INTERNATIONAL

BUSINESS

ANASIAPACIFICPERSPECTIVE
SecondEdition

AndrewDelios
PaulW.Beamish
JaneW.Lu

PrenticeHall
SingaporeLondonNewYorkTorontoSydneyTokyoMadrid
MexicoCityMunichParisCapetownHongKongMontreal

Publishedin2010by
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TABLEOFCONTENTS

AbouttheAuthors
Preface
Acknowledgements

v
vii
x

SECTION1:THEINTERNATIONALBUSINESSENVIRONMENT

Chapter1
Chapter2
Chapter3
Chapter4

InternationalBusiness
TheInternationalBusinessEnvironment
ThePoliticalEnvironment
TheCulturalEnvironment

3
33
67
97

SECTION2:MANAGINGINTERNATIONALGROWTH

Chapter5
Chapter6
Chapter7
Chapter8
Chapter9
Chapter10

InternationalExpansion
EntryModeChoice
StrategicAlliancesandJointVentures
InternationalAcquisitions
MultinationalEnterprise
BusinessGroups

127
151
171
199
221
235

SECTION3:MULTINATIONALMANAGEMENT
Chapter11
Chapter12
Chapter13
Chapter14

ManagingaMultinationalEnterprise
ManagingaForeignSubsidiary
MultinationalManager
EthicalandSocialResponsibilityinMultinational
Management

iii

261
289
319
343

SECTION4:CASES

Case1
Case2
Case3
Case4
Case5
Case6
Case7
Case8
Case9
Case10
Case11
Case12
Case13
Case14
Case15

RuthsChris:TheHighStakesofInternationalExpansion
VincorandtheNewWorldofWine
AFewTipsAboutCorruptionintheU.S.
MajesticaHotelinShanghai
PacificLinkiMedia:BecomingaFullServiceInteractive
Agency
EliLillyinIndia:RethinkingtheJointVentureStrategy
GiantInc.:FormationoftheATeam
ReinventingtheSanMiguelCorporation
TataMotorsAcquisitionofDaewooCommercialVehicle
Company
INGInsurance,AsiaPacific
RodamasGroup:DesigningStrategiesforChangingRealities
inEmergingEconomies
TamingtheDragon:CumminsinChina
DaburIndiaLtd.:Globalization
EthicsofOffshoring:NovoNordiskandClinicalTrialsin
EmergingEconomies
MattelandtheToyRecalls(A)

iv

379
389
413
421
439
455
481
495
521
541
559
579
599
621
641

ABOUTTHEAUTHORS

Andrew Delios is a Professor in the Department of Business Policy, NUS Business

School, National University of Singapore. Andrew Delios is a general editor of the
JournalofManagementStudiesandformereditorinchiefoftheAsiaPacificJournalof
Management. He is an author or coauthor of six books and more than 60 published
journalarticles,casestudiesandbookchapters.HisarticleshaveappearedinAcademy
of Management Journal, Administrative Science Quarterly, Asia Pacific Journal of
Management,StrategicManagementJournal,JournalofInternationalBusinessStudies,
JournalofWorldBusiness,andAsianCaseResearchJournal.Hisresearchhasreceived
awards from the Administrative Sciences Association of Canada and the Academy of
International Business. Aside from his current residence in Singapore, he lived and
workedinHongKongforseveralyearsandJapanfortwoyearsHehasalsoworkedin
Canada,India,China,Australia,Sweden,NewZealand,Finland,andtheUnitedStates.
HehaswrittencasestudiesandconductedresearchoncompaniessituatedinCanada,
China, India, Italy, Hong Kong, Sweden, Japan, and Viet Nam. His research looks at
foreigndirectinvestmentandglobalcompetitionissuesinemergingeconomiesandthe
internationalstrategiesofJapanesemultinationalcorporations.

PaulBeamishholdstheCanadaResearchChairinInternationalBusinessattheRichard
Ivey School of Business, University of Western Ontario, London, Canada. He is the
author or coauthor of 50 books, nearly 100 refereed journal articles and over 100
publishedcasestudies.HisarticleshaveappearedinAcademyofManagementReview,
Academy of Management Journal, Strategic Management Journal, Journal of
InternationalBusinessStudies(JIBS)andelsewhere.HeisaFellowoftheAcademyof
InternationalBusiness,theAsiaPacificFoundationofCanadaandtheRoyalSocietyof
Canada.AtIvey,hehastaughtonavarietyofschoolprogramsincludingtheExecutive
MBAofferedatitscampusinHongKong.HealsohasresponsibilityforIveyPublishing,
the distributor of Iveys collection of over 2300 current cases. From 19992004 he
servedasAssociateDeanofResearch.HeworkedforProcterandGambleandWilfrid
Laurier University before joining Iveys faculty in 1987. Beamish (Bao Ming Xin in
Chinese)hasworkedonAsiaspecificissuesformanyyears.Hehaswrittencasestudies
and/or conducted research involving China, Hong Kong, Japan, Korea, Malaysia,
Singapore,Taiwan,andVietNam.HehasservedasaconsultanttotheWorldBankon
technologytransfertoChina,providedtrainingprogramsinAsiaforForeignAffairsand
International Trade Canada and coedited multiple series of casebooks published in
Chinese.AsDirectorofIveysAsianManagementInstitute(AMI),heoverseesaprocess
which generates research about business in Asia and which has resulted in over 400
newAsiancasesbeingprepared.

Jane LuisanAssociateProfessorintheDepartmentofBusinessPolicy,NUS Business

School,NationalUniversityofSingapore.SheisasenioreditorofAsiaPacificJournalof
Management. Her research focuses on the intersection between organization theory
and international strategy. Her articles have appeared in Academy of Management
Journal, Strategic Management Journal, Journal of International Business Studies,
Journal of Management, Journal of Business Venturing, Journal of Business Research
andJournalofInternationalManagement.Herresearchhasreceivedawardsfromthe
Academy of ManagementandtheAcademyofInternationalBusiness.Priortojoining
academia,sheworkedasexportmanagerforaleadingImport&ExportCorporationin
ShanghaiandasHeadoftheMerger&AcquisitionDepartmentatRabobanksShanghai
Branch. She also worked on consulting projects for Boston Consulting Group and
BertlesmanMusicGroup.

vi

PREFACE

Conversationsaboutinternationalbusinessandglobalizationtendtobepepperedwith
phrases like ongoing growth, continued rapid advance, spectacular increases and
worldwide integration, to identify a few. These phrases reflect the reality of the
businessenvironmentintheAsiaPacificinthefirstdecadeofthe21stcentury.

Thesetrendsintheinternationalbusinessenvironmentareunmistakablyclear.Evenin
the postfinancial crisis world in Asia,where many economies have strongly emerged
from the chaos in the financial system wrought by US and European banks,
internationalbusinessremainsanindeliblepartoftheeconomiclandscape.

InternationalbusinessisarealityintwopartsofthebusinessworldintheAsiaPacific.
First,thepursuitofinternationalbusinessopportunitiesbycompaniesintheregionhas
never been so vibrant and important as when domestic economies have been in its
cycles of growth, slowdown and then continued expansion. Second, trading and
foreign direct investment from countries inside and outside the region continues to
sculpt domestic business landscapes, creating new competitive contours for firms
indigenous to the host economies of the Asia Pacific, particularly for those firms
competingin,orcompetingfrom,largeemergingmarketssuchasChinaandIndia.

WewrotethesecondeditionofInternationalBusiness:AnAsiaPacificPerspectivewith
thesetrendsinmind.Thetextandcasesinthisbookapplythemostrecentthinking
about international business and international management to help understand the
competitiveenvironmentthatunderliesinternationalstrategyissuesrelevanttoafirm
competingintheAsiaPacificregion.Todevelopthisunderstanding,wehaveorganized
thematerialsinthetextportionofthisbookintothreesections:(1)theinternational
business environment, (2) managing international growth, and (3) multinational
management.

Inthefirstsection,wepresentideasandconceptsaboutapproachestoanalyzingand
understanding the international business environment. We focus on issues of
measurement of various dimensions in national institutional environments. These
dimensions include the cultural environment, the economic environment and the
politicalenvironment.Beyondthemeasurementissue,wearealsoconcernedwiththe
management of these dimensions for a newlyinternationalizing firm and for a well
establishedmultinationalfirm.

vii

There are several strategic decisions that are critical to the success of international
growthinitiatives.Thesedecisionsformthebackdropforthesecondsection,inwhich
we identify the options available to a manager of an internationalizing firm, when
consideringexpansionintoanewcountry.Inadditiontotheneedtobecognizantof
the various strategic options available for international expansion, a manager must
contendwithseveraluniquemanagementissues,suchasentrymodechoices,strategic
alliances, international acquisitions, geographic market choices and timing of entry,
that arise in an internationalizing firm. We have put forward several viewpoints on
how one can manage these issues. Along with this, we also discuss two important
formsofbusinessorganizationmultinationalfirmsandbusinessgroupsthatneedto
beconsideredwhenmakinginternationalexpansiondecisionsintheAsiaPacificregion.

In the third section, we move to the case of the ongoing management of a

multinational firm. We look at four major issues that arise in multinational
management: strategy and structure of a multinational firm, subsidiarylevel strategy
issues, human resource management practices, and the management of ethical and
socialresponsibilities. Thissection developsthethemethatamultinational manager
must contend with ongoing globalization pressures, but a manager does so in the
context of trying to maximize gains from integrating activities across countries, while
notlosingsightoftheuniquecompetitivedemandsofeachhostcountrymarket.

In developing the materials for this text, we highlight conceptual and strategic issues
thatunderlieinternationalbusiness,butareparticularlyprominentintheAsiaPacific
region. In doing so, we discuss ideas, concepts and the application of international
businesstheoriesinageneralway,butwemakespecificreferencetotheAsiaPacific
using a plethora of examples. We have integrated some of these examples into the
main text, while others we have highlighted by placing them in figures, tables and
textboxes.

Whendevelopingtheseexamples,weworkedwithawidedefinitionoftheAsiaPacific.
WedefinedtheAsiaPacificasthecountriesthatrangefromtheIndiansubcontinentin
the west to Japan in the east, and from Mongolia in the north to the southern tip of
Stewart Island in New Zealand. Our wide perspective on the geography of the Asia
Pacific matches the texts wide perspective on the topics that are most relevant to
individualscontemplating,orengagingin,acareerininternationalmanagement.

