3 Data on McTaggart Supplies Ltd 45
Case 1.3 Exhibit 4 Mabe’s Balance Sheet 2006–2008 (000s USD) 52
Case 1.3 Exhibit 5 Mabe’s Income Statement 2006–2008 (000s USD) 53
Case 1.3 Exhibit 6 Global Appliance Players, 2011 53
Case 1.3 Exhibit 7 Appliances Market Size in China, India, and Russia 2005
to 2010 54
Case 1.3 Exhibit 8 Marginal Contribution Per Appliance in China, India, and
Russia 2008 (per cent) 54
Case 1.3 Exhibit 11 Mabe’s Entry Strategy and Positioning, 2008 and 2012 61
Table 2.1 Changes in national investment policies, selected years 2003–2015 73
Case 2.1 Exhibit 1a Retail Price Structure of a Typical EU Wine in Select
Export Markets (€ per bottle), 2014 87
Case 2.1 Exhibit 1b Bottle Wine Segments by Retail Price (European
Commission’s Categories), 2014 87
Case 2.1 Exhibit 4 Wine Production and Consumption: Selected Old World
and New World Countries, 2014 91
Case 2.1 Exhibit 6 Penfolds Red Wine U.S. Brand Structure, 2009 93
Case 2.1 Exhibit 7a Top-10 Global Wine Companies by Volume, 2003
and 2014 94
Case 2.1 Exhibit 7b Top-10 Global Wine Brands, 2009 and 2014 94
Case 2.2 Exhibit 1 MTN Subscribers, June 2015 106
Case 2.2 Exhibit 2 MTN’s Top Risks and Mitigation Strategies, 2014 108
Case 2.2 Exhibit 3 MTN’s Strategy 109
Case 2.2 Exhibit 5 Nigerian Telecommunications Usage, 2015 112
Case 2.2 Exhibit 6 Telecommunications Industry in Nigeria in
November 2016 113
List of Tables xi

Case 2.2 Exhibit 7 Nigeria Worldwide Governance Indicators 114

Case 2.2 Exhibit 8 Nigeria’s Economic Trends 115
Case 2.3 Exhibit 1 IMAX Worldwide: Screens, Box Office, Demographics,
and Urbanization 120
Case 2.3 Exhibit 2 IMAX Corporation Balance Sheets, 2010–2013
(in Thousands of $) 122
Case 2.3 Exhibit 3 IMAX Corporation Income Statements, 2010–2013
(in Thousands of $) 123
Case 2.3 Exhibit 5 Exhibitor-Branded Premium Large Format Screens, by
Region 126
Case 2.3 Exhibit 9 Risks in the BRIC Economies 132
Case 2.4 Exhibit 1 South Africa – Business Environment Rankings 136
Case 2.4 Exhibit 2 South Africa: Total Vehicle Sales, Production, Exports
and Imports, 2006–2010 138
Case 2.4 Exhibit 3 Mahindra & Mahindra South Africa – Leader Brands’
Production 138
Case 2.4 Exhibit 4 South Africa – Customer Segmentation, December 2010 140
Case 2.4 Exhibit 6 Mahindra & Mahindra – Consolidated Income
Statement 143
Case 2.4 Exhibit 7 Mahindra & Mahindra – Indian Domestic Market Shares
by Volume 144
Case 2.4 Exhibit 8 Mahindra & Mahindra South Africa – Income
Statement 146
Case 2.4 Exhibit 9 Mahindra & Mahindra South Africa – Sales Volume 147
Table 3.1 Scope economies in product and market diversification 158
Table 3.2 Worldwide advantage: goals and means 159
Table 3.3 Strategic orientation and configuration of assets and capabilities
in international, multinational, global, and transnational
companies 163
Case 3.1 Exhibit 1 United Cereal Selected Financial Results (USD in 000s) 170
Case 3.1 Exhibit 2 United Cereal SG&A by Market (USD in 000s) 171
Case 3.1 Exhibit 3 Test Market and Consumer Panel Results 172
Case 3.2 Exhibit 2 Yushan Bicycles Selected Financial Data, 2015 (NT$) 179
Case 3.2 Exhibit 3 Yushan Bicycles Australia Subsidiary Selected Financial
Data, 2015 (NT$) 180
Case 3.4 Exhibit 1 GE Financial Performance, 1995–2006 ($ millions) 195
Case 3.4 Exhibit 5 IB Review Preparation: Sample Questions 203
Table 4.1 Organizational characteristics of decentralized federation,
coordinated federation, and centralized hub organizations 222
Case 4.1 Exhibit 1 Kent Chemical: Summary of Financial Data,
2003–2007 ($ millions) 237
Case 4.2 Exhibit 1 Top Pharmaceutical Markets, 2005 246
Case 4.2 Exhibit 2 Leading Anti-Depressants and Alzheimer’s Disease
Medications in the Global CNS Market, 2005 248
Case 4.2 Exhibit 3 Lundbeck Financial Highlights, 2005 250
xii List of Tables

Case 4.3 Exhibit 1 Philips Group Summary Financial Data, 1970–2008

(Reported in millions of Dutch Guilders (F) to 1996;
Euros (€) after 1997 262
Case 4.3 Exhibit 2 Philips Group, Sales by Product and Geographic
Segment, 1985–2003 (Reported in millions of Dutch
Guilders (F) to 1996; Euros (€) after 1997 263
Case 4.3 Exhibit 3 Philips Research Labs by Location and Specialty, 1987 265
Case 4.3 Exhibit 4 Matsushita Creed and Philosophy (Excerpts) 268
Case 4.3 Exhibit 6 Matsushita, Summary Financial Data, 1970–2000a 274
Case 4.3 Exhibit 7 Matsushita, Sales by Product and Geographic Segment,
1985–2000 (billion yen) 275
Case 4.4 Exhibit 1 Beiersdorf Subsidiaries 278
Case 4.4 Exhibit 2 Major Innovations under the Nivea Brand Umbrella 282
Case 4.4 Exhibit 3 Beiersdorf Balance Sheet 2008–2011 285
Case 4.4 Exhibit 4 Beiersdorf Income Statement and Additional Financials
2008–2011 286
Case 4.4 Exhibit 5 Biggest Global Competitors (Overview) 287
Case 4.4 Exhibit 6 Global Market Segmentation, 2010 288
Case 4.4 Exhibit 7 Competitors (Overview of Selected Market Shares) 289
Case 5.1 Exhibit 1 P&G’s Internationalization Timetable 307
Case 5.1 Exhibit 4 P&G Select Financial Performance Data, 1980–1999 312
Case 5.1 Exhibit 10 Global Prestige Market: Size and Geographic Split 320
Case 5.1 Exhibit 11 Global Skin Care Market Size: 1999 Skin Care
(Main market and prestige) 320
Case 5.1 Exhibit 12 Skin Care and Cosmetics Habits and Practices: Selected
Countries 321
Case 5.1 Exhibit 13 Global SK-II Cost Structure (% of net sales) 322
Case 5.2 Exhibit 2 Wagner’s List of Potential Markets 328
Case 5.2 Exhibit 3 ART Mini Water Oxidation System—Development
Committee Team Structure 330
Case 5.2 Exhibit 4 Market Research: Summary Data 331
Case 5.2 Exhibit 5 Summary Sales and Profit Forecast for RIMOS 332
Case 5.2 Exhibit 6 Summary Risk Analysis and Risk Mitigation for RIMOS 333
Case 5.3 Exhibit 1 Cisco Revenue Breakdown by Product and Geography 335
Table 6.1 Scope of activity 360
Case 6.1 Exhibit 2 Mobile Networks: Evolution and Comparison 366
Case 6.1 Exhibit 3 Malaysia: Background Information 368
Case 6.1 Exhibit 4 Finland: Background Information 369
Case 6.2 Exhibit 1 World Pharmaceutical Suppliers 1992 and 2001
(US$ millions) 377
Case 6.2 Exhibit 2 India’s Economy at a Glance 380
Case 6.2 Exhibit 3 Top 20 Pharmaceutical Companies in India by Sales
(Rs billions) 381
Case 6.2 Exhibit 4 Values at Eli Lilly-Ranbaxy Limited 385
Case 6.2 Exhibit 5 Eli Lilly-Ranbaxy India Financials 1998 to 2001 (Rs’000s) 387
List of Tables xiii

