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 GLOBAL GLOBAL
EDITION EDITION

EDITION
GLOBAL
This Global Edition has been edited to include enhancements making it

International Business
more relevant to students outside the United States. The editorial team
at Pearson has worked closely with educators around the globe
to include:

– Updated! The influence of the global credit crisis on global trends

in international business is integrated throughout the text.
– New! The new edition fully embraces the crucial role that
sustainability plays in business.
– New! Global cases ask students to analyze the responses of
real-world companies to the issues, problems, and opportunities
discussed in each chapter.

of Globalization
The Challenges
In the seventh edition of International Business, Wild and Wild continue
to present international business in a comprehensive yet concise
framework with unrivaled clarity. Real-world examples and engaging
features bring the key theories of international business to life, making

International Business
the subject accessible for all students.

SEVENTH
EDITION
The Challenges of Globalization
Wild • Wild
SEVENTH EDITION
This is a special edition of an established title widely
used by colleges and universities throughout the world.
Pearson published this exclusive edition for the benefit
of students outside the United States and Canada. If you John J. Wild • Kenneth L. Wild
purchased this book within the United States or Canada
you should be aware that it has been imported without
the approval of the Publisher or Author.

Pearson International Edition

 International Business
The Challenges of Globalization

S eventh E dition
G lobal E dition

John J. Wild
University of Wisconsin, Madison

Kenneth L. Wild
University of London, England

Boston Columbus Indianapolis New York San Francisco Upper Saddle River
Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto
Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

A01_WILD6979_07_SE_FM.indd 1 1/16/13 2:44 PM

 Editor in Chief: Stephanie Wall Senior Manufacturing Controller, Production, International:
Senior Acquisitions Editor: Kris Ellis-Levy Trudy Kimber
Senior Acquisitions Editor, International: Steven Jackson Creative Art Director: Blair Brown
Programme Editor, International: Leandra Paoli Art Director: Steve Frim
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Director of Marketing: Maggie Moylan Cover Illustration/Photo: © Girish Menon/Shutterstock.com
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and Associated Companies throughout the world

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© Pearson Education Limited 2014

The rights of John J. Wild and Kenneth L. Wild to be identified as authors of this work have
been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Authorised adaptation from the United States edition, entitled International Business: The
Challenges of Globalization, 7th edition, ISBN: 978-0-13-306300-4 by John J. Wild and
Kenneth L. Wild, published by Pearson Education © 2014.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval
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Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS.

All trademarks used herein are the property of their respective owners. The use of any
trademark in this text does not vest in the author or publisher any trademark ownership
rights in such trademarks, nor does the use of such trademarks imply any affiliation with
or endorsement of this book by such owners.

Credits and acknowledgments borrowed from other sources and reproduced, with
permission, in this textbook appear on appropriate page within text.

ISBN 10: 0-273-78697-0

ISBN 13: 978-0-273-78697-9

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

10 9 8 7 6 5 4 3 2 1
17 16 15 14 13

Typeset in Times 9.5/11.5 pt by PreMedia Global USA, Inc.

Printed and bound by Courier/Kendalville in the United States of America

The publisher’s policy is to use paper manufactured from sustainable forests.

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 Brief Contents

Preface 15

Part 1 Global Business Environment 26

Chapter 1 Globalization 26

Part 2 National Business Environments 64

Chapter 2 Cross-Cultural Business 64
Chapter 3 Politics, Law, and Business Ethics 96
Chapter 4 Economics and Emerging Markets 128

Part 3 International Trade and Investment 154

Chapter 5 International Trade 154
Chapter 6 Business–Government Trade Relations 178
Chapter 7 Foreign Direct Investment 200
Chapter 8 Regional Economic Integration 222

Part 4 The International Financial System 248

Chapter 9 International Financial Markets 248
Chapter 10 International Monetary System 274

Part 5 International Business Management 300

Chapter 11 International Strategy and Organization 300
Chapter 12 Analyzing International Opportunities 322
Chapter 13 Selecting and Managing Entry Modes 348
Chapter 14 Developing and Marketing Products 376
Chapter 15 Managing International Operations 398
Chapter 16 Hiring and Managing Employees 418

Endnotes 437
Glossary 443
Name/Company Index 451
Subject Index 455

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A01_WILD6979_07_SE_FM.indd 4 1/16/13 2:44 PM
 Contents

Preface 15

Part 1 Global Business Environment 26

Chapter 1 Globalization 26
■ EMIRATE’S Global Impact 27
International Business Involves Us All 28
Technology Makes It Possible 28
Global Talent Makes It Happen 29
Key Players in International Business 29
Multinational Corporations 30
Entrepreneurs and Small Businesses 30
Globalization 31
Globalization of Markets 31
Globalization of Production 32
■ Global Sustainability: Three Markets, Three Strategies 33
Forces Driving Globalization 34
Falling Barriers to Trade and Investment 34
Technological Innovation 38
Measuring Globalization 39
Untangling the Globalization Debate 40
Today’s Globalization in Context 40
Introduction to the Debate 40
Globalization’s Impact on Jobs and Wages 41
Globalization’s Impact on Labor, the Environment, and Markets 43
■ Manager’s Briefcase: The Keys to Global Success 44
Globalization and Income Inequality 44
Globalization’s Influence on Cultures 46
■ Culture Matters: The Culture Debate 47
Globalization and National Sovereignty 47
Why International Business Is Special 48
The Global Business Environment 48
The Road Ahead for International Business 49
■ Bottom Line For Business  50
Chapter Summary 51 • Talk It Over 52 • Teaming Up 52 •
Key Terms 52 • Take It to the Web 53 • Ethical Challenges 53
■ Practicing International Management Case:
IO Interactive—Storytelling Goes Global 54

Appendix World Atlas 55

Part 2 National Business Environments 64

Chapter 2 Cross-Cultural Business 64
■ Hold the Pork, Please! 65
What Is Culture? 66

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 6  Contents

■ Culture Matters: Creating a Global Mindset 67

National Culture and Subcultures 67
Components of Culture 69
Aesthetics 69
Values and Attitudes 69
Manners and Customs 73
■ Manager’s Briefcase: A Globetrotter’s Guide to Meetings 74
Social Structure 74
Religion 76
Personal Communication 81
■ Global Sustainability: Speaking in Fewer Tongues 82
Education 84
Physical and Material Environments 85
Classifying Cultures 87
Kluckhohn–Strodtbeck Framework 87
Hofsede Framework 88
■ Bottom Line For Business  91
Chapter Summary 91 • Talk It Over 93 • Teaming Up 93 •
Key Terms 93 • Take It to the Web 93 • Ethical Challenges 94
■ Practicing International Management Case:
A Tale of Two Cultures 95

Chapter 3 Politics, Law, and Business Ethics 96

■ UNDERSTANDING VIETNAMESE BUSINESS CULTURE 97
Political Systems 98
Politics and Culture 98
Political Participation 98
Political Ideologies 99
■ Global Sustainability: From Civil War to Civil Society 101
Political Systems in Times of Change 103
Political Risk 104
Types of Political Risk 104
■ Manager’s Briefcase: Your Global Security Checklist 105
Managing Political Risk 108
Legal Systems 110
■ Culture Matters: IKEA: Values Under Threat 111
Common Law 111
Civil Law 111
Theocratic Law 112
Global Legal Issues 112
Standardization 112
Intellectual Property 112
Product Safety and Liability 114
Taxation 115
Antitrust Regulations 115
Ethics and Social Responsibility 116
Philosophies of Ethics and Social Responsibility 116
CSR Issues 117
Business and International Relations 122
The United Nations 122
■ Bottom Line For Business  123
Chapter Summary 123 • Talk It Over 125 • Teaming Up 125 •
Key Terms 125 • Take It to the Web 126 • Ethical Challenges 126
■ Practicing International Management Case:
Pirates of Globalization 127

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  Contents   7

Chapter 4 Economics and Emerging Markets 128

■ India’s Tech King  129
Economic Systems 130
Centrally Planned Economy 130
Emerging Market Focus: China 132
■ Culture Matters: Guidelines for Good Guanxi 133
Mixed Economy 134
Market Economy 135
Development of Nations 137
National Production 140
Purchasing Power Parity 141
Human Development 144
■ Global Sustainability: Public Health Goes Global 145
Classifying Countries 145
Economic Transition 146
Obstacles to Transition 146
Emerging Market Focus: Russia 147
■ Manager’s Briefcase: Russian Rules of the Game 148

■ Bottom Line For Business  149

Chapter Summary 150 • Talk It Over 151 • Teaming Up 151 •
Key Terms 151 • Take It to the Web 152 • Ethical Challenges 152
■ Practicing International Management Case:
The Role of Social and Political Factors in the Lebanese Economy 153

Part 3 International Trade and Investment 154

Chapter 5 International Trade 154
■ CHINA’S CARIBBEAN CONNECTION  155
Overview of International Trade 156
Benefits of International Trade 156
Volume of International Trade 156
International Trade Patterns 157
Trade Dependence and Independence 160
■ Culture Matters: Business Culture in the Pacific Rim 161
Theories of International Trade 161
Mercantilism 161
Absolute Advantage 163
Comparative Advantage 165
Factor Proportions Theory 167
International Product Life Cycle 168
■ Manager’s Briefcase: Five Fulfillment Mistakes 170
New Trade Theory 170
National Competitive Advantage 171
■ Global Sustainability: Foundations of Development 171
■ Bottom Line For Business  173
Chapter Summary 174 • Talk It Over 175 • Teaming Up 175 •
Key Terms 175 • Take It to the Web 175 • Ethical Challenges 176
■ Practicing International Management Case:
BT in Local and International Markets 177

Chapter 6 Business–Government Trade Relations 178

■ Time Warner Rises  179
Why Do Governments Intervene in Trade? 180
Political Motives 180

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 8  Contents

■ Global Sustainability: Managing Security in the Age of Globalization 181

Economic Motives 182
Cultural Motives 183
■ Culture Matters: Myths of Small Business Exporting 184
Methods of Promoting Trade 185
Subsidies 185
Export Financing 185
■ Manager’s Briefcase: Experts in Export Financing 186
Foreign Trade Zones 186
Special Government Agencies 187
Methods of Restricting Trade 187
Tariffs 187
Quotas 188
Embargoes 190
Local Content Requirements 190
Administrative Delays 191
Currency Controls 191
Global Trading System 191
General Agreement on Tariffs and Trade (GATT) 191
World Trade Organization (WTO) 193
■ Bottom Line For Business  195
Chapter Summary 196 • Talk It Over 197 • Teaming Up 197 •
Key Terms 197 • Take It to the Web 197 • Ethical Challenges 198
■ Practicing International Management Case:
The New Protectionism 199

Chapter 7 Foreign Direct Investment 200

■ Das Auto 201
Patterns of Foreign Direct Investment 202
Ups and Downs of FDI 202
■ Culture Matters: The Cowboy of Manchuria 204
Worldwide Flows of FDI 204
Explanations for Foreign Direct Investment 205
International Product Life Cycle 205
Market Imperfections (Internalization) 205
Eclectic Theory 206
Market Power 206
Management Issues and Foreign Direct Investment 207
Control 207
Purchase-or-Build Decision 207
■ Manager’s Briefcase: Surprises of Investing Abroad 208
Production Costs 208
Customer Knowledge 209
Following Clients 209
■ Global Sustainability: Greening the Supply Chain 210
Following Rivals 210
Government Intervention in Foreign Direct Investment 210
Balance of Payments 211
Reasons for Intervention by the Host Country 212
Reasons for Intervention by the Home Country 213
Government Policy Instruments and Foreign Direct Investment 214
Host Countries: Promotion 215
Host Countries: Restriction 215
Home Countries: Promotion 215
Home Countries: Restriction 216

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  Contents   9

■ Bottom Line For Business  216

Chapter Summary 217 • Talk It Over 218 • Teaming Up 218 •
Key Terms 219 • Take It to the Web 219 • Ethical Challenges 219
■ Practicing International Management Case:
Driving the Green Car Market in Australia 221

Chapter 8 Regional Economic Integration 222

■ Nestlé’s Global Recipe  223
What Is Regional Economic Integration? 224
Levels of Regional Integration 224
Effects of Regional Economic Integration 227
Benefits of Regional Integration 227
Drawbacks of Regional Integration 228
Integration in Europe 229
European Union 229
■ Culture Matters: Czech List 234
European Free Trade Association (EFTA) 235
Integration in the Americas 236
North American Free Trade Agreement (NAFTA) 236
Central American Free Trade Agreement (CAFTA-DR) 237
Andean Community (CAN) 238
Latin American Integration Association (ALADI) 239
Southern Common Market (MERCOSUR) 239
Central America and the Caribbean 239
Free Trade Area of the Americas (FTAA) 240
Integration in Asia 240
Association of Southeast Asian Nations (ASEAN) 240
■ Manager’s Briefcase: The Ins and Outs of ASEAN  241
Asia Pacific Economic Cooperation (APEC) 241
Closer Economic Relations (CER) Agreement 241
Integration in the Middle East and Africa 242
Gulf Cooperation Council (GCC) 242
Economic Community of West African States (ECOWAS) 242
African Union (AU) 242
■ Bottom Line For Business  243
Chapter Summary 244 • Talk It Over 245 • Teaming Up 245 •
Key Terms 245 • Take It to the Web 245 • Ethical Challenges 246
■ Practicing International Management Case:
Global Food Trade: Fair Trade or Safe Consumption? 247

Part 4 The International Financial System 248

Chapter 9 International Financial Markets 248
■ Wii Is the Champion 249
International Capital Market 250
Purposes of National Capital Markets 251
Purposes of the International Capital Market 251
Forces Expanding the International Capital Market 252
■ Global Sustainability: Big Results from Microfinance 252
World Financial Centers 253
Main Components of the International Capital Market 253
International Bond Market 253
International Equity Market 254
Eurocurrency Market 255
Foreign Exchange Market 256
Functions of the Foreign Exchange Market 256

A01_WILD6979_07_SE_FM.indd 9 1/16/13 2:44 PM

 10  Contents

How the Foreign Exchange Market Works 258

Quoting Currencies 258
Spot Rates 260
Forward Rates 261
Swaps, Options, and Futures 261
Foreign Exchange Market Today 262
Trading Centers 262
Important Currencies 263
Institutions of the Foreign Exchange Market 263
■ Manager’s Briefcase: Managing Foreign Exchange 264
Currency Convertibility 265
Goals of Currency Restriction 265
Policies for Restricting Currencies 265
■ Bottom Line For Business  266
Chapter Summary 267 • Talk It Over 268 • Teaming Up 268 •
Key Terms 269 • Take It to the Web 269 • Ethical Challenges 269
■ Practicing International Management Case:
The Effect of the Asian Crisis on South-East Asian Corporations 271

Appendix Calculating Percent Change in Exchange Rates 272

Chapter 10 International Monetary System 274

■ Euro Rollercoaster  275
How Exchange Rates Influence Business Activities 276
Desire for Stability and Predictability 277
What Factors Determine Exchange Rates? 277
Law of One Price 278
Purchasing Power Parity 279
Forecasting Exchange Rates 282
Efficient Market View 283
Inefficient Market View 283
Forecasting Techniques 283
Difficulties of Forecasting 283
■ Culture Matters: The Long Arm of the Law 284
Evolution of the International Monetary System 284
Early Years: The Gold Standard 285
Bretton Woods Agreement 286
A Managed Float System Emerges 288
Today’s Exchange-Rate Arrangements 289
European Monetary System 289
■ Manager’s Briefcase: Adjusting to Currency Swings 290
Recent Financial Crises 290
Future of the International Monetary System 293
■ Bottom Line For Business  294
Chapter Summary 295 • Talk It Over 296 • Teaming Up 296 •
Key Terms 296 • Take It to the Web 297 • Ethical Challenges 297
■ Practicing International Management Case:
Banking on Forgiveness 298

Part 5 International Business Management 300

Chapter 11 International Strategy and Organization 300
■ Flying High with Low Fares  301
International Strategy 302
Strategy Formulation 302

A01_WILD6979_07_SE_FM.indd 10 1/16/13 2:44 PM

  Contents   11

Identify Company Mission and Goals 302

Identify Core Competency and Value-Creating Activities 303
■ Manager’s Briefcase: Ask Questions before Going Global 305
Formulate Strategies 306
International Organizational Structure 311
Centralization versus Decentralization 311
Coordination and Flexibility 312
Types of Organizational Structure 313
Work Teams 315
A Final Word 317
Chapter Summary 317 • Talk It Over 318 • Teaming Up 319 •
Key Terms 319 • Take It to the Web 319 • Ethical Challenges 320
■ Practicing International Management Case:
Ikea’s Global Strategy 321

Chapter 12 Analyzing International Opportunities 322

■ ROVIo SOARS GLOBALLY  323
Screening Potential Markets and Sites 324
Step 1: Identify Basic Appeal 324
Step 2: Assess the National Business Environment 326
■ Manager’s Briefcase: Conducting Global e-Business 330
Step 3: Measure Market or Site Potential 330
Step 4: Select the Market or Site 333
Conducting International Research 336
Difficulties of Conducting International Research 336
Sources of Secondary International Data 338
Methods of Conducting Primary International Research 340
■ Culture Matters: Is the World Your Oyster? 341
A Final Word 342
Chapter Summary 343 • Talk It Over 344 • Teaming Up 344 •
Key Terms 344 • Take It to the Web 344 • Ethical Challenges 346
■ Practicing International Management Case:
Singapore Rises to Prominence in the World Market 346

Chapter 13 Selecting and Managing Entry Modes 348

■ License to Thrill 349
Exporting, Importing, and Countertrade 350
Why Companies Export 350
Developing an Export Strategy: A Four-Step Model 351
Degree of Export Involvement 352
Avoiding Export and Import Blunders 353
Countertrade 354
Export/Import Financing 355
■ Manager’s Briefcase: Collecting International Debts 358
Contractual Entry Modes 358
Licensing 358
Franchising 360
Management Contracts 361
Turnkey Projects 362
Investment Entry Modes 364
Wholly Owned Subsidiaries 364
Joint Ventures 364
Strategic Alliances 366
Selecting Partners for Cooperation 367