The overarching perspective taken in our writing of this book is unmistakably

managerial.Weseeinternationalbusinessasanappliedbusinesstopic.Wehopethat
ourbookcanhelpprepareanindividualforthekindsofsituationsanddecisionsthat
will be encountered when operating in international markets and when formulating
and implementing international strategy. To help meet that objective, we included

viii

fifteen business cases, which illustrate genuine decisions and situations faced by a
variety of firms operating in numerous Asia Pacific contexts. These decisions and
situations mirror many of the issues covered in the 14 chapters that form the core
textualmaterialofthisbook.

With its managerial focus, this book is intended for use undergraduate, graduate,
executive level international business and international management courses. It is
particularlyrelevant tocoursesthatfocusoninternationalbusinessandinternational
managementissuesintheAsiaPacificregion.Weprovidereferencestoreadingsthat
canbeusedtosupplementanyofthetopicscoveredinthetext.Thefifteencasesin
this book can also be supplemented by accessing any of hundreds of cases Ivey
Publishinghasoninternationalbusinessandothermanagementissuesforcompanies
operatingintheAsiaPacific.

ix

ACKNOWLEDGMENTS

Many people have helped make this book possible. Our thanks go to Daniel Lim,
AcquisitionsEditoratPearsonEducationAsia,whoencouragedustowritethefirstedition
ofthisbook,anditspredecessor,InternationalBusinessintheAsiaPacific.MonicaGupta
encouraged us to develop the second edition, which was ably edited and produced by
Rachel Lee and her production team at Pearson. We would like to thank the numerous
research associates and assistants involved in the development of the text. Ajai Singh
Gaur,LeThiThuHuong,NguyenHoangPhi,QianLihong,BillyPangandWuZhijianeach
workedexceptionallyhardandwelltohelptodevelopvariouspartsofthetext.Jennifer
Ilkiwwasresponsibleforcombingthroughhundredsofmediareportsinwritingmanyof
the examples we hope provide a unique Asia Pacific flavor to this book. For the second
edition, Kim McKinney rewrote much of the material, including the cases and examples,
whileprovidingvaluableresearchthatallowedustoupdateandimproveourcoverageof
internationalbusinessissuesintheAsiaPacific.

Numerouscolleaguesprovidedsupportandvaluablefeedbackonthistext.Wereceiveda
great deal of intellectual and collegial support from our colleagues at the NUS Business
School, the University of Auckland Business School and the Richard Ivey School of
Business,aswedevelopedthetextandcasesforthisbook.WewouldliketothankJulian
Birkinshaw,WitoldJ.Henisz,IshtiaqP.MahmoodandAndrePerketiforpreviewingvarious
chapters,andofferinginsightfulcomments.

AndrewDelios
PaulW.Beamish
JaneW.Lu

This page intentionally left blank


1
INTERNATIONALBUSINESS

Mostcompanieswilleventuallybecomeinternationalinthescopeoftheiroperations.
Inthe2000s,largeandsmallcompaniesfromdevelopedandemergingmarketshave
internationalizedtheiractivitiesinanattempttoimprovecompetitivenessandcapture
greatermarketshareinmoregeographicmarketsworldwide.Thisinternationalization
trendstartedinthe1950sforcompaniesfromNorthAmericaandWesternEurope.But
since the onset of the 1980s, companies from the AsiaPacific region have become
progressivelymoreactiveasparticipantsintheglobaleconomy.

Upuntilthe1980s,theinvolvementofmanycountriesintheAsiaPacificregioninthe
globaleconomyhad beenasrecipientsofforeigndirectinvestment (FDI).Firmsfrom
North America and Europe perceived advantages to moving productive activities to
countries in the AsiaPacific region. Consequently, these companies undertook a
substantialamountofFDIincountriesintheAsiaPacificregion.

This pattern of FDI in the AsiaPacific region has continued up until the 2000s. But in
the 2000s, it has been accompanied by an increasing number of firms based in the
developedandemergingeconomiesoftheAsiaPacificregionthathavebeenmoving
intoforeignmarketsbyexporting,bylicensingandbyforeigndirectinvestment.

The international business environment for a company operating in the AsiaPacific

regionencompassesbothofthesetrends.AnAsianPacificcompanyfacesasubstantial
amount of competition in its home markets from foreign firms, but it also finds
substantialopportunitiesforgrowthinforeignmarkets.Agoodunderstandingofboth
ofthesefeaturesoftheinternationalbusinessenvironmentisnecessaryforacompany
to compete successfully in its domestic and foreign markets, just like Tata Consulting
Services(seeBox11).

Tohelpdevelopanunderstandingoftheinternationalbusinessenvironment,thisbook
introduces the topic of international business from several vantage points. One
perspective concern is becoming an international company. Another involves

InternationalBusiness:AnAsiaPacificPerspective

considerationofthemanagementcomplexitiesofoperatingamultinationalcompany.
A third deals with the difficulties and challenges of managing and working as an
expatriate manager. Finally, we also consider the competitive implications of facing
strongforeigncompetitorsinahomemarket.

Box11TataConsultancyServices
Companies in the AsiaPacific region have long faced the daunting specter of competition in
theirhomemarketfrommultinationalfirms.Decliningbarrierstointernationalbusinessdoes
not only mean new competition, it can also mean new opportunities. Mumbaibased Tata
ConsultancyServices(TCS)hastakensuchaperspectivetoseizeopportunitiesininternational
marketstosupportitsproductandgeographicexpansionstrategies.

TCS(www.tcs.com)isamemberfirmintheTataGroup(www.tata.com),whichisIndiaslargest
industrialbusinessgroupbasedonmarketcapitalizationandrevenues.TCSwasestablishedin
1968, with the idea that a thorough understanding of management problems in Indias
industriescouldberesolvedthroughtheeffectiveuseofinformationtechnology.By2003,TCS
wasIndiaslargestsoftwaredeveloper,yet,by2009ithadfallentosecondplacebehindIndian
rival Infosys Technologies Limited (www.infosys.com). In 2009, TCS had clients in close to 50
countries around the world, with 142 branches globally and over 143,000 IT consultants
(employees)onitspayroll.

To achieve this impressive growth and size, TCS focused part of its geographic expansion
efforts in Asia. It built up its presence in the AsiaPacific region by being the first Indian IT
consultingcompany to setup a whollyowned subsidiary for software development in China.
ChinaisanimportantstrategicregionforTCSasitisoftenseenasoneofthelargestuntapped
marketsintheworld,withaninstalledbaseofapproximately17millioncomputersin2001.By
the late 2000s, TCS continued to increase its presence in China and ASEAN countries. In
commenting on TCS focus, Subramaniam Ramadorai, CEO, stated that With significant
recurringrevenuesandinvestmentsinnewgrowthmarketsofAsiaandLatinAmericayielding
results, we continue to invest in the future by building people competencies and new
technologies.

Toachievegrowthandheightencompetitiveness,TCShasundertakenproductexpansionalong
with its geographic expansion. In 2004, TCS completed an IPO. It followed this through
continuedstrategicacquisitions,includingoneoftheAustraliansoftwareproductscompanies,
FNS,andaBPOcompanyinChile,Comicrom,in2005and2006respectively.Atthesametime,
TCScontinuedtogrowinternallyinsuchmarketsasBrazil,Mexico,China,andHungary.In2008
TCSacquiredCitigroupscaptiveBPObusinessinIndia.ItrenamedthisbusinessasTCSeServe
Ltd., which served to broaden its banking and financial services business. TCS is looking at
future growth areas in healthcare, energy, utilities, and telecommunications. New business
models,GreenITandCloudComputing,arebeingtrialledinIndia,andthiscanbereplicatedin
theglobalITindustrymarkets.

InternationalBusiness

Sources:
India:TataConsultancyServicesPlanstoStepupSoftwareDevelopmentCentreinUruguay,IPR
StrategicBusinessInformationDatabase,May8,2002.
ChinaFiguresHighonIndiasItPlans,AsiaAfricaIntelligenceWire,September2,2002.
http://www.financialexpress.com/fearchive_frame.php,December26,2003.
TataNamesAltmantoHeadConsultingPractice,CommunicationsToday,November6,2002,vol.8,no.
212.
TCSEntersCallCenterBiz,AsiaPacificTelecom,May2003,vol.7,no.5,pp.45.
http://www.tcs.com/investors/Documents/Annual%20Reports/TCS_Annual_Report_2009.pdf,June7,
2009.
http://www.tcs.com/about/corp_facts/Pages/default.aspx,June16,2009.
http://www.tcs.com/investors/documents/Press%20Releases/TCS_PressRelease_IndianGAAP_Q4_09.pdf,
June16,2009.

This book provides these perspectives from the standpoint of a firm that has its
primary source of business activities in the AsiaPacific region. Although many
international business concepts and ideas are the same across the world, certain
featuresoftheAsiaPacificregion,suchasthespectaculargrowthanddeclineofmany
AsiaPacific economies in the 1980s, 1990s and 2000s and the staging ground Asia
Pacific countries have been for competition between multinational firms mean that
internationalbusinessdoeshaveuniqueaspectsintheAsiaPacific.

Aside from these contextual features, it is important to remember that international

business is about the management of a firm as it becomes international and the
management of a firm as it operates as a multinational context. As a management
topic, international business is necessarily an applied topic. This book stresses the
applicationofideas,concepts,andtheoriesininternationalbusinesstothepracticeof
managing a multinational company that operates in the AsiaPacific region and
elsewhereintheworld.

THEMULTINATIONALFIRM

What is a multinational firm? Is it the same as a transnational corporation? Is it the

sameasamultinationalcorporation(MNC)?Isitthesameasaninternationalfirm?Isit
thesameasamultinationalenterprise(MNE)?Theanswertoallofthesequestionsis
Yes.

Amultinationalfirmcanbeidentifiedbyanyoftheabovenames.Differencescanexist
among types of multinational firms, and these differences can be reflected in these
various names. Ultimately, all multinational firms share the same common
characteristic.Amultinationalfirmisonethathasproductiveoperationsinmorethan
onecountry.Itengagesinbusinessactivitiesinitsdomesticmarket,sometimescalled

InternationalBusiness:AnAsiaPacificPerspective

itshomecountry.Italsoengagesinbusinessactivitiesinforeignmarkets,whichare
sometimescalledhostcountries.

