Deresky, Helen - International management_ managing across borders and cultures_ text and cases-Pearson (2016_2017).pdf

GLOBaL edITIOn International Management Managing Across Borders and Cultures TexT and Cases NiNth EditioN helen deresky Professor Emerita, State University of New York-Plattsburgh Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Mont...

GLOBaL edITIOn International Management Managing Across Borders and Cultures TexT and Cases NiNth EditioN helen deresky Professor Emerita, State University of New York-Plattsburgh Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Vice President, Business Publishing: Donna Batista Editor in Chief: Stephanie Wall Acquisitions Editor: Kris Ellis-Levy/Emily Tamburri Program Management Lead: Ashley Santora Program Manager: Sarah Holle/Denise Weiss Editorial Assistant: Lauren Russell Associate Acquisitions Editor, Global Editions: Ishita Sinha Associate Project Editor, Global Edition: Amrita Kar Project Manager, Global Editions: Purnima Narayanan Manager, Media Production, Global Edition: Vikram Kumar Senior Manufacturing Controller, Production, Global Edition: Trudy Kimber Director of Marketing: Maggie Moylan Senior Marketing Manager: Lenny Ann Raper Project Management Team Lead: Jeff Holcomb Project Manager: Meghan DeMaio Procurement Specialist: Carol Melville Creative Art Director: Blair Brown Creative Director: Blair Brown Cover Designer: Lumina Datamatics Cover Photo: Olkesiy Mark/Shutterstock Digital Editor: Brian Surette Composition/Full-Service Project Management: Integra Software Services Pvt. Ltd. Printer/Binder: Vivar, Malaysia Cover Printer: Vivar, Malaysia Text Font: Times LT Std 10/12 Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. Screen shots and icons reprinted with permission from Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. All such documents and related graphics are provided as-is, without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied, or statutory; fitness for a particular purpose; title; and non-infringement. 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This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation. Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2017 The rights of Helen Deresky to be identified as the author of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled International Management, Ninth Edition, ISBN 978-0-13-437604-2 by Helen Deresky, published by Pearson Education © 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC 1N 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. ISBN-10: 1-292-15353-9 ISBN-13: 978-1-292-15353-7 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 Typeset Times LT Pro Roman by Integra Printed and bound by Vivar, Malaysia To my husband, John, for his love and support, and to my family members, who always inspire me: John J. and his wife Alyssa: John Rock, Helena, Max Mark and his wife Sherry: Jacob, Sarah, Rachel Lara and her husband Thomas: Thomas (TJ), Luke. This page intentionally left blank Brief Contents Preface 13 Part 1 Chapter 1 Chapter 2 NEw: Part 2 Chapter 3 Chapter 4 Chapter 5 NEw: NEw: Part 3 Chapter 6 Chapter 7 Chapter 8 NEw: NEw: NEw: NEw: The Global Manager’s environment 21 Assessing the Environment: Political, Economic, Legal, Technological 22 Managing Interdependence: Social Responsibility, Ethics, Sustainability 62 Comprehensive Cases 93 Case 1 Facebook’s Internet.org Initiative: Serving the Bottom of the Pyramid? (several countries) 93 Case 2 an Ethics role-Playing Case: Stockholders versus Stakeholders (Global/Sri Lanka) 103 The Cultural Context of Global Management 105 Understanding the Role of Culture 106 Communicating Across Cultures 148 Cross-Cultural Negotiation and Decision Making 182 Comprehensive Cases 213 Case 3 Vodafone in Egypt: National Crises and their Implications for Multinational Corporations (Egypt) 213 Case 4 Hailing a New Era: Haier in Japan (China/Japan) 223 Formulating and Implementing strategy for International and Global Operations 233 Formulating Strategy 234 Implementing Strategy: Small Businesses, Global Alliances, Emerging Market Firms 279 Organization Structure and Control Systems 306 Comprehensive Cases 335 Case 5 alibaba versus tencent: the Battle for China’s M-Commerce Space (China/Global) 335 Case 6 Business Model and Competitive Strategy of IKEa in India (India) 343 Case 7 Wal-Mart in africa (africa) 355 Case 8 Fiat Chrysler automobiles N.V. (2015): From an alliance to a Cross-Border Merger (Global) 365 5 6 BrIEF CoNtENtS Part 4 Chapter 9 Chapter 10 Chapter 11 NEw: Global Human Resources Management 371 Staffing, Training, and Compensation for Global Operations Developing a Global Management Cadre 404 Motivating and Leading 436 372 Comprehensive Cases 465 Case 9 Ethical Leadership: ratan tata and India’s tata Group (Global) 465 Integrative section 475 Integrative Term Project 475 NEw: integrative Case: Glossary 485 Index 491 Case 10 IKEa in russia: Emerging Market Strategies and Ethical Dilemmas (russia) 477 Contents Preface the technological Environment 49 Under the Lens: The Global Role of Information Technology (IT) 51 13 Part 1 The Global Manager’s environment 21 Chapter 1 Global E-Business Conclusion assessing the environment: Political, economic, Legal, Technological 22 Management in action: Global Cybertheft of Corporate Secrets an Increasing Risk 33 regional trading Blocs 34 the European Union 34 asia 36 Comparative Management in Focus: China Loses its Allure 37 the americas 39 other regions in the World 40 the russian Federation 41 the Middle East 41 Developing Economies 41 the african Union (aU) 41 the Global Manager’s role 42 the Political and Economic Environment 42 Political risk 44 Political risk assessment 45 Managing Political risk 45 Managing terrorism risk 46 Economic risk 46 the Legal Environment 47 Contract Law 48 other regulatory Issues 48 53 Summary of Key Points 54 • Discussion Questions 55 • Application Exercises 55 • Experiential Exercise 55 CASE Study: Apple’s iPhones—Not “Made in America” 56 Endnotes 58 opening Profile: western Businesses Scramble to Assess their Risks in Russia as Geopolitical tensions Escalate 23 the Global Business Environment 25 Globalization 25 Global trends 26 Globality and Emerging Markets 26 Backlash against Globalization 29 Effects of Institutions on Global trade 30 Effects of Globalization on Corporations 30 Small and Medium-Sized Enterprises (SMEs) 31 the Globalization of Human Capital 32 the Globalization of Information technology 33 52 Chapter 2 Managing Interdependence: social Responsibility, ethics, sustainability 62 opening Profile: the Bangladesh disaster: Can Companies outsource Responsibility for workers in its Supply Chain? 63 the Social Responsibility of MNCs 64 CSr: Global Consensus or regional Variation? 67 From CSr to Shared Value? 