A01_WILD6979_07_SE_FM.indd 11 1/16/13 2:44 PM

 12  Contents

■ Culture Matters: Negotiating Market Entry 368

Strategic Factors in Selecting an Entry Mode 368
Cultural Environment 368
Political and Legal Environments 369
Market Size 369
Production and Shipping Costs 369
International Experience 369
A Final Word 370
Chapter Summary 370 • Talk It Over 371 • Teaming Up 372 •
Key Terms 372 • Take It to the Web 373 • Ethical Challenges 373
■ Practicing International Management Case:
Game: Competing in Africa’s Playing Fields 375

Chapter 14 Developing and Marketing Products 376

■ IT’S A CROSS-CULTURAL MCWORLD! 377
Globalization and Marketing 378
Standardization versus Adaptation 378
■ Culture Matters: Localizing Websites 379
Developing Product Strategies 379
Laws and Regulations 379
Cultural Differences 380
Brand and Product Names 380
National Image 381
Counterfeit Goods and Black Markets 382
Shortened Product Life Cycles 382
Creating Promotional Strategies 383
Push and Pull Strategies 383
■ Manager’s Briefcase: Managing an International Sales Force 384
International Advertising 384
Blending Product and Promotional Strategies 386
Designing Distribution Strategies 388
Designing Distribution Channels 389
Influence of Product Characteristics 389
Special Distribution Problems 390
Developing Pricing Strategies 391
Worldwide Pricing 391
Dual Pricing 391
Factors That Affect Pricing Decisions 391
A Final Word 393
Chapter Summary 393 • Talk It Over 394 • Teaming Up 394 •
Key Terms 395 • Take It to the Web 395 • Ethical Challenges 396
■ Practicing International Management Case:
Psychology of Global Marketing 397

Chapter 15 Managing International Operations 398

■ Toyota Races Ahead  399
Production Strategy 400
Capacity Planning 400
Facilities Location Planning 400
Process Planning 402
Facilities Layout Planning 403
Acquiring Physical Resources 403
Make-or-Buy Decision 404

A01_WILD6979_07_SE_FM.indd 12 1/16/13 2:44 PM

  Contents   13

Raw Materials 406

Fixed Assets 406
Key Production Concerns 407
Quality Improvement Efforts 407
■ Manager’s Briefcase: World-Class Standards 408
Shipping and Inventory Costs 408
Reinvestment versus Divestment 409
Financing Business Operations 409
Borrowing 410
Issuing Equity 410
■ Culture Matters: Financing Business from Abroad 412
Internal Funding 412
Capital Structure 413
A Final Word 413
Chapter Summary 414 • Talk It Over 415 • Teaming Up 415 •
Key Terms 415 • Take It to the Web 416 • Ethical Challenges 416
■ Practicing International Management Case:
Toyota’s Strategy for Production Efficiency 417

Chapter 16 Hiring and Managing Employees 418

■ Leaping Cultures  419
International Staffing Policy 420
Ethnocentric Staffing 420
Polycentric Staffing 422
Geocentric Staffing 422
Recruiting and Selecting Human Resources 423
Human Resource Planning 423
■ Manager’s Briefcase: Growing Global 423
Recruiting Human Resources 424
Selecting Human Resources 424
Culture Shock 425
■ Culture Matters: A Shocking Ordeal 425
Reverse Culture Shock 426
Training and Development 426
Methods of Cultural Training 427
Compiling a Cultural Profile 428
Nonmanagerial Worker Training 428
Employee Compensation 429
Managerial Employees 429
Nonmanagerial Workers 430
Labor–Management Relations 430
Importance of Labor Unions 431
A Final Word 432
Chapter Summary 432 • Talk It Over 433 • Teaming Up 433 •
Key Terms 433 • Take It to the Web 434 • Ethical Challenges 434
■ Practicing International Management Case:
BP: Challenges in Global Staffing 435

Endnotes 437
Glossary 443
Name/Company Index 451
Subject Index 455

A01_WILD6979_07_SE_FM.indd 13 1/16/13 2:44 PM

 Dear Friends and Colleagues,

As we roll out the new edition of International Business: The Challenges of Globalization,
we thank each of you who provided suggestions to enrich this textbook. This seventh
edition reflects the advice and wisdom of many dedicated reviewers and instructors.
Together, we have created the most readable, concise, and innovative international
business book available today.
As teachers, we know how important it is to select the right book for your course.
Instructors say that this book’s clear and lively writing style helps students to learn
­international business. And this book’s streamlined and clutter-free design is a competitive
advantage that will never be sacrificed.
This book’s leading-edge technology package also helps students to better under­
stand international business. MyManagementLab is an innovative set of course-
management tools for delivering all or part of your course online. MyManagementLab
makes it easier for you to add meaningful assessment to your course. Whether you’re
interested in testing your students on simple recall of concepts and theories or you’d
like to gauge how well your students can apply their newly minted knowledge to real-
world scenarios, MyManagementLab offers a variety of assessment questions to fit
your needs. You and your students will find these and other components of this book’s
learning system fun and easy to use.
We owe the success of this book to our colleagues and our students who keep us
focused on their changing educational needs. In this time of rapid global change, we
must continue to instill in our students a passion for international business and to equip
them with the skills and knowledge they need to compete. Please accept our heartfelt
thanks and know that your input is reflected in everything we write.

John J. Wild
Kenneth L. Wild

14

A01_WILD6979_07_SE_FM.indd 14 1/16/13 2:44 PM

 Preface

Welcome to the seventh edition of International Business: The Challenges of Globalization.

As in previous editions, this book resulted from extensive market surveys, chapter reviews, and
correspondence with scores of instructors and students. We are delighted that an overwhelming
number of instructors and students agree with our fresh approach to international business. The
reception of this textbook in the United States and across the world has exceeded all expectations.
This book presents international business in a comprehensive yet concise framework. Real-
world examples and engaging features bring the concepts of international business to life and
make international business accessible for all students. A main goal in this seventh edition is to
continue to deliver the most readable, current, and concise international business textbook avail-
able. And this book’s paperback format ensures that its price matches a student’s budget.
This book is our means of traveling on an exciting tour through the study of international
business. It motivates the reader by making international business challenging yet fun. It also
embraces the central role of people and their cultures in international business. Each chapter is
infused with real-world discussion, while underlying theory appears in the background where
it belongs. Terminology is used consistently, and theories are explained in direct and concise
terms. This book’s visual style is innovative yet subtle and uses photos, illustrations, and fea-
tures sparingly. The result is an easy-to-read and clutter-free design.

What’s New in This Edition

• This seventh edition of International Business updates the influence of the global credit
crisis and recent recession on international business. For example, Chapter 7 presents data
showing that businesses continue to shift their foreign investments away from slow-growth
developed nations and toward emerging markets, such as China and India.
• A completely upgraded and redesigned Marketing Entry Strategy Project (MESP) is now
integrated into and available only through MyManagementLab. The MESP asks students
to work as a team to research a country market and recommend a course of action to MES-
Sim Corporation.
• This edition more fully embraces the crucial role that sustainability plays in the global
economy and international business. For example, the Global Sustainability feature box in
Chapter 1, titled “Three Markets, Three Strategies,” discusses how companies tailor their
product offerings and strategies to the sustainability needs of particular markets.
• Balance of payments coverage in Chapter 7 has been simplified to improve understanding.
The numbers are removed from Table 7.1 showing the balance of each U.S. Balance of
Payments account. The table now shows only positive (+) or negative (–) signs depending
on whether changes in an account increase or decrease its balance.
• Coverage of foreign exchange in Chapter 9 is further streamlined and made less compli-
cated. Instructors and students appreciated the removal of extended cross rate calculations
and of discounts and premiums from the last edition. We again listened to feedback and
moved the section on calculating percentage change in exchange rates to an end-of-chapter
appendix.
• All chapters contain the latest available data and reference sources as of the date of printing.
For example, Table 5.1 in Chapter 5 presents the latest ranking of the world’s top merchan-
dise and service exporters, and Table 5.2 provides updated figures on the amount of trade
that flows between different world regions.
• This edition keeps pace with current events around the world. Wherever possible, we in-
tegrate recent events into chapter-opening company profiles, tables and figures, feature
boxes, in-text examples, and end-of-chapter mini cases.

15

A01_WILD6979_07_SE_FM.indd 15 1/16/13 2:44 PM

 16  PREFACE

Hallmark Features of International Business

Culture Early and Often
Culture is a fundamental element of all international business activity. This book’s presen-
tation of culture sensitizes students to the lives of people in other nations. Culture appears
early (Chapter 2) and is integrated throughout the text using culture-rich chapter openers and
lively examples of how culture affects international business. Covering culture in this way
gets students interested in chapter material because it illustrates how concepts relate to the
real world.

Globalization Highly Readable

(ch. 1)
A successful book for the first course in inter-
International national business must be accessible to students.
We describe conceptual material and specialized
International International
Monetary System Trade business activities in concrete, straightforward
(ch. 10) (ch. 5)
National terms and illustrate them appropriately. For ex-
Cross-Cultural ample, we introduce the concepts of absolute and
Business
Firm
(ch. 2) comparative advantage in Chapter 5 by discuss-
Hiring and International ing whether a highly paid CEO should install her
Managing
Employees
Strategy and
Organization
own hot tub or let a professional installer perform
Economics
(ch. 16) (ch. 11)
the job. This approach—presenting complex ma-
Business–
International
Financial
and
Emerging
Managing
International
Analyzing
International
Government terial in an accessible manner—helps students to
Trade
Markets
(ch. 9)
Markets
(ch. 4)
Operations
(ch. 15)
Opportunities
(ch. 12)
Relations better master the material.
(ch. 6)
Selecting
Developing and
and Marketing
Products
Managing
Entry Modes
Uniquely Integrative
Falling (ch. 14) Technological
Trade/FDI
(ch. 13)
International business is not simply a collection
Innovation
Barriers Politics, Law, and
Business Ethics of separate business functions and environmental
(ch. 3)
forces. The model shown here (and detailed in
Regional
Economic
Foreign Direct Chapter 1) is a unique organizing framework that
Investment
Integration
(ch. 8)
(ch. 7) helps students to understand how the elements
of international business are related. It depicts a
dynamic, integrated system that weaves together
Increasing
Competition
national business environments, the international
business environment, and international business
management. It also shows that characteristics of
globalization (new technologies and falling barriers to trade and investment) are causing greater
competition.

Market Entry Strategy Project

Completely upgraded and redesigned, this interactive simulation is now available through
MyManagementLab. The MESP simulation asks students to research a country as a future
market for a new video game system, the M-Box. Working as part of a team, students research
and analyze a country, and then recommend a course of action to the producer of the M-Box,
MES-Sim Corporation. Four activities that build on one another give instructors flexibility in the
time and intensity that they wish to devote to it:
• Market Intelligence Report (MIR) asks students to gather market data on a nation’s people,
economy, government, and technological status from online sources over a one- to two-
week period.
• Business Environment Analysis Report (BEAR) gives students the opportunity to analyze a
selected country as a potential market over a four- to six-week period.
• Report on Opportunities for Market Entry (ROME) asks students to identify potential import
and export prospects for a firm in the chosen national market over a six- to eight-week period.
• Market Entry Strategy Assignment (MESA) is a course-long, critical- and creative-thinking
exercise that allows students to develop a market-entry strategy for launching a new
­product in a selected country.

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  PREFACE   17

Innovative Pedagogy
This book’s pedagogy stands apart from the competition:
• NEW Global Sustainability boxes present special topics related to economic, social, and
environmental sustainability. Today, businesses know that flourishing markets rely on strong
economies, thriving societies, and healthy environments. Topics include the factors that
contribute to sustainable development, ending civil wars that destroy fragile societies, and
how companies make their supply chains more environmentally friendly.
• Chapter-opening company profiles are brief, easy-to-read introductions to each chapter’s
content filtered through the lens of a real-world example. Instructors say these profiles of
high-interest firms motivate students to turn the page and get reading the chapters. Com-
panies profiled are on the leading edge of their industries and are inherently interesting to
students, including Rovio, Infosys, Nintendo, Ryanair, Marvel, and McDonald’s.
• Manager’s Briefcase boxes address issues facing companies active in international business.
Issues presented can be relevant to entrepreneurs and small businesses or to the world’s larg-
est global companies. Topics include obtaining capital to finance international activities, get-
ting paid for exports, and how to be mindful of personal security while abroad on business.
• Culture Matters boxes present the relation between culture and a key chapter topic. For
example, Chapter 2 presents the importance of businesspeople developing a global mindset
and avoiding cultural bias. Another chapter presents the debate over globalization’s influ-
ence on culture, and still another box shows how entrepreneurs succeed by exploiting their
knowledge of local cultures.
67
• Bottom Line for Business sections con- CHAPTER 2 • CROSS-CULTURAL BUSINESS

clude chapters and explain the impact CULTURE MATTERS Creating a Global Mindset
of the ­chapter’s topics on managers
and their firms’ policies, strategies, and In this era of globalization, companies need employees who function • testing
without the blinders of ethnocentricity. Here are some ways managers
Building Global Mentality. Companies can apply personality-
techniques to measure the global aptitude of managers.
­activities abroad. can develop a global mindset: A global-mindset test evaluates an individual’s openness and
flexibility, understanding of global principles, and strategic im-
• Quick Study concept checks help stu- • Cultural Adaptability. Managers need the ability to alter their
behavior when working with people from other cultures. The
plementation abilities. It can also identify areas in which training
is needed and generate a list of recommended programs.
dents to verify that they have learned the first step in doing this is to develop one’s knowledge of unfa-
miliar cultures. The second step is to act on that knowledge to
• Flexibility Is Key. The more behavioral the issues, the greater
the influence of local cultures. Japanese and Korean managers
section’s key terms and important con- alter behavior to suit cultural expectations. The manager with a
are more likely than U.S. managers to wait for directions and
global mindset can evaluate others in a culturally unbiased way
cepts before moving on. and can motivate and lead multicultural teams.
consult peers on decisions. Western managers posted in the
Middle East must learn to work within a rigid hierarchy in order
• Bridging the Gap. A large gap can emerge between theory
• Full-Color World Atlas, which appears as and practice when Western management ideas are applied in
to be successful. And although showing respect for others is
universally valued, respect is defined differently from country to
an appendix to Chapter 1, is a primer for Eastern cultures. Whereas U.S. management principles are often
accepted at face value in businesses throughout the world, U.S.
country.
• Want to Know More? Visit the Center for Creative Leader-
students to test their knowledge of world business customs are not. In Asia, for example, Western man-
agers might try implementing “collective leadership” practices
ship (www.ccl.org), The Globalist (www.theglobalist.com), and
Transnational Management Associated (www.tmaworld.com).
geography and acts as a reference tool more in line with Asian management styles.

throughout the course.

these highly recognizable names. Yet, cultural differences often dictate alterations in some
aspect of a business in order to suit local tastes and preferences. The culturally literate manager
who compensates for local needs and desires brings his or her company closer to customers and
improves the firm’s competitiveness.
As you read through the concepts and examples in this chapter, try to avoid reacting with
ethnocentricity while developing your own cultural literacy. Because these two concepts are
central to the discussion of many international business topics, you will encounter them through-
A01_WILD6979_07_SE_FM.indd 17 out this book. In the book’s final chapter (Chapter 16), we explore specific types of cultural 1/16/13 2:44 PM
 18  PREFACE

• Learning Objectives focus on the main lessons students should take away from the material
and are summarized in bullet-point format at the end of the chapter.
• Beacons provide students with a “road map” of how chapters relate to one another. These
beacons appear at the start of each chapter and are appropriately titled, “A Look Back,” “A
Look at This Chapter,” and “A Look Ahead.”
• PowerPoint slides for instructors contain both written and verbal teaching notes and
­include question slides to use as in-class comprehension checks. Updated student
­PowerPoint slides contain written study notes.
• Videos are available to accompany this text and cover topics such as globalization,
­culture’s impact on business, international business ethics, foreign direct investment,
emerging markets, and entry modes.

