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GLOBAL BUSINESS MANAGEMENT


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Global Business Management
A Cross-cultural Perspective

ABEL ADEKOLA
University of Wisconsin-Stout, USA
and
BRUNO S. SERGI
University of Messina, Italy


© Abel Adekola and Bruno S. Sergi 2007
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 the prior permission of the publisher.
Abel Adekola and Bruno S. Sergi have asserted their moral right under the Copyright,
Designs and Patents Act, 1988, to be identified as the authors of this work.
Published by
Ashgate Publishing Limited
Gower House
Croft Road
Aldershot
Hampshire GU11 3HR
England

Ashgate Publishing Company


Suite 420
101 Cherry Street
Burlington, VT 05401-4405
USA

Ashgate website:
British Library Cataloguing in Publication Data
Adekola, Abel
Global business management : a cross-cultural perspective.
- (Innovative business textbooks)
1. International business enterprises - Management
I. Title II. Sergi, Bruno S.
658.1'8
Library of Congress Cataloging-in-Publication Data
Adekola, Abel.
Global business management : a cross-cultural perspective / by Abel Adekola and
Bruno S. Sergi.
p. cm. -- (Innovative business textbooks)
Includes bibliographical references and index.
ISBN 978-0-7546-7112-1
1. International trade--Cross-cultural studies. 2. International business
enterprises--Cross-cultural studies. 3. International business enterprises-Management. 4. Globalization. 5. Multiculturalism. I. Sergi, Bruno S. II. Title.
HF1379.A34 2007
658'.049--dc22
ISBN: 978-0-7546-7112 1
2007002939

Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall.



Contents
List of Case Studies
List of Boxes, Figures and Maps
List of Tables
Foreword
Preface
Acknowledgments

vii
ix
xi
xiii
xv
xvii

Introduction

1

1

International Management and Cross-cultural Perspectives

7

2

Changes and Growth in the International Marketplace

23


3

An Introduction to Multinational Enterprises

41

4

The Impact of Economics and the International Monetary
Framework on International Management

65

5

The Impact of Domestic Politics on International Business

95

6

Information Technology and its Impact on International Management 125

7

International Service Management

147


8

Culture Defined

163

9

The Impact of Culture on International Management

201

10

Cross-cultural Training and Expatriate Assignments

239

11

Toward New International Business Conditions and Opportunities

261

Appendix – International Metaphors
Bibliography
Index

273
281

297


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List of Case Studies

Low-Budget Cola Shakes Up Markets South of the Border
Japan, Mexico Hammer Out Final Details on Trade Deal
Lincoln Electric’s Harsh Lessons from International Expansion
Hong Kong’s Economic System
The Moral and Ethical Responsibility of MNEs
Outsourcing: Jobs in Jeopardy
Euro Disney
Counselors Now Target Japanese Overseas
Transplanting Corporate Cultures Globally
Placing a US Firm in Germany
Ford, GM Fight over Brightest Labor Market


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List of Boxes, Figures and Maps
Box 3.1
Box 3.2
Box 3.3
Box 3.4


Country Profile 1— France
Country Profile 2—Singapore
Country Profile 3—Peru
Country Profile 4—Poland

51
53
54
56

Figure 4.1a
Figure 4.1b
Figure 4.1c
Figure 4.1d
Figure 4.2

Primitive Forms of Money—Katanga or “Wife Buying Cross”
Primitive Forms of Money—Manilla
Primitive Forms of Money—Pu (Spade Money)
Primitive Forms of Money—Shell Arm Ring
Japanese Currency

67
67
68
68
76

Map 8.1
Map 9.1


Brazil
Ghana

182
220


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List of Tables
Table I.1

Foreign Direct Investment

4

Table 2.1

GATT Trade Rounds

26

Table 4.1

Old and New European Union Member States Delegation
to the United States

74


Table 5.1

The Index of Fiscal Burden, Europe and North America

106

Table 6.1
Table 6.2

Sources of US Productivity Growth, 1959–2003
Growth of High-Technology and Other Manufactured
Exports, 1985–2000
World Internet Usage and Population Statistics

128

Hofstede’s Dimensions
Cultural Dimension Scores for Ten Countries
Comparing Cultural Differences: Mexico with Canada and
the United States

168
169

Table 9.1

How to Reward your Global Workforce

230


Table 10.1

Mercer Human Resource Consulting, Cost of Living
Survey—Worldwide Rankings 2006

248

Timeline Featuring Some of the Significant Historical
Developments in China and India