Case 6.2 Exhibit 6 Lilly Financials 1992 to 2000 (US$ millions) 388
Case 6.2 Exhibit 7 Product Segment Information
Lilly and Ranbaxy 1996 and 2000 389
Case 6.2 Exhibit 8 Ranbaxy Financials 1992 to 2000 (Rs millions) 390
Case 6.3 Exhibit 1 E-Commerce Sales as a Percentage of Total Retail Sales 393
Case 6.3 Exhibit 2 Comparison of Large E-Commerce Retailers 395
Case 6.3 Exhibit 3 Comparison of Large Offline Retailers 396
Case 6.3 Exhibit 4 Amazon.com Financials 398
Case 6.3 Exhibit 5 Future Enterprises Financials 402
Case 7.1 Exhibit 2 Levendary Income Statement 2010 (dollars in 000s) 429
Case 7.1 Exhibit 3 Comparison of Two Levendary U.S. and Two Levendary
China Locations 434
Case 7.1 Exhibit 4 Levendary China Income Statement (2010) 435
Case 7.2 Exhibit 1 Unilever Financial Performance, 1990–2012 ($ millions) 437
Case 7.2 Exhibit 7 Lifebuoy India P&L: 2006 to 2012 (€ thousands) 450
Case 7.2 Exhibit 8 Lifebuoy Behavior-Change Program Options:
2013 Projected Costing (values in Rs.) 451
Case 7.3 Exhibit 1 Schindler Top Management Profiles 455
Case 7.3 Exhibit 3 Schindler India: Key Managers’ Profiles 459
Table 8.1 MNE–stakeholder relationships in emerging markets: a typology 481
Table 8.2 The Global Compact’s ten principles 493
Case 8.1 Exhibit 1 IKEA Stores, Fiscal Year Ending August 1994 499
Case 8.1 Exhibit 2 IKEA History: Selected Events 500
Case 8.1 Exhibit 3 “A Furniture Dealer’s Testament”—A Summarized
Overview 502
Case 8.1 Exhibit 4 IKEA in Figures, 1993–1994 (fiscal year ending
August 31, 1994) 503
Case 8.1 Exhibit 5 The U.N. Convention on the Rights of the Child:
Article 32 506
Case 8.2 Exhibit 1 Three Types of Engagement Behaviors 513
Case 8.2 Exhibit 3 Total Amount of Money Spent on Community
Development Projects, 2006 (in US$) 519
Case 8.3 Exhibit 1 Unilever Financial Performance, 1995–2014 ($ millions) 521
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PREFACE

This book grew out of the authors’ strongly held belief that the best research in the
academic fields of international business and cross-border management did more
than capture the activities, challenges, and best practices from the field. It also
translated those findings into practical and relevant lessons for managers and
students of management. That philosophy and commitment has shaped the content
of Transnational Management over the 25 years since it was first published, and
remains at the core of this eighth edition.
Indeed, it was our commitment to deliver current, relevant, and practical research
in an engaging format to the students who will be tomorrow’s business leaders that
led us to make an important change with this new edition. As we became increas-
ingly concerned that many textbooks – including this one – were being priced
beyond the means of many of those we were trying to reach, we decided to work
with a publisher whose commitments more closely aligned with ours. So this eighth
edition of Transnational Management begins our exciting new relationship with
Cambridge University Press, a publisher that shares our values.
In the quarter-century since the first edition of Transnational Management was
published, much has changed in the field of multinational enterprise management.
In the rapidly evolving global environment, new external demands have required
innovative new strategic responses, flexible new organizational capabilities, and
adaptive new management capabilities. But many seasoned observers who have
operated in the global business environment for decades will insist that despite these
differences, the core agenda remains remarkably constant. They make a convincing
case that beyond ongoing and inevitable adjustments and refinements, the tensions
that characterize cross-border management remain much as they have always been:
understanding the world’s inexorable evolution toward an integrated strategic
whole, yet being sensitive to the constantly evolving impediments and constraints
to that ideal; recognizing global and regional opportunities while also being aware
of cross-cultural differences and responsive to host country demands; developing
the ability to be fast, flexible, and adaptive while also overcoming the barriers to
such seamless implementation due to the reality of the distance, language, time, and
culture that separate worldwide operations.
We are reminded of this debate with each revision of this volume, as faculty
colleagues weigh in on both sides. They remind us that, in many ways, both views
are correct. On the one hand, we receive passionate input from those anxious for
brand new material that reflects the vibrancy of the field and keeps up with the
latest developments. But we also hear from colleagues who recognize the
xvi Preface

importance of the ongoing cross-border management tensions, often best captured

in classic cases that teach timeless international management issues.
Based on input that we constantly receive from the users of this text as well as
from the valuable expert reviews to which each new edition is subjected, we have
sought to maintain this balance. As you will see in the following pages, while we
have maintained the intellectual integrity of the core concepts, we have also
undertaken a major updating of each of the chapters to ensure they reflect the
current global context. As a new feature, we have added an extended list of
recommended practitioner-oriented readings at the end of each chapter. Where
possible, we have used the authors’ wording of their article abstracts. We have also
provided expanded annotated footnotes of relevant theory. And we have retained
our practice of changing about half the case material in this edition, aiming to
capture the emerging issues to keep courses fresh, while retaining popular classic
cases that have maintained their relevance and have a proven history of stimulating
strong classroom engagement and learning.
We trust you will find that the new content, new format, and new publisher
support we have assembled for the eighth edition offer a relevant, insightful, and
stimulating framework through which to explore the rich territory of transnational
management.
ACKNOWLEDGMENTS

Transnational Management has greatly benefited from comments, suggestions, and

insights generously offered by colleagues at the hundreds of institutions around the
world that have adopted this book. In particular, we would like to acknowledge the
key role played by the Cambridge University Press panel of reviewers whose insights
and suggestions for the chapter content of the eighth edition proved extremely
helpful. They are listed on page xix as our Editorial Advisory Board.
We are also extraordinarily grateful to the colleagues who have contributed to
this edition. Co-authors who have collaborated on our own case studies for this
edition include faculty colleagues Professors Harold Crookell, Brian J. Hall, Isaiah A.
Litvak, Aloysius Newenham-Kahindi, Albert Wöcke, and Michael Y. Yoshino, as
well as Research Associates and doctoral students R. Azimah Ainuddin, Heather
Beckham, Nicole Bennett, Carole Carlson, Nikhil Celly, Dwarka Chakravarty, Vin-
cent Dessain, Charles Dhanaraj, Perry L. Fagan, Vanessa Hasse, Arar Han, Sarah
McAra, Paul S. Myers, Michael Roberts, Anders Sjoman, Laura Winig, and Megan
(Min) Zhang. We are also delighted to include additional new case studies authored
by Luis Arciniega, Ivy Buche, Ramasastry Chandrasekhar, Meeta Dasgupta, Charles
Dhanaraj, Tashmia Ismail, Srivardhini K. Jha, Rishikesha Krishnan, José Luis Rivas,
Jean-Louis Schaan, and Margaret Sutherland.
Assembling a textbook always involves coordinating many components, but this
is particularly true at a time of transition from one publisher to another. We could
not have managed this without the great help provided by the skilled support staff
who worked with us over many months to coordinate the flow of emails, phone
calls, manuscripts, and other documents between the United States, Canada, and
Australia. At Ivey, this includes PhD candidates Dwarka Chakravarty, Yamlaksira
Getachew, Max Stallkamp, and Jenny Zhu. However, we would like to offer special
thanks to Research Associate Mila Bojic for helping us through the long and arduous
revision process.
This eighth edition also represents an important publishing landmark that merits
recognition. As mentioned in the preface, we are delighted to be working with
Cambridge University Press as our new publisher. To Valerie Appleby, our Commis-
sioning Editor, and Caitlin Lisle, our Development Editor, we offer our grateful
thanks not only for your helpful input and continual support, but also for your
patience and tolerance through a long and challenging transition process. We look
forward to continuing our productive working relationship for many years to come.
Finally, we would like to acknowledge the lasting contribution of our good friend
and colleague, the late Sumantra Ghoshal, who passed away in 2004. Sumantra was
a founding co-author of this book and left an enduring imprint on the field of
xviii Acknowledgments

international management and beyond. His wisdom and insights still glow brightly
in this volume. But more than his sharp intelligence, we miss his warm, convivial,
and energetic company.
Despite the best efforts of all the contributors, responsibility for any remaining
shortcomings of the book rests with us. Our only hope is that they are outweighed
by the value that you find in these pages and the exciting challenges that they
represent in the constantly changing field of transnational management.
EDITORIAL ADVISORY BOARD

Ernst Verwaal, KU Leuven, Belgium

Neal Hartman, MIT, United States
Ian Towers, SRH Hochschule Berlin, Germany
Derek Condon, Birmingham Business School, University of Birmingham, UK
John Powell, University of Exeter Business School, UK
Our thanks also to those reviewers who wish to remain anonymous.
Introduction
So What Is Transnational Management?

Few managers operating in today’s international business environment would

dispute that this is an extremely exciting time to be engaged in almost any aspect
of cross-border management. Fast-changing global developments have created big
challenges that appear unusually complex, but at the same time they have opened
up new opportunities that seem almost limitless.
Around the world, managers are asking questions like the following: How
does the unraveling of the long anticipated Trans-Pacific Partnership (TPP) trade
agreement affect our business? What can we do to manage the political disruption
and economic dislocation following Brexit? How can we take advantage of the
continued rise in Asian markets? How should we deal with the threat of new
competitors emerging from developing countries? Can we exploit the impending
boom in big data to track and exploit new global trends? How might we harness
fast-growing social networks to leverage our cross-border management connections
and organizational processes?
Before we launch into these and the other such rich and engaging discussions,
perhaps we should step back for a moment to review the broad territory we will be
exploring on our voyage of discovery. A good place to start might be with the title
of this book. What exactly does Transnational Management mean?