67 Under the Lens: Nestlé Company Creates Shared Value Globally 68 MNC responsibility toward Human rights 69 Comparative Management in Focus: doing Business in China—CSR and the human Rights Challenge 70 Ethics in Global Management 72 Ethics in Uses of technology Bribery 76 75 Under the Lens: Rolls-Royce Accused of Bribery to Obtain $100m Petrobras Contract 78 Making the right Decision 79 Managing interdependence 80 Foreign Subsidiaries in the United States 80 Managing Subsidiary–Host Country Interdependence 81 Managing Environmental Interdependence and Sustainability 83 7 8 CoNtENtS Culture and Management Styles around the world 134 Under the Lens: Doing Business in Brazil—Language, Culture, Customs, and Etiquette 134 Under the Lens: Mining Corporations and Pollution Charges: Lynas Corporation in Malaysia 85 Management in action: Recycling Lives—Social Entrepreneurship Breaking Down Barriers 86 Implementing Sustainability Strategies Conclusion Saudi arabia 138 Chinese Family Small Businesses 87 88 Conclusion Summary of Key Points 88 • Discussion Questions 89 • Application Exercise 89 • Experiential Exercise 89 CASE Study: Levi Looks to Cut Its Cloth Differently by Rewarding Responsible Suppliers 90 Endnotes 90 NEw: Part 2 Comprehensive Cases 93 Case 1 Facebook’s Internet.org Initiative: Serving the Bottom of the Pyramid? (several countries) 93 Case 2 an Ethics role-Playing Case: Stockholders versus Stakeholders (Global/ Sri Lanka) 103 The Cultural Context of Global Management 105 Chapter 3 Understanding the Role of Culture 106 opening Profile: Social Media Bring Changes to Saudi Arabian Culture 107 Culture and its Effects on organizations 109 Societal Culture 109 organizational Culture 109 Culture’s Effects on Management 110 Influences on National Culture 114 Under the Lens: Religion and the Workplace 114 Cultural Value dimensions 116 Project GLoBE Cultural Dimensions 116 Cultural Clusters 118 Hofstede’s Value Dimensions 118 trompenaars’s Value Dimensions 122 Consequence or Cause? 123 Critical operational Value Differences 124 the internet and Culture 125 Management in action: Google’s Street View Makes Friends in Japan but Clashes with European Culture 127 developing Cultural Profiles 128 Comparative Management in Focus: Profiles in Culture—Japan, Germany, Latin America 129 140 140 Summary of Key Points 141 • Discussion Questions 141 • Application Exercises 141 • Experiential Exercises 142 CASE Study: An Australian Manager in an American Company 142 Endnotes 145 Chapter 4 Communicating across Cultures 148 opening Profile: the impact of Social Media on Global Business 149 the Communication Process 150 Cultural Noise in the Communication Process 151 the Culture–Communication Link 152 trust in Communication 152 the GLoBE Project 153 Cultural Variables in the Communication Process 153 Under the Lens: Communicating in India—Language, Culture, Customs, and Etiquette 154 Nonverbal Communication 161 Under the Lens: Communicating Italian Style 162 Under the Lens: How Feng Shui Affects Business 163 Context 165 Management in action: Oriental Poker Face: Eastern Deception or Western Inscrutability? 167 Comparative Management in Focus: Communicating with Arabs 168 Communication Channels 170 information technology: Going Global and Acting Local 173 Managing Cross-Cultural Communication 174 Developing Cultural Sensitivity 174 Careful Encoding 174 Selective transmission 175 Careful Decoding of Feedback 175 Follow-up actions 175 Conclusion 176 Summary of Key Points 177 • Discussion Questions 177 • Application Exercises 177 • Experiential Exercise 177 CoNtENtS Part 3 CASE Study: Miscommunications with a Brazilian Auto Parts Manufacturer 178 Endnotes 180 Formulating and Implementing strategy for International and Global Operations 233 Chapter 6 Chapter 5 Cross-Cultural negotiation and decision Making 182 opening Profile: Facebook’s Continued Negotiations in China 183 Negotiation 184 the Negotiation Process 185 Stage one: Preparation 185 Negotiating teams 186 Variables in the Negotiation Process 186 Stage two: relationship Building 186 Nontask Sounding 187 Stage three: Exchanging task-related Information 188 Stage Four: Persuasion 188 Stage Five: Concessions and agreement 189 understanding Negotiation Styles 189 Successful Negotiators around the World Comparing Profiles 192 191 Managing Negotiation 192 Using the Internet to Support Negotiations Managing Conflict resolution 194 Context in Negotiations 194 194 Comparative Management in Focus: Negotiating with the Chinese 195 decision Making 199 the Influence of Culture on Decision Making 200 Under the Lens: Negotiations and Decisions to Save the Eurozone System 200 Management in action: Target: Frozen Out 202 approaches to Decision Making 203 Comparative Management in Focus: decision Making in Japanese Companies 204 Conclusion 206 Summary of Key Points 206 • Discussion Questions 206 • Experiential Exercises 207 CASE Study: Search Engines Aid Decision Making and Negotiation 208 Endnotes 209 NEw: NEw: Comprehensive Cases 213 Case 3 Vodafone in Egypt: National Crises and their Implications for Multinational Corporations (Egypt) 213 Case 4 Hailing a New Era: Haier in Japan (China/Japan) 223 9 Formulating strategy 234 opening Profile: Amazon, eBay, and Flipkart Bet Big on india 235 Reasons for Going international 237 reactive reasons 237 Proactive reasons 238 Comparative Management in Focus: Global Companies take Advantage of Growth opportunities in South Africa 239 Strategic Formulation Process 242 Steps in developing international and Global Strategies 243 Step 1. Establish Mission and objectives 244 Step 2. assess External Environment 245 Under the Lens: 2012: US BANS HUAWEI FROM GOVERNMENT CONTRACTS: IN 2015, CHINA BANS CISCO. POLITICS OR BUSINESS AS USUAL? 246 Step 3. analyze Internal Factors 248 Competitive analysis 249 Step 4. Evaluate Global and International Strategic alternatives 251 approaches to World Markets 252 Global Integrative Strategies 254 Using E-Business for Global Expansion 255 Step 5. Evaluate Entry Strategy alternatives 257 Under the Lens: Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive 260 Strategic Planning for Emerging Markets 265 Management in action: Strategic Planning for Emerging Markets 266 Step 6. Decide on Strategy 271 timing Entry and Scheduling Expansions 272 the Influence of Culture on Strategic Choices 272 Conclusion 273 Summary of Key Points 273 • Discussion Questions 274 • Application Exercises 274 • Experiential Exercise 274 CASE Study: “Foreign Businesses Tread Carefully as Cuba Opens Up” 274 Endnotes 276 10 CoNtENtS Chapter 7 Implementing strategy: small Businesses, Global alliances, emerging Market Firms 279 Evolution and Change in MNC organizational Structures 308 Integrated Global Structures opening Profile: tAG heuer in Smartwatch Alliance with Google and intel 280 Strategic Alliances 280 organizing to Be Global, act Local teams as a Global–Local Structure Choice of organizational Form Control Systems for Global operations 323 Under the Lens: FIFA—Restructuring for Governance Oversight of Ethics 324 Implementing a Global Sourcing Strategy: From offshoring to Next-Shoring? 