Amultinationalfirmbecomesmultinationalbyundertakingaforeigndirectinvestment.
A foreign direct investment occurs when a firm purchases assets in a foreign country
and that purchase provides the firm with control over the use of those assets. The
assetscanbeanothercompany,whichinthiscasewouldbeanFDIbyacquisition.The
assetscanalsobeothertangibleitemssuchasland,equipment,orbuildings,whichare
thenusedtoconstructandoperateaforeignsubsidiary.

A foreign subsidiary is an organization in the host country that is an extension of a

firms operations into a host country for the purpose of conducting its business
activities. A foreign subsidiary is the consequence of a foreign direct investment. A
foreignsubsidiarycanbeownedinwholeorinpartbyaforeignfirm.

If a foreign company has partial ownership of a foreign subsidiary, the portion of its
ownership must be large enough to confer some control over the operations of the
foreign subsidiary. Typically, a 10 to 20% ownership is the minimum amount of
ownershipnecessarytoconfersomecontrol.Ifafirmsownershipislessthan10%,its
investmentcanbeconsideredtobeaforeignportfolioinvestment.Aforeignportfolio
investmentisthepurchaseofpartialownershipofassetsinahostcountrythatconfers
rightstothereturnsfromtheuseofthoseassetsbutprovidesnoeffectivecontrolover
theuseofthoseassets.Theassetscanincludeintangibleitemssuchasstocks,bonds,
orTbills,whichareoftenreferredtoaspapersecurities.

Thedefinitionsanddescriptionsofamultinationalfirm,foreigndirectinvestment,and
foreign subsidiary are a key to understanding the material in this book. International
business centers around multinational firms. A firm becomes a multinational firm by
undertakingforeigndirectinvestment.Whenitundertakesaforeigndirectinvestment,
ithasaforeignsubsidiaryoperation.

EquityandNonEquityModesofInternationalParticipation

Foreigndirectinvestmentistypicallycalledanequitymodeofinvestment.Withinthe
equity mode of investment, there are several types. One of these is the previously
mentioned entry by acquisition. Another equity mode is a whollyowned greenfield
(newly built) subsidiary. Yet another is a joint venture operation. Joint ventures, and
theirnonequitycounterpartsinstrategicalliances,explodedinpopularityinthe1990s.
Aside from foreign direct investment, a firm can participate in international markets
throughseveralnonequitymodes.Afirmsmanagerscanexportitsproductstoforeign
markets,itsproductscanbelicensedforusebyfirmsinitsinternationalmarkets,ora
6

InternationalBusiness

firmcanengageinfranchising,itcannegotiateturnkeycontractoperations,oritcan
negotiate international subcontracting agreements. These are just a few of the many
typesofnonequitymodesofinternationalparticipation.

Equity modes and nonequity modes of international participation are differentiated

from one another by identifying whether a firm has ownership of the assets in its
foreign markets. If there is ownership, as in a foreign direct investment, then that
modeofinternationalparticipationiscalledanequitymode.Ifthereisnoownership,
thenthatmodeiscalledanonequitymode.

Equityandnonequitymodeshavethisdifferenceindefinition,butbotharemeansby
whichafirmcancompeteininternationalmarkets.Thesemethodsofforeignmarket
entry involve extending a firms sales and production into international markets
through a variety of arrangements. Although there are a multitude of foreign market
entry modes, the most commonly used are a whollyowned greenfield subsidiary, an
acquisition, a joint venture, exporting, licensing, technology transfer, and strategic
alliances.

Thesemodesarecommonlyreferredtoasentrymodes.Entrymeansthatafirmis
moving into an international market. A firms movement into international markets
concernsseveralchoices.Itinvolveschoicesaboutthetimingofentry,includingwhen
to go international and when to move into a particular market. It involves choices
about which mode to use when entering a foreign market. It also involves choices
aboutwhichforeignmarketstoenter.Thesechoicesareamongimportantdecisionsin
afirmsinternationalizationprocess.

One of the consequences of large numbers of internationalizing firms is that the

worlds economy becomes more globalized. Without the international activities of
firms and without multinational firms, there would not be a globalizing economy.
Environmental factors are part of the reason why firms are becoming more
internationalized and economies more globalized. We consider these forces for
internationalizationandglobalizationnext.

THEGLOBALIZINGECONOMY

Although there are debates about the extent and pace of globalization, a number of
trends have been pushing economies to become more integrated and globalized. As
economies become more integrated internationally, the barriers to international
participation by firms become lower. Consequently, a firm can move into foreign

InternationalBusiness:AnAsiaPacificPerspective

markets with greater ease, lower costs, and with better prospects for doing so
profitably.

Trendsthataredrivingglobalizationandeconomicintegrationincludereductionsinthe
importance of national borders, increases in similarities in consumer tastes across
world regions, changes in technology and communication that make distances seem
less, the transition of command economies to market economies, the rise of global
standards for product production and product quality, and a general reduction in
governmental policies that regulate the flows of people, products, and capital across
nationalborders.

One standard that drives the globalization and harmonization of product markets is
oneweseeeveryday.Itisthesuccessfulandwellknownglobalstandardknownasthe
Universal Product Code (UPC). First scanned on April 3, 1974, by the mid2000s, the
UPC was used by more than one million companies doing business in more than 140
countriesacross23industries.1By2009,severalsuchsystemswereinplacetosatisfy
both the volume of products as well the shape and size of products, including the
European Article Number (EAN) and the GS1 DataBar systems, which are used
worldwide.

Standardscanalsoemergeatthebusinesstobusinesssideofacompanysoperations.
Forexample,supplychainmanagementisanareainwhichanumberoforganizations
are collaborating to achieve global standards.2 The United Statesbased GS1
(http://www.gs1us.org), formerly the Uniform Code Council, is a member of the GS1
thatrepresents150countriesworldwide.TheGS1UShasamissiontoenhancesupply
chainmanagementandestablishgloballyrelatedstandards.Tomeetthismission,the
GS1 has placed subsidiaries across the global marketplace. The GS1 develops,
promotes,maintains,andexpandsglobalsupplychainstandards.Onesuchinitiativeis
the Global Commerce Initiative (www.globalcommerceinitiative.org). Global retailers
and manufacturers are undertaking GCI to develop and promote the use of global
standards, particularly in the area of data synchronization and supply chain
technologies. GCI represents efforts by over one million companies of various sizes
aroundtheworldwhoseproductofferingsspantheentiresupplychainforconsumer
goods.3

Globalizationtrends,reinforcedbytheemergenceofglobalstandardssuchastheUPC
and initiatives such as the GCI, operate together to shorten physical and perceptual
differencesto,andtoreducethecostsof,afirmsactivitiesthatcrossborders.These
reductionsfacilitatetheconductofinternationalbusiness,andhenceitsgrowth.

InternationalBusiness

Althoughtheconsequenceofthesetrendsisgenerallyreferredtoasglobalization,it
might be more correctly thought of as the internationalization of a firms business
strategies. A firms internationalization proceeds first through a regionalization, in
whichitbuildsupaconcentratedsetofoverseasactivitiesincountrieswithinthesame
region Asia, North America, South America, Europe, for example of the world. It
becomesatrulyglobalfirmonlywhenseveralregionsoftheworldeventuallybecome
the staging points for a firms international activities. Few firms are yet beyond the
regionalexpansionpointintheirinternationalactivities,4butotherssuchasHaierare
movingaggressivelyintomanyworldregions(seeBox12).

Formostfirms,themajorityoftheirinternationalactivitiesareconcentratedinoneof
thethreeTriadregionsoftheworld:WesternEurope,Japan,andNorthAmerica.Afirm
based in the United Kingdom, France, or the Netherlands generally has most of its
international activities in Europe. A representative firm based in Thailand, Japan, or
Singaporewouldtendtohavethemajorityofitsinternationalactivitiesconcentratedin
Asia. Similarly, a firm based in the United States would have much of its operations
basedinNorthandCentralAmerica.

TheconcentrationofafirmsinternationalactivitiesinoneofthethreeTriadregionsis
themostpervasivepatternintheinternationalizationoffirmsinthe2000s.Itdoesnot
meanthatsomefirmsdonothaveanevenspreadofoperationsaroundtheworld,but
itdoesmeanthatformostfirmstherealityofbeingamultinationalfirmisoneinwhich
salesandproductiontendtobecenteredinoneofthethreeTriadregions.

Box12HaiersInternationalExpansion
Chinas Haier Group made a small refrigerator manufacturer into a multinational company by
leveraging the trends driving the globalizing economy. Haier, founded in 1984, was one of
Chinas top electronic and information appliance makers, and the number one refrigerator
manufacturerintheworldin2008,aboveUScompetitorWhirlpool.

For the Haier Group (www.haier.com), a successful globalization strategy included developing
and establishing a brand name. Believing that its products would attract consumers at home
and abroad, Haier developed its brand by focusing on improving quality, meeting customers
needs, and diversifying into other appliances such as electronics, winechillers, and air
conditioners.Thebrandinginitiativewassuccessful,makingHaieraninternationalbrandname
andawellestablishedcompanyintheUnitedStatesandGermany.By2009,Haierhad15,100
productsin96productlinesinover100countries,anditcontinuestoholdasignificantmarket
shareinChinaof21%foroverallappliances.

Inimplementingitsglobalizationstrategy,Haierfounditnecessarytolocalizeitsnetworksfor
design, production, distribution, and aftersales services as well as its sales centers. To
accomplishthis,thecompanyestablishedeightdesigninstitutes,15industrialcomplexes,and

InternationalBusiness:AnAsiaPacificPerspective

30 overseas production factories. Haier employed local workforces for design and production
andopenedregionalheadofficesinNewYork,USA,Varese,Italy,andQingdao,China.Toreach
itsconsumers,Haierhad58,000salesagentsinitslocalizedsalesoffices.