Transnational: What Does That Imply?

The first word on the cover of this book may not be familiar to some. While the
terms “multinational,” “international,” and “global” are in widespread general use,
it may not be entirely clear to you why we chose to use the less familiar description
“transnational” in the title of this book.
Good question. And we promise to respond to it by the end of Chapter 1. By the
end of that opening chapter it should be clear to you that we use those four terms
quite specifically. Furthermore, you will find that our distinction between
“multinational,” “international,” “global,” and “transnational” will become a strong
theme that runs through this book in our discussion of strategy, organization, and
management.
But more of that later. For the purpose of this introduction, let’s just recognize
that the “transnational” qualifier indicates that our focus will be on the manage-
ment challenges that face companies whose operations extend across national
boundaries. Indeed, the concepts we will be presenting in the text are grounded
in extensive research published in a book titled Managing Across Borders: The
2 Introduction

Transnational Solution. The challenging cross-border management issues identified

in that five-year long, multicompany, worldwide research project supplemented
with a large body of subsequent research frames our agenda.
So what is different about cross-border management? In what ways do the
challenges facing a manager of a multinational enterprise (MNE) differ from those
facing his or her counterpart in a purely domestic organization? There are many
such differences, but let’s begin by identifying half a dozen of the most important
that will be reflected in the issues we explore throughout this book.

• The most obvious contrast derives from the fact that, by definition, MNEs have
operations in multiple nation-states, a difference that has huge strategic, organ-
izational, and management implications. Although domestic companies must
take account of local and state governments, what distinguishes intercountry
differences from the intracountry ones is the powerful force of national sover-
eignty. Unlike the local or regional bodies, the nation-state generally represents
the ultimate rule-making authority against whom no appeal is feasible. Conse-
quently, the MNE faces an additional and unique element of risk: the political risk
of operating in countries with different legislative requirements, legal systems,
and political philosophies regarding a host of issues including private property,
free enterprise, human rights, and corporate responsibility – that a domestic
company can simply take for granted.
• Cross-border management must also deal with a greater range of social and
cultural differences. Again, domestic companies experience some regional
cultural differences, but in cross-border operations the stakes are much higher.
An MNE will quickly flounder unless management is not only embedded in the
community and able to speak the local language, but also is both sensitive and
responsive to local cultural norms, practices, preferences, and values.
• By having operations in foreign countries, an MNE is exposed to a wide range of
economic systems and conditions that they must understand and to which they
must adapt. The differences may be built into political systems ranging from
unfettered free enterprise to highly regulated socialist economies; they may
be reflected in various stages of economic development from advanced OECD
countries to extremely poor less developed countries; and they may be facilitated
or constrained by differences in national infrastructure ranging from subtle
differences in technical standards to the quality of basic communications
services. Each variation in the underlying standards or support systems demands
significant modifications to an MNE’s strategy and operations.
• Another major way in which cross-border management diverges from domestic
management relates to differences in competitive strategy. The purely domestic
company can respond to competitive challenges within the context of its single
market; the MNE can, and often must, play a much more complex competitive
game. Global-scale efficiencies or cross-border sourcing may be necessary to
achieve a competitive position, implying the need for complex international
logistical coordination. Furthermore, on the global chessboard, effective competi-
tive strategy might require that a competitive challenge in one country might call
Management: Why This Focus? 3

for a response in a different country – perhaps the competitor’s home market.

These are options and complexities a purely domestic company does not face.
• In terms of metrics, a purely domestic company can measure its performance in a
single comparable unit – the local currency. But because currency values fluctu-
ate against each other, the MNE is required to measure results with a flexible and
sometimes distorted measuring stick. In addition, its results are exposed to the
economic risks associated with shifts in both nominal and real exchange rates.
• Finally, the purely domestic company manages its activities through organiza-
tional structures and management systems that reflect its product and functional
variety; the MNE organization is intrinsically more complex because it must
provide for management control over its product, functional, and geographic
diversity. And the resolution of this three-way tension must be accomplished in
an organization whose managers are divided by barriers of distance and time, and
impeded by differences in language and culture.

Management: Why This Focus?

The Transnational in the title is simply a qualifier for Management and, in the final
analysis, that is what this book is really about. In many ways, it is a focus that
distinguishes this volume from many others in the field. For that reason, let’s take a
moment to understand why.
The serious study of cross-border management is a relatively recent phenomenon.
For many decades, international business research focused mainly on global envir-
onmental forces, international systems and structures, and powerful institutions like
home- and host-country governments, all of which framed the context within
which the MNE had to operate. In these studies, countries and industries rather
than companies were the primary units of analysis, and most international policy
attention (as well as academic research) focused on macro analysis of key indicators
such as trade flows and foreign direct investment patterns.
During the 1960s and 1970s, this interest in global economic forces and inter-
national institutions began to be matched by an equal focus on the MNE as the
primary driver of the rapidly expanding international economy. A decade later, as
the task of running such companies became more complex, attention again
expanded to encompass an understanding of the roles, responsibilities, and rela-
tionships of those running the MNEs.
And so there opened a field of management that had been largely neglected by
both practitioners and researchers up to that point. Indeed, until the 1970s, many
companies had staffed their international operations with aging or less competent
managers, instructing them to simply take the most successful domestic products,
strategies, and practices, and transfer them abroad. But in the closing decades of the
twentieth century, as new offshore markets opened up, global competition intensi-
fied, and worldwide operations became more complex, it was clear that such an
approach was doomed to failure. Only the most capable managers would be able to
run the modern MNE.
Other documents randomly have
different content
 29. Ground mustard is a powder made from mustard seed, with or
without the removal of the hulls and a portion of the fixed oils, and
contains not more than two and five-tenths (2.5) percent of starch
and not more than eight (8) percent of total ash.
30. Prepared mustard, German mustard, French mustard, mustard
paste, is a paste composed of a mixture of ground mustard seed or
mustard flour with salt, spices, and vinegar, and, calculated free
from water, fat, and salt, contains not more than twenty-four (24)
percent of carbohydrates, calculated as starch, determined according
to the official methods, not more than twelve (12) percent of crude
fiber nor less than thirty-five (35) percent of protein, derived solely
from the materials named.
31. Nutmeg is the dried seed of the Myristica fragrans Houttuyn,
deprived of its testa, with or without a thin coating of lime, and
contains not less than twenty-five (25) percent of non-volatile ether
extract, not more than five (5) percent of total ash, not more than
five-tenths (0.5) percent of ash insoluble in hydrochloric acid, and
not more than ten (10) percent of crude fiber.
32. Macassar nutmeg, Papua nutmeg, male nutmeg, long nutmeg,
is the dried seed of Myristica argentea Warb. deprived of its testa.

PEPPER.

33. Black pepper is the dried immature berry of Piper nigrum L.

and contains not less than six (6) percent of non-volatile ether
extract, not less than twenty-five (25) percent of starch, not more
than seven (7) percent of total ash, not more than two (2) percent
of ash insoluble in hydrochloric acid, and not more than fifteen (15)
percent of crude fiber. One hundred parts of the non-volatile ether
extract contain not less than three and one quarter (3.25) parts of
nitrogen. Ground black pepper is the product made by grinding the
entire berry and contains the several parts of the berry in their
normal proportions.
34. Long pepper is the dried fruit of Piper longum L.
35. White pepper is the dried mature berry of Piper nigrum L.
from which the outer coating or the outer and inner coatings have
been removed and contains not less than six (6) percent of non-
volatile ether extract, not less than fifty (50) percent of starch, not
more than four (4) percent of total ash, not more than five-tenths
(0.5) percent of ash insoluble in hydrochloric acid, and not more
than five (5) percent of crude fiber. One hundred parts of the non-
volatile ether extract contain not less than four (4) parts of nitrogen.
36. Saffron is the dried stigma of Crocus sativus L.
37. Sage is the leaf of Salvia officinalis L.
38. Savory, summer savory, is the leaf, blossom, and branch of
Satureja hortensis L.
39. Thyme is the leaf and tip of blooming branches of Thymus
vulgaris L.

b. FLAVORING EXTRACTS.