Tools for Active Learning

Feedback on previous editions shows that this book has more—and more useful—end-of-chapter
assignment material than any other international business book. Well-planned assignment mate-
rials span the full range of complexity in order to test students’ knowledge and ability to apply
key principles. Assignment materials are often experiential in nature to help students develop
international business skills and make business decisions. Assignment materials include the
following:
CHAPTER 2 • CROSS-CULTURAL BUSINESS 95 • T
 alk It Over questions can be used for in-class discus-
sion or as homework assignments. These exercises raise
Practicing International Management Case
important issues currently confronting entrepreneurs,
A Tale of Two Cultures international managers, policy makers, consumers, and
M any cultures in Asia are in the midst of an identity crisis.
In effect, they are being torn between two worlds. Pulling in one
influx of Western professionals, such as lawyers, who accepted
good-paying jobs there that could not be found back home during
others.
direction is a traditional value system derived from agriculture- the global recession. •  eaming Up projects go beyond the text and require
T
based communities and extended families—that is, elements of a Roopa Murthy works for an Indian company that offers call-
culture in which relatives take care of one another and state-run center and back-office services. Roopa moved to Bangalore from students to collaborate in teams to conduct interviews,
welfare systems are unnecessary. Pulling from the opposite direc- her native Mysore in 2002 armed with an accounting degree. She
tion is a new set of values emerging from manufacturing- and now earns $400 per month, which is several times what her father
earned before he retired from his government job. Roopa cut her
research other countries, or hold in-class debates and
finance-based economies—elements of a culture in which workers
must often move to faraway cities to find work, sometimes leaving
family members to fend for themselves.
hair short and tossed aside her salwar kameez, the traditional
loose-fitting clothing she wore back home, in favor of designer-
role-playing exercises. Projects expose students to differ-
For decades, Western multinational corporations set up facto-
ries across Southeast Asia to take advantage of relatively low-cost
labeled Western attire.
Although she once shunned drinking and her curfew at home
ent perspectives when they bring together students who
labor. Later, local companies sprang up and became competitive
global players in their own right. Spectacular rates of economic
was 9 p.m., Roopa now frequents a pub called Geoffrey’s, where
she enjoys dry martinis and rum, and The Club, a suburban disco.
have different cultural backgrounds.
growth in a few short decades elevated living standards beyond
what was thought possible. Young people in Malaysia and Thailand
Roopa confesses that she is “seeing someone” but that her par-
ents would disapprove, adding, “It is difficult to talk to Indian par-
•  ake It to the Web assignments ask students to conduct
T
felt the lure of “Western” brands. Gucci handbags ( www.gucci.
com), Harley-Davidson motorcycles (www.harley-davidson.com),
ents about things like boyfriends.” She said she sometimes envies
her callers’ lives but that she hopes her job will help her succeed.
research using the Internet. Website Report exercises
and other global brands became common symbols of success.
Many parents felt that brand-consciousness among their teenage
“I may be a small-town girl, but there is no way I’m going back to
Mysore after this,” she said. Many observers wonder whether Asia send students to specific websites to research a single
children signaled familywide success.
Despite the growing consumer society, polls of young people
can embrace modernization and yet retain traditional values.
company or ask students to locate information using
Thinking Globally
show them holding steadfast to traditional values such as respect
for family and group harmony. Youth in Hong Kong, for exam- 1. If your international firm were doing business in Asia, is the Web.
there anything that your company could do to ease the
•  ideo Report exercises ask students to view and report
ple, overwhelmingly believe that parents should have a say in how
hard they study, in how they treat family members and elders, and tensions these cultures are experiencing? Be specific.
2. In your opinion, is globalization among the causes of the
V
in their choice of friends.
Now globalization is washing over India. An explosion in increasing incidence of divorce, crime, and drug abuse in
Asia? Why or why not?
on brief YouTube videos on a channel maintained by
outsourcing jobs is causing a social revolution among India’s
graduates of technical colleges and universities. Unlike in India’s
3. Broadly defined, Asia comprises more than 60 percent
of the world’s population—a population that practices
the authors (www.youtube.com/myibvideos). Videos are
traditional high-tech service jobs, young call-center staffers are
in direct contact with Western consumers, answering inquiries on
items such as tummy crunchers and diet pills. For these young,
Buddhism, Confucianism, Hinduism, Islam, and
numerous other religions. Thus, do you think it is possible kept up to date with a variety of international business
to carry on a valid discussion of “Asian” values? Why or
mostly female staffers, the work means money, independence,
and freedom—sometimes far away from home in big cities such
why not? videos gathered from other YouTube users’ videos that
4. Consider the following statement: “Economic
as Bangalore and Mumbai. But in addition to the training in
American accents and geography, these workers are learning new
development and capitalism require a certain style of may or may not always be available.
doing business in the twenty-first century. The sooner
ideas about family, materialism, and relationships.
Parents are suspicious of call-center work because it must typi-
Asian cultures adapt the better.” Do you agree or •  thical Challenges exercises (in a “You are the …” for-
E
disagree? Explain.
cally be performed at night in India, when consumers are awake in
Canada, Europe, or the United States. When her parents objected,
mat) ask students to assume the role of a manager, gov-
Binitha Venugopal quit her call-center job in favor of a “regular”
daytime job. Binitha says her former coworkers’ values are chang-
Source: Heather Timmons, “Outsourcing to India Draws Western Lawyers,” New
York Times (www.nytimes.com), August 4, 2010; Lisa Tsering, “NBC Picks up ernment official, or someone else and to make a decision
Series ‘Outsourced’ for Fall 2010,” Indiawest.com website (www.indiawest.com),
ing and that dating and live-in relationships among them are com-
mon. Indian tradition dictates that young adults live with their
May 27, 2010; Saritha Rai, “India Outsourcing Workers Stressed to The Limit,”
Silicon.com website (www.silicon.com; now www.techrepublic.com), August
based on the facts presented to them.
parents at least until they get married (typically to someone their
parents choose). Perhaps facilitating shifting values in India is an
26, 2009; Sol E. Solomon, “Vietnam’s IT Way to Social Progress,” Bloomberg
Businessweek (www.businessweek.com), May 19, 2008. •  racticing International Management cases ask students
P
to analyze the responses of real-world companies to
the issues, problems, and opportunities discussed in
each chapter.

Faculty Resources
Instructor’s Resources
At www.pearsonglobaleditions.com/wild, instructors can access a variety of print, digital, and
presentation resources available with this text in downloadable format. Registration is simple
and gives you immediate access to new titles and new editions.

A01_WILD6979_07_SE_FM.indd 18 1/16/13 2:44 PM

  PREFACE   19

This textbook’s extensive array of supplements includes test-generating software contain-

ing thousands of multiple-choice, true/false, fill-in, and essay questions. The book’s instructor’s
resource manual is a complete instruction toolkit containing a wealth of teaching aids.
If you ever need assistance, our dedicated technical support team is ready to help with ­media
supplements that accompany this text. Visit http://247.pearsoned.com for answers to ­frequently
asked questions.
The following supplements are available to adopting instructors (for detailed descriptions
and to download the supplements, please visit www.pearsonglobaleditions.com/wild):
• Instructor’s Manual
• Test Item File
• TestGen: Test Generating Software
• PowerPoint Slides
• Video Library:
Videos illustrating the most important subject topics are available in two formats:
DVD – available for in classroom use by instructors, includes videos mapped to Pearson
textbooks.
MyLab – available for instructors and students, provides round the clock instant access to
videos and corresponding assessment and simulations for Pearson textbooks.
Contact your local Pearson representative to request access to either format.

Student Resources
Market Entry Strategy Project
Originally designed by David C. Wyld of Southeastern Louisiana University, this online, interac-
tive project is available only through www.mymanagementlab.com.

CourseSmart
CourseSmart is an exciting new choice for students looking to save money. As an alternative
to purchasing the print textbook, students can purchase an electronic version of the same con-
tent and save up to 50 percent off the suggested list price of the print text. With a CourseSmart
e-textbook, students can search the text, make notes online, print out reading assignments that
incorporate lecture notes, and bookmark important passages for later review. For more infor-
mation, or to purchase access to the CourseSmart e-textbook version of this text, visit www.
coursesmart.co.uk.

Acknowledgments
We are grateful for the encouragement and suggestions provided by many instructors, profes-
sionals, and students in preparing this seventh edition of International Business. We especially
thank the following instructors who provided valuable feedback to improve this and previous
editions:

Reviewers for the 7th edition:

Ogugua Anunoby Lincoln University
Robert Armstrong University of North Alabama
Thierry Brusselle Chaffey College
Bruce Keillor Youngstown State University
Ki Hee Kim William Paterson University
Tomasz Lenartowicz Florida Atlantic University
Tim Muth Florida Institute of Technology
Hui Pate Skyline College
Krishnan Ramaya Pacific University of Oregon
James Reinnoldt University of Washington–Bothell

A01_WILD6979_07_SE_FM.indd 19 1/16/13 2:44 PM

 20  PREFACE

William Walker University of Houston

Bashar A. Zakaria California State University, Sacramento

Reviewers for previous editions:

Rob Abernathy University of North Carolina, Greensboro
Hadi S. Alhorr Drake University
Gary Anders Arizona State University West
Madan Annavarjula Northern Illinois University
Wendell Armstrong Central Virginia Community College
Mernoush Banton Florida International University
George Barnes University of Texas at Dallas
Constance Bates Florida International University
Marca Marie Bear University of Tampa
Tope A. Bello East Carolina University
Robert Blanchard Salem State College
David Boggs Eastern Illinois University
Chuck Bohleke Owens Community College
Erin Boyer Central Piedmont CC
Richard Brisebois Everglades University
Bill Brunsen Eastern New Mexico at Portales
Mikelle Calhoun Ohio State University
Martin Calkins Santa Clara University
Kenichiro Chinen California State University at Sacramento
Joy Clark Auburn University–Montgomery
Randy Cray University of Wisconsin at Stevens Point
Tim Cunha Eastern New Mexico University at Portales
Robert Engle Quinnipiac University
Herbert B. Epstein University of Texas at Tyler
Blair Farr Jarvis Christian College
Stanley Flax St. Thomas University
Ronelle Genser Devry University
Carolina Gomez University of Houston
Jorge A. Gonzalez University of Wisconsin at Milwaukee
Andre Graves SUNY Buffalo
Kenneth R. Gray Florida A&M University
James Gunn Berkeley College
James Halteman Wheaton College
Alan Hamlin Southern Utah University
Charles Harvey University of the West of England, UK
M. Anaam Hashmi Minnesota State University at Mankato
Les Jankovich San Jose State University
R. Sitki Karahan Montana State University
Ken Kim University of Toledo
Ki Hee Kim William Paterson University
Anthony Koh University of Toledo

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  PREFACE   21

Donald Kopka Towson University

James S. Lawson Jr. Mississippi State University
Ian Lee Carleton University
Tomasz Lenartowicz Florida Atlantic University
Joseph W. Leonard Miami University (Ohio)
Antoinette Lloyd Virginia Union University
Carol Lopilato California State University at Dominguez Hills
Jennifer Malarski North Hennepin Community College
Donna Weaver McCloskey Widener University
James McFillen Bowling Green State University
Mantha Mehallis Florida Atlantic University
John L. Moore Oregon Institute of Technology
David Mosby University of Texas, Arlington
Rod Oglesby Southwest Baptist University
Patrick O’Leary St. Ambrose University
Yongson Paik Loyola Marymount University
Clifford Perry Florida International University
Susan Peterson Scottsdale Community College
Janis Petronis Tarleton State University
William Piper William Piedmont College
Abe Qastin Lakeland College
Nadine Russell Central Piedmont Community College
C. Richard Scott Metropolitan State College of Denver
Deepak Sethi Old Dominion University
Charlie Shi Diablo Valley College
Coral R. Snodgrass Canisius College
Rajeev Sooreea Penn State—University Park
John Stanbury George Mason University
William A. Stoever Seton Hall University
Kenneth R. Tillery Middle Tennessee State University
William Walker University of Houston
Paula Weber St. Cloud State University
James E. Welch Kentucky Wesleyan College
Steve Werner University of Houston
David C. Wyld Southeastern Louisiana University
Robert Yamaguchi Fullerton College
It takes a dedicated group of individuals to take a textbook from first draft to final manuscript.
We thank our partners at Pearson Education for their tireless efforts in bringing the seventh edi-
tion of this book to fruition. Special thanks on this project go to Stephanie Wall, Editor-in-Chief;
Kris Ellis-Levy, Senior Acquisitions Editor; Ashley Santora, Director of Editorial Services;
Ann Pulido, Senior Production Project Manager; Maggie Moylan, Director of Marketing; and
Erin Gardner, Senior Marketing Manager.

A01_WILD6979_07_SE_FM.indd 21 1/16/13 2:44 PM

 Global Edition
Pearson would like to acknowledge and thank the following people for their work on the
Global Edition:

Contributors
Khalil Ghazzawi, Assistant Professor of Management, Rafik Hariri University, Lebanon.
Cory Isaacs, Lecturer, Seinäjoki University of Applied Sciences, Finland.
Raj Kormaran, Singapore Management University, Singapore.
John Luiz, Graduate School of Business, University of Cape Town, South Africa.
Teena Lyons.
Stefania Paladini, Department of Strategy & Applied Management, Coventry Business School,
Coventry University.
Soroosh Saghiri (Sam), School of Management, Cranfield University, UK.
Jon and Diane Sutherland.

Reviewers
Javier Calero Cuervo, University of Macau, Macau, S.A.R, China.
Hadia FakhrElDin, The British University in Egypt, Egypt.
Jens Graff, SolBridge International School of Business, Woosong Educational Foundation,
South Korea.
Bersant Hobdari, Copenhagen Business School, Denmark.
Roopali Khurana, Fontys University, Eindhoven, The Netherlands.
Kent Wilson, University of South Australia, Australia.

22

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 About the Authors

John J. Wild and Kenneth L. Wild provide a blend of skills uniquely suited to writing an
­international business textbook. They combine award-winning teaching and research with a
global view of business gained through years of living and working in cultures around the world.
Their writing makes the topic of international business practical, accessible, and enjoyable.

John J. Wild John J. Wild is a distinguished Professor of Business at the University of Wis-
consin at Madison. He previously held appointments at the University of Manchester in England
and at Michigan State University. He received his B.B.A., M.S., and Ph.D. from the University
of Wisconsin at Madison.
Teaching business courses at both the undergraduate and graduate levels, Professor Wild
has received several teaching honors, including the Mabel W. Chipman Excellence-in-Teaching
Award, the Teaching Excellence Award from the 2003 and 2005 business graduates from the
University of Wisconsin, and a departmental Excellence-in-Teaching Award from Michigan State
University. He is a prior recipient of national research fellowships from KPMG Peat M
­ arwick and
the Ernst and Young Foundation. Professor Wild is also a frequent speaker at universities and at
national and international conferences.
The author of more than 60 publications, in addition to 5 best-selling textbooks, Professor
Wild conducts research on a wide range of topics, including corporate governance, capital mar-
kets, and financial analysis and forecasting. He is an active member of several national and
international organizations, including the Academy of International Business, and has served as
associate editor and editorial board member for several prestigious journals.

Kenneth L. Wild Kenneth L. Wild is affiliated with the University of London, England. He
previously taught at Pennsylvania State University. He received his Ph.D. from the University
of Manchester (UMIST) in England and his B.S. and M.S. degrees from the University of
Wisconsin. Dr. Wild also undertook postgraduate work at École des Affairs Internationale in
Marseilles, France.
Having taught students of international business, marketing, and management at both the
undergraduate and graduate levels, Dr. Wild is a dedicated contributor to international business
education. An active member of several national and international organizations, including the
Academy of International Business, Dr. Wild has spoken at major universities and at national
and international conferences.
Dr. Wild’s research covers a range of international business topics, including market entry
modes, country risk in emerging markets, international growth strategies, and globalization of
the world economy.

23

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A01_WILD6979_07_SE_FM.indd 24 1/16/13 2:44 PM
 International Business
The Challenges of Globalization

G lobal E dition

A01_WILD6979_07_SE_FM.indd 25 1/16/13 2:44 PM

 Chapter one Part 1 Global Business Environment

Globalization

Learning Objectives
After studying this chapter, you should be able to

1. Identify the types of companies that participate in 4. Summarize the evidence for each main argument
international business. in the globalization debate.
2. Describe the process of globalization and how it 5. Describe the global business environment and
affects markets and production. identify its four main elements.
3. Describe the two forces causing globalization to
increase.

A Look at This Chapter A Look Ahead

This chapter defines the scope of Part 2, encompassing Chapters 2, 3,
international business and introduces and 4, introduces us to different
us to some of its most important national business environments.
topics. We begin by identifying Chapter 2 describes important
the key players in international cultural differences among nations.
business today. We then present Chapter 3 examines different
globalization, describing its influence political and legal systems. And
on markets and production and the Chapter 4 presents the world’s
forces behind its growth. Next, we various economic systems and issues
analyze each main argument in the surrounding economic development.
debate over globalization in detail.
This chapter closes with a model
that depicts international business as
occurring within an integrated global
business environment.

26

M01_WILD6979_07_SE_C01.indd 26 1/16/13 3:09 PM

 Emirates‘ Global IMpact MyManagementLab®
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erates worldwide in many different countries and cultures? The answer is that global
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entertainment, and provides international food and drink during the flight. Further-
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that its cabin crew is highly diverse in terms of nationality, religion, and languages.
In fact, the group operates a global recruitment process, and its staff, from cabin
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sider how globalization is reshaping our personal lives and altering the activities of
international companies.1

27

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 28  Part 1 • Global Business Environment

B y knitting the world more tightly together, globalization is altering our private lives and
transforming the way companies do business. We are increasingly exposed to the traits
and practices of other cultures as technology drives down the cost of global communica-
tion and travel. Globalization is forcing industries to grow more competitive as countries reduce
barriers to trade and investment. And competition is intensifying as large firms from advanced
countries and emerging markets seek out new customers on a global scale.
For example, Apple (www.apple.com) is an undisputed global success story. Its spectacu-
lar rise illustrates the opportunities that globalization creates for entrepreneurs and businesses
everywhere. In addition, technology products like Apple’s iPhone and other smartphones are
changing how we interact through social media. Many of these changes are positive and gener-
ate all sorts of efficiencies. For example, people anywhere in the world can tune in to what is
happening in their Facebook friends’ lives in real time.
But are all the changes positive ones? Larry Rosen, a psychologist and professor, says the
desire to stay connected and following through on persistent urges to check for messages on
smartphones delivers little satisfaction. “The relief is not pleasurable,” he says. “That’s the sign
of an obsession.” Rosen says the best and worst thing about a smartphone today “is that we carry
it with us all day long.”2 Yet, this is the world in which we now live and work. The more we
embrace technology, the faster paced our lives seem to grow.