Haiersglobaldevelopmentstrategyincludedentriesbyjointventures,acquisitions,anddirect
establishments of its presence in new markets. In 1999, Haier entered the US market by
establishing a regional sales and marketing division (www.haieramerica.com). By 2001, Haier
hadestablishedmanufacturingfacilitiesintheHaierAmericanIndustrialParkinSouthCarolina,
whileplacingitsheadoffice,theHaierBuilding,inNewYorkCity.In2009,HaierAmericawasan
OfficialMarketingPartnerandtheOfficialHighDefinitionTelevisionoftheNBA.

Meanwhile, Haier entered Pakistan in February 2001 by jointly establishing a facility with
PakistanbasedPanapakElectronicCompanytoproduceHaierairconditioners.Next,theGroup
openedtheHaier(Pakistan)IndustrialParkinLahoreinApril2001.In2004,Haierwasthefirst
foreign brand home appliance manufacturer in Pakistan to obtain the ISO9001:2000
Certification which confirms that the company meets requirements for quality management
systems and enhanced customer service. Haier continues to help develop the Pakistan home
applianceindustry.

Haier entered the European market (www.haiereupore.com) by acquiring 100% of an Italian

refrigeratorplantbelongingtoMeneghettiEquipmentin2001.Asaresultofthattransaction,
Italy came to house the head office and production facilities for Haier Europe. Haier Europe
managesHaierappliancesin17Europeancountries,holdingbranchofficesinGermany,France,
Spain,andItalyanddistributioncentersinSpain,theUK,Holland,andItaly.

Inearly2002,HaierenteredtheMiddleEastinajointventurewithSouthElectronicsCompany
and Syrian and Lebanese partners to establish the Haier Middle East Trading Co.
(www.haiermideast.com). This division worked to expand Haiers market share and raise the
brandsreputabilityinJordan,Lebanon,Syria,Palestine,Iraq,Egypt,andKuwait.

Sources:
http://www.haier.com/english/about/index.html,November12,2003.
CanHaierFreezeOutWhirlpoolandGE?,BusinessWeekOnline,http://www.businessweek.com/,April
11,2002.
http://www.rhvacnet.com/english/news/view.asp?newsid=10149,November17,2003.
http://news.alibaba.com/article/detail/businessinchina/1000439631haiertopswhirlpoolglobal
refrigerator.html,June16,2009.
http://www.pixmania.co.uk/uk/uk/haier/742/marque.html#moreinfos,June16,2009.
http://www.iso.org/iso/iso_catalogue/management_standards.htm,June19,2009.

Not surprisingly, in this globalizing world, the most relevant realm for a company
operatingintheAsiaPacificregionisothercountriesintheAsiaPacificregion.Atypical
multinationalfirmintheAsiaPacificregionmighthaveoperationsinallTriadregions,
butitislikelytohavethemajorityofitsactivitiesconcentratedinothercountriesinthe
AsiaPacific region. Likewise, its competitors, suppliers, and buyers will each have a

10

InternationalBusiness

strong focus on the AsiaPacific region. This creates a regionalization to international

competition that reinforces the importance of understanding how international
businessunfoldsintheAsiaPacificregion.

TradeAgreementsandDisappearingBorders

Inthemid1940s,theworldwasoneinwhichtariffsaveraged45%.Thisleveloftariffs,
whicharetaxesonimportedgoodsandservices,actedasasignificantbarriertotrade.
Althoughtariffscanraisemoneyforagovernment,theycomeattheexpenseofraising
thecostofimportedgoodstoanationsconsumers.

Inthesecondhalfofthetwentiethcentury,policymakersrespondedtohighlevelsof
tariffs and their trade distorting implications by instituting rounds of negotiations
aimed at reducing worldwide levels of tariffs. These negotiations first took place in
1947andbecameknownastheGATT,ortheGeneralAgreementonTariffsandTrade,
oncecompleted.

TheresultoftheGATTwasasubstantialreductionontariffsamongseveralimportant
tradingnationsintheworld.Thetariffreductionswereprominentacrossawiderange
ofmanufacturedproductssuchaswood,pulpand paper,furniture,metals, andnon
electric machinery. But other areas such as agriculture, textiles, and
telecommunications,whicharethreeofthemostheavilysubsidizedsectors,werestill
protectedbytariffbarriers.5

Subsequentroundsoftalks,includingthoseinUruguayandDoha,continuedtoworkto
reducetariffbarriersandliberalizetradeinotherimportantareasoftheeconomysuch
asagricultureandservices,includingbanking.Tradeagreementsforserviceseventually
were extended to provide enhanced protection for intellectual property (patents,
copyrights, and trademarks), which has been a longstanding source of trade friction
amongnations.Issuesconcerningnontariffmeasures,traderemedies(antidumping,
countervailing measures and safeguards), and dispute settlements were also brought
intointernationaltraderulesthroughthesemostrecentroundsoftradetalks.

In January 1995, the GATT gave way to the WTO, or World Trade Organization
(www.wto.org).TheWTOisapermanentmultilateraltradingsystemoverseeingtrade
developmentissues.TheWTOdealswiththerulesoftradebetweennations.Thetrade
dealsfromtheWTOrepresentthemostcomprehensiveandcomplexpackageoftrade
liberalization to date. Unlike previous agreements, in which trade clauses applied
provisionally to a participating nations favor, membership in the WTO means that a
nation is party to all its multilateral agreements. In addition, the scope for
discriminatory,unilateralpolicyactionsbecomesmuchmorelimitedundertheWTOas
11

InternationalBusiness:AnAsiaPacificPerspective

each member is committed to imposing tariffs on a NormalTradingRelations (NTR)

basis.

The coverage of the WTO is impressive. In 2008, 153 nations were in the WTO. The
most recent high profile admissions include the Peoples Republic of China (China) in
2003andVietnamin2007.

DespiteaccelerateddevelopmentintheliberalizationofworldtradethroughtheGATT
andtheWTO,manyissuesremainunresolvedontheinternationaltradefront.Oneof
these issues concerns the ongoing negotiation among nations on agriculture, which
broughttheDoharoundtothebrinkofcollapseonmanyoccasions.Substantialtrade
barriers also continue to remain in other areas such as textiles, which has been the
focal point of dispute between developed and developing nations. Another issue
ranking high on the WTOs agenda is investment liberalization, which was not on its
development agenda until recent years, when investment flows began to surge
following the globalization of production. Other issues of increasing concern include
the emergence of electronic commerce; the resurgence of nontariff barriers; the
economic and financial crisis of 2008 and 2009; awareness of regional trade
agreements; taxation; environmentalism; technology transfer; trade policy
harmonization,andnationaldevelopmentpolicy.

In essence, these rounds of talks have laid the building blocks for a freer, more
transparent andmorepredictableinternationaltradingsystem.Clearly,workremains
tobedonetofurthertheliberalizationoftrade,butoneresultisquiteclear.Sincethe
onsetoftheGATTandtheWTO,tariffsonmanufacturedproductshavecontinuedto
falltothepointwheretheyreachedanaverageof9%in2007amongstWTOmembers.

Arelatedconsequenceofthesetalksisthatnationsthatareparticipantsandpartiesto
the resulting agreements lose some degree of independence in policy setting. If a
nationadherestoatradeagreement,itlosestheautonomytosettariffandnontariff
barriers as a means to control trade and influence the development of domestic
industries.Thislossofindependenceandautonomycanbeparticularlyprofoundwhen
nations begin to form tighter forms of union in regional trading blocs or in economic
unions.

FormsofEconomicIntegration

Economic integration can take various forms that vary from weak to strong levels of
economicunion.Aweakformisoneinwhichanationholdssubstantialautonomyand
discretioninsettingthetermsoftradeandinvestmentwithothernations.Thetoolsa
nation has at its disposal for doing this include tariffs, restrictions on the flows of
12

InternationalBusiness

capitalandpeople,andnontariffbarrierssuchasproductstandardsandcertifications
required for the sale of a product in a nation. A strong form of integration is one in
which this autonomy and discretion is removed in favor of a free flow of products,
capital,andlaboracrossborders.

The trend in the 2000s has been toward the latter. Economies have become
increasinglyintegratedthroughavarietyoftradingandregionalagreements(seeTable
11).Theseagreementshaveencompassedmostnationsintheworldsuchthatthere
arefewnationsthatdonotparticipateinanyagreement.Thetransitionoftheformer
command economies of China, Vietnam, and Central and Eastern Europe to market
economieshasledtoawideningofthescopeofnationsincludedinsuchagreements.

Table11illustrateshowthesetypesofeconomicintegrationvarybyfourfeaturesof
theeconomy.Thefourtypesofeconomicintegrationrangefromtheleastintegrated,a
freetradearea,tothemostintegrated,aneconomicunion.Afifthformofintegration
extendseconomicuniontopoliticalunion.

Type
Freetradearea

Removalof
tariffsand
quotasamong
members
Yes

Commontariff
andquota
system
No

Removalof
restrictionson
factor
movements
No

Unificationof
economic
policiesand
institutions
No

Customsunion

Yes

Yes

No

No

Commonmarket

Yes

Yes

Yes

No

Economicunion

Yes

Yes

Yes

Yes

Politicalunion

Yes

Yes

Yes

Yes

Table11TypesofEconomicIntegration

Source:AdaptedfromFranklinR.Root,InternationalTradeandInvestment(Cincinnati,Ohio:South
WesternPublishingCompany,1992),p.254;SourcedfromMichaelR.Czinkota,IlkkaA.Ronkainen,and
MichaelH.Moffet,InternationalBusiness(SouthWestern:Australia,2002),p.196.

In all types of economic integration, nations agree to remove tariffs and quotas. This
removaleffectivelypermitsgoodsandservicestoflowfreelyamongmembernations
justasgoodsandservicesflowfreelywithinanation,althoughgovernmentsmightyet
subsidize products, such as agricultural goods. The scope of the free trade can be
limitedtocertainsectorsoftheeconomy,butasnationsincreasethelevelofeconomic
integration, more and more sectors become tariff and quotafree. Importantly, in a
freetradearea,anationstillretainsautonomytosettariffsandquotasfortradewith
nationsoutsidethefreetradearea.

13

InternationalBusiness:AnAsiaPacificPerspective

Afterformingafreetradearea,thenextstepistoformacustomsunion.Inacustoms
union,membersestablishacommontradepolicy,thatis,acommonsetoftariffsand
quotaswithnonmembers.