291 Under the Lens: Global Supply Chain Risks—The Japanese Disaster 292 Direct Coordinating Mechanisms 325 Indirect Coordinating Mechanisms 326 Implementing Strategies for Emerging Economy Firms 293 Managing Effective Monitoring Systems 327 Management in action: Infosys’s Path From Emerging Start-up to EMNE 294 the appropriateness of Monitoring and reporting Systems 327 the role of Information Systems 327 Evaluation Variables across Countries 328 Challenges in Implementing Strategies in Emerging Markets 295 Managing Performance in International Joint Ventures 295 Knowledge Management in IJVs 297 Government Influences on Strategic Implementation 297 Cultural Influences on Strategic Implementation 298 E-Commerce Impact on Strategy Implementation 300 Conclusion NEw: NEw: opening Profile: BMG Signs distribution deal with Alibaba 307 organizational Structure 308 328 Summary of Key Points 329 • Discussion Questions 329 • Application Exercises 329 • Experiential Exercise 330 CASE Study: HSBC in 2015: Complex Global Operations and Downsizing 330 Endnotes 332 301 Organization structure and Control systems 306 321 organizational Change and Design Variables 322 Under the Lens: Breaking Down Barriers for Small-Business Exports 290 Chapter 8 317 Interorganizational Networks 318 the Global E-Corporation Network Structure 319 the transnational Corporation (tNC) Network Structure 320 289 Summary of Key Points 301 • Discussion Questions 301 • Application Exercise 302 CASE Study: Foreign Companies in China Under Attack 302 Endnotes 303 314 Comparative Management in Focus: Changing organizational Structures of Emerging Market Companies 318 implementing Strategy 286 Comparative Management in Focus: Joint Ventures in the Russian Federation 287 Conclusion 312 Under the Lens: Amazon of India Uses Curry-Carrying Dabawallas to Spice Up Parcel Delivery 314 Management in action: Procter & Gamble’s Think Globally–Act Locally Structure 315 Emergent Structural Forms 317 Joint Ventures 281 Equity Strategic alliances 282 Non-equity Strategic alliances 282 Global Strategic alliances 282 Global and Cross-Border alliances: Motivations and Benefits 283 Challenges in Implementing Global alliances 284 Implementing alliances between SMEs and MNCs 285 Guidelines for Successful alliances 285 Implementing Strategies for SMEs 310 organizing for Globalization NEw: NEw: Comprehensive Cases 335 Case 5 alibaba versus tencent: the Battle for China’s M-Commerce Space (China/ Global) 335 Case 6 Business Model and Competitive Strategy of IKEa in India (India) 343 Case 7 Wal-Mart in africa (africa) 355 Case 8 Fiat Chrysler automobiles N.V. (2015): From an alliance to a Cross-Border Merger (Global) 365 CoNtENtS Part 4 Global Human Resources Management 371 Chapter 9 the Role of Repatriation in developing a Global Management Cadre 410 Knowledge transfer 410 staffing, Training, and Compensation for Global Operations 372 Under the Lens: Expatriates’ Careers Add to Knowledge Transfer 412 Global Management teams 413 opening Profile: Staffing Company operations in Emerging Markets 373 the Role of ihRM in Global Strategy implementation 374 Staffing for Global operations 376 Under the Lens: HSBC’s Staffing Challenges in the UAE 378 Managing Expatriates 382 Expatriate Selection 383 Expatriate Performance Management Virtual transnational teams 413 Managing transnational teams 416 the Role of women in international Management 417 Management in action: Women in Management Around the World 418 working within Local Labor Relations Systems 419 the Impact of Unions on Businesses 383 Global team Performance Management organized Labor around the World 421 Convergence versus Divergence in Labor Systems 423 386 Expatriate training and development 386 Comparative Management in Focus: Expatriate Performance Management Practices: Samples from Five Countries 386 Under the Lens: Vietnam: The Union Role in Achieving Manufacturing Sustainability and Global Competitiveness 424 adapting to Local Industrial relations Systems 426 NaFta and Labor relations in Mexico Cross-Cultural training 388 training techniques 390 Compensating Expatriates 392 Summary of Key Points 430 • Discussion Questions 430 • Application Exercise 430 • Experiential Exercise 431 CASE Study: Expatriate Management at AstraZeneca Plc 431 Endnotes 433 394 Management in action: Success! Starbucks’ Java Style Helps to Recruit, Train, and Retain Local Managers in Beijing 395 Conclusion 398 Summary of Key Points 398 • Discussion Questions 398 • Application Exercises 399 • Experiential Exercise 399 CASE Study: Kelly’s Assignment in Japan 399 Endnotes 402 Chapter 10 developing a Global Management Cadre 404 opening Profile: the Expat Life 405 Expatriate Career Management 407 Preparation, adaptation, and repatriation 407 the role of the Expatriate Spouse 408 Expatriate retention 409 427 Comparative Management in Focus: Labor Relations in Germany 427 Conclusion 430 training and Compensating host-Country Nationals 394 training Priorities for E-Business Development 397 Compensating HCNs 397 420 Under the Lens: Ford’s Bitter Struggle to Close a Plant in Belgium 420 Under the Lens: Tales from Trailing Husbands 384 training HCNs 11 Chapter 11 Motivating and Leading 436 opening Profile: the Eu Business Leader—Myth or Reality? 437 MotiVAtiNG 438 Cross-Cultural Research on Motivation 438 the Meaning of Work 440 the Needs Hierarchy in the International Context 442 Comparative Management in Focus: Motivation in Mexico 443 Under the Lens: Managing in Russia—Motivation and Leadership Challenges 446 reward Systems 447 LEAdiNG 448 the Global Leader’s Role And Environment 449 12 CoNtENtS Under the Lens: Interview: Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational 451 CASE Study: Interview: Carlo D’Asaro Biondo, Google’s Europe Strategy Chief in Charm Offensive 461 Endnotes 463 Women in Global Leadership roles 452 Global team Leadership 452 the role of technology in Leadership 452 Under the Lens: Women in Business Leadership 453 Cross-Cultural Research on Leadership 454 Management in action: Leadership in a Digital World 455 Contingency Leadership: the Culture Variable 456 the GLoBE Project 456 Earlier Leadership research Conclusion NEw: Integrative section 475 Integrative Term Project NEw: 475 integrative Case: Case 10 IKEa in russia: Emerging Market Strategies and Ethical Dilemmas (russia) 477 458 460 Summary of Key Points 460 • Discussion Questions 461 • Application Exercises 461 • Experiential Exercise 461 Comprehensive Cases 465 Case 9 Ethical Leadership: ratan tata and India’s tata Group (Global) 465 Glossary 485 Index 491 Preface nInTH edITIOn CHanGes • Comprehensive cases: Ten comprehensive cases are new and current; one is a popular one from the eighth edition. Two of the new cases have won awards: Vodafone in Egypt; Ethical Leadership: Ratan Tata and India’s Tata Group. The case selection provides increased coverage of emerging markets and high-technology companies. A range of topics and geographic locations is included as well as the interactive “Ethics Role-Playing” case. • Integrative section: The new comprehensive case in the Integrative section—“IKEA in Russia: Emerging Market Strategies and Ethical Dilemmas”—is especially informative and challenging because it covers a range of topics from throughout the book. In addition, the popular Integrative Term Project has been retained. • The feature box called “Under the Lens” has been expanded with a total of 19 boxes. This feature gives an in-depth look at important aspects of the chapter subjects, including, for example, “Nestlé Company Creates Shared Value,” “The Global Role of Information Technology (IT),” “Doing Business in Brazil—Language, Culture, Customs, and Etiquette,” “Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive,” “Communicating Italian Style,” “Breaking Down Barriers for Small-Business Exports,” “Amazon of India Uses Curry-Carrying Dabawallas to Spice up Parcel Delivery,” “Tales from Trailing Husbands,” “Women in Business Leadership,” and “Interview: Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational.” • Maps added throughout. • Chapter-opening profiles: There are seven new opening profiles, such as “BMG Signs Distribution Deal with Alibaba,” “Social Media Bring Changes to Saudi Arabian Culture,” and “TAG Hueur in Smartwatch Alliance with Google and Intel.” The rest are updated favorites. • Chapter-ending cases: There are seven new chapter-ending cases (keeping four favorites, such as, “Kelly’s Assignment in Japan”). New examples are, “Foreign Companies in China Under Attack,” “Foreign Businesses Tread Carefully as Cuba Opens Up,” and “An Australian Manager in an American Company.” • All of the “Comparative Management in Focus” sections have been revised and updated. These provide in-depth comparative applications of chapter topics in a broad range of specific countries or regions. • All of the “Management in Action” boxes have been replaced or updated; examples consider global cybertheft, Infosys, Target, and emerging markets. • New coverage of geopolitical developments, such as in Ukraine, and their effects on strategy have been added throughout the ninth edition. • Updated coverage of developments in globalization and its growing nationalist backlash. • Expanded coverage on sustainability and creating shared value. • Expanded and updated coverage of management issues regarding emerging market economies—in particular China, India, Brazil, Africa, and Russia. • Expanded section on strategies for emerging markets. • Added and expanded sections on small businesses and strategies for SMEs. 13 14 PrEFaCE • • • • Expanded sections on e-businesses, on born-global companies, and on strategy models. Expanded sections on the role of technology on business planning and operations. New sections throughout the chapters on global management teams and virtual teams. New research data and examples added throughout. The ninth edition of International Management: Managing Across Borders and Cultures prepares students and practicing managers around the world for careers in a dynamic global environment wherein they will be responsible for effective strategic, organizational, and interpersonal management with a focus on sustainability. Although managing within international and crosscultural contexts has been the focus of this text since the first edition, the ninth edition portrays the burgeoning level, scope, and complexity of international business facing managers in the twenty-first century. The ninth edition explores how recent developments and trends within a hypercompetitive global arena present managers with challenging situations; it guides the reader in what actions to take and how to develop the skills necessary to design and implement global strategies, to conduct effective cross-national interactions, and to manage daily operations in and with foreign subsidiaries and with global allies and partners. Emphasis is also placed on the considerable cross-border management that takes place among teams—often virtually. Companies of all sizes wishing to operate overseas are faced with varied and dynamic environments in which they must accurately assess the political, legal, technological, competitive, and cultural factors that shape their strategies and operations. The fate of overseas operations depends greatly on the international manager’s cultural skills and sensitivity as well as on the ability to carry out the company’s strategy within the context of the host country’s business practices. Although much of the research has originated in the United States and Europe, we stress that there is no one best way to manage and no cultural behaviors that are viewed as preferred. We take the perspective of managers around the world so that they can learn about and from one another, how to work effectively in cross-national teams, and how to combine best practices for the local environment in which the firm is operating. In the ninth edition, cross-cultural management and competitive strategy are evaluated in the context of global changes—the pervasive influence of technology, e-business, and social media on business strategy and operations, including on born globals; the eurozone crisis; the increasing trade between the two Americas; the emerging markets and rapidly growing economies in Asia and Africa—that require new management applications; and the challenges posed by the global war for talent. These developments take place in the context and influence of continuing political and economic problems in the eurozone, in ongoing geopolitical and security crises around the world, and in an era of cybertheft—all of which provide threats and opportunities for businesses, their supply chains, and their personnel. Importantly, the ninth edition includes increased emphasis on small- and medium-sized businesses and their strategies. Throughout, the text emphasizes how the variable of culture interacts with other national and international factors to affect managerial processes and behaviors. Concerns about corporate social responsibility (CSR), sustainability, and ethics while operating in global locations are addressed at length. This textbook is designed for undergraduate and graduate students majoring in international business or general management. Graduate students might be asked to focus more heavily on the comprehensive cases that conclude each part of the book and to complete the term project in greater detail. It is assumed, though not essential, that most students using International Management: Managing Across Borders and Cultures, Ninth Edition, will have taken a basic principles of management course. Although this text is primarily intended for business students, it is also useful for practicing managers and for students majoring in other areas, such as political science or international relations, who would benefit from a background in international management. nInTH edITIOn FeaTURes This edition has streamlined text in 11 chapters, with particular focus on global strategic positioning, entry strategies and alliances, effective cross-cultural understanding and management, and developing and retaining an effective global management