International Business Involves Us All

Each of us experiences the results of international business transactions as we go about our daily
routines. The General Electric (www.ge.com) alarm clock/radio that woke you this morning
was likely made in China. The breaking news buzzing in your ears was produced by Britain’s
BBC radio (www.bbc.co.uk). You slip on your Adidas sandals (www.adidas.com) that were
made in Indonesia, an Abercrombie & Fitch T-shirt (www.abercrombie.com) made in the Northern
Mariana Islands, and American Eagle jeans (www.ae.com) made in Mexico. As you head out
the door, you pull the battery charger off your Apple iPhone (www.apple.com), which was
designed in the United States and assembled in China with parts from Japan, South Korea,
Taiwan, and several other nations. You hop into your Korean Hyundai (www.hmmausa.com)
that was made in Alabama, grab your iPod, and play a song by the English band Coldplay
(www.coldplay.com). You drive into the local Starbucks (www.starbucks.com) to charge your
own batteries with coffee brewed from beans harvested in Colombia and Ethiopia. Your day
is just one hour old, but in a way, you’ve already taken a virtual trip around the world. A quick
glance at the “Made in” tags on your jacket, backpack, watch, wallet, or other items with you
right now will demonstrate the pervasiveness of international business transactions.
international business International business is any commercial transaction that crosses the borders of two
Commercial transaction that crosses or more nations. You don’t have to set foot outside a small town to find evidence of international
the borders of two or more nations. business. No matter where you live, you’ll be surrounded by imports—goods and services
imports purchased abroad and brought into a country. Your counterparts around the world will undoubt-
Goods and services purchased edly spend some part of their day using your nation’s exports—goods and services sold abroad
abroad and brought into a country. and sent out of a country. Every year, all the nations of the world export goods and services
worth $18 trillion. This figure is around 40 times the annual global revenue of Walmart Stores
exports
(www.walmart.com).3
Goods and services sold abroad and
sent out of a country.
Technology Makes It Possible
Technology is a primary driver of societal and commercial change today. Consumers use tech-
nology to reach out to the world on the Internet—gathering and sending information and pur-
chasing all kinds of goods and services. Companies use technology to acquire materials and
products from distant lands and to sell goods and services abroad.
When businesses or consumers use technology to conduct transactions, they engage in
e-business (e-commerce) e-business (e-commerce)—the use of computer networks to purchase, sell, or exchange products;
Use of computer networks to to service customers; and to collaborate with partners. E-business is making it easier for companies
­purchase, sell, or exchange to make their products abroad, not simply to import and export finished goods.
­products; to service customers; Consider how Hewlett-Packard (HP; www.hp.com) designed and built a computer server for
and to collaborate with partners. small businesses. Once HP identified the need for a new low-cost computer server, it seized the
rewards of globalization. HP dispersed its design and production activities throughout a specialized

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  Chapter 1 • Globalization  29

We see the result of embracing

globalization in this photo
of skyscrapers in the Lujiazui
Financial and Trade Zone
of the Pudong New Area in
Shanghai, China. After years
of stunning economic growth
and expansion, Shanghai has
emerged as a key city for
companies entering China’s
marketplace. Pudong was
developed to reinvigorate
Shanghai as an international
trade and financial center.
Pudong is now a modern,
cosmopolitan district. How
has globalization changed the
economic landscape of your
city and state?
Source: Amanda Hall/Robert Harding/
Newscom

manufacturing system across five Pacific Rim nations and India. This helped the company minimize
labor costs, taxes, and shipping delays yet maximize productivity when designing, building, and dis-
tributing its new product. Companies use such innovative production and distribution techniques to
squeeze inefficiencies out of their international operations and boost their competitiveness.

Global Talent Makes It Happen

Firms can tap a global pool of talent in preparing their products for distribution. For example,
Fox and NBC Universal created Hulu (www.hulu.com) as a cool venue for fans to watch movies
and TV shows online. Hulu engages in a global relay race by employing two technical teams—
one in the United States and one in China—to manage its website. Members of the team in
Santa Monica, California, work late into the night detailing code specifications that they send
to the team in Beijing, China. The Chinese team then writes the code and sends it back to Santa
Monica before the U.S. team gets to work in the morning.
Some innovative companies use online competitions to attract innovative ideas worldwide.
InnoCentive (www.innocentive.com) connects companies and institutions seeking solutions
to difficult problems by using a global network of 250,000 creative thinkers. These engineers,
scientists, inventors, and businesspeople with expertise in life sciences, engineering, chemistry,
math, computer science, and entrepreneurship compete to solve some of the world’s toughest
problems in return for significant financial awards. InnoCentive is open to anyone, is available in
seven languages, and pays cash awards that range from as little as $500 to more than $1 million.4
This chapter begins by examining the key players in international business. Then, we describe
globalization’s powerful influence on markets and production and explain the forces behind its ex-
pansion. Next, we cover each main point in the debate over globalization. We also explain why in-
ternational business is special by presenting the dynamic, integrated global business environment.
Finally, the appendix at the end of this chapter contains a world atlas to be used as a primer for this
chapter’s discussion and as a reference throughout the remainder of the book.

Key Players in International Business

Companies of all types and sizes and in all sorts of industries become involved in international
business, yet they vary in the extent of their involvement. A small shop owner might only import
supplies from abroad, whereas a large company may have dozens of factories located around the
world. Large companies from the wealthiest nations still dominate international business. But
firms from emerging markets (such as Brazil, China, India, and South Africa) now vigorously

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 30  Part 1 • Global Business Environment

compete for global market share. Small and medium-sized companies are also increasingly
active in international business largely because of advances in technology.

Multinational Corporations
multinational corporation A multinational corporation (MNC) is a business that has direct investments (in the form of
(MNC) marketing or manufacturing subsidiaries) abroad in multiple countries. Multinationals generate
Business that has direct investments significant jobs, investment, and tax revenue for the regions and nations they enter. Likewise,
abroad in multiple countries. they can leave thousands of people out of work when they close or scale back operations. Mergers
and acquisitions between multinationals are commonly worth billions of dollars and increas-
ingly involve companies based in emerging markets.
Some companies have more employees than many of the smallest countries and island na-
tions have citizens. Walmart, for example, has 2.2 million employees. We see the enormous
economic clout of multinational corporations when we compare the revenues of the Global 500
ranking of companies with the value of goods and services that countries generate. Figure 1.1
shows the world’s 10 largest companies (measured in revenue) inserted into a ranking of nations
according to their national output (measured in GDP). If Walmart (www.walmart.com) were a
country, it would weigh in as a rich nation and rank just three places behind Norway. Even the
$22 billion in revenue generated by the 500th largest firm in the world, Manpower Group (www.
manpowergroup.com), exceeds the output of many countries.5
born global firm
Company that adopts a global
Entrepreneurs and Small Businesses
perspective and engages in International business competition has given rise to a new entity, the born global firm—a com-
international business from pany that adopts a global perspective and engages in international business from or near its
or near its inception. inception. Many of these companies become international competitors in less than three years’

FIGURE 1.1 Norway

Royal Dutch Shell (Neth.)
Comparing the World’s
Exxon Mobil (USA)
Largest Companies with
Walmart Stores (USA)
Selected Countries
Argentina
Source: Based on data obtained from Austria
“Fortune Gll 500: The World’s Largest
Corporations,” Fortune, July 23, 2012, South Africa
pp. F1–F7; World Bank data set available BP (Britain)
at data.worldbank.org. Sinopec Group (China)
United Arab Emirates
China National Petroleum (China)
Thailand
Country/Company

Denmark
Colombia
Venezuela
Greece
Malaysia
Finland
State Grid (China)
Chile
Chevron (USA)
Hong Kong, China
Israel
Singapore
Portugal
ConocoPhillips (USA)
Nigeria
Toyota Motor (Japan)
Egypt

0 100 200 300 400 500

GDP/Revenue (U.S. $ billions)

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  Chapter 1 • Globalization  31

time. Born global firms tend to have innovative cultures and knowledge-based organizational
capabilities. And in this age of globalization, companies are exporting earlier and growing faster,
often with help from technology.
Small firms selling traditional products benefit from technology that lowers the costs and
difficulties of global communication. Vellus Products (www.vellus.com) of Columbus, Ohio,
makes and sells pet-grooming products. Around 20 years ago, a dog breeder in Spain became
Vellus’s first distributor after the breeder received a request for more information on Vellus’s
products from a man in Bahrain. “The way this [business transaction] transpired just blew me
away,” says Sharon Kay Doherty, president of Vellus. The company now has distributors in 31
countries. Vellus resembles a global company in that it earned more than half its revenues from
international sales soon after going international.6
Electronic distribution for firms that sell digitized products is an effective alternative to tra-
ditional distribution channels. Alessandro Naldi’s Weekend in Italy website (en.firenze.waf.it)
offers visitors more authentic Florentine products than they’ll find in the scores of overpriced
tourist shops in downtown Florence. A Florentine himself, Naldi established his site to sell high-
quality, authentic Italian merchandise made only in the small factories of Tuscany. Weekend in
Italy averages 200,000 visitors each month from places as far away as Australia, Canada, Japan,
Mexico, and the United States.7

Quick Study 1
1. Define the term international business, and explain how it involves us all.
2. Explain how e-business (e-commerce) affects international business.
3. What types of companies are involved in international business?

Globalization
Nations historically retained absolute control over the products, people, and capital crossing
their borders. But today, economies are becoming increasingly intertwined. This greater interde-
pendence means an increasingly freer flow of goods, services, money, people, and ideas across
national borders. Globalization is the name we give to this trend toward greater economic, cul- globalization
tural, political, and technological interdependence among national institutions and economies. Trend toward greater economic,
Globalization is characterized by denationalization (national boundaries becoming less relevant) cultural, political, and technological
and is different from internationalization (entities cooperating across national boundaries). interdependence among national
As its definition implies, globalization involves much more than the expansion of trade and institutions and economies.
investment among nations. Globalization embraces concepts and theories from political science,
sociology, anthropology, and philosophy as well as economics. As such, it is not a term exclusively
reserved for multinational corporations and international financial institutions. Nor is globalization
the exclusive domain of those with only altruistic or moral intentions. In fact, globalization has been
described as going “well beyond the links that bind corporations, traders, financiers, and central bank-
ers. It provides a conduit not only for ideas but also for processes of coordination and cooperation
used by terrorists, politicians, religious leaders, anti-globalization activists, and bureaucrats alike.”8
For our purposes, this discussion focuses on the business implications of globalization.
Two areas of business in which globalization is having profound effects are the globalization of
markets and production.

Globalization of Markets
Globalization of markets refers to the convergence in buyer preferences in markets around the
world. This trend is occurring in many product categories, including consumer goods, industrial
products, and business services. Clothing retailer L.L. Bean (www.llbean.com), shoe producer
Nike (www.nike.com), and electronics maker Vizio (www.vizio.com) are just a few companies
that sell global products—products marketed in all countries essentially without any changes.
For example, the iPad qualifies as a global product because of its highly standardized features
and Apple’s global marketing strategy and globally recognized brand.
Global products and global competition characterize many industries and markets, includ-
ing semiconductors (Intel, Philips), aircraft (Airbus, Boeing), construction equipment (Cater-
pillar, Mitsubishi), automobiles (Toyota, Volkswagen), financial services (Citicorp, HSBC), air

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 32  Part 1 • Global Business Environment

travel (Lufthansa, Singapore Airlines), accounting services (Ernst & Young, KPMG), consumer
goods (Procter & Gamble, Unilever), and fast food (KFC, McDonald’s). The globalization of
markets is important to international business because of the benefits it offers companies. Let’s
now look briefly at each of those benefits.
Reduces Marketing Costs Companies that sell global products can reduce costs by
standardizing certain marketing activities. A company selling a global consumer good, such as
shampoo, can make an identical product for the global market and then simply design different
packaging to account for the language spoken in each market. Companies can achieve further
cost savings by keeping an ad’s visual component the same for all markets but dubbing TV ads
and translating print ads into local languages.
Creates New Market Opportunities A company that sells a global product can explore
opportunities abroad if its home market is small or becomes saturated. China holds enormous
potential for e-business with more than 500 million Internet users, which is greater than the
population of the entire United States. But while more than 70 percent of people in the United
States actively surf the web, only around 38 percent of people in China do.9 So as time goes on,
more and more Chinese citizens will go online to research and purchase products. The appeal
of reaching such a vast audience drives firms from relatively small countries to explore doing
business in the Chinese market.
Levels Uneven Income Streams A company that sells a product with universal, but seasonal,
appeal can use international sales to level its income stream. By supplementing domestic sales
with international sales, the company can reduce or eliminate wide variations in sales between
seasons and steady its cash flow. For example, a firm that produces suntan and sunblock lotions can
match product distribution with the summer seasons in the northern and southern hemispheres in
alternating fashion—thereby steadying its income from these global, yet highly seasonal, products.
Local Buyers’ Needs Despite the potential benefits of global markets, managers must
constantly monitor the match between the firm’s products and markets in order not to overlook
the needs of buyers. The benefit of serving customers with an adapted product may outweigh
the benefit of a standardized one. For instance, soft drinks, fast food, and other consumer goods
are global products that continue to penetrate markets around the world. But sometimes these
products require small modifications to better suit local tastes. In southern Japan, Coca-Cola
(www.cocacola.com) sweetens its traditional formula to compete with the sweeter-tasting
Pepsi (www.pepsi.com). In India, where cows are sacred and the consumption of beef is taboo,
McDonald’s (www.mcdonalds.com) markets the “Maharaja Mac”—two all-mutton patties on a
sesame-seed bun with all the usual toppings.
Global Sustainability Another need that multinationals must consider is the need among all
sustainability the world’s citizens for sustainability—development that meets the needs of the present without
Development that meets the compromising the ability of future generations to meet their own needs. 10 Most companies
needs of the present without today operate in an environment of increased transparency and scrutiny regarding their business
­compromising the ability of future activities. The rise of social media is partly responsible for this trend. Concerned individuals and
generations to meet their own nongovernmental organizations will very quickly use Internet media to call out any firm caught
needs.
harming the environment or society.
For years, forward-looking businesses have employed the motto, “reduce, reuse, and recycle.”
The idea is to reduce the use of resources and waste, reuse resources with more than a single-use
lifespan, and recycle what cannot be reduced or reused. The most dedicated managers and firms
promote sustainable communities by adding to the motto, “redesign and reimagine.” This means
redesigning products and processes for sustainability and reimagining how a product is designed
and used to lessen its environmental impact.11 To read more about the call for more sustainable
business practices, see this chapter’s Global Sustainability feature, titled “Three Markets, Three
Strategies.”

Globalization of Production
Globalization of production refers to the dispersal of production activities to locations that help
a company achieve its cost-minimization or quality-maximization objectives for a good or ser-
vice. This includes the sourcing of key production inputs (such as raw materials or products for

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  Chapter 1 • Globalization  33

Global Sustainability Three Markets, Three Strategies

A company adapts its business strategy to the nuances of the mar-

ket it enters. The world’s population of 7 billion people lives in three
• Toyota focused on the environment in its developed markets.
After extensively researching gas-electric hybrid technologies,
different types of markets: Toyota launched the Prius. As Motor Trend’s Car of the Year,
the Prius drove Toyota’s profits to record highs and gave it a
• Developed Markets. These include the world’s established
“green” image.
consumer markets, around one billion people. The population is
• Shree Cement faced limited access to low-cost energy in In-
solidly middle class, and people can consume almost any prod-
dia’s emerging market. So it developed the world’s most energy-
uct desired. The infrastructure is highly developed and efficient.
efficient process for making its products. The world’s leading
• Emerging Markets. These markets, around two billion people,
cement companies now visit Shree to learn from its innovations
are racing to catch up to developed nations. The population is
in energy usage.
migrating to cities for better pay and is overloading cities’ in-
• Blommer Chocolate of the United States works closely with
frastructures. Rising incomes are increasing global demand for
cocoa farmers in traditional markets. Blommer received the
resources and basic products.
Rainforest Alliance’s “Sustainable Standard-Setter” award for
• Traditional Markets. Globalization has bypassed these mar-
training farmers in safe farming practices, environmental
kets, nearly four billion people. The population is mostly rural, the
stewardship, and HIV awareness.
infrastructure is very poor, and there is little credit or collateral.
People have almost no legal protections, and corruption prevails. Source: Jeremy Jurgens and Knut Haanæs, “Companies from Emerging Markets Are the
New Sustainability Champions,” The Guardian (www.guardian.co.uk), October 12, 2011;
Like business strategy, sustainability strategies reflect local condi- Stuart L. Hart, Capitalism at the Crossroads, Third Edition (Upper Saddle River, NJ:
tions. Examples of businesses working toward sustainability in these Wharton School Publishing, 2010); Daniel C. Esty and Andrew S. Winston, Green to Gold
three markets include the following: (New Haven, CT: Yale University Press, 2006).

assembly) as well as the international outsourcing of services. Let’s now explore the benefits
that companies obtain from the globalization of production.
Access Lower-Cost Workers Global production activities allow companies to reduce
overall production costs through access to low-cost labor. For decades, companies located their
factories in low-wage nations in order to churn out all kinds of goods, including toys, small
appliances, inexpensive electronics, and textiles. Yet whereas moving production to low-cost
locales traditionally meant production of goods almost exclusively, it increasingly applies
to the production of services such as accounting and research. Although most services must
be produced where they are consumed, some services can be performed at remote locations
where labor costs are lower. Many European and U.S. businesses have moved their customer
service and other nonessential operations to places as far away as India to slash costs by as much
as 60 percent.
Access Technical Expertise Companies also produce goods and services abroad to benefit
from technical know-how. Film Roman (www.filmroman.com) produces the TV series The
Simpsons, but it provides key poses and step-by-step frame directions to AKOM Production
Company (www.akomkorea.com) in Seoul, South Korea. AKOM then fills in the remaining
poses and links them into an animated whole. But there are bumps along the way, says animation
director Mark Kirkland. In one middle-of-the-night phone call, Kirkland was explaining to the
Koreans how to draw a shooting gun. “They don’t allow guns in Korea; it’s against the law,” says
Kirkland. “So they were calling me [asking]: ‘How does a gun work?’” Kirkland and others put
up with such cultural differences and phone calls at odd hours to tap a highly qualified pool of
South Korean animators.12
Access Production Inputs Globalization of production allows companies to access resources
that are unavailable or more costly at home. The quest for natural resources draws many
companies into international markets. Japan, for example, is a small, densely populated island
nation with very few natural resources of its own—especially forests. But Japan’s largest paper
company, Nippon Seishi, does more than simply import wood pulp. The company owns huge
forests and corresponding processing facilities in Australia, Canada, and the United States. This
gives the firm not only access to an essential resource but also control over earlier stages in the
papermaking process. As a result, the company is guaranteed a steady flow of its key ingredient
(wood pulp) that is less subject to the swings in prices and supply associated with buying pulp

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 34  Part 1 • Global Business Environment

on the open market. Likewise, to access cheaper energy resources used in manufacturing, a
variety of Japanese firms are relocating production to China and Vietnam, where energy costs
are lower than in Japan.