1. A flavoring extract[42] is a solution in ethyl alcohol of proper

strength of the sapid and odorous principles derived from an
aromatic plant, or parts of the plant, with or without its coloring
matter, and conforms in name to the plant used in its preparation.
2. Almond extract is the flavoring extract prepared from oil of
bitter almonds, free from hydrocyanic acid, and contains not less
than one (1) percent by volume of oil of bitter almonds.
2.[42] Oil of bitter almonds, commercial, is the volatile oil obtained
from the seed of the bitter almond (Amygdalus communis L.), the
apricot (Prunus armeniaca L.), or the peach (Amygdalus persica L.).
3. Anise extract is the flavoring extract prepared from oil of anise,
and contains not less than three (3) percent by volume of oil of
anise.
3.[42] Oil of anise is the volatile oil obtained from the anise seed.
4. Celery seed extract is the flavoring extract prepared from celery
seed or the oil of celery seed, or both, and contains not less than
three-tenths (0.3) percent by volume of oil of celery seed.
4.[42] Oil of celery seed is the volatile oil obtained from celery
seed.
5. Cassia extract is the flavoring extract prepared from oil of cassia
and contains not less than two (2) percent by volume of oil of
cassia.
5.[42] Oil of cassia is the lead-free volatile oil obtained from the
leaves or bark of Cinnamomum cassia Bl., and contains not less than
seventy-five (75) percent by weight of cinnamic aldehyde.
6. Cinnamon extract is the flavoring extract prepared from oil of
cinnamon, and contains not less than two (2) percent by volume of
oil of cinnamon.
6.[42] Oil of cinnamon is the lead-free volatile oil obtained from the
bark of the Ceylon cinnamon (Cinnamomum zeylanicum Breyne),
and contains not less than sixty-five (65) percent by weight of
cinnamic aldehyde and not more than ten (10) percent by weight of
eugenol.
7. Clove extract is the flavoring extract prepared from oil of cloves,
and contains not less than two (2) percent by volume of oil of
cloves.
7.[42] Oil of cloves is the lead-free, volatile oil obtained from
cloves.
[42] The flavoring extracts herein described are intended solely for food
purposes and are not to be confounded with similar preparations described in
the Pharmacopœia for medicinal purposes.

8. Ginger extract is the flavoring extract prepared from ginger and

contains in each one hundred (100) cubic centimeters, the alcohol-
soluble matters from not less than twenty (20) grams of ginger.
9. Lemon extract is the flavoring extract prepared from oil of
lemon, or from lemon peel, or both, and contains not less than five
(5) percent by volume of oil of lemon.
9a. Oil of lemon is the volatile oil obtained, by expression or
alcoholic solution, from the fresh peel of the lemon (Citrus limonum
L.), has an optical rotation (25° C.) of not less than +60° in a 100-
millimeter tube, and contains not less than four (4) percent by
weight of citral.
10. Terpeneless extract of lemon is the flavoring extract prepared
by shaking oil of lemon with dilute alcohol, or by dissolving
terpeneless oil of lemon in dilute alcohol, and contains not less than
two-tenths (0.2) percent by weight of citral derived from oil of
lemon.
10a. Terpeneless oil of lemon is oil of lemon from which all or
nearly all of the terpenes have been removed.
11. Nutmeg extract is the flavoring extract prepared from oil of
nutmeg, and contains not less than two (2) percent by volume of oil
of nutmeg.
11a. Oil of nutmeg is the volatile oil obtained from nutmegs.
12. Orange extract is the flavoring extract prepared from oil of
orange, or from orange peel, or both, and contains not less than five
(5) percent by volume of oil of orange.
12a. Oil of orange is the volatile oil obtained, by expression or
alcoholic solution, from the fresh peel of the orange (Citrus
aurantium L.) and has an optical rotation (25° C.) of not less than
+95° in a 100-millimeter tube.
13. Terpeneless extract of orange is the flavoring extract prepared
by shaking oil of orange with dilute alcohol, or by dissolving
terpeneless oil of orange in dilute alcohol, and corresponds in
flavoring strength to orange extract.
13a. Terpeneless oil of orange is oil of orange from which all or
nearly all of the terpenes have been removed.
14. Peppermint extract is the flavoring extract prepared from oil of
peppermint, or from peppermint, or both, and contains not less than
three (3) percent by volume of oil of peppermint.
14a. Peppermint is the leaves and flowering tops of Mentha
piperita L.
14b. Oil of peppermint is the volatile oil obtained from peppermint
and contains not less than fifty (50) percent by weight of menthol.
15. Rose extract is the flavoring extract prepared from otto of
roses, with or without red rose petals, and contains not less than
four-tenths (0.4) percent by volume of otto of roses.
15a. Otto of roses is the volatile oil obtained from the petals of
Rosa damascena Mill., R. centifolia L., or R. moschata Herrm.
16. Savory extract is the flavoring extract prepared from oil of
savory, or from savory, or both, and contains not less than thirty-five
hundredths (0.35) percent by volume of oil of savory.
 16a. Oil of savory is the volatile oil obtained from savory.
17. Spearmint extract is the flavoring extract prepared from oil of
spearmint, or from spearmint, or both, and contains not less than
three (3) percent by volume of oil of spearmint.
17a. Spearmint is the leaves and flowering tops of Mentha spicata
L.
17b. Oil of spearmint is the volatile oil obtained from spearmint.
18. Star anise extract is the flavoring extract prepared from oil of
star anise, and contains not less than three (3) percent by volume of
oil of star anise.
18a. Oil of star anise is the volatile oil distilled from the fruit of the
star anise (Illicium verum Hook).
19. Sweet basil extract is the flavoring extract prepared from oil of
sweet basil, or from sweet basil, or both, and contains not less than
one-tenth (0.1) percent by volume of oil of sweet basil.
19a. Sweet basil, basil, is the leaves and tops of Ocymum
basilicum L.
19b. Oil of sweet basil is the volatile oil obtained from basil.
20. Sweet marjoram extract, marjoram extract, is the flavoring
extract prepared from the oil of marjoram, or from marjoram, or
both, and contains not less than one (1) percent by volume of oil of
marjoram.
20a. Oil of marjoram is the volatile oil obtained from marjoram.
21. Thyme extract is the flavoring extract prepared from oil of
thyme, or from thyme, or both, and contains not less than two-
tenths (0.2) percent by volume of oil of thyme.
21a. Oil of thyme is the volatile oil obtained from thyme.
22. Tonka extract is the flavoring extract prepared from tonka
bean, with or without sugar or glycerine, and contains not less than
one-tenth (0.1) percent by weight of coumarin extracted from the
tonka bean, together with a corresponding proportion of the other
soluble matters thereof.
22a. Tonka bean is the seed of Coumarouna odorata Aublet
(Dipteryx odorata (Aubl.) Willd.).
23. Vanilla extract is the flavoring extract prepared from vanilla
bean, with or without sugar or glycerine, and contains in one
hundred (100) cubic centimeters the soluble matters from not less
than ten (10) grams of the vanilla bean.
23a. Vanilla bean is the dried, cured fruit of Vanilla planifolia
Andrews.
24. Wintergreen extract is the flavoring extract prepared from oil
of wintergreen, and contains not less than three (3) percent by
volume of oil of wintergreen.
24a. Oil of wintergreen is the volatile oil distilled from the leaves
of the Gaultheria procumbens L.

c. EDIBLE VEGETABLE OILS AND FATS.

1. Olive oil is the oil obtained from the sound, mature fruit of the
cultivated olive tree (Olea europæa L.) and subjected to the usual
refining processes; is free from rancidity; has a refractive index (25°
C.) not less than one and forty-six hundred and sixty ten-
thousandths (1.4660) and not exceeding one and forty-six hundred
and eighty ten-thousandths (1.4680); and an iodin number not less
than seventy-nine (79) and not exceeding ninety (90).
2. Virgin olive oil is olive oil obtained from the first pressing of
carefully selected, hand-picked olives.
3. Cottonseed oil is the oil obtained from the seeds of cotton
plants (Gossypium hirsutum L., G. barbadense L., or G. herbaceum
L.) and subjected to the usual refining processes; is free from
rancidity: has a refractive index (25° C.) not less than one and forty-
seven hundred ten-thousandths (1.4700) and not exceeding one and
forty-seven hundred and twenty-five ten-thousandths (1.4725); and
an iodin number not less than one hundred and four (104) and not
exceeding one hundred and ten (110).
4. “Winter-yellow” cottonseed oil is expressed cottonseed oil from
which a portion of the stearin has been separated by chilling and
pressure, and has an iodin number not less than one hundred and
ten (110) and not exceeding one hundred and sixteen (116).
5. Peanut oil, arachis oil, earthnut oil, is the oil obtained from the
peanut (Arachis hypogæa L.) and subjected to the usual refining
processes; is free from rancidity; has a refractive index (25° C.) not
less than one and forty-six hundred and ninety ten-thousandths
(1.4690) and not exceeding one and forty-seven hundred and seven
ten-thousandths (1.4707); and an iodin number not less than eighty-
seven (87) and not exceeding one hundred (100).
6. “Cold-drawn” peanut oil[43] is peanut oil obtained by pressure
without heating.
7. Sesame oil, gingili oil, teel oil, is the oil obtained from the seeds
of the sesame plants (Sesamum orientale L. and S. radiatum Schum.
and Thonn.) and subjected to the usual refining processes; is free
from rancidity; has a refractive index (25° C.) not less than one and
forty-seven hundred and four ten-thousandths (1.4707) and not
exceeding one and forty-seven hundred and seventeen ten-
thousandths (1.4717); and an iodin number not less than one
hundred and three (103) and not exceeding one hundred and twelve
(112).
8. “Cold-drawn” sesame oil[43] is sesame oil obtained by pressure
without heating.
9. Poppy-seed oil is the oil obtained from the seed of the poppy
(Papaver somniferum L.) subjected to the usual refining processes
and free from rancidity.
10. White poppy-seed oil, “cold-drawn” poppy-seed oil,[43] is
poppy-seed oil of the first pressing without heating.
11. Coconut oil[43] is the oil obtained from the kernels of the
coconut (Cocos nucifera L.) and subjected to the usual refining
processes and free from rancidity.
12. Cochin oil is coconut oil prepared in Cochin (Malabar).
13. Ceylon oil is coconut oil prepared in Ceylon.
14. Copra oil is coconut oil prepared from copra, the dried kernels
of the coconut.
15. Rape-seed oil, colza oil,[43] is the oil obtained from the seeds
of the rape plant (Brassica napus L.) and subjected to the usual
refining processes and free from rancidity.
16. “Cold-drawn” rape-seed oil[43] is rape-seed oil obtained by the
first pressing without heating.
17. Sunflower oil[43] is the oil obtained from the seeds of the
sunflower (Helianthus annuus L.) and subjected to the usual refining
processes and free from rancidity.
18. “Cold-drawn” sunflower oil[43] is sunflower oil obtained by the
first pressing without heating.
19. Maize oil, corn oil,[43] is the oil obtained from the germ of the
maize (Zea mays L.) and subjected to the usual refining processes
and free from rancidity.
[43] The fixing of limits for chemical and physical properties is reserved for
future consideration.