cadre. It has been revised PrEFaCE to reflect current research, current events, and global developments and includes examples of companies around the world from the popular business press. The following section summarizes specific features and changes. new COMPReHensIve Cases In nInTH edITIOn 1. Facebook’s Internet.org Initiative: Serving the Bottom of the Pyramid? (several countries) 2. An Ethics Role-Playing Case: Stockholders versus Stakeholders (Global/Sri Lanka) (requested favorite from 8ed) 3. Vodafone in Egypt: National Crises and Their Implications for Multinational Corporations (Egypt) 4. Hailing a New Era: Haier in Japan (China/Japan) 5. Alibaba versus Tencent: The Battle for China’s M-Commerce Space (China/Global) 6. Business Model and Competitive Strategy of IKEA in India (India) 7. Wal-Mart in Africa (Africa) 8. Fiat Chrysler Automobiles N.V. (2015): From an Alliance to a Cross-Border Merger (Global) 9. Ethical Leadership: Ratan Tata and India’s Tata (India/Global) 10. IKEA in Russia: Emerging Market Strategies and Ethical Dilemmas (Russia) COveRaGe and FeaTURes By PaRT and CHaPTeR Part 1: the Global Manager’s Environment ChAPtER 1: ASSESSiNG thE ENViRoNMENt: PoLitiCAL, ECoNoMiC, LEGAL,tEChNoLoGiCAL New Opening Profile: Western Businesses Scramble to Assess Their Risks in Russia as Geopolitical Tensions Escalate New Management in Action (MA): “Global Cybertheft of Corporate Secrets an Increasing Risk” Revised Comparative Management in Focus (CMF): China Loses Its Allure Updated Box Feature—Under the Lens: The Global Role of Information Technology (IT) Updated Case: Apple’s iPhones—Not “Made in America” Chapter 1 has been revised and updated to reflect developments and events in global business, in particular as it is affected by political developments. In Chapter 1, we introduce trends and developments facing international managers and then expand those topics in the context of the subsequent chapters. For example, we discuss the status of attitudes that suggest a retreat from globalization toward protectionism resulting from economic problems, in particular in the eurozone, as well as from political crises, cybertheft, terrorism, and trade barriers. In addition, we have reorganized the chapter to focus specifically on various aspects of globalization, including some retrenching in the globalization of human capital toward regionalization and nearshoring or reshoring as well as the globalization of information technology. We discuss the effects on global business of the rapidly growing economies of China and India and other developing economies such as Brazil, Russia, Mexico, and those in Africa; the increasing number of maturing and now global companies from those areas; the escalating role of information technology and social media; and the global spread of e-business. In addition, we have added material and focus on small and medium-sized companies here and throughout the book. We follow these trends and their effects on the role of the international manager throughout the book. 15 16 PrEFaCE ChAPtER 2: MANAGiNG iNtERdEPENdENCE: SoCiAL RESPoNSiBiLity, EthiCS, SuStAiNABiLity New Opening Profile: The Bangladesh Disaster: Can Companies Outsource Responsibility for Workers in Its Supply Chain? New Under the Lens: Nestlé Company Creates Shared Value Globally Revised CMF: Doing Business in China: CSR and the Human Rights Challenge New Under the Lens: Rolls-Royce Accused of Bribery to Obtain $100m Petrobras Contract Under the Lens: Mining Corporations and Pollution Charges: Lynas Corporation in Malaysia MA: Recycling Lives—Social Entrepreneurship Breaking Down Barriers New End Case: Levi Looks to Cut Its Cloth Differently by Rewarding Responsible Suppliers Chapter 2, as indicated by the title, takes a long-term view of the company’s global stakeholders and its strategy. It includes an expanded section on sustainability strategies, including a new model and feature on Nestlé’s leadership in sustainability by creating shared value. The chapter is updated throughout, with new examples, and has a new section on ethics in uses of technology as well as coverage of China’s clampdown on social media. In addition, the Corruption Perception Index has been updated and its results discussed. Part 2: the Cultural Context of Global Management ChAPtER 3: uNdERStANdiNG thE RoLE oF CuLtuRE New Opening Profile: Social Media Bring Changes to Saudi Arabian Culture Under the Lens: Religion and the Workplace New MA: Google’s Street View Makes Friends in Japan but Clashes with European Culture CMF: Expanded Profiles in Culture: Japan, Germany, Latin America Under the Lens: Doing Business in Brazil—Language, Customs, Culture, and Etiquette New End Case: An Australian Manager in an American Company Chapter 3 examines the pervasive effect of culture on the manager’s role. It includes a new section, “Consequence or Cause?”; expanded coverage of culture’s effects on management; increased emphasis on CQ (cultural quotient); and new coverage of the connection between social media and culture. In particular, this chapter presents ways for managers around the world to anticipate, understand, and therefore adjust to working with people in other countries; those ways include understanding the variables of culture through research and recognizing how to develop a descriptive basis for a cultural profile. Several countries are represented, including an in-depth look at Brazil. ChAPtER 4: CoMMuNiCAtiNG ACRoSS CuLtuRES Updated Opening Profile: The Impact of Social Media on Global Business Under the Lens: Communicating in India—Language, Culture, Customs, and Etiquette New Under the Lens: Communicating Italian Style Under the Lens: How Feng Shui Affects Business MA: Oriental Poker Face: Eastern Deception or Western Inscrutability? CMF: Communicating with Arabs End Case: Miscommunications with a Brazilian Auto Parts Manufacturer Chapter 4 links culture and communication in its various forms and focuses on how that affects business transactions and how managers should act in other cultural settings. In particular, the section on nonverbal communication has been expanded in the ninth edition, along with the addition of three illustrative “Under the Lens” sections and an in-depth look at communicating with Arabs. PrEFaCE ChAPtER 5: CRoSS-CuLtuRAL NEGotiAtioN ANd dECiSioN MAkiNG New Opening Profile: Facebook’s Continued Negotiations in China Updated and Expanded CMF—Negotiating with the Chinese Updated Under the Lens: Negotiations and Decisions to Save the Eurozone System MA: Target: Frozen Out CMF: Decision Making in Japanese Companies New End Case: Search Engines Aid Decision Making and Negotiation Chapter 5 continues the link among the variables of culture, communication, negotiation, and decision making—they are all intertwined. New examples, features, and cases are introduced to explain and illustrate the effects on the manager’s role. A new section focuses on negotiating teams, and the feature on “Negotiating with the Chinese” has been updated and expanded. Part 3: Formulating and Implementing Strategy for International and Global Operations ChAPtER 6: FoRMuLAtiNG StRAtEGy New Opening Profile: Amazon, eBay, and Flipkart Bet Big on India New CMF: Global Companies Take Advantage of Growth Opportunities in South Africa New Under the Lens: 2012: US Bans Huawei From Government Contracts: In 2015, China Bans Cisco. Politics or Business As Usual? New Under the Lens: Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive Updated and Revised MA: Strategic Planning for Emerging Markets New End Case: Foreign Businesses Tread Carefully as Cuba Opens Up Chapter 6 explains the reasons that firms choose to do business abroad and the various means for them to do so. The steps in developing those strategies, for firms of all sizes, are examined along with the explanatory models and the pros and cons of those options, including the move toward reshoring and nearshoring. The ninth edition expands on e-business and born globals and includes an expanded, revised section on strategic planning for emerging markets, including an extensive discussion of a study of 247 executives by Deloitte Review regarding their strategies in emerging markets. Data and charts on global Internet usage and global services are updated. Discussion of cultural distance relative to strategic planning has been added. Throughout, there are new features and updated examples focusing, among others, on Cuba, South Africa, Mexico, and the political effects on McDonald’s in Russia. ChAPtER 7: iMPLEMENtiNG StRAtEGy: StRAtEGiC ALLiANCES, SMALL BuSiNESSES, EMERGiNG ECoNoMy FiRMS New Opening Profile: TAG Hueur in Smartwatch Alliance with Google and Intel Updated and Revised CMF: Joint Ventures in the Russian Federation Under the Lens: Breaking Down Barriers for Small-Business Exports Under the Lens: Global Supply Chain Risks—The Japanese Disaster New MA: Infosys’ Path From Emerging Start-up to EMNE New End Case: Foreign Companies in China Under Attack Chapter 7, as indicated by the new title and the new features noted here, includes new sections regarding implementing strategies for small businesses and emerging economy firms as well as expanded coverage of implementing alliances, including those among high-tech firms. New examples and discussion of alliances around the world are included. The revised CMF on IJVs in the Russian Federation reflects the effects of recent geopolitical events. In addition, we discuss new trends regarding labor and supply chain sourcing, which provide further updates on issues facing managers. We expand the discussion on challenges in implementing strategies in emerging markets. 17 18 PrEFaCE ChAPtER 8: oRGANizAtioN StRuCtuRE ANd CoNtRoL SyStEMS New Opening Profile: BMG Signs Distribution Deal with Alibaba New Under the Lens: Amazon of India Uses Curry-Carrying Dabbawallas to Spice Up Parcel Delivery Updated MA: Procter & Gamble’s Think Globally–Act Locally Structure CMF: Changing Organizational Structures of Emerging Market Companies Updated Under the Lens: FIFA—Restructuring for Governance Oversight of Ethics New End Case: HSBC in 2015: Complex Global Operations and Downsizing Chapter 8 further examines how to implement strategy effectively by setting up appropriate structural and control systems. The ninth edition gives updated text and organizational examples and includes a new section, “Teams as a Global–Local Structure.” Included are new features and cases to explain why and how the way the firm organizes must change to reflect strategic change, which in turn responds to competitive and other environmental factors affecting the industry and the firm. Features include e-businesses such as Alibaba and Flipkart. Issues of monitoring, controlling, and evaluating the firm’s ongoing performance are discussed. The end case details the radical changes HSBC is undergoing in 2015. Part 4 : Global Human resources Management ChAPtER 9: StAFFiNG,tRAiNiNG, ANd CoMPENSAtioN FoR GLoBAL oPERAtioNS Opening Profile: Staffing Company Operations in Emerging Markets Under the Lens: HSBC’s Staffing Challenges in the UAE New Under the Lens: Tales from Trailing Husbands CMF: Expatriate Performance Management Practices: Samples from Five Countries Updated MA: Success! Starbucks’ Java Style Helps to Recruit, Train, and Retain Local Managers in Beijing End Case: Kelly’s Assignment in Japan Chapter 9 continues strategy implementation by focusing on the IHRM issues of preparing and placing managers in overseas locations as well as hiring, training, and compensating local managers. The ninth edition includes updated research information and focuses on the “war for talent” around the world, in particular the competition for talent in emerging markets. We have expanded the coverage in the sections under “Managing Expatriates” and about their performance management, and there is a new section, “Global Team Performance Management.” ChAPtER 10: dEVELoPiNG A GLoBAL MANAGEMENt CAdRE Updated Opening Profile: The Expat Life Under the Lens: Expatriates’ Careers Add to Knowledge Transfer Expanded and Updated MA: Women in Management Around the World New Under the Lens: Ford’s Bitter Struggle to Close a Plant in Belgium Under the Lens: Vietnam: The Union Role in Achieving Manufacturing Sustainability and Global Competitiveness Updated CMF: Labor Relations in Germany End Case: Expatriate Management at AstraZeneca Plc Chapter 10 focuses on ways to maximize the long-term value to the firm of its expatriates, maximize the opportunities of its women in management, and effectively manage its knowledge transfer and global management teams and virtual teams. The “Global Management Teams” and “The Role of Women in International Management” sections have been expanded and updated. In addition, this chapter brings new focus to understanding the role of organized labor around the world and its impact on strategy and human resources management. New PrEFaCE survey results regarding expatriate retention and the roles of their families are examined, and a new feature examining the role of expatriates’ careers in knowledge transfer to the firm is included. ChAPtER 11: MotiVAtiNG ANd LEAdiNG Updated Opening Profile: The EU Business Leader—Myth or Reality? Updated CMF: Motivation in Mexico Updated Under the Lens: Managing in Russia—Motivation and Leadership Challenges New Under the Lens: Interview, Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational New Under the Lens: Women in Business Leadership Updated MA: Leadership in a Digital World New End Case: Interview: Carlo D’Asaro Biondo, Google’s Europe Strategy Chief in Charm Offensive Chapter 11 of the ninth edition has been updated with new examples and research. We have updated and expanded the research on motivation and added new sections, “Women in Business Leadership,” “Global Team Leadership,” and “The Role of Technology in Leadership,” as well as a new end case. The chapter focuses on both classical and modern research on motivation and leadership in the global arena; specific attention is paid to global mindset characteristics