Quick Study 2
1. Define globalization. How does denationalization differ from internationalization?
2. List each benefit a company might obtain from the globalization of markets.
3. How might a company benefit from the globalization of production?

Forces Driving Globalization

Two main forces underlie the globalization of markets and production: falling barriers to trade
and investment and technological innovation. These two features, more than anything else, are
increasing competition among nations by leveling the global business playing field. Greater
competition is driving companies worldwide into more direct confrontation and cooperation.
Local industries once isolated by time and distance are increasingly accessible to large inter-
national companies based many thousands of miles away. Some small and medium-sized local
firms are compelled to cooperate with one another or with larger international firms to remain
competitive. Other local businesses revitalize themselves in a bold attempt to survive the com-
petitive onslaught. And on a global scale, consolidation is occurring as former competitors in
many industries link up to challenge others on a worldwide basis. Let’s now explore the pivotal
roles of two forces driving globalization.

Falling Barriers to Trade and Investment

In 1947, political leaders of 23 nations (12 developed and 11 developing economies) made
General Agreement on Tariffs history when they created the General Agreement on Tariffs and Trade (GATT)—a treaty
and Trade (GATT) designed to promote free trade by reducing tariffs and nontariff barriers to international trade.
Treaty designed to promote free Tariffs are essentially taxes levied on traded goods, and nontariff barriers are limits on the quan-
trade by reducing both tariffs tity of an imported product. The treaty was successful in its early years. After four decades,
and nontariff barriers to world merchandise trade had grown 20 times larger, and average tariffs had fallen from 40 percent
international trade.
to 5 percent.

Workers at a factory in
Indonesia inspect electronic
parts bound for global
markets. Today, companies
can go almost anywhere in the
world to tap local expertise
and favorable business
climates. For example, U.S.
businesses exploit technology
by subcontracting work to
Chinese companies that write
computer software code and
then e-mail their end product
to the U.S. clients. In this way,
companies can lower costs,
increase efficiency, and grow
more competitive. In what
other ways might technology
and global talent facilitate
international business activity?
Source: BOB LOW/AFP/Newscom

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  Chapter 1 • Globalization  35

Significant progress occurred again with a 1994 revision of the GATT treaty. Nations that
had signed on to the treaty further reduced average tariffs on merchandise trade and lowered
subsidies (government financial support) for agricultural products. The treaty’s revision also
clearly defined intellectual property rights. This gave protection to copyrights (including com-
puter programs, databases, sound recordings, and films), trademarks and service marks, and pat-
ents (including trade secrets and know-how). A major flaw of the original GATT was that it
lacked the power to enforce world trade rules. Thus, the creation of the World Trade Organiza-
tion was likely the greatest accomplishment of the GATT revision.
The World Trade Organization The World Trade Organization (WTO) is the World Trade Organization
international organization that enforces the rules of international trade. The three main goals of (WTO)
the WTO (www.wto.org) are to help the free flow of trade, help negotiate the further opening International organization
of markets, and settle trade disputes among its members. It is the power of the WTO to settle that enforces the rules of
trade disputes that sets it apart from its predecessor, the GATT. The various WTO agreements international trade.
are essentially contracts between member nations that commit them to maintaining fair and
open trade policies. Offenders must realign their trade policies according to WTO guidelines or
face fines and, perhaps, trade sanctions (penalties). Because of its ability to penalize offending
nations, the WTO’s dispute-settlement system truly is the spine of the global trading system. The
WTO replaced the institution of GATT but absorbed all of the former GATT agreements. Thus,
the GATT institution no longer officially exists. Today, the WTO recognizes 157 members and
27 “observers.”
The WTO launched a new round of negotiations in Doha, Qatar, in late 2001. The renewed
negotiations were designed to lower trade barriers further and to help poor nations in particular.
Agricultural subsidies that rich countries pay to their own farmers are worth $1 billion per day—
more than six times the value of their combined aid budgets to poor nations. Because 70 percent
of poor nations’ exports are agricultural products and textiles, wealthy nations had intended to
further open these and other labor-intensive industries. Poor nations were encouraged to reduce
tariffs among themselves and were supposed to receive help in integrating themselves into the
global trading system. Although the Doha round was to conclude by the end of 2004, negotia-
tions are proceeding more slowly than anticipated.13

Regional Trade Agreements In addition to the WTO, smaller groups of nations are
integrating their economies by fostering trade and boosting cross-border investment. For
example, the North American Free Trade Agreement (NAFTA) gathers three nations (Canada,
Mexico, and the United States) into a free-trade bloc. The more ambitious European Union
(EU) combines 27 countries. The Asia Pacific Economic Cooperation (APEC) consists of 21
member economies committed to creating a free-trade zone around the Pacific. The aims of
each of these smaller trade pacts are similar to those of the WTO but are regional in nature.
Moreover, some nations encourage regional pacts because of recent resistance to worldwide
trade agreements.

Trade And National Output Together, the WTO agreements and regional pacts have
boosted world trade and cross-border investment significantly. Trade theory tells us that
openness to trade helps a nation produce a greater amount of output. Map 1.1 illustrates that
growth in national output over a recent 10-year period has been significantly positive. Economic
growth has been greater in nations that have recently become more open to trade, such as China,
India, and Russia, than it has been in many other countries. Much of South America is also gross domestic product (GDP)
Value of all goods and services
growing rapidly, whereas Africa’s experience is mixed. This relation between trade and output
produced by a domestic economy
has persisted despite a drop in nations’ economic growth rates due to the global financial crises over a one-year period.
of recent years.
Let’s take a moment in our discussion to define a few terms that we will encounter time and gross national product (GNP)
again throughout this book. Gross domestic product (GDP) is the value of all goods and ser- Value of all goods and services
vices produced by a domestic economy over a one-year period. GDP excludes a nation’s income produced by a country’s domestic
generated from exports, imports, and the international operations of its companies. We can speak and international activities over a
one-year period.
in terms of world GDP when we sum all individual nations’ GDP figures. GDP is a somewhat
narrower figure than gross national product (GNP)—the value of all goods and services pro- GDP or GNP per capita
duced by a country’s domestic and international activities over a one-year period. A country’s Nation’s GDP or GNP divided by its
GDP or GNP per capita is simply its GDP or GNP divided by its population. population.

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 36  Part 1 • Global Business Environment

MAP 1.1
Growth in National
Output

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  Chapter 1 • Globalization  37

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 38  Part 1 • Global Business Environment

Technological Innovation
Although falling barriers to trade and investment encourage globalization, technological innovation
is accelerating its pace. Significant advancements in information technology and transporta-
tion methods are making it easier, faster, and less costly to move data, goods, and equipment
around the world. Let’s examine several innovations that have had a considerable impact on
globalization.

E-Mail And Videoconferencing Operating across borders and time zones complicates
the job of coordinating and controlling business activities. But technology can speed the flow
of information and ease the tasks of coordination and control. E-mail is an indispensable tool
that managers use to stay in contact with international operations and to respond quickly to
important matters.
Videoconferencing allows managers in different locations to meet in virtual face-to-face
meetings. Primary reasons for 25 to 30 percent annual growth in videoconferencing include the
lower cost of bandwidth (communication channels) used to transmit information, the lower cost
of equipment, and the rising cost of travel for businesses. Videoconferencing equipment can cost
as little as $5,000 and as much as $340,000. A company that does not require ongoing video­
conferencing can pay even less by renting the facilities and equipment of a local conference center.14
And for those willing to videoconference on a desktop, laptop, tablet computer, or mobile device
(which includes most people) there is iMeet (www.imeet.com). This service provider charges
less than $70 per month for unlimited video meetings.15

The Internet Companies use the Internet to quickly and cheaply contact managers in distant
locations—for example, to inquire about production runs, revise sales strategies, and check on
distribution bottlenecks. They also use the Internet to achieve longer-term goals, such as sharpen
their forecasting, lower their inventories, and improve communication with suppliers. The lower
cost of reaching an international customer base especially benefits small firms, which were
among the first to use the Internet as a global marketing tool. Additional gains arise from the
ability of the Internet to cut postproduction costs by decreasing the number of intermediaries a
product passes through on its way to the customer. Eliminating intermediaries greatly benefits
online sellers of books, music, and travel services, among others.

Company Intranets And Extranets Internal company websites and information networks
(intranets) give employees access to company data using personal computers. A particularly
effective marketing tool on Volvo Car Corporation’s (www.volvocars.com) intranet is a quarter-
by-quarter database of marketing and sales information. The cycle begins when headquarters
submits its corporate-wide marketing plan to Volvo’s intranet. Marketing managers at each
subsidiary worldwide then select those activities that apply to their own market, develop their
marketing plan, and submit it to the database. This allows managers in every market to view every
other subsidiary’s marketing plan and to adapt relevant aspects to their own plan. In essence, the
entire system acts as a tool for the sharing of best practices across all of Volvo’s markets.
Extranets give distributors and suppliers access to a company’s database so they can place
orders or restock inventories electronically and automatically. These networks permit inter­
national companies (along with their suppliers and buyers) to respond to internal and external
conditions more quickly and more appropriately.

Advancements In Transportation Technologies Retailers worldwide rely on imports

to stock their storerooms with finished goods and to supply factories with raw materials and
intermediate products. Innovation in the shipping industry is helping globalize markets and
production by making shipping more efficient and dependable. In the past, a cargo ship would
sit in port up to 10 days while it was unloaded one pallet at a time. But because cargo today is
loaded onto a ship in 20- and 40-foot containers that are quickly unloaded onto railcars or truck
chassis at the final destination, a 700-foot cargo ship is routinely unloaded in just 15 hours.
Operation of cargo ships is now simpler and safer due to computerized charts that pinpoint a
ship’s movements on the high seas using Global Positioning System (GPS) satellites. Combining
GPS with radio frequency identification (RFID) technology allows continuous monitoring of indi-
vidual containers from port of departure to destination. RFID can tell whether a container’s doors are
opened and closed on its journey and can send an alert if a container deviates from its planned route.

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  Chapter 1 • Globalization  39

Table 1.1 Globalization’s Top 10

Rank

Country Overall Economic Social Political

Belgium 1 5 5 3
Ireland 2 3 2 28
Netherlands 3 6 8 14
Austria 4 14 4 4
Singapore 5 1 3 74
Sweden 6 8 17 7
Denmark 7 13 9 15
Hungary 8 7 22 21
Portugal 9 17 12 9
Switzerland 10 25 6 11

Source: Based on the 2012 KOF Index of Globalization (www.globalization.kof.ethz.ch), March 16, 2012.

Measuring Globalization
Although we intuitively feel that our world is becoming smaller, researchers have created ways
to measure the extent of globalization scientifically. One index of globalization is the one cre-
ated by the KOF Swiss Economic Institute (www.kof.ethz.ch). This index ranks nations on
23 variables within three dimensions: economic globalization (trade and investment volumes,
trade and capital restrictions), social globalization (dissemination of information and ideas), and
political globalization (political cooperation with other countries).16
By incorporating a wide variety of variables, the globalization index attempts to cut through
cycles occurring in any single category and capture the broad nature of globalization. Table 1.1
shows the 10 highest-ranking nations according to the KOF Index of Globalization. European
nations occupy 9 of the top 10 positions, with smaller nations clearly dominating the rankings.
The city-state of Singapore is the only Asian nation listed in the top 10. The United States ap-
pears in 35th place overall, and ranks 79th in economic globalization, 29th in social globaliza-
tion, and 22nd in political globalization. Large nations often do not make it into the higher ranks
of globalization indices because a large home market means they tend to depend less on external
trade and investment.
The world’s least-globalized nations account for around half the world’s population and are
found in Africa, East Asia, South Asia, Latin America, and the Middle East. Some of the least-
globalized nations are characterized by never-ending political unrest and corruption (Bangladesh,
Indonesia, and Venezuela). Other nations with large agricultural sectors face trade barriers in de-
veloped countries and are subject to highly volatile prices on commodity markets (Brazil, China,
and India). Still others are heavily dependent on oil exports but are plagued by erratic prices in
energy markets (Iran and Venezuela). Kenya has suffered from recurring droughts, terrorism,
and burdensome visa regulations that hurt tourism. Finally, Turkey and Egypt, along with the
entire Middle East, suffer from continued concerns over violence and social unrest, high barri-
ers to trade and investment, and heavy government involvement in the economy. To deepen their
global links, these nations will need to make great strides forward in their economic, social, and
political environments.

Quick Study 3
1. How have global and regional efforts to promote trade and investment advanced
globalization?
2. How does technological innovation propel globalization?
3. What factors make some countries more globalized than others?

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 40  Part 1 • Global Business Environment

Untangling the Globalization Debate

Globalization means different things to different people. A businessperson may see globaliza-
tion as an opportunity to source goods and services from lower-cost locations and to pry open
new markets. An economist may see it as an opportunity to examine the impact of globalization
on jobs and standards of living. An environmentalist may be concerned with how globalization
affects our ecology. An anthropologist may want to examine the influence of globalization on
the culture of a group of people. A political scientist may be concerned with the impact of
globalization on the power of governments relative to that of multinational companies. And an
employee may view globalization either as an opportunity for new work or as a threat to his or
her current job.
It is because of the different lenses through which we view events around us that the global-
ization debate is so complex. Entrepreneurs, small business owners, and globetrotting managers
need to understand globalization and the arguments of those who oppose it. In the pages that
follow, we explain the main arguments of those opposed to globalization and the responses of
those in favor of it. But before we address the intricacies of the debate, it is helpful to put today’s
globalization into its proper context.

Today’s Globalization in Context

Many people forget that there was a first age of globalization that extended from the mid-1800s
to the 1920s.17 In those days, labor was highly mobile, with 300,000 people leaving Europe each
year in the 1800s and 1 million people leaving each year after 1900.18 Other than in wartime,
nations did not even require passports for international travel before 1914. And like today, work-
ers in wealthy nations back then feared competition for jobs from high- and low-wage countries.
Trade and capital flowed more freely than ever during that first age of globalization. Huge
companies from wealthy nations built facilities in distant lands to extract raw materials and pro-
duce all sorts of goods. Large cargo ships plied the seas to deliver their manufactures to dis-
tant markets. The transatlantic cable (completed in 1866) allowed news between Europe and
the United States to travel faster than ever before. The drivers of that first age of globalization
included the steamship, telegraph, railroad, and, later, the telephone and airplane.
That first age of globalization was abruptly halted by the arrival of the First World War, the
Russian Revolution, and the Great Depression. A backlash to fierce competition in trade and
unfettered immigration in the early 1900s helped usher in high tariffs and barriers to immigra-
tion. The great flows of goods, capital, and people common before the First World War became
a mere trickle. For 75 years from the start of the First World War to the end of the Cold War, the
world remained divided. There was a geographic divide between East and West and an ideologi-
cal divide between communism and capitalism. After the Second World War, the West experi-
enced steady economic gains, but international flows of goods, capital, and people were confined
to their respective capitalist and communist systems and geographies.
Fast-forward to 1989 and the collapse of the wall separating East and West Berlin. One
by one, central and eastern European nations rejected communism and began marching toward
democratic institutions and free-market economic systems. Although it took until the 1990s for
international capital flows, in absolute terms, to recover to levels seen prior to the First World
War, the global economy had finally been reborn. The drivers of this second age of globalization
include communication satellites, fiber optics, microchips, and the Internet.

Introduction to the Debate

In addition to the WTO presented earlier, several other supranational institutions play leading
World Bank roles in fostering globalization. The World Bank is an agency created to provide financing for
Agency created to provide financing national economic development efforts. The initial purpose of the World Bank (www.worldbank
for national economic development .org) was to finance European reconstruction following the Second World War. The World Bank
efforts. later shifted its focus to the general financial needs of developing countries, and today it fi-
International Monetary Fund nances many economic development projects in Africa, South America, and Southeast Asia.
Agency created to regulate fixed The International Monetary Fund (IMF) is an agency created to regulate fixed exchange rates
exchange rates and to enforce the and to enforce the rules of the international monetary system. Today, the IMF (www.imf.org)
rules of the international monetary has 185 member countries. Some of the purposes of the IMF include promoting international
system. monetary cooperation, facilitating the expansion and balanced growth of international trade,

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  Chapter 1 • Globalization  41

Employees cheerfully celebrate

at Volkswagen’s (www.vw.com)
automobile plant in Anchieta,
Brazil. Factory employees are
celebrating the production
of more than 15 million
vehicles in Volkswagen’s
50-plus years in Brazil. The
country is one of the strongest
emerging markets in the
world and one that benefited
tremendously by embracing
the opportunities offered by
globalization. Can you identify
other emerging markets in
which globalization helped
create good jobs and rising
incomes for people?
Source: Agentur/Newscom

avoiding competitive exchange devaluation, and making financial resources temporarily available
to members.
At this point, we should note one caveat. Each side in the debate over globalization tends
to hold up results of social and economic studies that it says show “definitive” support for its
arguments. Yet many organizations that publish studies on globalization have political agendas,
such as decreasing government regulation or expanding government programs. This can make
objective consideration of a group’s claims and findings difficult. A group’s aims may influence
the selection of the data to analyze, the time period to study, the nations to examine, and so forth.
It is essential to take into account such factors anytime we hear a group arguing the beneficial or
harmful effects of globalization.
Let’s now engage the debate over globalization by examining its effects on (1) jobs and
wages, (2) labor and environmental regulation, (3) income inequality, (4) cultures, (5) and
national sovereignty.