20. Cocoa butter, cacao butter, is the fat obtained from roasted,
sound cocoa beans, and subjected to the usual refining processes; is
free from rancidity; has a refractive index (40° C.) not less than one
and forty-five hundred and sixty-six ten-thousandths (1.4566) and
not exceeding one and forty-five hundred and ninety-eight ten-
thousandths (1.4598); an iodin number not less than thirty-three
(33) and not exceeding thirty-eight (38); and a melting-point not
lower than 30° C. nor higher than 35° C.
21. Cottonseed oil stearin is the solid product made by chilling
cottonseed oil and separating the solid portion by filtration, with or
without pressure, and having an iodin number not less than eighty-
five (85) and not more than one hundred (100).

E. Tea, Coffee, and Cocoa Products.

a. TEA.

1. Tea is the leaves and leaf buds of different species of Thea,

prepared by the usual trade processes of fermenting, drying, and
firing; meets the provisions of the act of Congress approved March
2, 1897, and the regulations made in conformity therewith (Treasury
Department Circular 16, February 6, 1905); conforms in variety and
place of production to the name it bears; and contains not less than
four (4) nor more than seven (7) percent of ash.

b. COFFEE.
 1. Coffee is the seed of Coffea arabica L. or Coffea liberica Bull.,
freed from all but a small portion of its spermoderm, and conforms
in variety and place of production to the name it bears.
2. Roasted coffee is coffee which by the action of heat has
become brown and developed its characteristic aroma, and contains
not less than ten (10) percent of fat and not less than three (3)
percent of ash.

c. COCOA AND COCOA PRODUCTS.

1. Cocoa beans are the seeds of the cacao tree, Theobroma cacao
L.
2. Cocoa nibs, cracked cocoa, is the roasted, broken cocoa bean
freed from its shell or husk.
3. Chocolate, plain chocolate, bitter chocolate, chocolate liquor,
bitter chocolate coatings, is the solid or plastic mass obtained by
grinding cocoa nibs without the removal of fat or other constituents
except the germ, and contains not more than three (3) percent of
ash insoluble in water, three and fifty hundredths (3.50) percent of
crude fiber, and nine (9) percent of starch, and not less than forty-
five (45) percent of cocoa fat.
4. Sweet chocolate, sweet chocolate coatings, is chocolate mixed
with sugar (sucrose), with or without the addition of cocoa butter,
spices, or other flavoring materials, and contains in the sugar- and
fat-free residue no higher percentage of either ash, fiber, or starch
than is found in the sugar- and fat-free residue of chocolate.
5. Cocoa, powdered cocoa, is cocoa nibs, with or without the
germ, deprived of a portion of its fat and finely pulverized, and
contains percentages of ash, crude fiber, and starch corresponding
to those in chocolate after correction for fat removed.
6. Sweet cocoa, sweetened cocoa, is cocoa mixed with sugar
(sucrose), and contains not more than sixty (60) percent of sugar
(sucrose), and in the sugar- and fat-free residue no higher
percentage of either ash, crude fiber, or starch than is found in the
sugar- and fat-free residue of chocolate.
 F. Beverages.
a. FRUIT JUICES—FRESH, SWEET, AND FERMENTED.

1. FRESH AND 2. SWEET.

(Schedules in preparation.)

3. FERMENTED FRUIT JUICES.

1. Wine is the product made by the normal alcoholic fermentation

of the juice of sound, ripe grapes, and the usual cellar treatment,[44]
and contains not less than seven (7) nor more than sixteen (16)
percent of alcohol, by volume, and, in one hundred (100) cubic
centimeters (20° C.), not more than one-tenth (0.1) gram of sodium
chlorid nor more than two-tenths (0.2) gram of potassium sulfate;
and for red wine not more than fourteen hundredths (0.14) gram,
and for white wine not more than twelve hundredths (0.12) gram of
volatile acids produced by fermentation and calculated as acetic
acid. Red wine is wine containing the red coloring matter of the skins
of grapes. White wine is wine made from white grapes or the
expressed fresh juice of other grapes.
[44] The subject of sulfurous acid in wine is reserved for consideration in
connection with the schedule, “Preservatives and Coloring Matters.”

2. Dry wine is wine in which the fermentation of the sugars is

practically complete and which contains, in one hundred (100) cubic
centimeters (20° C.), less than one (1) gram of sugars and for dry
red wine not less than sixteen hundredths (0.16) gram of grape ash
and not less than one and six-tenths (1.6) grams of sugar-free grape
solids, and for dry white wine not less than thirteen hundredths
(0.13) gram of grape ash and not less than one and four-tenths
(1.4) grams of sugar-free grape solids.
3. Fortified dry wine is dry wine to which brandy has been added,
but which conforms in all other particulars to the standard of dry
wine.
 4. Sweet wine is wine in which the alcoholic fermentation has
been arrested, and which contains, in one hundred (100) cubic
centimeters (20° C.), not less than one (1) gram of sugars, and for
sweet red wine not less than sixteen hundredths (0.16) gram of
grape ash, and for sweet white wine not less than thirteen
hundredths (0.13) gram of grape ash.
5. Fortified sweet wine is sweet wine to which wine spirits have
been added. By act of Congress, “sweet wine” used for making
fortified sweet wine and “wine spirits” used for such fortification are
defined as follows (sec. 43, Act of October 1, 1890, 26 Stat., 567, as
amended by section 68, Act of August 27, 1894, 28 Stat., 509, and
further amended by Act of Congress approved June 7, 1906): “That
the wine spirits mentioned in section 42 of this act is the product
resulting from the distillation of fermented grape juice to which
water may have been added prior to, during, or after fermentation,
for the sole purpose of facilitating the fermentation and economical
distillation thereof, and shall be held to include the products from
grapes or their residues, commonly known as grape brandy; and the
pure sweet wine, which may be fortified free of tax, as provided in
said section, is fermented grape juice only, and shall contain no
other substance whatever introduced before, at the time of, or after
fermentation, except as herein expressly provided; and such sweet
wine shall contain not less than four per centum of saccharine
matter, which saccharine strength may be determined by testing
with Balling’s saccharometer or must scale, such sweet wine, after
the evaporation of the spirits contained therein, and restoring the
sample tested to original volume by addition of water: Provided,
That the addition of pure boiled or condensed grape must or pure
crystallized cane or beet sugar or pure anhydrous sugar to the pure
grape juice aforesaid, or the fermented product of such grape juice
prior to the fortification provided by this Act for the sole purpose of
perfecting sweet wine according to commercial standard, or the
addition of water in such quantities only as may be necessary in the
mechanical operation of grape conveyers, crushers, and pipes
leading to fermenting tanks, shall not be excluded by the definition
of pure sweet wine aforesaid: Provided, however, That the cane or
beet sugar, or pure anhydrous sugar, or water, so used shall not in
either case be in excess of ten (10) per centum of the weight of the
wine to be fortified under this Act: And provided further, That the
addition of water herein authorized shall be under such regulations
and limitations as the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, may from time to time
prescribe; but in no case shall such wines to which water has been
added be eligible for fortification under the provisions of this Act
where the same, after fermentation and before fortification, have an
alcoholic strength of less than five per centum of their volume.”
6. Sparkling wine is wine in which the after part of the
fermentation is completed in the bottle, the sediment being
disgorged and its place supplied by wine or sugar liquor, and which
contains, in one hundred (100) cubic centimeters (20° C.), not less
than twelve hundredths (0.12) gram of grape ash.
7. Modified wine, ameliorated wine, corrected wine, is the product
made by the alcoholic fermentation, with the usual cellar treatment,
of a mixture of the juice of sound, ripe grapes with sugar (sucrose),
or a sirup containing not less than sixty-five (65) percent of sugar
(sucrose), and in quantity not more than enough to raise the
alcoholic strength after fermentation, to eleven (11) percent by
volume.
8. Raisin wine is the product made by the alcoholic fermentation
of an infusion of dried or evaporated grapes, or of a mixture of such
infusion or of raisins with grape juice.

b. MEAD, ROOT BEER, ETC.