and behaviors that are typical of successful cross-cultural leaders. Finally, an integrative model is presented that illustrates the complexities of the leader’s role in various contextual, stakeholder, and cross-border environments. additional Ninth Edition Features • Experiential exercises at the end of each chapter, challenging students on topics such as ethics in decision making, cross-cultural negotiations, and strategic planning. • Integrative section A new case (case 11) incorporates a range of topics and locations covered in the text. The case challenges students to consider the relationships among the topics and steps in this text and to use a systems approach to problem solving for the global manager’s role; it also illustrates the complexity of that role. • An integrative term project outlined at the end of the text provides a vehicle for research and application of the course content. InsTRUCTOR ResOURCes At the Instructor Resource Center, www.pearsonglobaleditions.com/Deresky, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user-support phone numbers. The following supplements are available with this text: • • • • Instructor’s Resource Manual Test Bank TestGen® Computerized Test Bank PowerPoint Presentation aCknOwLedGMenTs The author would like to acknowledge, with thanks, the individuals who made this text possible. For the ninth edition, these people include John Capella, who updated both the Instructor’s Manual and the Test Bank, and Susan Leshnower, who updated the PowerPoint slides. 19 20 PrEFaCE The author would also like to thank the following reviewers from previous editions: Gary Falcone, Rider University Lawrenceville, NJ William Wardrope, University of Central Oklahoma, Edmond, OK Eric Rodriguez, Everest College, Los Angeles, CA Paul Melendez, University of Arizona, Tucson, AZ Kathy Wood, University of Tennessee, Knoxville, TN Daniel Zisk, James Madison University, Harrisonburg, VA Dinah Payne, University of New Orleans, New Orleans, LA Marion White, James Madison University, Harrisonburg, VA Gary Tucker, Northwestern Oklahoma State University, Alva, OK David Turnspeed, University of South Alabama, Mobile, AL Lauren Migenes, University of Central Florida, Orlando, FL Steven Jenner, California State University, Dominguez Hills, CA Arthur De George, University of Central Florida, Orlando, FL —Helen Deresky Pearson would like to thank and acknowledge Jon and Diane Sutherland, Humphry Hung (The Hong Kong Polytechnic University), Nikhil Celly (The Hong Kong Polytechnic University), Stefania Paladini (Coventry University), Khalil A. Ghazzawi (Rafik Hariri University) and Teena Lyons for their contribution to the Global Edition, and Natalie Wilmot (Sheffield Hallam University), Kate Barnett-Richards (Coventry University), Yukari Iguchi (University of Derby Online Learning) and Tatiana Zalan (American University in Dubai) for reviewing the Global Edition. P a r t 1 The Global Manager’s Environment Pa rt O ut l ine ChaPter 1 Assessing the Environment—Political, Economic, Legal, Technological World Map ChaPter 2 Managing Interdependence: Social Responsibility, Ethics, Sustainability C h a P t e r 1 Assessing the Environment Political, Economic, Legal, Technological O u t l ine Opening Profile: Western Businesses Scramble to Assess Their Risks in Russia as Geopolitical Tensions Escalate The Global Business Environment Globalization Global Trends Globality and Emerging Markets Backlash against Globalization Effects of Institutions on Global Trade Effects of Globalization on Corporations Small and Medium-Sized Enterprises The Globalization of Human Capital The Globalization of Information Technology Management in Action: Global Cybertheft of Corporate Secrets an Increasing Risk Regional Trading Blocs The European Union Asia Comparative Management in Focus: China Loses Its Allure The Americas Other Regions in the World The Russian Federation The Middle East Developing Economies The African Union (AU) The Global Manager’s Role The Political and Economic Environment Political Risk Political Risk Assessment Managing Political Risk Managing Terrorism Risk Economic Risk The Legal Environment Contract Law Other Regulatory Issues The Technological Environment Under the Lens: The Global Role of Information Technology Global E-Business Conclusion Summary of Key Points Discussion Questions Application Exercises Experiential Exercise Case Study: Apple’s iPhones—Not “Made in America” O b je C t iv es 1-1. To understand the global business environment and how it affects the strategic and operational decisions that managers must make 1-2. To develop an appreciation for the ways in which political and economic factors and changes influence the opportunities that companies face 1-3. To recognize the role of the legal environment in international business 1-4. To review the technological environment around the world and how it affects the international manager’s decisions and operations. 22 ChaPter 1 • assessing the environment Opening Profile: Western Businesses Scramble to Assess Their Risks in Russia as Geopolitical Tensions Escalate1 You don’t want to be a dedicated Russia guy anymore … I am trying to learn Turkey. American banker who lost his job in Moscow quoted in the New York Times, November 6, 2014 GM says it will shut Russian plant; wind down Opel brand. S www.nytimes.com March 18, 2015 tarting in spring 2014 and through 2015, it was clear that doing business in or with Russia had become unpredictable for most Western businesses and perilous for many. How did it get to this point for companies that had placed large bets and considerable resources on their future in Russia? In March 2014, Russian President Vladimir Putin annexed Crimea—the southern province of Ukraine—after Ukraine’s then President Yanukovych rejected the free trade agreement with the EU in November 2013 under pressure from Putin. This led to the pro-Western protests in Ukraine and caused Yanukovych’s downfall and escape to Russia. The move was so swift and unexpected that managers around the world who had business in or with Russia and Ukraine scrambled to assess the potential risks to their operations in those areas. Their concern was magnified as increasing sanctions were imposed on Russia by President Obama and Europe. In particular, managers of Western businesses in Russia were afraid that the turmoil would escalate and that their operations there would be subject to retaliatory measures. In Moscow, offices at the American Chamber of Commerce and at the Association of European Businesses were inundated with calls to try to assess their exposure to risks under different scenarios. In addition, for Western multinationals in Russia, in particular European companies such as Renault and Carlsberg, the fear was that sanctions would adversely affect an already weak economy there and so drive down their businesses. Europe is Russia’s largest trading partner, and Germany has great ties to Russia and so was reluctant to go along with sanctions that would backfire on