The next step is to form a common market. Unlike a free trade area and a customs
union,memberstatesinacommonmarketpermitfactorsofproductionsuchascapital
and labor to move freely within the states that comprise the common market. This
freedommeansthatcapitalcanflowtotheregionsandindustrieswheretheremight
be the highest return, while people can move across nations within the common
market to find the best employment and living opportunities. This freedom of
movement should promote economic growth through a productive use of factors of
production.

The final step is to form an economic union. Members of an economic union yield
autonomy and independence to set national level monetary and fiscal policies to a
unionwide policy making body. An economic union may involve the institution of a
commoncurrency,suchastheestablishmentoftheEuro()intheEuropeanUnion.

ExamplesofEconomicIntegration

Withthegrowthininitiativesineconomicintegrationsincethe1980s,thenumberof
freetradeagreementsandothertypesofeconomicunionhasgrowncorrespondingly.
The imperatives to form such unions have been strong enough that it is difficult to
identify a country that is not at least a party to one bilateral or multilateral trading
agreement.

One common characteristic of major trading agreements is that they tend to be

geographicallyfocused.Anationismuchmorelikelytobeinatradingagreementwith
a nation that is geographically proximate to it than with one that is geographically
distant.Asaresult,wetendtothinkoftradeagreementsonaregionbyregionbasis,
suchastheEuropeanUnion(seeTable12).

As can be seen in Table 12, 27 European countries were members of the union in
2009,withanotherthreecountrieseitherengagedinnegotiationstojointheEuropean
Unionorinterestedinjoiningtheunion.

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InternationalBusiness

EUMemberStates

Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
Slovenia
Poland
Bulgaria
Estonia
Cyprus
Lithuania
Hungary
CzechRepublic
Latvia
Romania
Slovakia
Malta
UnitedKingdom
Turkey
Croatia
RepublicofMacedonia(FormerYugoslav)

YearofEntry
1950
1973
1950
1981
1986
1950
1973
1950
1950
1950
1995
1986
1995
1995
2004
2004
2007
2004
2004
2004
2004
2004
2004
2007
2004
2004
1973
Candidatestate
Candidatestate
Candidatestate

Table12MembersoftheEuropeanUnion(2009)

Source:http://www.delidn.ec.europa.eu/en/eu_guide/eu_guide_2.htm,June3,2009.
Note:1950referstothedateatwhichthenationssubscribedtotheSchumandeclaration.TheTreatiesof
Rome,whichestablishedtheEuropeanEconomicCommunity,weresignedin1957.

Numerous free trade agreements exist in Africa (see Table 13). These include the
Southern African Development Community (SADC), the Common Market for East and
South Africa (COMESA), and the Economic Community of West African States
(ECOWAS).Asnotedinthenamesoftheseexamples,theagreementstendtoinvolve

15

InternationalBusiness:AnAsiaPacificPerspective

states that are located in similar locations in the African continent, such as the
southern,eastern,orwesternportionsofthecontinent.

Name

Acronym

Members

Website

Associationof ASEAN
SoutheastAsian
Nations

BruneiDarussalam,Cambodia,
www.aseansec.org
Indonesia,Laos,Malaysia,
Myanmar,Philippines,Singapore,
Thailand,Vietnam

Andean
ANCOM
CommonMarket

Bolivia,Colombia,Ecuador,Peru,
Venezuela

ArabLeague

Jordan,UnitedArabEmirates,
www.arableagueonline.org
Bahrain,Tunisia,Algeria,Djibouti,
SaudiArabia,Sudan,Syria,Somalia,
Comoros,Kuwait,Libya,
Mauritania,Morocco,Oman,
Qatar,SouthernYemen,Egypt,
Iraq,Lebanon,Palestine

www.comunidadandina.org

Central
CACM
American
CommonMarket

CostaRica,ElSalvador,Guatemala, www.sieca.org.gt
Honduras,Nicaragua

Caribbean
CARICOM
Communityand
CommonMarket

AntiguaandBarbuda,The
www.caricom.org
Bahamas,Barbados,Belize,
Dominica,Grenada,Guyana,Haiti,
Jamaica,Montserrat,St.Kittsand
Nevis,St.Lucia,Suriname,St.
Vincent&theGrenadines,Trinidad
andTobago

CommonMarket COMESA
forEastand
SouthAfrica

Angola,Burundi,Comoros,Congo, www.comesa.int
Djibouti,Egypt,Eritrea,Ethiopia,
Kenya,Madagascar,Malawi,
Mauritius,Namibia,Rwanda,
Seychelles,Sudan,Swaziland,
Uganda,Zambia,Zimbabwe

Economic
Communityof
WestAfrican
States

Benin,BurkinaFaso,CapeVerde, www.ecowas.int
CteDIvoire,Gambia,Ghana,
Guinea,GuineaBissau,Liberia,
Mali,Niger,Nigeria,Senegal,Sierra
Leone,Togo

ECOWAS

16

InternationalBusiness

Name

Acronym

Members

Website

EuropeanUnion EU

Austria,Belgium,Bulgaria,Cyprus, europa.eu.int
CzechRepublic,Denmark,Estonia,
France,Finland,Germany,Greece,
Hungary,Ireland,Italy,Latvia,
Lithuania,Luxembourg,Malta,
Poland,Romania,Slovakia,
Slovenia,Spain,Sweden,The
Netherlands,Portugal,United
Kingdom

GulfCooperation GCC
Council

Kuwait,Qatar,Oman,SaudiArabia, www.gccsg.org
Bahrain,UnitedArabEmirates

NorthAmerica
FreeTrade
Agreement

Canada,UnitedStates,Mexico

NAFTA

www.naftasecalena.org

Organizationof OAPEC
ArabPetroleum
Exporting
Countries

Algeria,Bahrain,Egypt,Iraq,
www.oapecorg.org
Kuwait,Libya,Qatar,SaudiArabia,
Syria,Tunisia,UnitedArab
Emirates

SouthernAfrican SADC
Development
Community

Angola,Botswana,Congo,Lesotho, www.sadc.int
Malawi,Mauritius,Mozambique,
Namibia,Seychelles,SouthAfrica,
Swaziland,Tanzania,Zambia,
Zimbabwe

Southern
MERCOSUR
CommonMarket

Argentina,Brazil,Paraguay,
Uruguay

www.mercosur.org.uy

Table13AreasofEconomicIntegration(2009)

Sources:www.aseansec.org;www.comunidadandina.org;www.arableagueonline.org;www.sieca.org.gt;
www.caricom.org;www.comesa.int;www.ecowas.int;www.europa.eu.int;www.gccsg.org;www.nafta
secalena.org;www.oapec.org;www.sadc.int;www.mercosur.org.uy,August19,2009

Moving to the northern part of Africa and including the Arab nations to the east of
Africa brings us to several other areas of economic integration. There is the Gulf
Cooperation Council and the Arab League, which include both Northern African and
MiddleEasterncountries.WealsohavetheOrganizationofArabPetroleumExporting
Countries (OAPEC). OAPEC, which was established in 1968, is an intergovernmental
organization that fosters cooperation among its members to help develop the
petroleumindustry.OAPECisnottobeconfusedwithOPEC(www.opec.org,founded
in 1960), which is an organization involving member countries from Africa, Asia, the

17

InternationalBusiness:AnAsiaPacificPerspective

Middle East, and Latin America, which has the dual purpose of supporting market
stabilityforoilandensuringafairpriceforoil.

Moving across the Atlantic Ocean to North and South America brings us to several
other free trading areas. The North America Free Trade Agreement (NAFTA) includes
just three countries Canada, the United States and Mexico but it has the largest
GNP,greaterthanUSD15trillion,amongalltradingareas.Othertradingareasinclude
theSouthernCommonMarket(MERCOSUR),theCaribbeanCommunityandCommon
Market(CARICOM),theAndeanCommonMarket(ANCOM),andtheCentralAmerican
Common Market (CACM). As indicated in the names for the trading areas in Central
andSouthAmerica,thedegreeofeconomicintegrationisquitetightcomparedtothe
NAFTAagreement.

Moving west again, but this time across the Pacific Ocean, we encounter one other
trading area. This is the Association of South East Asian Nations (AFTA, ASEAN). The
AFTA, ASEAN free trade area includes Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar,Philippines,Singapore,Thailand,andVietnam.

SIZEANDPREVALENCEOFMULTINATIONALCOMPANIES

Firmshaverespondedtotheliberalizationoftradeandinvestmentregimesbylocating
increasingportionsofproductiveactivitiesinoverseasmarkets.Thisresponsehasnot
onlyincreasedthenumberofmultinationalfirms,butithasalsoincreasedthedegree
ofmultinationalityofmanyofthesefirms.Finally,ithasledtoalargenumberoffirms
pursuingastrategyofgrowthininternationalmarkets.

NumberofMultinationalCompanies

Thereisnoprecisewaytocountthenumberofmultinationalcompanies.Estimatesof
thenumberofmultinationalcompaniesintheworldmustbetakenasexactlythat,an
estimate. One agency that produces annual, rigorously compiled numbers on
multinationalcompaniesistheUnitedNationsConferenceonTradeandDevelopment
(UNCTAD,www.unctad.org).

Each year UNCTAD produces a World Investment Report (http://r0.unctad.org/wir)

that has the general goal of outlining the current state of international trade and
investment.The2008WorldInvestmentReportidentifiedthatthereweremorethan
790,000 multinational companies operating worldwide. The nation with the most
multinational companies is the United States. Other leading nations in terms of the
number of multinational companies included France, Germany, the United Kingdom,

18

InternationalBusiness

andJapan.Thesesamecountrieshousedthelargestpercentageoftheworldslargest
multinationalfirms(seeTable14).TheUnitedStatesalonewasthehomecountryto
22ofthetop100,slightlydownfrom23intheearly2000s.

Country
UnitedStates
France
Germany
UnitedKingdom
Japan
TheNetherlands
Switzerland
Canada
Spain
Italy
Sweden

Numberof
Multinational
Companies
22
15
14
13
9
6
4
3
3
2
2

Country
SouthKorea
Australia
China
Finland
HongKong
Ireland
Malaysia
Mexico
Norway
Singapore

NumberofMultinational
Companies
2
1
1
1
1
1
1
1
1
1

Table14Top100MultinationalCompaniesbyHomeCountry(2008)

Source:UNCTAD,WorldInvestmentReport2008.http://www.unctad.org/en/docs/wir2008_en.pdf,Annex
TableA.I.15.,pp.220222.