(Schedule in preparation.)

c. MALT LIQUORS.

(Schedule in preparation.)

d. SPIRITUOUS LIQUORS.
 (Schedule in preparation.)

e. CARBONATED WATERS, ETC.

(Schedule in preparation.)

G. Vinegar.
1. Vinegar, cider vinegar, apple vinegar, is the product made by
the alcoholic and subsequent acetous fermentations of the juice of
apples, is lævo-rotatory, and contains not less than four (4) grams of
acetic acid, not less than one and six-tenths (1.6) grams of apple
solids, of which not more than fifty (50) percent are reducing sugars,
and not less than twenty-five hundredths (0.25) gram of apple ash
in one hundred (100) cubic centimeters (20° C.); and the water-
soluble ash from one hundred (100) cubic centimeters (20° C.) of
the vinegar contains not less than ten (10) milligrams of phosphoric
acid (P2O5), and requires not less than thirty (30) cubic centimeters
of decinormal acid to neutralize its alkalinity.
2. Wine vinegar, grape vinegar, is the product made by the
alcoholic and subsequent acetous fermentations of the juice of
grapes and contains, in one hundred (100) cubic centimeters (20°
C.), not less than four (4) grams of acetic acid, not less than one
(1.0) gram of grape solids, and not less than thirteen hundredths
(0.13) gram of grape ash.
3. Malt vinegar is the product made by the alcoholic and
subsequent acetous fermentations, without distillation, of an infusion
of barley malt or cereals whose starch has been converted by malt,
is dextro-rotatory, and contains, in one hundred (100) cubic
centimeters (20° C.), not less than four (4) grams of acetic acid, not
less than two (2) grams of solids, and not less than two-tenths (0.2)
gram of ash; and the water-soluble ash from one hundred (100)
cubic centimeters (20° C.) of the vinegar contains not less than nine
(9) milligrams of phosphoric acid (P2O5), and requires not less than
four (4) cubic centimeters of decinormal acid to neutralize its
alkalinity.
4. Sugar vinegar is the product made by the alcoholic and
subsequent acetous fermentations of solutions of sugar, sirup,
molasses, or refiners’ sirup, and contains, in one hundred (100)
cubic centimeters (20° C.), not less than four (4) grams of acetic
acid.
5. Glucose vinegar is the product made by the alcoholic and
subsequent acetous fermentations of solutions of starch sugar or
glucose, is dextro-rotatory, and contains, in one hundred (100) cubic
centimeters (20° C.), not less than four (4) grams of acetic acid.
6. Spirit vinegar, distilled vinegar, grain vinegar, is the product
made by the acetous fermentation of dilute distilled alcohol, and
contains, in one hundred (100) cubic centimeters (20° C.), not less
than four (4) grams of acetic acid.

III. SALT.
1. Table salt, dairy salt, is fine-grained crystalline salt containing
on a water-free basis, not more than one and four-tenths (1.4)
percent of calcium sulfate (CaSO4), nor more than five-tenths (0.5)
percent of calcium and magnesium chlorids (CaCl2 and MgCl2), nor
more than one-tenth (0.1) percent of matters insoluble in water.

IV. PRESERVATIVES AND COLORING MATTERS.

(Schedules in preparation.)

LAW RELATING TO FILLED CHEESE.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That for the
purposes of this Act, the word “cheese” shall be understood to mean
the food product known as cheese, and which is made from milk or
cream and without the addition of butter, or any animal, vegetable,
or other oils or fats foreign to such milk or cream, with or without
additional coloring matter.
Sec. 2. That for the purpose of this Act certain substances and
compounds shall be known and designed as “filled cheese,” namely:
All substances made of milk or skimmed milk, with the admixture of
butter, animal oils or fats, vegetable or any other oils, or compounds
foreign to such milk, and made in imitation or semblance of cheese.
Sec. 3. That special taxes are imposed as follows:
Manufacturers of filled cheese shall pay four hundred dollars for
each and every factory per annum. Every person, firm, or
corporation who manufactures filled cheese for sale shall be deemed
a manufacturer of filled cheese. Wholesale dealers in filled cheese
shall pay two hundred and fifty dollars per annum. Every person,
firm, or corporation who sells or offers for sale filled cheese in the
original manufacturer’s package for resale, or to retail dealers as
hereinafter defined, shall be deemed a wholesale dealer in filled
cheese. But any manufacturer of filled cheese who has given the
required bond and paid the required special tax, and who sells only
filled cheese of his own production, at the place of manufacture, in
the original packages, to which the tax-paid stamps are affixed, shall
not be required to pay the special tax of a wholesale dealer in filled
cheese on account of such sales.
Retail dealers in filled cheese shall pay twelve dollars per annum.
Every person who sells filled cheese at retail, not for resale, and for
actual consumption, shall be regarded as a retail dealer in filled
cheese, and sections thirty-two hundred and thirty-two, thirty-two
hundred and thirty-three, thirty-two hundred and thirty-four, thirty-
two hundred and thirty-five, thirty-two hundred and thirty-six, thirty-
two hundred and thirty-seven, thirty-two hundred and thirty-eight,
thirty-two hundred and thirty-nine, thirty-two hundred and forty,
thirty-two hundred and forty-one, thirty-two hundred and forty-three
of the Revised Statutes of the United States[45] are, so far as
applicable, made to extend to and include and apply to the special
taxes imposed by this section and to the persons, firms, or
corporations upon whom they are imposed: Provided, That all
special taxes under this Act shall become due on the first day of July
in every year, or on commencing any manufacture, trade, or
business on which said tax is imposed. In the latter case the tax
shall be reckoned proportionately from the first day of the month in
which the liability to the special tax commences to the first day of
July following.
[45] These sections regulate the administration and collection of special taxes
in general. (See Revised Statutes of the United States, 2d ed., 1878, p. 620.)