Quick Study 4
1. How does this current period of globalization compare with the first age of globalization?
2. Explain the original purpose of the World Bank and its mandate today.
3. What are the main purposes of the International Monetary Fund?

Globalization’s Impact on Jobs and Wages

We open our coverage of the globalization debate with an important topic for both developed and
developing countries—the effect of globalization on jobs and wages. We begin with the arguments
of those against globalization and then turn our attention to how supporters of globalization respond.
Against Globalization Groups opposed to globalization blame it for eroding standards of
living and ruining ways of life. Specifically, they say globalization eliminates jobs and lowers
wages in developed nations and exploits workers in developing countries. Let’s explore each of
these arguments.
Eliminates Jobs in Developed Nations Some groups claim that globalization eliminates
manufacturing jobs in developed nations. They criticize the practice of sending good-paying
manufacturing jobs abroad to developing countries where wages are a fraction of the cost for

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 42  Part 1 • Global Business Environment

international firms. They argue that a label reading “Made in China” translates to “Not Made
Here.” Although critics admit that importing products from China (or another low-wage
nation) lowers consumer prices for televisions, sporting goods, and so on, they say this is little
consolation for workers who lose their jobs.
To illustrate their argument, globalization critics point to the activities of big-box retailers
such as Costco (www.costco.com) and Walmart (www.walmart.com). It is difficult to overstate the
power of these retail giants and symbols of globalization. Some say that by relentlessly pursuing
low-cost goods, these retailers force their suppliers to move to China and other low-wage nations.
Lowers Wages in Developed Nations Opposition groups say globalization causes worker
dislocation that gradually lowers wages. They allege that, when a manufacturing job is lost
in a wealthy nation, the new job (assuming new work is found) pays less than the previous
one. Those opposed to globalization say this decreases employee loyalty, employee morale, and
job security. They say this causes people to fear globalization and any additional lowering of
trade barriers.
Big-box retailers also come under fire in this discussion. Globalization critics say powerful
retailers continually force manufacturers in low-wage nations to accept lower profits so that the
retailers can slash prices to consumers. As a result of these business practices, critics charge,
powerful retailers force down wages and working conditions worldwide.
Exploits Workers in Developing Nations Critics charge that globalization and international
outsourcing exploit workers in low-wage nations. One notable critic of globalization, Naomi
Klein, vehemently opposes the outsourced call center jobs of Western companies. Klein says
such jobs force young Asians to disguise their nationality, adopt fake Midwestern accents, and
work nights when their U.S. customers are awake halfway around the world. Klein maintains
that free trade policies are “a highly efficient engine of dispossession, pushing small farmers off
their land and laying off public-sector workers.”19
For Globalization Supporters of globalization credit it with improving standards of living
and making possible new ways of life. They argue that globalization increases wealth and
efficiency in all nations, generates labor market flexibility in developed nations, and advances
the economies of developing nations. Let’s examine each of these arguments.
Increases Wealth and Efficiency in All Nations Some economists believe globalization
increases wealth and efficiency in both developed and developing nations. Globalization
supporters argue that openness to international trade increases national production (by increasing
efficiency) and raises per capita income (by passing savings on to consumers). For instance, by
squeezing inefficiencies out of the retail supply chain, powerful global retailers help restrain
inflation and boost productivity. Some economists predict that removing all remaining barriers
to free trade would significantly boost worldwide income and greatly benefit developing nations.
Generates Labor Market Flexibility in Developed Nations Globalization supporters believe
globalization creates positive benefits by generating labor market flexibility in developed nations.
Some claim that there are benefits from worker dislocation, or “churning” as it is called when there
is widespread job turnover throughout an economy. Flexible labor markets allow workers to be
redeployed rapidly to sectors of the economy where they are highly valued and in demand. This also
allows employees, particularly young workers, to change jobs easily with few negative effects. For
instance, a young person can gain experience and skills with an initial employer and then move to a
different job that provides a better match between employee and employer.
Advances the Economies of Developing Nations Those in favor of globalization argue that
globalization and international outsourcing help to advance developing nations’ economies. India
initially became attractive as a location for software-writing operations because of its low-cost,
well-trained, English-speaking technicians. Later, young graduates who would not become doctors
and lawyers found bright futures in telephone call centers that provide all sorts of customer services.
More recently, jobs in business-process outsourcing (including financial, accounting, payroll, and
benefits services) is significantly elevating living standards in India. Western corporations can
outsource such work to Indian firms for a fraction of what they pay at home.
Today, the relentless march of globalization is bringing call center jobs to the Philippines.
Young Filipinos possess an excellent education, a solid grasp of the English language and

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  Chapter 1 • Globalization  43

Average annual net income of an Information Technology worker living in: Figure 1.2
Comparing Salaries of
United States $49,692
Information Technology
Brazil $37,056 Workers
Source: Based on data obtained from
Germany $27,840
the International Average Salary Income
Database (www.worldsalaries.org).
Singapore $18,192

China $12,900

Lithuania $12,852

0 $10,000 $20,000 $30,000 $40,000 $50,000

U.S. culture, and a neutral accent. Top Indian firms, such as Wipro (www.wipro.com), now have
substantial operations in the Philippines and happily pay more, not less, than what they would
need to pay workers in India. The work is not considered low-paying by any means, and instead
represents a solid, middle-class job.20
Figure 1.2 illustrates why companies in industrialized nations choose to outsource jobs to
emerging markets. The figure shows the average net annual salary of a computer programmer
living in each country. The salary of a programmer in the United States is nearly four times that
of one in some eastern European nations, including Lithuania. So long as such economic dis-
parities exist, international outsourcing will continue to be popular.
Summary of the Jobs and Wages Debate All parties appear to agree that globalization
eliminates some jobs in a nation but creates jobs in other sectors of the nation’s economy. Yet,
although some people lose their jobs and find new employment, it can be very difficult for
others to find new work. The real point of difference between the two sides in the debate, it
seems, is whether overall gains that (may or may not) accrue to national economies are worth
the lost livelihoods that individuals (may or may not) suffer. Those in favor of globalization say
individual pain is worth the collective gain, whereas those against globalization say it is not.

Globalization’s Impact on Labor, the Environment, and Markets

Critics of globalization say companies locate operations to where labor and environmental regu-
lations are least restrictive and, therefore, least costly. They argue this puts downward pressure
on labor and environmental protection laws in all countries as nations compete to attract interna-
tional firms. Let’s examine these claims and the responses of globalization supporters.
Labor Standards Trade unions claim globalization reduces labor’s bargaining power and
lowers global labor standards when international firms are permitted to continually move to
nations with lower labor standards. One place to test this assertion is in developing nations’
export-processing zones (EPZs)—special areas in which companies engage in tariff-free
importing and exporting. More than 850 EPZs employ 27 million people worldwide. Yet a study
by the International Labor Organization (www.ilo.org), hardly a pro-business group, found
no evidence to support the claim that nations with a strong union presence suffered any loss
of investment in their EPZs. In fact, another study by the World Bank found that the higher
occupational safety and health conditions an EPZ had in place, the greater foreign investment it
attracted.21 The evidence fails to support critics’ allegations that economic openness and foreign
investment contribute to lower labor standards.
Environmental Protection Some environmental groups say globalization causes a “race
to the bottom” in environmental conditions and regulations. Yet studies show that pollution-
intensive U.S. firms tend to invest in countries with stricter environmental standards. Many
developing nations, including Argentina, Brazil, Malaysia, and Thailand, liberalized their foreign
investment environment while simultaneously enacting stricter environmental legislation. If large
international companies were eager to relocate to nations having poor environmental protection
laws, they would not have invested in these countries for decades. Additional evidence that closed,
protectionist economies are worse than open ones at protecting the environment includes Mexico

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 44  Part 1 • Global Business Environment

Manager’s Briefcase The Keys to Global Success

M aking everything from 99-cent hamburgers (McDonald’s) to

$150 million jumbo jets (Boeing), managers of global companies must
• Emphasize Global Awareness. Good global managers inte-
grate foreign markets into business strategy from the outset.
overcome obstacles when competing in unfamiliar markets. Global They ensure that products and services are designed and built
managers acknowledge certain common threads in their approaches with global markets in mind, and not used as dumping grounds
to management and offer the following advice: for the home market’s outdated products.
• Market Effectively. The world will beat a path to your door to
• Communicate Effectively. Cultural differences in business buy your “better mousetrap” only if it knows about it. A poor
relationships and etiquette are central to global business and marketing effort can cause great products to fade into obscurity
require cross-cultural competency. Effective global managers while an international marketing blunder can bring unwanted
welcome uniqueness and ambiguity while demonstrating flex- media attention. Top global managers match quality products
ibility, respect, and empathy. with excellent marketing.
• Know the Customer. Successful managers understand how a • Monitor Global Markets. Successful managers keep a watch-
company’s different products serve the needs of international cus- ful eye on business environments for shifting political, legal,
tomers. Then, they ensure that the company remains flexible and and socioeconomic conditions. They make obtaining accurate
capable enough to customize products that meet those needs. information a top priority.

before NAFTA, Brazil under military rule, and the former Warsaw Pact of communist nations—
all of which had extremely poor environmental records. Again, the evidence does not support
claims of lower environmental standards being the result of economic openness and globalization.
Future Markets Opponents to globalization claim that international firms exploit local
labor markets and the environment to produce goods that are then exported back to the home
countries. Such claims may not only perpetuate a false image of corporations but may also have
no factual basis. Most international firms today support reasonable labor and environmental
laws because (if for no other reason) they want to expand future local markets for their goods
and services. They recognize that healthy future markets will require a sustainable approach
to business expansion. When analyzing a country prior to investing, companies today often
examine a location for its potential as a future market as well as a production base. Less than 5
percent of U.S. firms invest in developing countries to obtain low-cost resources and then export
finished products back to the United States. For additional insights into how managers today
succeed by respecting unfamiliar markets, see the Manager’s Briefcase, titled, “The Keys to
Global Success.”

Quick Study 5
1. What are the claims of those who say globalization eliminates jobs, lowers wages, and
exploits workers?
2. Identify the arguments of those who say globalization creates jobs and boosts wages.
3. Why do critics say globalization adversely affects labor standards, environmental regula-
tions, and future markets?
4. How do supporters of globalization argue that it does not harm labor standards, environ-
mental regulations, and future markets?

Globalization and Income Inequality

Perhaps no controversy swirling around globalization is more complex than the debate over
its effect on income inequality. Here, we focus on three main aspects of the debate: inequality
within nations, inequality between nations, and global inequality.
Inequality Within Nations The first aspect of the inequality debate is whether globalization
is increasing income inequality among people within nations. Opponents of globalization argue
that freer trade and investment allows international companies to close factories in high-wage,
developed nations and to move them to low-wage, developing nations. They argue that this
increases the wage gap between white-collar and blue-collar occupations in rich nations.

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  Chapter 1 • Globalization  45

Two studies of developed and developing nations find contradictory evidence on this
argument. The first study, of 38 countries over almost 30 years, supports the increasing inequal-
ity argument. The study found that as a nation increases its openness to trade, income growth
among the poorest 40 percent of a nation’s population declines, whereas income growth among
other groups increases.22 The second study, of 80 countries over 40 years, failed to support the
increasing inequality argument. It found that incomes of the poor rise one-for-one with overall
economic growth and concluded that the poor benefit from international trade along with the rest
of a nation.23 The mixed findings of these two studies are typical of a large set of research exam-
ining inequality between developed and developing nations.
Two studies of developing nations only are more consistent in their findings. One study
found that an increase in the ratio of trade to national output of 1 percent raised average income
levels by 0.5 to 2 percent. Another study showed that incomes of the poor kept pace with growth
in average incomes in economies (and periods) of fast trade integration, but that the poor fell
behind during periods of declining openness.24 Results of these two studies suggest that, by inte-
grating their economies into the global economy, developing nations (by far the nations with the
most to gain) can boost the incomes of their poorest citizens.
A new approach being developed takes a multidimensional view of poverty and deprivation.
Proponents of this approach say that the problem with focusing on income alone is that higher
income does not necessarily translate into better health or nutrition. The new approach examines
10 basic factors, including whether the family home has a decent toilet and electricity service;
whether children are enrolled in school; and whether family members are malnourished or must
walk more than 30 minutes to obtain clean drinking water. A household is considered poor if it
is deprived on over 30 percent of the indicators. This new approach reveals important differences
among poor regions. For example, whereas material measures contribute more to poverty in sub-
Saharan Africa, malnutrition is a bigger factor in South Asia.25
Inequality Between Nations The second aspect of the inequality debate is whether
globalization is widening the gap in average incomes between rich and poor nations. If we
compare average incomes in high-income countries with average incomes in middle- and low-
income nations, we do find a widening gap. But averages conceal differences between nations.
On closer inspection, it appears the gap between rich and poor nations is not occurring
everywhere: One group of poor nations is closing the gap with rich economies, while a second
group of poor countries is falling further behind. For example, China is narrowing the income

A man dismantles the carcass

of a car for recycling in the
“Cité Soleil” slum of Port-
au-Prince, Haiti. Haiti is a
“traditional” market that
has not benefited as much
from globalization as have
other nations. The plight of
people like the man shown
here incites calls for a wider
distribution of the benefits
of economic progress. What,
if anything, do you think
businesses and governments
can do to improve the lives of
people enduring such harsh
living conditions?
Source: THONY BELIZAIRE/Newscom

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 46  Part 1 • Global Business Environment

gap between itself and the United States as measured by GDP per capita, but the gap between
Africa and the United States is widening. China’s progress is no doubt a result of its integration
with the world economy and annual economic growth rates of between 7 and 9 percent. Another
emerging market, India, is also narrowing its income gap with the United States by embracing
globalization.26
Developing countries that embrace globalization are increasing personal incomes, extend-
ing life expectancies, and improving education systems. In addition, post-communist countries
that welcomed world trade and investment experienced high growth rates in GDP per capita. But
nations that remain closed off from the world economy have performed far worse.
Global Inequality The third aspect of the inequality debate is whether globalization is
increasing global inequality—widening income inequality between all people of the world, no
matter where they live. A recent study paints a promising picture of declining poverty. This
study found that the percentage of the world’s population living on less than a dollar a day (a
common poverty gauge) fell from 17 percent to just 7 percent over a 30-year period, which
reduced the number of people in poverty by roughly 200 million.27 Yet, a widely cited study by
the World Bank finds that the percent of world population living on less than a dollar a day fell
from 33 percent to 18 percent over a 20-year period, which reduced the number of people in
poverty from 1.5 billion to 1.1 billion.28
For a variety of reasons, the real picture likely lies somewhere in between these two studies’
estimates. For example, whereas the World Bank study used population figures for developing
countries only, the first study used global population in its analyses, which lowered poverty es-
timates, all else being equal. What is important is that most experts agree that global inequality
has fallen, although they disagree on the extent of the fall.
What it is like to live on less than a dollar a day in sub-Saharan Africa, South Asia, or
elsewhere is too difficult for most of us to comprehend. The continent of Africa presents the
most pressing problem. Home to 13 percent of the world’s population, Africa accounts for just
3 percent of world GDP. Rich nations realize they cannot sit idly by while so many of the world’s
people live under such conditions.
What can be done to help the world’s poor? First of all, rich nations could increase the
amount of foreign aid they give to poor nations—foreign aid as a share of donor country GDP
is at historically low levels. Second, rich nations can accelerate the process of forgiving some
of the debt burdens of the most heavily indebted poor countries (HIPCs). The HIPC initiative is
committed to reducing the debt burdens of the world’s poorest countries. This initiative would
enable these countries to spend money on social services and greater integration with the global
economy instead of on interest payments on debt.29
Summary of the Income Inequality Debate For the debate over inequality within nations,
studies suggest that developing nations can boost incomes of their poorest citizens by embracing
globalization and integrating themselves into the global economy. In the debate over inequality
between nations, nations open to world trade and investment appear to grow faster than rich
nations do. Meanwhile, economies that remain sheltered from the global economy tend to be
worse off. Finally, regarding the debate over global inequality, although experts agree inequality
has fallen in recent decades, they disagree on the extent of the drop.

Globalization’s Influence on Cultures

National culture is a strong shaper of a people’s values, attitudes, customs, beliefs, and com-
munication. Whether globalization eradicates cultural differences between groups of people or
reinforces cultural uniqueness is a hotly debated topic.
Protesters complain that globalization is homogenizing our world and destroying its rich
diversity of cultures. Critics say that in some drab, new world we all will wear the same clothes
bought at the same brand-name shops, eat the same foods at the same brand-name restaurants,
and watch the same movies made by the same production companies.
But supporters argue that globalization allows us all to profit from our differing circum-
stances and skills. Trade allows countries to specialize in producing the goods and services they
can produce most efficiently. Nations can then trade with each other to obtain goods and services
they desire but do not produce. In this way, France still produces many of the world’s finest
wines, South Africa yields much of the world’s diamonds, and Japan continues to design some

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  Chapter 1 • Globalization  47

Culture Matters  The Culture Debate

T he debate over globalization’s influence on culture evokes strong

opinions. Here are a few main arguments in this debate:
• A Force for Good. On the positive side, globalization tends to
foster two important values: tolerance and diversity. Advocates
say nations should be more tolerant of opposing viewpoints and
• Material Desire. Critics say globalization fosters the “Coca-
should welcome diversity among their peoples. This view inter-
Colanization” of nations through advertising campaigns that
prets globalization as a potent force for good in the world.
promote material desire. They also argue that global consumer-
• Deeper Values. Globalization can cause consumer purchases
goods companies destroy cultural diversity (especially in develop-
and economic ideologies to converge, but these are rather super-
ing nations) by putting local companies out of business.
ficial aspects of culture. Deeper values that embody the essence
• Artistic Influence. Evidence suggests, however, that the
of cultures may be more resistant to a global consumer culture.
cultures of developing nations are thriving and that the influ-
• Want to Know More? Visit the globalization page of
ence of their music, art, and literature has grown (not shrunk)
the Global Policy Forum (www.globalpolicy.org), Globalization
throughout the past century. African cultures, for example, have
101 (www.globalization101.org), or The Globalist (www.
influenced the works of artists including Picasso, the Beatles,
theglobalist.com).
and Sting.
• Western Values. International businesses reach far and wide
Source: “Economic Globalization and Culture: A Discussion with Dr. Francis Fukuyama,”
through the Internet, global media, increased business travel, Merrill Lynch Forum website (www.ml.com); “Globalization Issues,” The Globaliza-
and local marketing. Critics say local values and traditions are tion website (www.sociology.emory.edu/globalization); Cultural Diversity in the Era of
being replaced by U.S. companies promoting “Western” values. Globalization,” UNESCO Culture Sector website (www.unesco.org/culture).

of the world’s finest-engineered automobiles. Other nations then trade their goods and services
with these countries to enjoy the wines, diamonds, and automobiles that they do not, or cannot,
produce. To learn more about the interplay between culture and globalization, see this chapter’s
Culture Matters feature, titled, “The Culture Debate.”