AlthoughtheUnitedStateshadthemostcompaniesamongthetop100,itsdominance
asthehometotheworldslargestmultinationalfirmshasdeclinedovertime.In1976,
itwashometoalmost50%oftheworldslargestmultinationalfirms.By1997,ithad
justover30%oftheworlds500largestmultinationalfirms.TheUnitedKingdomhas
experienced a similar decline from 19% to 12% while Japans share rose from four
percentto25%.GermanyandFranceeachhaveconsistentlybeenthehomeforabout
8% of the worlds 500 largest multinational firms. Meanwhile, firms from emerging
markets such as China and India have began to climb up in the ranks of the worlds
largestmultinationalfirms.

The industrial distribution of the worlds largest multinational firms has shown some
change over the past decade. The worlds 100 largest multinational firms could be
foundintheelectronics,motorvehicles,petroleum,foods,andchemicalsindustriesat
thestartofthe1990s.Bytheendofthe1990s,firmsinthepharmaceuticalsindustry
amongthetop100hadquadrupledfromtwotoeight.Thismultinationalgrowthwithin
thepharmaceuticalsectorwaspartofatrendtowardtheglobalizationofresearchand
development and the distribution of ethical pharmaceutical products. Several
companies engaged in trading and retailing also cracked the top 100. In the retail

19

InternationalBusiness:AnAsiaPacificPerspective

industry, emerging giants such as WalMart, Carrefour, and Metro AG began to

internationalizetheiroperationsonawidescale.

Table 15 provides more insights into these trends by listing the total assets, foreign
assets,totalsales,foreignsales,andTNI(TransnationalityIndex)forlargemultinational
firms.Itidentifiesthe50largestmultinationalcompaniesinthelate2000s,wherethe
largest multinational company is considered to be the one with the largest figure for
foreign assets. This criterion distinctly places General Electric at the top of the chart
evenifwelookattotalassetsinsteadofforeignassets.

Rank

Name

HomeCountry

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

GeneralElectric
BritishPetroleumCompanyPlc
ToyotaMotorCorporation
RoyalDutch/ShellGroup
ExxonMobilCorporation
FordMotorCompany
VodafoneGroupPlace
Total
ElectriciteDeFrance
WalMartStores
TelefonicaSA
E.On
DeutscheTelekomAG
VolkswagenGroup
FranceTelecom
ConocoPhillips
ChevronCorporation
HondaMotorCoLtd
Suez
SiemensAG
HutchisonWhampoa
RWEGroup
NestleSA
BMWAG
Procter&Gamble
GeneralMotors
NissanMotorCoLtd
DeutschePostAG
EnlGroup
Sanofiaventis
DaimlerChryslerAG
PfizerInc
RocheGroup
Mitsui&CoLtd.
MitsubishiMotorsCorporation
IBM
XstrataPLC
FiatSpa
Novartis
SonyCorporation

US
UK
Japan
UK,Netherlands
US
US
UK
France
France
US
Spain
Germany
Germany
Germany
France
US
US
Japan
France
Germany
HK,China
Germany
Switzerland
Germany
US
US
Japan
Germany
Italy
France
Germany,US
US
Switzerland
Japan
Japan
US
UK
Italy
Switzerland
Japan

20

Foreign
Assets
442,278
170,326
164,627
161,122
154,993
131,062
126,190
120,645
111,916
110,199
101,891
94,304
93,488
91,823
90,871
89,528
85,735
76,264
75,151
74,585
70,679
68,202
66,677
66,053
64,487
63,538
61,398
60,938
58,113
55,342
55,214
53,765
52,178
50,678
48,328
47,392
45,284
44,715
42,922
40,925

Total
Assets
697,239
217,601
273,853
23,5276
219,015
278,554
144,366
138,579
235,857
151,193
143,530
167,565
171,421
179,906
135,876
164,781
132,628
101,190
96,714
119,812
87,146
123,080
83,426
104,118
138,014
186,192
104,264
286,709
116,307
102,414
250,259
114,837
60,980
82,499
96,559
103,234
47,216
76,785
68,008
98,498

Foreign
Sales
74,285
215,879
78,529
182,538
252,680
78,968
32,641
146,672
33,879
77,116
41,093
32,154
36,240
95,761
30,448
55,781
111,608
77,605
42,002
74,858
28,619
22,142
57,234
48,172
44,530
76,308
68,703
44,807
62,429
20,266
82,130
22,549
33,155
17,557
37,270
55,507
15,038
46,394
35,630
52,045

Total
Sales
163,391
270,602
205,918
318,845
365,467
160,123
39,021
192,952
73,933
344,992
66,367
85,007
76,963
131,571
64,863
183,650
204,892
95,333
55,563
109,553
34,428
55,521
78,528
61,472
76,476
207,349
90,014
75,957
108,023
35,595
190,176
48,371
33,531
41,967
176,410
91,424
17,632
65,026
36,031
71,331

TNI
(%)
53
80
45
70
68
50
85
74
35
41
69
51
46
57
52
43
58
82
69
66
82
47
83
56
59
44
62
37
53
61
31
51
80
66
35
57
92
62
71
59

InternationalBusiness

Rank

Name

HomeCountry

41
42
43
44
45
46
47
48
49
50

CompagnieDeSaintGobain
BASFAG
RepsolYPFSA
HewlettPackard
Eads
PhilipsElectronics
RenaultSA
LindeAG
LafargeSA
Unilever

France
Germany
Spain
US
Netherlands
Netherlands
France
Germany
France
UK,Netherlands

Foreign
Assets
39,729
38,705
38,281
37,664
36,868
36,680
35,935
35,125
34,793
34,433

Total
Assets

Foreign
Sales

54,887
59,648
59,530
81,981
95,005
50,701
90,565
36,871
39,265
48,824

37,224
37,194
32,651
59,414
38,937
32,478
34,268
13,322
18,047
45,078

Total
Sales
52,184
66,002
64,427
91,658
49,472
33,843
52,099
15,605
21,213
49,733

TNI
(%)
72
57
55
59
48
85
51
89
81
79

Table15TheWorlds50LargestMultinationalCompanies

Source:UNCTAD,WorldInvestmentReport2008.http://www.unctad.org/en/docs/wir2008_en.pdf,Annex
TableA.I.15.,pp.220221.
Note:AllfiguresareinUSDmillions.

Amongthe20largestmultinationalcompanies,we canfindsevendifferentcountries
represented. This distribution reflects the 1980s to 2000s trend discussed earlier
toward a more widespread distribution of multinational firms across countries of the
world. Even with this trend, few firms from Asia yet top this list. Toyota Motors and
HondaMotorsfromJapancanbefoundonthislist.Justafewyearsago,thissamelist
ofthelargestmultinationalcompaniesincludedmanyotherJapaneseGeneralTrading
companies (sometimes referred to as sogo shosha), such as Marubeni, Sumitomo,
andMitsubishi.Thesecompanieshavefacedquiteseverepressureontheiroperations
sincethecloseofthe1980s,resultinginasubstantialreductionintheirdomesticand
foreignassetsandrevenues.

HutchisonWhampoaatnumber21isthelargestAsianbasedcompanytobefoundon
thelistoftheworldstop50multinationalcompanies.OnceweexcludeJapan,wecan
see in Table 16 that other large companies in Asia will require substantial growth in
theirforeignassetsbeforemovinguptheranksoftheworldstop50list.Unilever,at
number50,hadUSD34.4billioninforeignassets.Thenumberfivecompanyinthetop
25multinationalcompaniesinAsialist,SingTelLtd.,hadabout54%ofthatatUSD18.7
billion.SingTelLtd.hadforeignassetsthatweretwiceaslargeasMalaysiasPetronas,
thenumberfourcompanyintheAsialist.

SeveralcompaniesfromSouthKoreawerepartofthelistofAsiaslargestmultinational
companiesincludingSamsungElectronics,HyundaiMotors,LG,andKiaMotors.These
companies were largely affiliated with a business group structure called chaebol,
referringtoaSouthKoreanformofbusinessgroup.

21

InternationalBusiness:AnAsiaPacificPerspective

Foreign
Assets

Total
Assets

Foreign Total
Sales
Sales

TNI(%)

Rank

Name

Home
Country

HutchisonWhampoaLtd.

HongKong

70,679

87,146

28,619

34,428

82.3

PetronasPetroliamNasional
Bhd

30,668

85,201

14,937

50,984

25.7

SamsungElectronicsCo.,Ltd

27,011

87,111

71,590

91,856

47.8

4
5

HyundaiMotorCompany
SingTelLtd.

Malaysia
South
Korea
South
Korea
Singapore

19,581
18,678

76,064
21,288

30,596
5,977

68,468
8,575

26.6
67.6

6
7

CITICGroup
FormosaPlasticGroup

China
Taiwan

17,623
16,754

117,355
75,760

2,482
13,002

10,113
50,445

18.9
40.9

JardineMathesonHoldings
Ltd.

16,704

20,378

12,527

16,281

70.6

LGCorporation

HongKong
South
Korea

15,016

53,915

43,902

70,613

47.2

10
11
12

ChinaOceanShipping(Group)
Company
CapitaLandLimited
HonHaiPrecisionIndustries

China
Singapore
Taiwan

10,397
7,781
7,606

18,711
13,463
19,223

8,777
1,461
16,801

15,737
2,053
40,507

39.2
59.5
55.1

13

ChinaStateConstruction
EngineeringCorporation

6,998

15,986

4,483

18,544

29.7

14

KiaMotors

China
South
Korea

6,767

18,655

11,525

21,316

40.6

15

ChinaNationalPetroleum
Corporation

China

6,374

178,843

3,036

114,44
3

2.7

16
17
18

NewWorldDevelopmentCo.,
Ltd.
CLPHoldings
SinochemCorporation

HK,China
HK,China
China

6,147
6,096
5,326

18,535
15,965
8,898

1,430
1,283
19,374

2,995
4,951
23,594

37.4
31.4
47.7

19
20

YTLCorporationBerhad
StarCruises

Malaysia
HK,China

5,273
5,195

8,423
6,140

726
1,943

1,556
2,343

46.8
60.8

21
22

TaiwanSemiconductor
ManufacturingCoLtd
QuantaComputerInc

Taiwan
Taiwan

5,106
4,962

18,023
6,961

10,875
2,211

18,023
16,495

40.8
39.3

23
24

OrientOverseasInternational
Ltd.
Oil&NaturalGasCorporation

HK,China
India

4,893
4,726

5,600
33,008

1,516
2,468

4,610
18,457

68.5
13.2

25

ShangriLaAsiaLtd

HK,China

4,707

5,076

783

1,002

82.8

Table16Asias25LargestMultinationalCompanies(excludingJapan)

Source:UNCTAD,WorldInvestmentReport2008.http://www.unctad.org/en/docs/wir2008_en.pdf,Annex
TableA.I.16.,pp.223225.
Note:AllfiguresareinUSDmillions.