Sec. 4. That every person, firm or corporation who carries on the

business of a manufacturer of filled cheese without having paid the
special tax therefor, as required by law, shall, besides being liable to
the payment of the tax, be fined not less than four hundred dollars
and not more than three thousand dollars; and every person, firm,
or corporation who carries on the business of a wholesale dealer in
filled cheese without having paid the special tax therefor, as required
by law, shall, besides being liable to the payment of the tax, be fined
not less than two hundred and fifty dollars nor more than one
thousand dollars; and every person, firm, or corporation who carries
on the business of a retail dealer in filled cheese without having paid
the special tax therefor, as required by law, shall, besides being
liable for the payment of the tax, be fined not less than forty nor
more than five hundred dollars for each and every offense.
Sec. 5. That every manufacturer of filled cheese shall file with the
collector of internal revenue of the district in which his manufactory
is located such notices, inventories, and bonds, shall keep such
books and render such returns of materials and products, shall put
up such signs and affix such number to his factory and conduct his
business under such surveillance of officers and agents as the
Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, may by regulation require. But the bond
required of such manufacturer shall be with sureties satisfactory to
the collector of internal revenue, and in a penal sum of not less than
five thousand dollars; and the amount of said bond may be
increased from time to time, and additional sureties required, at the
discretion of the collector or under instructions of the Commissioner
of Internal Revenue. Any manufacturer of filled cheese who fails to
comply with the provisions of this section or with the regulations
herein authorized, shall be deemed guilty of a misdemeanor and
upon conviction thereof shall be fined not less than five hundred nor
more than one thousand dollars.
Sec. 6. That filled cheese shall be packed by the manufacturers in
wooden packages only, not before used for that purpose, and
marked, stamped, and branded with the words, “filled cheese” in
black-faced letters not less than two inches in length, in a circle in
the center of the top and bottom of the cheese; and in black-faced
letters of not less than two inches in length in line from the top to
the bottom of the cheese, on the side in four places equidistant from
each other; and the package containing such cheese shall be
marked in the same manner, and in the same number of places, and
in the same description of letters as above provided for the marking
of the cheese; and all sales or consignments made by manufacturers
of filled cheese to wholesale dealers in filled cheese or to exporters
of filled cheese shall be in original stamped packages. Retail dealers
in filled cheese shall sell only from original stamped packages, and
shall pack the filled cheese when sold in suitable wooden or paper
packages, which shall be marked and branded in accordance with
rules and regulations to be prescribed by the Commissioner of
Internal Revenue with the approval of the Secretary of the Treasury.
Every person who knowingly sells or offers to sell, or delivers or
offers to deliver, filled cheese in any other form than in new wooden
or paper packages, marked and branded as hereinbefore provided
and as above described, or who packs in any package or packages
filled cheese in any manner contrary to law, or who falsely brands
any package or affixes a stamp on any package denoting a less
amount of tax than that required by law, shall upon conviction
thereof be fined for each and every offense not less than fifty dollars
and not more than five hundred dollars or be imprisoned not less
than thirty days nor more than one year.
 Sec. 7. That all retail and wholesale dealers in filled cheese shall
display in a conspicuous place in his or their sales room a sign
bearing the words “Filled cheese sold here” in black-faced letters not
less than six inches in length, upon a white ground, with the name
and number of the revenue district in which his or their business is
conducted; and any wholesale or retail dealer in filled cheese who
fails or neglects to comply with the provisions of this section shall be
deemed guilty of a misdemeanor, and shall on conviction thereof be
fined for each and every offense not less than fifty dollars and not
more than two hundred dollars.
Sec. 8. That every manufacturer of filled cheese shall securely
affix, by pasting on each package containing filled cheese
manufactured by him, a label on which shall be printed, besides the
number of the manufactory and the district and state in which it is
situated, these words: “Notice.—The manufacturer of the filled
cheese herein contained has complied with all the requirements of
the law. Every person is cautioned not to use either this package
again or the stamp thereon again, nor to remove the contents of this
package without destroying said stamp, under the penalty provided
by law in such cases.” Every manufacturer of filled cheese who
neglects to affix such label to any package containing filled cheese
made by him or sold or offered for sale by or for him, and every
person who removes any such label so affixed from any such
package, shall be fined fifty dollars for each package in respect to
which such offense is committed.
Sec. 9. That upon all filled cheese which shall be manufactured
there shall be assessed and collected a tax of one cent per pound, to
be paid by the manufacturer thereof; and any fractional part of a
pound in a package shall be taxed as a pound. The tax levied by this
section shall be represented by coupon stamps; and the provisions
of existing laws governing the engraving, issue, sale, accountability,
effacement, and destruction of stamps relating to tobacco and snuff,
as far as applicable, are hereby made to apply to stamps provided
for by this section.
Sec. 10. That whenever any manufacturer of filled cheese sells or
removes for sale or consumption any filled cheese upon which the
tax is required to be paid by stamps, without paying such tax, it shall
be the duty of the Commissioner of Internal Revenue, within a
period of not more than two years after such sale or removal, upon
satisfactory proof, to estimate the amount of tax which has been
omitted to be paid and to make an assessment thereof and certify
the same to the collector. The tax so assessed shall be in addition to
the penalties imposed by law for such sale or removal.
Sec. 11. That all filled cheese as herein defined imported from
foreign countries shall, in addition to any import duty imposed on
the same, pay an internal-revenue tax of eight cents per pound,
such tax to be represented by coupon stamps; and such imported
filled cheese and the package containing the same shall be stamped,
marked, and branded, as in the case of filled cheese manufactured
in the United States.
Sec. 12. That any person who knowingly purchases or receives for
sale any filled cheese which has not been branded or stamped
according to law, or which is contained in packages not branded or
marked according to law, shall be liable to a penalty of fifty dollars
for each such offense.
Sec. 13. That every person who knowingly purchases or receives
for sale any filled cheese from any manufacturer or importer who
has not paid the special tax herein provided for shall be liable, for
each offense, to a penalty of one hundred dollars and to a forfeiture
of all articles so purchased or received, or of the full value thereof.
Sec. 14. That whenever any stamped package containing filled
cheese is emptied it shall be the duty of the person in whose hands
the same is to destroy the stamps thereon; and any person who
willfully neglects or refuses so to do shall, for each such offense, be
fined not exceeding fifty dollars or imprisoned not less than ten days
nor more than six months.
Sec. 15. That the Commissioner of Internal Revenue is authorized
to have applied scientific tests, and to decide whether any
substances used in the manufacture of filled cheese contain
ingredients deleterious to health. But in case of doubt or contest his
decision in this class of cases may be appealed from to a board
hereby constituted for the purpose, and composed of the Surgeon-
General of the Army, the Surgeon-General of the Navy, and the
Secretary of Agriculture, and the decision of this board shall be final
in the premises.
Sec. 16. That all packages of filled cheese subject to tax under this
Act that shall be found without stamps or marks as herein provided,
and all filled cheese intended for human consumption which contains
ingredients adjudged as hereinbefore provided to be deleterious to
the public health, shall be forfeited to the United States.
Sec. 17. That all fines, penalties, and forfeitures imposed by this
Act may be recovered in any court of competent jurisdiction.
Sec. 18. That the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, shall make all needful
regulations for the carrying into effect the provisions of this Act.
Sec. 19. That this Act shall go into effect on the ninetieth day after
its passage, and all wooden packages containing ten or more pounds
of filled cheese found on the premises of any dealer on and after the
ninetieth day succeeding the date of the passage of this Act, shall be
deemed to be taxable under section nine of this Act, and shall be
taxed, and shall have affixed thereto the stamps, marks, and brands
required by this Act or by regulations made pursuant to this Act; and
for the purpose of securing the affixing of the stamps, marks, and
brands required by this Act, the filled cheese shall be regarded as
having been manufactured and sold or removed from the
manufactory for consumption or use on or after the day this Act
takes effect; and such stock on hand at the time of the taking effect
of this Act may be stamped, marked, and branded under special
regulations of the Commissioner of Internal Revenue, approved by
the Secretary of the Treasury; and the Commissioner of Internal
Revenue may authorize the holder of such packages to mark and
brand the same and to affix thereto the proper tax-paid stamps.—
Approved June 6, 1896.
 APPENDIX B.

UNITED STATES DEPARTMENT OF AGRICULTURE,

OFFICE OF THE SECRETARY—Circular No. 21.

LETTER OF TRANSMITTAL.
Washington, D. C., October 16, 1906.
The Secretaries of theTreasury, of Agriculture, and of Commerce and
Labor.
Sirs: The Commission appointed to represent your several
Departments in the formulation of uniform rules and regulations for
the enforcement of the food and drugs act, approved June 30, 1906,
has reached a unanimous agreement and respectfully submits the
results of its deliberations and recommends their adoption.
Very respectfully,
H. W. Wiley,
James L. Gerry,
S. N. D. North.

RULES AND REGULATIONS FOR THE ENFORCEMENT

OF THE FOOD AND DRUGS ACT.

GENERAL.
 Regulation 1. Short Title of the Act.
The act, “For preventing the manufacture, sale, or transportation
of adulterated or misbranded or poisonous or deleterious foods,
drugs, medicines, and liquors, and for regulating traffic therein, and
for other purposes,” approved June 30, 1906, shall be known and
referred to as “The Food and Drugs Act, June 30, 1906.”

Regulation 2. Original Unbroken Package.

(Section 2.)

The term “original unbroken package” as used in this act is the

original package, carton, case, can, box, barrel, bottle, phial, or
other receptacle put up by the manufacturer, to which the label is
attached, or which may be suitable for the attachment of a label,
making one complete package of the food or drug article. The
original package contemplated includes both the wholesale and the
retail package.

Regulation 3. Collection of Samples.

(Section 4.)

Samples of unbroken packages shall be collected only by

authorized agents of the Department of Agriculture; or by the
health, food, or drug officer of any State, Territory, or the District of
Columbia, when commissioned by the Secretary of Agriculture for
this purpose.
Samples may be purchased in the open market, and if in bulk the
marks, brands, or tags upon the package, carton, container, wrapper,
or accompanying printed or written matter shall be noted. The
collector shall also note the names of the vendor and agent through
whom the sale was actually made, together with the date of
purchase. The collector shall purchase representative samples.
 A sample shall be divided into three parts, and each part shall be
labeled with the identifying marks. All samples shall be sealed by the
collector with a seal provided for the purpose. If the package be less
than 4 pounds, or in volume less than 2 quarts, three packages of
approximately the same size shall be purchased and the marks and
tags upon each noted as above. One sample shall be delivered to
the party from whom purchased or to the party guaranteeing such
merchandise. One sample shall be sent to the Bureau of Chemistry,
or to such chemist or examiner as may be designated by the
Secretary of Agriculture, and the third sample shall be held under
seal by the Secretary of Agriculture.

Regulation 4. Methods of Analysis.

(Section 4.)

Unless otherwise directed by the Secretary of Agriculture, the

methods of analysis employed shall be those prescribed by the
Association of Official Agricultural Chemists and the United States
Pharmacopœia.

Regulation 5. Hearings.
(Section 4.)