Globalization and National Sovereignty

National sovereignty generally involves the idea that a nation-state (1) is autonomous, (2) can
freely select its government, (3) cannot intervene in the affairs of other nations, (4) can control
movements across its borders, and (5) can enter into binding international agreements. Opposi-
tion groups allege that globalization erodes national sovereignty and encroaches on the authority
of local and state governments. Supporters disagree, saying that globalization spreads democ-
racy worldwide and that national sovereignty must be viewed from a long-term perspective.
Globalization: Menace To Democracy? A main argument leveled against globalization is
that it empowers supranational institutions at the expense of national governments. It is not in
dispute that the WTO, the IMF, and the United Nations are led by appointed, not democratically
elected, representatives. What is debatable, however, is whether these organizations unduly
impose their will on the citizens of sovereign nations. Critics argue that, by undercutting the
political and legal authority of national, regional, and local governments, such organizations
undercut democracy and individual liberty.
Opponents of globalization also take issue with the right of national political authorities to
enter into binding international agreements on behalf of citizens. Critics charge that such agree-
ments violate the rights of subfederal (local and state) governments. For example, state and local
governments in the United States had no role in creating the NAFTA. Yet WTO rules require the
U.S. federal government to take all available actions (including enacting preemptive legislation
or withdrawing funding) to force subfederal compliance with WTO terms. Protesters say that
such requirements directly attack the rights and authority of subfederal governments.30
Globalization: Guardian Of Democracy? Globalization supporters argue that an amazing
consequence of globalization has been the spread of democracy worldwide. In recent decades,
the people of many nations have become better educated, better informed, and more empowered.
Supporters say globalization has not sent democracy spiraling into decline but instead has been
instrumental in spreading democracy to the world.
Backers of globalization also contend that it is instructive to take a long-term view on the
issue of national sovereignty. Witnessing a sovereign state’s scope of authority altered is nothing
new, as governments have long given up trying to control issues they could not resolve. In the

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 48  Part 1 • Global Business Environment

mid-1600s, governments in Europe surrendered their authority over religion because attempts to
control it undermined overall political stability. Also, Greece in 1832, Albania in 1913, and the
former Yugoslavian states in the 1990s had to protect minorities in exchange for international rec-
ognition. And over the past 50 years, the United Nations has made significant progress on worthy
issues such as genocide, torture, slavery, refugees, women’s rights, children’s rights, forced labor,
and racial discrimination. Like the loss of sovereignty over these issues, globalization supporters
say lost sovereignty over some economic issues may actually enhance the greater good.31

Quick Study 6
1. What does the evidence suggest for each aspect of the debate over globalization and
income inequality?
2. Summarize the claims of each side in the debate over globalization’s influence on cultures.
3. What are the arguments on each side of the debate over globalization’s impact on national
sovereignty?

Why International Business Is Special

As we’ve already seen in this chapter, international business differs greatly from business in a
purely domestic context. The most obvious contrast is that different nations can have entirely
different societies and commercial environments. Let’s take a moment to examine what makes
international business special by introducing a model unique to this book—a model we call the
global business environment.

The Global Business Environment

International business is special because it occurs within a dynamic, integrated system that
weaves together four distinct elements:
1. The forces of globalization
2. The international business environment
3. Many national business environments
4. International firm management
The model in Figure 1.3 identifies each of these elements and their subparts that together
comprise the global business environment. Thinking about international business as occurring
within this global system helps us understand the complexities of international business and the
interrelations between its distinct elements. Let’s preview each of the four main components in
the global business environment.
Globalization is a potent force transforming our societies and commercial activities in
countless ways. Globalization, and the pressures it creates, forces its way into each element
shown in Figure 1.3. In this way, the drivers of globalization (technological innovation and fall-
ing trade and investment barriers) influence every aspect of the global business environment. The
dynamic nature of globalization also creates increasing competition for all firms everywhere, as
managers begin to see the entire world as an opportunity. At home and abroad, firms must re-
main vigilant to the fundamental societal and commercial changes that globalization is causing.
The international business environment influences how firms conduct their operations in
both subtle and not-so-subtle ways. No business is entirely immune to events in the international
business environment, as evidenced by the long-term trend toward more porous national borders.
The drivers of globalization are causing the flows of trade, investment, and capital to grow and to
become more entwined—often causing firms to search simultaneously for production bases and
new markets. Companies today must keep their fingers on the pulse of the international business
environment to see how it may affect their business activities.
Each national business environment is composed of unique cultural, political, legal, and
economic characteristics that define business activity within that nation’s borders. This set of
national characteristics can differ greatly from country to country. But as nations open up and
embrace globalization, their business environments are being transformed. Globalization can
cause powerful synergies and enormous tensions to arise within and across various elements of

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  Chapter 1 • Globalization  49

Figure 1.3
Globalization
(ch. 1) The Global Business
Environment
International

International International
Monetary System Trade
(ch. 10) (ch. 5)
National
Cross-Cultural
Business
(ch. 2)
Firm
Hiring and International
Managing Strategy and
Employees Organization
(ch. 16) (ch. 11)
Economics
Business–
International and Managing Analyzing
Government
Financial Emerging International International
Trade
Markets Markets Operations Opportunities
Relations
(ch. 9) (ch. 4) (ch. 15) (ch. 12)
(ch. 6)
Selecting
Developing and
and Marketing Managing
Products Entry Modes
Falling (ch. 14) (ch. 13) Technological
Trade/FDI Innovation
Barriers Politics, Law, and
Business Ethics
(ch. 3)

Regional
Foreign Direct
Economic
Investment
Integration
(ch. 7)
(ch. 8)

Increasing
Competition

a society. Company managers must be attentive to such nuances, adapting their products and
practices as needed.
International firm management is vastly different from the management of a purely domes-
tic business. Companies must abide by the rules in every market in which they choose to operate.
Therefore, the context of international business management is defined by the characteristics of
national business environments. Because of widely dispersed production and marketing activi-
ties today, firms commonly interact with people in distant locations within the international busi-
ness environment. Finally, managers and their firms are compelled to be knowledgeable about
the nations in which they operate because of the integrating power of globalization. Businesses
should try to anticipate events and forces that can affect their operations by closely monitoring
globalization, national business environments, and the international business environment.

The Road Ahead for International Business

The coverage of international business in this book follows the model of the global business
environment displayed in Figure 1.3. In this chapter, we learned how globalization is transform-
ing our world and how elements of the global business environment are becoming increasingly
intertwined. As globalization penetrates deeper into the national context, every aspect of interna-
tional business management is being affected.
In Part 2 (Chapters 2 through 4), we explore how national business environments differ
from one nation to another. We examine how people’s attitudes, values, beliefs, and institutions
differ from one culture to another and how this affects business. This part also covers how na-
tions differ in their political, legal, and economic systems. This material is placed early in the
text because such differences between countries help frame subsequent topics and discussions,
such as how companies modify business practices and strategies abroad.
We describe major components of the international business environment in Part 3
(Chapters 5 through 8) and Part 4 (Chapters 9 and 10). Our coverage begins with an examination

M01_WILD6979_07_SE_C01.indd 49 1/16/13 3:10 PM

Other documents randomly have
different content
 CHAPTER XXI
ELIZABETHAN CHESHIRE. I

The chief event with which all boys, I imagine, connect the name of
Queen Elizabeth is the defeat of the Great Armada sent against these
shores by the King of Spain. Doubtless on that summer night in the
year 1588 there were watchers by the beacon on Alderley Edge who
saw the 'Wrekin's crest of fire' flashing its message northwards. There
was no telegraph in those days, and yet in an hour or two at most the
news of the approach of an enemy was carried by beacon fires from
the Channel to the Cheviots. Cheshire indeed produced no Drake or
Hawkins; but Sir George Beeston, whose tomb you may see in
Bunbury Church, commanded the ship Dreadnought, one of the four
ships that broke through the Spanish line and took an active part in
the pursuit and destruction of the Spanish vessels.
A few years later Sir Uryan Legh of Adlington Hall accompanied Lord
Howard and Raleigh and the Earl of Essex on an expedition to Cadiz,
when they destroyed the ships in the harbour and for a second time
'singed the King of Spain's beard'. The town itself was taken by storm,
and for his bravery on this occasion Sir Uryan Legh was knighted. The
Leghs were always to the fore when there was any fighting to be
done. A canopied arch in Prestbury Church marks his last resting-
place, but the tomb itself has long since disappeared.
One result of the expeditions of Drake and Raleigh was that
Englishmen were inspired with a passion for travel, whether abroad or
at home, partly for the sake of adventure and the pursuit of wealth,
partly out of curiosity and a thirst for knowledge. The voyages of the
great navigators, 'itineraries' or diaries of travel, and histories of our
own country and its people were written at this period. These books
show clearly in their pages how intensely proud the Englishmen of
Elizabeth's day were of their country and their queen and her brave
seamen, who by their victories over Spain raised England to the first
position among the nations of the world.
Michael Drayton wrote a long poem called 'Polyolbion', in which four
hundred lines are taken up with a description of Cheshire, which he
calls the

thrice happy Shire, confined so to be

twixt two so famous Floods, as Mersey is, and Dee.

He speaks of Chester as

th' imaginary work of some huge Giant's hand:

which if such ever were, Tradition tells not who.

The book was illustrated by a number of curious maps, adorned with

quaint figures of men and women representing the rivers, hills,
forests, and castled towns.
John Speed was born at Farndon on the Dee, and wrote a book called
the Theatre of the Empire of Great Britain, which contained the
earliest set of maps published in England.
Cophurst, an old house near Sutton Downes in the Forest of
Macclesfield, is thought to have been the birthplace of the chronicler
Raphael Holinshed, who wrote a History of England and dedicated it
to William Cecil, Lord Burghley, the great minister of Queen Elizabeth.
Shakespeare used this book for the plots of some of his plays.
The triumphs of Francis Drake were celebrated in a long Latin poem
by Thomas Newton of Butley, who placed the small brass tablet on
the wall near the pulpit in Prestbury Church to the memory of his
parents. Newton was for some time the head master of Macclesfield
Grammar School. Another Elizabethan poet was Geoffrey Whitney,
who was born at Nantwich.
An inscription on an old house at Nantwich, bearing the date 1584,
shows that Elizabeth returned the affections of her people and did all
she could for them. The verse reads thus:—

God grant our royal Queen

In England long to reign;
For she hath put her helping hand
To build this town again.

Map of Cheshire. From Drayton's 'Polyolbion'

Nantwich had been almost totally destroyed by fire in the previous
year. The risk of fire was always very great, owing to the fact that
nearly all the houses of the Middle Ages were built of timber and
thatched with straw.
The black and white timbered halls are the glory of Cheshire. Let us
pay a visit to-day to Little Moreton Hall, near Congleton, perhaps the
most beautiful of them all. The people who live here are proud of
their home, and on certain days of the week allow you to examine at
your leisure many of the rooms in the old house, which remains in
almost the same condition as when the Moretons removed to a new
and more spacious house of brick hard by.
The framework of the house is all of wood, good solid English oak,
and black with age. The spaces between the beams and props are
filled with plaster and painted white. The principal beams which
support the building are of course upright, firmly laid on a foundation
of stone. Within the squares of this framework other beams are set in
sloping parallel lines, forming patterns of chevron or diamond, or
arranged in rows of quatrefoils and arcades of trefoil-headed arches.
The upper stories and the gables of the roof project beyond the
ground floor of the building, which is thus kept dry.
We cross the moat by a substantial stone bridge, and enter through a
gateway whose massive oaken lintel and side-posts are covered with
rich carving, and find ourselves in a square paved courtyard. Within
the gateway is a stone horse-block.
Facing us are two deep bay-windows formed of five sides of an
octagon. Over them you may read the carved inscription: 'God is al in
al things. This window whire made by William Moreton in the yeare of
oure Lorde MDLIX.' The building of the home was regarded by our
Elizabethan forefathers as an almost sacred work, to be carried out
with hardly less reverence than the building of a church.
A second gateway forms the entrance to the dining-hall on the one
hand and the kitchen on the other. The walls of the dining-room are
lined with wainscoting of panelled oak; the open timbered roof is held
up by a strong central beam; the windows are filled with countless
tiny panes of glass, with bright patches of red and orange and blue
where the coat-of-arms and crest of the Moretons are painted upon
them.

Little Moreton Hall

In the kitchen are marks of the growing comfort and luxuries of

Elizabethan days—the rows of pewter plates bearing the Moreton
arms, and a great spice-chest where the fragrant spices of the East,
brought home by travellers, were stored, as well as the sweet herbs,
the sage and rosemary, lavender and thyme, from the herb-garden of
the Hall. In the open fireplace, ten feet wide, an ox might well be
roasted; the smoke from the log-fire was carried upwards from the
roof by a chimney-stack of brick.
Over the 'screen' or passage that divides the dining-hall and the
kitchen is a musicians' gallery, where the players of the viol and the
harp made music while the squire and his lady supped in the early
evening.
To the left of the gatehouse through which we first entered is the
chapel, where the chaplain read the daily prayers to the assembled
family. A narrow spiral staircase fixed upon a central newel post leads
to a long gallery at the very top of the house, running the whole
length of one side of the courtyard. This was the ballroom, where
Elizabeth herself may perhaps have danced, as tradition says she did,
for we know that she was fond of visiting her people in their own
homes.
Few sixteenth-century houses were without a secret chamber. Little
Moreton Hall contains two such rooms, cunningly concealed in a
corner of the house. They are entered by sliding panels from an
apartment over the kitchen, and the fugitive could escape his
pursuers by an underground passage leading underneath the moat to
the open field beyond.
At opposite corners of the moat are two green circular mounds, on
which probably once stood two watch-towers to guard the house
against attack. A large number of the old halls of Cheshire were at
one time moated for their protection, though in many cases the
moats have been filled up, now that they are no longer necessary.
Peel Hall in Etchells, Irby, Swinyard Hall, Twemlow, Marthall, and
Allostock Hall still retain portions of their original moats.
 The Gallery, Little Moreton Hall

Handforth Hall was built, as the inscription over the entrance door
tells us, 'in the year of our Lord God MCCCCCLXII by Uryan Brereton
Knight.' The Tudor builders were not ashamed to put their names to
their work. Within the Hall is a wide oak staircase with a wonderfully
carved balustrade, one of the most beautiful pieces of Tudor
woodwork in Cheshire. Sir Uryan's daughter married Thomas Legh of
Adlington, who built the timber portions of Adlington Hall in 1581.
As you have already seen in a previous chapter, some of the timber
houses of Cheshire belong to a period much earlier than the reign of
Queen Elizabeth. Just as they reached their highest pitch of beauty
and richness under the Tudors a new style of domestic architecture
was coming in. Bricks, which had been very seldom used since the
days of the Romans, were again employed. The bricks were much
larger than those used by the Romans; in fact they were precisely
similar to those of the present day. They were not, however, laid as
they are now, but in the style called 'English bond', in which one
'course' or row shows all the long faces and the next one all the short
ends.
These brick mansions were larger and more spacious than the old
wooden ones, and built for comfort rather than defence. They were
set in the midst of broad parks, and surrounded by terraced lawns
and gardens enclosed by walls of clipped yew-trees. Sometimes
ornamental fish-ponds, such as you may see at Gawsworth, were laid
out in front of the house; avenues of limes and Spanish chestnuts
imported from abroad were planted along the roadway leading to the
principal entrance. Their general shape, out of compliment to Queen
Elizabeth, was that of the letter E. Brereton Hall is a good example of
this 'Tudor' style. It was built in 1586, the first stone being laid, so it
is said, by the queen herself.
In the eastern parts of Cheshire, where stone is abundant, houses
similar in design were built of this material instead of brick. Arden
Hall, near Stockport, is now in ruins, but enough remains to show the
chief characteristics of an Elizabethan mansion; the turret with
circular stone staircase, the wings with gabled ends, and the bay
windows carried up to the roof. Other Elizabethan houses are Marple
Hall, Poole Hall, Carden Hall in the Broxton Hills, Dorfold Hall, and
Burton Hall in Wirral.
 Tudor Monuments in Gawsworth Church
The central figure is that of Mary Fitton

In Gawsworth Church are a number of monuments of members of the

Fitton family, who lived at the Old Hall at Gawsworth. Mary Fitton was
one of Elizabeth's maids-of-honour, and used to take part in plays for
the amusement of the queen; and it is not at all unlikely that she was
a friend of Shakespeare. It is indeed supposed that she is the 'dark
lady' of whom the poet speaks in his sonnets. From an examination of
these Fitton monuments you can learn what the costume at the end
of the sixteenth century was like. Lady Alice Fitton is surrounded by
the kneeling figures of her two sons and two daughters, the former in
plate armour, the latter wearing the familiar head-dress and ruff
which are such distinctive features in the dress of Tudor ladies. The
figures are carved in alabaster, and have clearly at one time been
painted in bright colours. The picture of Mary Fitton will help you to
recognize the Tudor monuments which are to be seen in many
Cheshire churches.
 CHAPTER XXII
ELIZABETHAN CHESHIRE. II