SeveralHongKongcompaniesmadethelist.Some,suchasFirstPacific,hadaverylow
percentageofrevenuesandassetsattributabletooperationsintheirHongKongbase
22

InternationalBusiness

but had substantial operations in other countries in Asia, such as Indonesia and the
Philippines.OtherlargecompaniessuchasJardineMathesoninHongKonghadalong
history and a strong connection to the British colonial heritage of Hong Kong.
Companies from Taiwan, Singapore, Malaysia, China, and India completed the list of
thetop25,markingawideningdistributionoflargemultinationalfirmsacrossdifferent
Asiancountries.

InthiscontextofgrowingmultinationalfirmsfromAsia,theevolutionofTaiwanbased
Acer,ranked34,isworthreviewing.Acer(www.global.acer.com)emergedin1976asit
begantocommercializemicroprocessortechnology.Thecompanygrewandexpanded
its scope over the next 25 years in an effort to become a diversified, global
conglomerateandTaiwansanswertoJapan'sHitachiLtd.andSouthKoreasSamsung
Group.6In1981,AceropeneditsfirstmanufacturingplantinHsinChu,Taiwan.Eight
yearslater,Acerinitiateditsglobalizationstrategy,formingajointventurewithTexas
Instruments to enter the Japanese dominated computer chip industry. Acer then
expanded its product line in the early 1990s by entering the PC market, producing,
amongotherproducts,oneofthefirststrippeddown,underUSD1,000,userfriendly,
PCs.

Attheturnofthecentury,lossesintheUSmarketandtheerraticchipmarketledAcer
torestructure.In2000,Acerdivestedpartsofseveralofitsbusinessestorefocusthe
parent company on selling and branding its IT products and services. Three
independent affiliates emerged from the restructuring: Wistron (www.wistron.com),
anOEMmanufacturerofcomputerelectronics,BenQ(www.benq.com),adeveloperof
communications and media solutions, and ALi Corp. (www.ali.com.tw), a chip
manufacturer.OtherdivisionsthatwerespunoffincludedAuOptronics,formallyAcer
Display,whichwentpublicin2000(www.auo.com)andAmbit(www.ambit.com.tw),a
communicationsequipmentdesignerandmanufacturer.In2003,Acerwasnolongera
single multinational company. Instead, it was the panAcer Group of companies that
wereseparatebusinessesheldunderthepanAcerGroupumbrella.Thisfocusingand
strengtheningcontinuedthroughoutthe2000s.Attheendof2007,AceracquiredUS
based competitor Gateway Inc. in order to strengthen Acers US presence. In 2008,
Acer achieved the number one position in worldwide notebook sales, passing
competitorsHPandDell.

HowMultinationalisMultinational?

Tables 15 and 16 show the readily recognizable numbers of assets and sales along
with the less recognizable TNI, or Transnationality Index. The TNI is included in these
tablestoshowjusthowmultinationaleachmultinationalcompanyis.TheTNIissimply
ameasureofwhatproportionofafirmsactivitiesfallsoutsideofitshomecountry.
23

InternationalBusiness:AnAsiaPacificPerspective

TheTNIhelpswithourunderstandingabouttrendsinmultinationalexpansionamong
theworldslargestfirms.Itprovidesmoreinformationthanjustidentifyingifafirmis
multinational.Thedefinitionofamultinationalfirmisclearitisacompanythathas
operations in more than one country of the world. But are all multinational firms
equally multinational? When scanning the TNIs in Tables 15 and 16, the answer is
clearlyNo.

Aswejustmentioned,theTNIdefinesmultinationalitybylookingatwhatproportionof
afirmsactivitiesfallsoutsideofitshomecountry.OnewaytodefineaTNIistolookat
how many countries in which a firm has made foreign investments, or to how many
countriesafirmexports.Anotherwayistocounthowmanyforeignsubsidiariesithas.
For each of these methods, the greater the count, the higher a companys index of
multinationality.

Asecondwaytodefineafirmsdegreeofmultinationalityistolookattheinternational
dispersionofitsemployment,sales,andassets.Bydoingthiswecanconstructindexes
suchasafirmsdegreeofinternationalization(DOI),oritsTransnationalityIndex(TNI).
TheTNIisaratiothatrepresentstheaverageofthevaluesofthepercentageofafirms
sales,afirmsassets,andafirmsemploymentinitsinternationalmarkets.

TNI=(Si+Ei+Ai)/3

where:
S=totalsales,Sf=foreignsales

Si=foreignsalesindex(Sf/S*100)

E=totalemployment,Ef=foreignemployment

Ei=foreignemploymentindex(Ef/E*100)

A=totalassets,Af=foreignassets

Ai=foreignassetindex(Af/A*100)

Whichever of these indexes is used, the same conclusion is reached. Companies are
becoming increasingly international. As an example, the TNIs of the worlds largest
multinational companies show a general upwards progression, from 45% in 1994 to
61% by 2007. This increase in TNI is even greater for small companies that have a
higherpercentagegrowthratethantheworldslargestmultinationals.

For the companies listed in Tables 15 and 16, we can notice an interesting cross
nationaltrend.ThecompaniesfromlargeeconomieslikeJapanandtheUnitedStates
have, on average, lower TNIs than multinational companies from smaller economies.
Thisdiscrepancyshouldnotbethatsurprising.Alargehomeeconomyshouldbehome

24

InternationalBusiness

to a larger percentage of a firms sales than a small home economy. Eventually,

multinationalcompaniesbasedinsmalleconomies,suchasSingaporeandHongKong,
couldapproachtheTNIsoflarge,wellestablishedSwedishmultinationalfirmssuchas
Electrolux,AlfaLaval,andEricsson,eachofwhichhasaTNIgreaterthan90%.Indeed,
some large multinational companies in Asia already do. Want Want Holdings of
Singapore had a TNI of 98.8%. Other companies such as Hong Kongs Hutchison
WhampoaLtd.andShangriLaAsiaLtd.orSingaporesAsiaFood&PropertiesandStats
ChippacLtd.hadTNIsthatexceeded75%.

TRENDSINFOREIGNDIRECTINVESTMENT

In becoming increasingly international, firms worldwide are undertaking larger

amountsofforeigndirectinvestment.Thisgrowthinforeigninvestmenthasbeenvery
consistentoverthepastthreedecades.Withonlyafewyearsasexceptions,including
theyears2001and2002versustheyears2000and2001,thevolumeofFDIinoneyear
hasexceededthatintheprecedingyear(seeFigure11).Theresultisthatbytheyear
2000, more than USD 1.5 trillion flowed from one country to another in the form of
foreigndirectinvestment,afigurethatshouldexceedUSDtwotrillioninflowsearlyin
the2010s.

Figure11FDIWorldwide(19702007)

Source:http://stats.unctad.org/FDI/TableViewer/tableView.aspx?ReportId=1254,WIR2008,June4,2009.

FDIgrowthhasbeenconsistent,butthedestinationandoriginofFDIflowshavebeen
undergoing change, especially since the onset of the 1990s. The principal change has
25

InternationalBusiness:AnAsiaPacificPerspective

beenagrowthintheparticipationofdevelopingnationsintheworldasbothsources
andrecipientsofFDIflows(seeFigures12and13).

Although there has been this change, developing countries have had a considerable
gap to overcome in being sources and recipients of FDI flows. Even with a growing
volumeinFDIoutflowsthatoutpacedgrowthfromdevelopedcountriesinpercentage
termsinthe1990s,developingcountriesstilllaggeddevelopedcountriesinthe2000s
inaggregateFDIoutflows.

Figure12FDIOutflows(19702007)

Source:http://stats.unctad.org/FDI/TableViewer/tableView.aspx?ReportId=1254,WIR2008,June4,2009.

TheflipsidetoFDIoutflowsisFDIinflows.Inthiscase,thegainsmadebydeveloping
countrieshavebeenmuchmorerapid.Thegapbetweeninflowsreceivedbydeveloped
anddevelopingcountrieshasnarrowedconsiderablyfrom1970upto2000(Figure1
3).Movingthroughthe2000s,thetrendreverses,withasteadyincreaseinthegap.

26

InternationalBusiness

Figure13FDIInflows(19702007)

Source:http://stats.unctad.org/FDI/TableViewer/tableView.aspx?ReportId=1254,WIR2008,June4,2009.

Assuggestedwithinthesetrends,bytheonsetofthe2000s,westillhadthesamebase
situation as in the 1970s but with some shifts in the net positions of developed and
developingcountries.DevelopedcountrieswerethemajorsourcesofFDIoutflowsand,
byandlarge,thelargestrecipientsofFDIinflows.Aconsiderableportionofdeveloped
countryFDIoutflowswenttodevelopingcountriesaswell.Thismeantthatdeveloping
countries still received more inward FDI than they expended on outward FDI. In this
way,developingcountrieswerenetrecipientsofFDI(Figure14).

Interestingly, in 2006, North America was a net recipient of FDI for the sixth
consecutive year. Only the countries of Europe were in a net contributor position. In
much of the preceding two decades, the United States (but not Canada) produced
moreFDIoutflowsthanitreceivedFDIinflows,excludingtheyears2005and2006.Part
oftheemergingpopularityoftheUnitedStatesasadestinationforFDIinflowsrelates
tochangingmotivesforFDI,inwhichatechnologysourcingmotivehasbecomemore
prominentinrecentyears.Fornow,however,itisimportanttonotethatFDIinflows
into Asia exceeded outflows, reinforcing the idea that foreign competition is a
significant management challenge for managers in firms based in the AsiaPacific
region.