(a) When the examination or analysis shows that the provisions of

the food and drugs act, June 30, 1906, have been violated, notice of
that fact, together with a copy of the findings, shall be furnished to
the party or parties from whom the sample was obtained or who
executed the guaranty as provided in the food and drugs act, June
30, 1906, and a date shall be fixed at which such party or parties
may be heard before the Secretary of Agriculture, or such other
official connected with the food and drug inspection service as may
be commissioned by him for that purpose. The hearings shall be had
at a place, to be designated by the Secretary of Agriculture, most
convenient for all parties concerned. These hearings shall be private
and confined to questions of fact. The parties interested therein may
appear in person or by attorney and may propound proper
interrogatories and submit oral or written evidence to show any fault
or error in the findings of the analyst or examiner. The Secretary of
Agriculture may order a re-examination of the sample or have new
samples drawn for further examination.
(b) If the examination or analysis be found correct the Secretary
of Agriculture shall give notice to the United States District Attorney
as prescribed.
(c) Any health, food, or drug officer or agent of any State,
Territory, or the District of Columbia who shall obtain satisfactory
evidence of any violation of the food and drugs act, June 30, 1906,
as provided in section 5 thereof, shall first submit the same to the
Secretary of Agriculture, in order that the latter may cause notice to
be given to the guarantor or to the party from whom the sample was
obtained.

Regulation 6. Publication.
(Section 4.)

(a) When a judgment of the court shall have been rendered there
may be a publication of the findings of the examiner or analyst,
together with the findings of the court.
(b) This publication may be made in the form of circulars, notices,
or bulletins, as the Secretary of Agriculture may direct, not less than
thirty days after judgment.
(c) If an appeal be taken from the judgment of the court before
such publication, notice of the appeal shall accompany the
publication.

Regulation 7. Standards for Drugs.

 (Section 7.)

(a) A drug bearing a name recognized in the United States

Pharmacopœia or National Formulary, without any further statement
respecting its character, shall be required to conform in strength,
quality, and purity to the standards prescribed or indicated for a drug
of the same name recognized in the United States Pharmacopœia or
National Formulary, official at the time.
(b) A drug bearing a name recognized in the United States
Pharmacopœia or National Formulary, and branded to show a
different standard of strength, quality, or purity, shall not be
regarded as adulterated if it conforms to its declared standard.

Regulation 8. Formulas—Proprietary Foods.

(Section 8, last paragraph.)

(a) Manufacturers of proprietary foods are only required to state

upon the label the names and percentages of the materials used, in
so far as the Secretary of Agriculture may find this to be necessary
to secure freedom from adulteration and misbranding.
(b) The factories in which proprietary foods are made shall be
open at all reasonable times to the inspection provided for in
Regulation 16.

Regulation 9. Form of Guaranty.

(Section 9.)

(a) No dealer in food or drug products will be liable to prosecution

if he can establish that the goods were sold under a guaranty by the
wholesaler, manufacturer, jobber, dealer, or other party residing in
the United States from whom purchased.
(b) A general guaranty be filed with the Secretary of Agriculture
by the manufacturer or dealer and be given a serial number, which
number shall appear on each and every package of goods sold
under such guaranty with the words, “Guaranteed under the food
and drugs act, June 30, 1906.”
(c) The following form of guaranty is suggested:

I (we) the undersigned do hereby guarantee that the articles of

foods or drugs manufactured, packed, distributed, or sold by me
(us) [specifying the same as fully as possible] are not adulterated or
misbranded within the meaning of the food and drugs act, June 30,
1906.
(Signed in ink.)
.
[Name and place of business of wholesaler, dealer, manufacturer,
jobber, or other parties.]

(d) If the guaranty be not filed with the Secretary of Agriculture as

above, it should identify and be attached to the bill of sale, invoice,
bill of lading, or other schedule giving the names and quantities of
the articles sold.

ADULTERATION.

Regulation 10. Confectionery.

(Section 7.)

(a) Mineral substances of all kinds (except as provided in

Regulation 15) are specifically forbidden in confectionery whether
they be poisonous or not.
(b) Only harmless colors or flavors shall be added to confectionery.
(c) The term “narcotic drugs” includes all the drugs mentioned in
section 8, food and drugs act, June 30, 1906, relating to foods, their
derivatives and preparations, and all other drugs of a narcotic
nature.
 Regulation 11. Substances Mixed and Packed with Foods.
(Section 7, under “Foods.”)

No substance may be mixed or packed with a food product which

will reduce or lower its quality or strength. Not excluded under this
provision are substances properly used in the preparation of food
products for clarification or refining, and eliminated in the further
process of manufacture.

Regulation 12. Coloring, Powdering, Coating, and

Staining.
(Section 7, under “Foods.”)

(a) Only harmless colors may be used in food products.

(b) The reduction of a substance to a powder to conceal inferiority
in character is prohibited.
(c) The term “powdered” means the application of any powdered
substance to the exterior portion of articles of food, or the reduction
of a substance to a powder.
(d) The term “coated” means the application of any substance to
the exterior portion of a food product.
(e) The term “stain” includes any change produced by the addition
of any substance to the exterior portion of foods which in any way
alters their natural tint.

Regulation 13. Natural Poisonous or Deleterious

Ingredients.
(Section 7, paragraph 5, under “Foods.”)

Any food product which contains naturally a poisonous or

deleterious ingredient does not come within the provisions of the
food and drugs act, June 30, 1906, except when the presence of
such ingredient is due to filth, putrescence, or decomposition.

Regulation 14. External Application of Preservatives.

(Section 7, paragraph 5, under “Foods,” proviso.)

(a) Poisonous or deleterious preservatives shall only be applied

externally, and they and the food products shall be of a character
which shall not permit the permeation of any of the preservative to
the interior, or any portion of the interior, of the product.
(b) When these products are ready for consumption, if any portion
of the added preservative shall have penetrated the food product,
then the proviso of section 7, paragraph 5, under “Foods,” shall not
obtain, and such food products shall then be subject to the
regulations for food products in general.
(c) The preservative applied must be of such a character that,
until removed, the food products are inedible.

Regulation 15. Wholesomeness of Colors and

Preservatives.
(Section 7, paragraph 5, under “Foods.”)

(a) Respecting the wholesomeness of colors, preservatives, and

other substances which are added to foods, the Secretary of
Agriculture shall determine from chemical or other examination,
under the authority of the agricultural appropriation act, Public 382,
approved June 30, 1906, the names of those substances which are
permitted or inhibited in food products; and such findings, when
approved by the Secretary of the Treasury and the Secretary of
Commerce and Labor, shall become a part of these regulations.
(b) The Secretary of Agriculture shall determine from time to time,
in accordance with the authority conferred by the agricultural
appropriation act, Public 382, approved June 30, 1906, the principles
which shall guide the use of colors, preservatives, and other
substances added to foods; and when concurred in by the Secretary
of the Treasury and the Secretary of Commerce and Labor, the
principles so established shall become a part of these regulations.

Regulation 16. Character of the Raw Materials.

(Section 7, paragraph 1, under “Drugs”; paragraph 6, under “Foods.”)

(a) The Secretary of Agriculture, when he deems it necessary,

shall examine the raw materials used in the manufacture of food and
drug products, and determine whether any filthy, decomposed, or
putrid substance is used in their preparation.
(b) The Secretary of Agriculture shall make such inspection as
often as he may deem necessary.

MISBRANDING.

Regulation 17. Label.

(Section 8.)

(a) The term “label” applies to any printed, pictorial, or other

matter upon or attached to any package of a food or drug product,
or any container thereof.
(b) The principal label shall consist, first, of all words which the
food and drugs act, June 30, 1906, specifically requires, to wit, the
name of the substance or product; the name of place of
manufacture in the case of food compounds or mixtures; words
which show that the articles are compounds, mixtures, or blends;
the words “compound,” “mixture,” or “blend”; or words designating
the substances or their derivatives and proportions required to be
named in the case of drugs and foods. All these required words shall
appear upon the principal label with no intervening descriptive or
explanatory reading matter. Second, if the name of the manufacturer
and place of manufacture are given, they shall also appear upon the
principal label. Third, elsewhere upon the principal label other matter
may appear in the discretion of the manufacturer.
(c) The principal label on foods or drugs for domestic commerce
shall be printed in English (except as provided in Regulation 19),
with or without the foreign label in the language of the country
where the food or drug product is produced or manufactured. The
size of type shall not be smaller than 8-point (brevier) caps:
Provided, That in case the size of the package will not permit the
use of 8-point cap type the size of the type may be reduced
proportionately.
(d) The form, character, and appearance of the labels, except as
provided above, are left to the judgment of the manufacturer.
(e) Descriptive matter upon the label shall be free from any
statement, design, or device regarding the article or the ingredients
or substances contained therein, or quality thereof, or place of
origin, which is false or misleading in any particular.
(f) An article containing more than one food product or active
medicinal agent is misbranded if named after a single constituent.
In the case of drugs the nomenclature employed by the United
States Pharmacopœia and the National Formulary shall obtain.
(g) The term “design” or “devise” applies to pictorial matter of
every description, and to abbreviations, characters, or signs for
weights, measures, or names of substances.
(h) The use of any false or misleading statement, design, or
devise shall not be justified by any statement given as the opinion of
an expert or other person, appearing on any part of the label, nor by
any descriptive matter explaining the use of the false or misleading
statement, design, or devise.
(i) The regulation regarding the principal label will not be enforced
until October 1, 1907, in the case of labels printed and now on hand,
whenever any statement therein contained which is contrary to the
food and drugs act, June 30, 1906, as to character of contents, shall
be corrected by a supplemental label, stamp, or paster. All other
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