Many attempts were made by the Tudor sovereigns to conquer the

Irish. From time to time expeditions were sent across the sea, and the
troops embarked at various points on the Cheshire coast. The fighting
Leghs of Adlington raised a troop of Cheshire soldiers, and Thomas
and Ralph Legh fell in battle against the Irish chieftain Shane O'Neill.
A Cheshire knight, Sir Edward Fitton, of Gawsworth, was made
Governor of Connaught.
In the later years of Elizabeth's reign a constant stream of ill-clad and
ill-paid soldiers marched through Cheshire on their way to the wars.
The soldiers had to be supplied with food and quarters by the towns
and villages through which they passed, and the cost of billeting the
men in the houses on their arrival at Chester fell very hard on the city
merchants, who were soon brought to great distress. The soldiers
were generally put on board ship at Parkgate, for the channel of the
Dee had become so choked up with sand that only the smallest
vessels could reach Chester.
The leader of one of the expeditions was the Earl of Essex, who was a
frequent visitor at Lyme Park, where he hunted the stag with his host,
Sir Piers Legh.
The wars with Spain ruined the oversea trade of Chester, consisting at
this time largely in the export of tanned leather to the French ports of
Rochelle and Bordeaux. In the year 1598, Thomas Fletcher, the Mayor
of Chester, wrote to Lord Burghley that he 'had found the poor city to
be generally very weak and much decayed, especially in the chiefest
parts thereof (the merchants) who have been heretofore the most
able to do her Majesty service'. For eight months there had not been
'one ship nor small bark laden into any foreign place'. The queen had,
some years previously, given the merchants license to export 10,000
'dickers' (that is, bundles of ten) of tanned calf-skins within a certain
time, but owing to the wars they were unable to get them away
within the given period, and the merchants asked for the time to be
extended.
An old gabled house in Watergate Street, with its pious superscription
'God's Providence is mine inheritance', reminds us of a more dreadful
scourge than war which visited Chester, and indeed the whole of
Cheshire, in the sixteenth and seventeenth centuries. This was the
terrible plague, which attacked rich and poor alike, and stopped the
trade of the city so much that, as one writer says, 'grass did grow a
foot high at the Cross'. Houses that were infected with the disease
were marked with a cross, that none might go near; no merchandise
was allowed to enter the city until it had been unpacked and aired
outside the walls. Death came suddenly, or within a few hours at
most; and often 'to those that merrily dined it gave a sorrowful
supper'. God's Providence House received its name from the fact that
its inmates alone of all the neighbourhood escaped the disease.
 Stanley Palace, Chester (showing influence of Renaissance)

The Courts could not be held in the plague-stricken city; the

Exchequer Court was removed to Tarvin, and the Assizes were held at
Nantwich. The annual fairs were abandoned to prevent the spread of
the disease. Numbers of victims were carried out from the city and
hastily buried in the 'Barrow Field'. Other Cheshire towns suffered
severely. On the hills, near Macclesfield, are many gravestones of the
victims of the plague; two gravestones near the Bowstones on Disley
Moor tell the same tale.
Some of the English nobles had residences in Chester. The city gates
were confided to noble families for safe keeping. The East Gate was
guarded by the ancestors of Lord Crewe. The 'Bear and Billet' Inn in
Bridge Street belonged to the Earls of Shrewsbury, who were
Sergeants of the Bridge Gate. The Earls of Derby had charge of the
Watergate. The North Gate, however, the most important entrance to
the city, was entrusted to the mayor and the citizens.
A narrow court in Watergate Street leads to the Stanley Palace of the
Earls of Derby; the gardens extended down to the river-side. The
architecture is very similar to that of the old timber halls described in
the last chapter, but the row of round-headed panels tells us that
people were beginning to imitate in their timber decorations the
round-headed arches of the Italian style.
As early as the reign of Henry the Seventh, English architects were
beginning to study the remains of ancient buildings in Rome, and
Italian architects were brought over to England. Henry the Eighth
invited a builder named John of Padua, who designed the north side
of Lyme Hall. The Italians despised the Pointed styles of English
architecture, calling it contemptuously 'Gothic', from the name of the
barbarian Goths, who overran the Roman Empire in the third and
fourth centuries.
Many of the Cheshire gentry left their homes in the towns to live in
new houses in the country. The old hall of the Sandbach family is now
the principal inn of the town of Sandbach; the ancient home of the
Ardernes in Great Underbank, Stockport, is now a bank; and the
house built at Nantwich by 'Richarde and Marjery Churche' has been
turned into a ladies' school. The Mainwarings lived in a fine house in
Watergate Street, Chester, until a number of little shops were allowed
to block up the front of their home. The Wilbrahams moved from
Nantwich to the spacious Elizabethan hall at Dorfold.
When the monasteries were destroyed, a large number of people
were thrown out of work, especially in the country districts. The
distress was so great in Queen Elizabeth's reign that Parliament
passed a 'poor law', by which the inhabitants of every parish were
compelled to pay taxes for the support of their own poor.
This did not, however, prevent rich and charitable men from devoting
a portion of their wealth to the building of hospitals and almshouses,
where the aged poor could live in comfort. In Commonhall Street,
Chester, are the old almshouses founded by Sir Thomas Smith in
1532, and there are almshouses at Acton, Little Budworth,
Macclesfield, Nantwich, Tarporley, Sandbach, and Stockport, though
some of these were built in later reigns. Nantwich was particularly
favoured by benefactors, and possesses four separate sets of
almshouses.
Sometimes sums of money were left to be spent on providing bread
for those who were unable to work. In the churches at Little Peover,
Mottram, and Woodchurch, you will see some wooden shelves fixed
on the wall near the porch. On these were placed the loaves which
were distributed after the Sunday services. At Bebington and
Woodchurch sums of money were given by a family of the name of
Goodacre for the purchase of bullocks to draw the ploughs of the
poor peasants of Wirral.
Certain days of the year were set apart as public holidays. Every
parish had its 'wakes' or festival of the dedication of the parish
church. These were held on the feast-day of the saint after whom the
church was named. Another festival was that of the 'rush-bearing'. In
a former chapter you have read of the rushes that were spread on the
floors of churches. They were gathered from the fringe of a stream or
mere, and tied into bundles and placed on the rush-cart, which was
gaily decked with ribbons and flowers. A procession was then formed
of the villagers, who accompanied the cart to the church, where a
special service was held. There are still rush-bearing services at
Farndon, Aldford, and Forest Chapel, but in many villages the merry-
making too often ended in disorder and drunkenness, and the custom
has been allowed to die out.
An Elizabethan writer tells us that the people of Nantwich visited the
brine pits on Ascension Day and decked them with flowers and
garlands. Then they offered hymns and prayers of thanksgiving for
the blessing of the brine, on which the prosperity of their town
depended.
May-day was the favourite holiday of the people. The maypole was
set up on the village green, where the Queen of the May was
crowned, and morris-dancers danced to the fiddle and horn-pipe, as
they do to this day at Lymm, Knutsford, Holmes Chapel, and many
other Cheshire villages. Sometimes there were wrestling matches, and
combat with sword and quarterstaff. At Gawsworth are the remains of
a tilting-ground where such encounters took place. The long terraced
banks of earth on which the spectators sat may still be seen.
The good people of Chester were particularly fond of shows and
pageants, and processions. On Midsummer Day the mayor and
aldermen of the city marched with banners through the streets to S.
Oswald's Church. With them went 'four giants, one unicorn, one
dromedary, an ass and a dragon, and six hobby horses'. The giants
were made of pasteboard and repainted every year, and 'dosed with
arsenic to keep the rats from eating them'.
Some of their amusements were, however, of a more degrading kind.
The High Cross of Chester, from which the friars and Wyclif's 'poor
priests' had preached in former days, now became the scene of brutal
pastimes. For at this spot bulls were baited in the bull-ring when a
mayor finished his year of office, the mayor himself paying the
expenses.
The Bear's Head and White Bear Inn at Congleton remind us that the
natives of Congleton were so fond of bear-baiting, that a local proverb
says that they 'sold their Church Bible to buy a new bear'. Few towns
or villages were without a cock-pit, for cock-fighting was a favourite
amusement of all classes. Happily, these degrading sports are now
forbidden by law, and we do not regret their disappearance.
Little mercy was shown to those who were guilty of brawling or
breaches of the peace. Often by the lichgate of a Cheshire
churchyard, or near the village cross, you will see the remains of the
wooden stocks in which drunkards were placed and exposed to the
jeers and gibes of the passers-by. In the museums at Chester,
Stockport, and Macclesfield, you will see a still more barbarous form
of punishment. The scolding or brawling woman was compelled to
have her head encased in a 'brank' or skeleton helmet of iron, with a
spiked iron piece pressing on the tongue. A chain was attached to the
woman's waist, and she was led through the town.
Another instrument of punishment is to be seen in the Museum at
West Park, Macclesfield. It is a girdle or cage, consisting of a number
of iron hoops fastened together by chains which were placed round
the body of a woman, who was then tied to a plank called a 'ducking-
stool', and dipped in a pond. There was also an iron strait-jacket at
Macclesfield for drunkards and lunatics.
 CHAPTER XXIII
THE RULE OF THE STUARTS

In the 'Stag Parlour' of Lyme Hall is a framed piece of needlework

done by Mary Stuart, Queen of Scots, when she stayed at Lyme.
When she was deposed by her Scottish subjects she threw herself on
the mercy of Queen Elizabeth, who permitted her to live in England.
But plots were made against the life of Elizabeth, and Mary was
suspected of having a hand in them, and in the end Mary had to pay
the penalty of death.
Mary was a Catholic, but her son James, who succeeded to the
English throne on the death of Elizabeth, had been brought up among
the Scottish reformers. The extreme English reformers, or Puritans as
they were now called, hoped therefore that the king would be friendly
to their wishes. The Puritans were disappointed, but James agreed to
one of their demands, and said that he would have a new translation
of the Bible made. The Authorized Version of the Bible which is read
in all Cheshire churches and chapels to-day is the one noble work due
to the first Stuart king.
The Puritans were so named because they wished to 'purify' the
Church of certain forms and ceremonies, such as the use of the
surplice, and the sign of the cross at baptism, and even the ring in
the marriage service. They also objected to the rule of bishops, and
wished the Church to be governed by councils of elders or 'presbyters'
after the manner of the Presbyterian Church of Scotland.
During the reign of Elizabeth many Puritan clergymen had refused to
perform the services of the Church in the way ordered by the Prayer
Book. They were driven out of the Church, and formed separate
congregations of their own. Hence they received the name of
Independents, and they were the earliest of the Nonconformist
dissenters.
Many Independents suffered so severely at the hands of King James
and his archbishop, that they determined to leave the country and
settle in new homes across the sea. They gave the name of New
England to their colony in America, and thus became the founders of
our American possessions. Among the exiles was Samuel Eaton, a
Wirral clergyman. He returned in the reign of Charles the First, and
became a minister in the chapel attached to Dukinfield Hall, which
thus became one of the earliest places of worship for the
Independents in Cheshire. The ancient chapel now forms a portion of
the modern Nonconformist church of Dukinfield.
The Catholics were not more pleased with James than the Puritans
were. They were compelled to attend the new services of the
Protestant Church. Those who refused to do so were called
'recusants'. The Bishop of Chester was ordered by James to hunt out
all the Popish recusants in Cheshire and bring them to trial. The
secret hiding-places built in the walls of many Cheshire halls must
often have sheltered these fugitive priests, for many great families in
Cheshire, such as the Stanleys of Hooton and the Masseys of
Puddington, were strongly Catholic.
Chester was Protestant, and a Puritan Mayor of Chester stopped the
Midsummer show, and broke up the pasteboard giants, and abolished
the bull-ring; for the Puritans disliked shows and processions and
sports of all kinds, and even such harmless pastimes as the May-day
dances.
The Midsummer revels were, however, revived, and held with great
pomp when King James paid a visit to Chester in 1617. His arms are
carved in a panel under one of the front windows of Bishop Lloyd's
house. One of the Fitton family was mayor on this occasion, and the
king's sword was borne by a Stanley. James rode to the minster,
where he heard one of the scholars of the King's School read a Latin
address of welcome. 'After the said oration he went into the choir, and
there, in a seat made for the king at the higher end of the choir, he
heard an anthem sung. And after certain prayers the king went from
thence to the Pentice, where a sumptuous banquet was prepared at
the city's cost: which being ended, the king departed to the Vale
Royal: and at his departure the order of knighthood was offered to
the mayor, but he refused the same.' The sale of knighthoods and
baronetcies was one of King James's ways of raising money, and the
Mayor of Chester was not the only one who declined the honour.
A zealous Puritan named William Prynne wrote against the
performance of stage plays, dancing, and other amusements. Some
things that he said were thought to refer to the Queen of Charles the
First, and he was tried by the Star Chamber and ordered to pay a fine
of £5,000 and to have his ears slit. There was a branch of the Court
of Star Chamber at Chester, but it was abolished in Charles the First's
reign. In one of the rooms of Leasowe Castle are some oak panels
brought from the Star Chamber at Westminster.
William Prynne passed through Chester on his way to his prison in
Carnarvon Castle. The Puritans turned out to welcome and cheer him
in the streets, but their leaders were punished by fines and
imprisonment for so doing.
Neither James nor Charles got on well with their Parliaments. The
Tudor monarchs had for the most part understood the people, and
the people in their turn allowed them to have their own way. But the
Stuarts began to claim powers which the people would not permit.
When Parliament refused to grant money they asked for, the Stuart
kings tried to raise money by means which the people thought illegal.
Charles borrowed large sums of money without the consent of
Parliament. Sir Randolph Crewe, of Crewe Hall, was one of the judges
who thought that this was wrong, and he was dismissed from his
office by the king.
Charles also tried to impose a tax called Ship Money, a tax which had
in former times been levied on the counties on the seaboard for the
support of the navy. Now the king proposed that inland counties also
should contribute for this purpose. Sir William Brereton, a Cheshire
knight, objected strongly to the hateful tax, and was very angry with
the people of Chester for rating some land of his near Chester, called
the Nunnery Fields, for the payment of the money.
It is not surprising that trouble should arise between Parliament and a
king who refused to obey the wishes of the people over whom he
ruled. The Stuarts believed in the theory known as the Divine right of
kings, that is, that kings are made by God alone, and that from Him
alone they receive their power. But from the time of the great
awakening the people had begun to think for themselves, and the
result of this was that they were now determined that the king should
carry out the will of the nation through the mouth of its Parliament.
Moreover, Charles was suspected of being a Catholic; at any rate he
had married a Catholic wife, and Parliament was not in a mood to
permit a return to the unhappy state of affairs of Queen Mary's reign.
 CHAPTER XXIV
CIVIL WAR IN CHESHIRE. I
The Battles of Middlewich and Nantwich

Charles proclaimed war on Parliament in the year 1642, and both

sides prepared at once for the struggle. Roughly speaking, London
and the south-eastern counties were on the side of Parliament, for
they were the chief centres of trade in the seventeenth century, and
felt most keenly the evils of bad government. The great modern
industrial towns of the northern counties of England were in most
cases as yet mere villages.

THE CIVIL WAR IN CHESHIRE

The king's supporters were drawn chiefly from the north and west.
They were called Royalists or Cavaliers, while the Parliamentarians
were nicknamed Roundheads because they wore their hair cut short,
after the manner of the Puritans, and disdained the flowing curls
which were fashionable at the time. But although the country was
thus roughly divided into two opposing factions, supporters both of
king and of parliament were to be found in nearly every town and
village. Indeed it sometimes happened that members of a single
family found themselves on different sides in the war. The Breretons
of Brereton Hall were stout royalists, but their cousins of Handforth
were, as you will see, the most determined opponents of the king.
The towns of Cheshire, with the exception of Chester, were largely on
the side of Parliament, while most, but not all, of the great
landowners and their numerous retainers fought for the king. The
county was represented in the Long Parliament by Sir William
Brereton, the son of William Brereton of Handforth Hall.
Brereton was an ardent Puritan, and at the first signs of approaching
war he put himself at the head of the Parliamentary party in Cheshire,
calling upon all able-bodied men between the ages of sixteen and
sixty to join him at Tarporley, and soon after was appointed by
Parliament itself as commander of the Cheshire forces. His career was
very nearly cut short at the very beginning of the struggle, for he
brought about a riot in Chester by causing the drum to be beaten
publicly in the streets for Parliament. He was brought to the Pentice
but released, and with difficulty saved from the fury of the citizens,
who in later days complained bitterly that the mayor had preserved
the life of one who was to be the author of so much disaster to
themselves.
In Tarporley Church you may see a helmet and breastplate that were
dug up in the neighbourhood. They were probably worn by some
soldier who fought in one of the earliest battles of the civil war in
Cheshire. The first fighting took place in the southern parts of the
county. In February, 1642, Brereton was attacked at Tarporley by the
king's troops who had marched out from Chester. Entrenchments
were thrown up near the church, but the severest fighting was at the
neighbouring hamlet of Tiverton, where both sides lost heavily. The
Royalist troops retired to Chester and the Parliamentarians to
Nantwich, which Brereton made his head-quarters. From these two
places the two parties 'contended which should most prevail upon the
affections of the county to declare for them and join them'.
Brereton's task was the capture of the important city of Chester, in
order to prevent assistance reaching the king from Ireland. To this
end he placed troops on the principal roads leading to the city. The
roads from the south were watched by the Nantwich forces, who
captured and occupied Beeston Castle. On the north Warrington
Bridge was seized to prevent help coming from Lancashire or from
Scotland, which remained loyal to Charles. Norton Priory and the
Norman castle of Halton, already in ruins, were fortified and held by
the Roundheads. A strong force was posted at Northwich which
commanded the main road through the forest of Delamere, thus
completing a chain of garrisons along the valley of the Weaver from
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