27

InternationalBusiness:AnAsiaPacificPerspective

Figure14FDIFlowsbyRegion(2007)

Source:http://stats.unctad.org/FDI/TableViewer/tableView.aspx?ReportId=1254,WIR2008,June4,2009.

INTERNATIONALMANAGEMENTISSUES

Understandinghowtocompeteagainstforeignfirmsisoneofthemajormanagement
issuesfacedbymanagersinfirmsbasedintheAsiaPacificregion.Yet,managersmust
also contend with a host of other issues. Some of these relate to the practice of
internationalbusinessingeneral,whileothersarespecifictothemanagementoffirms
basedintheAsiaPacificregion.

Amanagerinafirmthatisactiveinternationallyfacesamuchmorecomplexexternal
environmentthandoesamanagerinafirmthatcompetessolelyinitshomemarket.
Theinternalmanagementofamultinationalfirmisalsomorecomplexthaninthecase
ofaprimarilydomesticone,asaremanyofthemanagementtasks.

The complexity in the external environment comes from the variety of cultural,
economic,legal,andsocialconditionsencounteredwhenafirmhasoperationsinmany
countries.Acrosscountries,culturesarediverse,economicandpoliticalsystemsvaryin
noticeable and important ways, and values and languages can have few similarities
acrossnations.Eachofthesemaketypicalmanagementtaskseithermorecomplexor
unique,andcanraisethecostsofafirmsoperations.

28

InternationalBusiness

The complexity in the internal firm environment comes from managing globally
diversified operations. Issues of organizational design and organizational structure
increase in importance as a firms internationalization process matures. As a firm
internationalizes,questionscanariseabouthowtocompeteagainstlocallybasedfirms
or against foreign competitors that have set up operations in a firms home country.
The management of subsidiary operations, along such dimensions as autonomy,
control,andtypesofvalueaddedactivitiesinasubsidiary,compoundsincomplexity,
suchasCarrefourhasexperiencedinexpandingitsretailoperationsinAsia(seeBox1
3).

Complexity in internal operations can come from a variety of other areas. A firm
operatinginternationallyislikelytohavegreaterdiversityamongitsemployeesthana
domesticfirm.Thisdiversitycanbereflectedinnativelanguages,tastes,background,
education, and expectations about relationships with supervisors and subordinates.
Thisdiversitymeansthatitcanbemorechallengingandexpensivetodevelophuman
resource management systems for recruitment, selection, training, promotion, and
compensation of employees. Expatriate management can be a Byzantine task.
Typically, expatriates struggle to cope with the singular demands of an overseas
assignment in which culture, business relationships, and ethical standards can vary
fromthenormsinthehomecountry.

Theseissuescaneachassumeaheightenedprominenceasafirmincreasinglyexpands
its range of international operations. Navigating successfully through this sea of
challenges is not beyond the scope of an effective manager, but it can be a
considerablechallenge.Furthermore,thecostsencounteredbyafirminmeetingthese
challenges can be more than offset by the gains from the effective and successful
management of a firms internationalization. This idea is echoed in the ongoing
internationalization trend. In increasing numbers, firms from all regions of the world
continuetoassumethechallengeofmovingintointernationalmarkets.Thisideaisalso
reflectedintheperformanceofinternationalfirms.

Consistently,whetheritisalargeEuropean,American,orJapanesemultinationalfirm,
the greater the degree of a firms multinationality, the greater its performance.
However, there is some limit to the performance gains from international expansion
(Figure15).Afirmshouldnotforgoalldomesticactivitiestopursue100%ofitssales
from foreign operations. But a substantial movement of a firms activities into
internationalmarketscanbemetwithapositivegrowthinsalesandasoundfinancial
performance.

Although there are gains attributable to the international growth of a firm, the gains
will not always be immediate. When we consider the performance of small

29

InternationalBusiness:AnAsiaPacificPerspective

internationalizing firms alongside that of the large multinational firms depicted in

Figure16,wefindthatsmallinternationalizingfirmsmustpayaninitiationfeetojoin
theranksofwellestablishedmultinationalfirms.Thisinitiationfeecoversthecostsof
asubstantialnumberofmanagementchallengestobemetwhenafirmisbecominga
multinationalfirm.

12%

Accounting

Performance

(ROA,ROS,

ROE)

0%

Low
High

DegreeofMultinationality

(%foreignsales,%foreignassets)

Figure15MultinationalityandPerformance:LargeMultinationalFirms7

We have identified some of the challenges in our earlier discussion in this chapter.
Severalofthesechallengescanbeattheirgreatestduringtheearlyinternationalization
stage, during which a firms managers must learn how to operate in international
markets.Effectivelymanagingtheobstaclestoearlygrowthintointernationalmarkets
canshortenthetimefromthefirstperformance,therebydecreasingthestepsrequired
to achieve the heightened economic performance that comes later in the
internationalization process. Other challenges increase in prominence once a firms
operations have a substantial multinational content. Effective management of the
barriers to continued expansion into international markets can widen the positive
performancescopeofafirmsgeographicexpansion(seeFigure17).

We take into account the management challenges to internationalization and those

encounteredinthemanagementofamultinationalfirminthesubsequentchaptersof
the book. Managers concerned with international business must manage the
internationalization process of the firm, and once internationalized, manage the
operationsofthemultinationalfirm.

To manage internationalization, a manager should understand the drivers of

internationalization (Chapter 2), the cultural and political sources of uncertainty and

30

InternationalBusiness

complexity in the international environment (Chapters 3 and 4), and the major
decisionsencounteredwhenexpandingininternationalmarkets(Chapters5,6,7,and
8).Tomanageamultinational,amanagershouldunderstandtheessentialcompetitive
issues underlying a multinational firms expansion (Chapter 9) and the competitive
challengeposedbystronggroupsofdomesticfirms(Chapter10).Managementissues
in a multinational firm also involve understanding the sources of tension, conflicting
demands, and tradeoffs in a multinational firms operations (Chapter 11), the
exceptional circumstances encountered when managing a subsidiary operation of a
multinationalcorporation(Chapter12),thedilemmasinhumanresourcemanagement
created by international operations (Chapter 13), and the ethical responsibilities of
managingamultinationalfirm(Chapter14).8

Strongbenefitsto

internationalization
High

andmultinationality

Highcostsoflearning
tooperatein

international

Corporate
markets

Performance
Highcoststo

managingthe

complexityofa

multinationalfirms

Low

Low
High

DegreeofMultinationality

Figure17MultinationalityandPerformance:LargeandSmallFirms9

Source:AdaptedfromJaneW.LuandPaulBeamish,Internationaldiversificationandfirmperformance:
TheScurvehypothesis,AcademyofManagementJournal,vol.47,pp.598609.

By any stretch of the imagination, these issues are not exhaustive of those that
underlietheinternationalbusinessandinternationalmanagementfields.Butinmany
ways, these are the ones that are truly unique to a manager in a firm competing in
internationalmarkets.Bymasteringtheissuescoveredinthisandthenext13chapters,
aprospectiveinternationalmanagercanacquireathoroughgroundingininternational
business that can be used to support the development of multinational management
skills and expertise in operating in a particular area of international business be it

31

InternationalBusiness:AnAsiaPacificPerspective

international marketing, international corporate finance, international accounting, or

international strategy. We begin that development in Chapter 2 with an exploration
intotheenvironmentofinternationalbusiness.

CHAPTER1ENDNOTES
1

http://www.uccouncil.org/ean_ucc_system,November15,2003.

Kathleen Hickey, Getting in Tune: Standards Organizations See Wider Embrace of Supplychain
Standards,GreaterCollaboration,TrafficWorld,July21,2003,vol.267,no.29,pp.1718.

GCI Plans Strategy for Global Standards, MMR, December 17, 2001, vol. 18, no. 18, p. 48.
http://www.gcinet.org/e2/e4/,June2,2009.

AlanM.Rugman,EndofGlobalization(London:RandomHouse,2001).

http://www.wto.org/english/docs_e/legal_e/ursum_wp.htm,November18,2003.
http://www.wto.org/english/docs_e/legal_e/ldc2_512.htm,April09,2003.

BruceEinhorn,AProudPapaCalledAcer,BusinessWeek,September9,2002,no.3798,p.24.

Several researchers find this result including J. Michael Geringer, Paul W. Beamish, and Richard C.
daCosta, Diversification Strategy and Internationalization: Implications for MNE Performance,
StrategicManagementJournal,1987,vol.10,no.2,pp.109119;M.A.,Hitt,R.E.HoskissonandH.
Kim,InternationalDiversification:EffectsonInnovationandFirmPerformanceinProductdiversified
Firm,AcademyofManagementJournal,1997,vol.40,no.4,pp.767798.Otherresearchhasfounda
positive relationship between a firms degree of internationalization and performance including
AndrewDeliosandPaulW.Beamish,GeographicScope,ProductDiversification,andtheCorporate
Performance of Japanese Firms, Strategic Management Journal, 1999, vol. 20, no. 8, pp. 711727;
Jiatao Li and Stephen Tallman, Effects of International Diversity and Product Diversity on the
PerformanceofMultinationalFirms,AcademyofManagementJournal,1996,vol.39,no.1,pp.179
196.

In our discussion of the topics covered in this book, we make reference to numerous articles and
studiesintheinternationalbusinessandinternationalmanagementjournals.Ourreferencingisnot
exhaustiveofallpossiblestudiesinthevariousareas.Amorecompletelistofstudiescanbefoundin
reviewspublishedbySteveWerner,RecentDevelopmentsinInternationalManagementResearch:A
Reviewof20TopManagementJournals,JournalofManagement,2002,vol.28,no.3,pp.277297.,
and Jane W. Lu, The Evolving Contributions in International Management Research, Journal of
InternationalManagement,2003,vol.9,no.2,pp.193213.

See Jane W. Lu and Paul Beamish, International diversification and firm performance: The Scurve
hypothesis,AcademyofManagementJournal,vol.47,pp.598609.

32