its businesses. About a third of the exports to Russia from the EU come from Germany, in particular from the auto industry. More than 6,000 German companies, employing about 300,000 people in Germany, have business interests in Russia. In addition, Germany gets about a third of its oil and gas from Russia. There seemed to be a rift between businesspeople and the German Chancellor, Angela Merkl, about the approach toward sanctions. A number of U.S. companies that manufacture in Russia, such as John Deere, were concerned about the risk to their employees and enacted security measures to protect them. Pepsi and McDonald’s are among many that have a sizeable presence in Russia and were keeping a careful watch on developments. Russian firms, too, especially those with joint ventures with European or U.S. companies, were wondering how events might affect them. Some Russian banks, in particular, soon became vulnerable as President Obama passed measures to freeze their assets abroad; these measures also affected any banks in the world that do business with those Russian banks, resulting in the flight of capital out of Russia due to the suspension of assets and travel privileges of people close to President Putin. As the weeks passed and tensions escalated over sporadic fighting in eastern Ukraine, the United States and the EU stepped up sanctions against select Russian businesspeople and politicians and widened the program to freeze their assets held abroad. As a result, a number of Western companies expressed concern about their sales in Russia and their rising costs of importing supplies for their businesses there. In addition, a threat was growing about a possible backlash in Russia against Western products. Caterpillar, for example, which has been in Russia for longer than 100 years, and McDonald’s, with more than 400 restaurants in Russia, both regard Russia as a key market and wondered about the general instability spreading in the region. Putin, meanwhile, was hinting at retaliatory action against Western firms in Russia, in particular energy companies. The general feeling was that it was perilous to do business with or in Russia. Many of the sanctions were against the energy and technology industries in Russia. The largest source of investment in Russia comes from U.S. firms, in particular technology and financial companies. Those companies felt that further sanctions would result in losing business to firms from other countries who were not being restricted in doing business in Russia. They felt also that business relationships with customers in Russia would be severed for the future, that export sales would decline, and that deals involving transfer of technology would be jeopardized. 23 24 Part 1 • the global manager’s environment Among the European countries, firms in the U.K, for example, were concerned about financial services, and those in France were mostly worried about losing military sales. However, in spite of an estimated $60 billion of capital outflow from Russia in the first quarter of 2014, the conflict continued; the Ukrainian government maintained that Russia continued to support the rebels in Ukraine by sending tanks and other military supplies. The standoff continued as Ukraine’s President Petro Poroshenko signed a trade and political policies pact with the EU on June 27, along with Georgia and Moldova, and extended a cease-fire with Russian separatists. Meanwhile, the EU, with the support of the United States, announced that Russia had 72 hours to settle conflicts in Ukraine or face further sanctions. In late July 2014, U.S. and European leaders agreed to escalate sanctions dramatically on Russia’s financial, energy, and defense sectors, crippling the state banking sector and curbing the ability for Russia to develop new oil resources. These moves followed a global outcry after a civilian airplane, Malaysia Airlines Flight 17, was shot down over Ukraine by suspected pro-Kremlin separatists, killing all 298 people on board. Now there was an abrupt change in attitude from European leaders and company heads. Total, for example, France’s oil giant, severely curtailed its stake in its Russian partner Novatek after the air disaster. Quick to retaliate, on August 7, Putin ordered a ban on imports of all beef, pork, fruit, vegetable, and dairy products from the European Union, the United States, Canada, Australia, and Norway. Clearly, the escalating economic warfare and geopolitical tensions were having drastic effects. Firms and farmers in countries such as the Netherlands, Poland, and Lithuania, heavily dependent on agricultural exports to Russia, were severely hurt; many were scrambling to diversify their exports to other regions such as Asia. It was difficult for farmers to understand that geopolitical conflict far removed from them could put them out of business. EU food exports to Russia amount to about $10 billion euro ($13 billion) a year. In meetings, German Chancellor Angela Merkel made it clear that Russia was no longer considered a reliable partner and that Germany would continue to impose strict sanctions even though they would hurt German businesses, which had spent decades developing ties and opportunities in Russia, but that trust was now lost. Although the German people supported the sanctions, those with small businesses that exported to Russia were hit especially hard, losing more than 20 percent of business in the first half of 2014, and feared losing future opportunities to firms in Asia. Meanwhile, as the lack of Western foods in the stores drove up food prices for the Russian people and the ruble was hit hard, many Russians were questioning Putin’s decisions. As the fighting escalated, the EU announced broader financial penalties on Russia’s banks, arms manufacturers, and its biggest oil company, Rosneft, 19.75 percent of which is owned by Britain’s BP. Included were increased restrictions to Europe’s capital markets, further restricting the ability to raise capital for major oil and defense companies. The Russian economy and the ruble were considerably pressured at this point; in addition, oil prices were falling, inflation was rising, and Western capital markets were estimating that more than $100 billion of capital would flee Russia in the near future. It was apparent that Putin was scaring away both foreign and Russian businesses. Russian Finance Minister Anton Siluanov estimated that Russia was losing $40 billion a year because of the geopolitical sanctions. By March 2015, even Putin’s inner circle was showing considerable concern; the ruble had lost about 60 percent of its value against the dollar since the annexation of Crimea. Tourist businesses in London were upset because they were not getting the usual flood of Russian tourists, who could no longer afford to travel abroad. Foreign companies in Russia such as IKEA and Apple raised their prices to make up for the ruble’s drop in value, making them unaffordable for the Russians to purchase. In addition, President Putin was trying to bail out the