264

Table 6.3
Table 8.1
Table 8.2
Table 8.3

Table 11.1

132
136

171


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Foreword

In today’s fast integrating markets, cross-cultural perspectives, especially nonEuropean perspectives, are indispensable to the success of global businesses. Dr
Adekola’s and Dr Sergi’s opportune work offers many such perspectives that can help
enterprises the world over in understanding the complete matrix of doing business
in an international arena. Many information-rich threads of management principles
have been interwoven with dynamic cultural factors that influence the former in no
less concrete way, serving as a vivid guide to those transacting business in the crosscultural cosmos. This book is an expert treatise on the fundamental principles that
influence cross-cultural interactions, and is thereby invaluable for those engaged in
international strategy and management. The book focusses on managing transnational
organizations, providing a concrete basis for understanding the influence of culture
on international management, and the key roles that international managers play.
I would like to compliment Abel and Bruno on the timeliness of the book, as the
new-age demands that we understand our work and its global stakeholders. The idea
is not to obfuscate the differences between cultures and practices but to understand
people from different ethoi to be able to make work-processes smoother. Of course,
such an activity naturally enriches our understanding of people in different cultural
settings, adding to our own persona.
The butterfly effect is of particular relevance. It just goes on to establish that while
a product can be designed, marketed and sold with the best of brains behind it, it is
finally a unique rapport with the target audience, riding on cultural understanding that
will create the impact. Do people remember the vandalizing of Coke and McDonalds
in Germany, and so many other similar instances? Ultimately, we are in a universe
of people, by the people, and for the people. And if you must ignore cross-cultural
perspectives, then you will do so at your own peril!
This book would be especially helpful for students of International Business
and Management at undergraduate and postgraduate levels. It could also be used
as a supplement to general undergraduate business classes, such as Principles of
Management, Hospitality Management, Tourism Management, Organizational
Leadership Management, and Import-Export Management.
This book is of universal appeal to students in universities and colleges, both in
the US and internationally, as well as to anyone who wishes to be an international

player in his or her business or profession.
Vinay Rai
President
Rai Foundation


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Preface
Our intention for this new book Global Business Management: A Cross-cultural
Perspective is to provide for readers a unique source concerning national, regional,
and global economic, business, and cultural development. We began collaborating
on this issue several years ago and the book is the end product of it. We expanded and
edited the entire manuscript while we were both at ISM University of Management
and Economics in Vilnius, Lithuania, during the autumn of 2006, when Abel was a
Fulbright Scholar and Bruno a visiting professor.
Global Business Management: A Cross-cultural Perspective examines
globalization and its significance, paradoxes and the interplay of cultural approaches
and entrepreneurships. We have combined and used these enough to understand the
entire and multifaceted phenomenon of global business management. In particular,
in this book, we look at how globalization evolved, suggesting that a trend toward
global interplay is not the outcome of modern times or of simple attitudes toward
a firm’s going abroad. We observe the role and process of financial institutions in
countries and regions as well as consider globalization’s impact on the world’s
economic system. We explore the role of entrepreneurs and consumers and how
this affects globalization in its production and subsequent allocation of goods and
services, and by that conclude that the significance of culture, information technology,
development, and the betterment of population are the central driving forces of
globalization and some of its paradoxes. In all, with this book, we offer rational and

credible commentary regarding the issues that are shaping our economies and their
impact on an evolving world setting as well.
Cultural perspectives have several consequences upon populations and business
environments. An extended evaluation of the consequences for all of us will also
emerge from reading the chapters in the book. Our approach has been to combine
cultural, business, and economic issues rather than to present them separately. All
regions in the world are presented to readers in a way that inspires understanding of
basic governing issues and expectations concerning the future, attempting to fuse the
several perspectives mentioned earlier.


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Acknowledgments
While it is the authors’ names that appear on the cover of the book, no book would be
possible without the combined efforts of the supporting team. We would especially
like to thank the students and faculty of the University of Wisconsin, Stout Business
Program, where the idea of this book first started, and the Fulbright Scholars Program
and the ISM University of Management and Economics in Vilnius, Lithuania. The
latter two created the opportunity and academic environment for the two authors
to meet during the autumn of 2005, when Abel was a Fulbright Scholar and Bruno
was a visiting professor. Between the two, they have expanded the entire manuscript
from a lopsided American view of global management and have given it a welldeserved European flavor.
A sincere debt of gratitude is due to Brendan George, former Senior Commissioning
Editor of Ashgate Publishing, for his acceptance of our manuscript into the noted
library of Ashgate Publishing. In addition, the publication of this book would not
have been possible without the efforts put in by the individuals working at Ashgate
Publishing who helped move this from production to the market. Therefore we
would like to acknowledge and give thanks to Dymphna Evans, Publishing Director,

Social Sciences and Reference, and all staff members who helped prepare this
book, including Nikki Dines, Editorial Manager and Maureen Mansell-Ward, Desk
Editor, both of Ashgate Social Sciences. A sincere thank you to Patrick Cole for his
meticulous and thorough job of proofreading our text. We would not have noticed
many of the last minute errors without his expertise, and for that we are grateful.
We would also like to pay a special tribute to Mr Vinjay Rai, President of Rai
Foundation, India for his thought-provoking foreword to this book. His wisdom has
set a stage for its readership.
There are numerous others, friends and family members, that are not named here
for the fear of omitting any name whose hands of input have helped in the successful
output of this project, and to them we say thank you.
This we dedicate to our students at the University of Wisconsin–Stout, USA,
University of Messina, Italy, ISM University of Management and Economics,
Lithuania and all our other global students.


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Introduction
This new volume aims to probe into the interconnected process of culture,
globalization of business, trade, investment, and management. We endeavor to
do so under a purely cultural perspective and to take into account the increasing
production and consumption that have been shaping the past decades very strongly.
This work has to be formulated in a historical framework in order to give a complete
and meaningful description of this interesting phenomenon. This process is dynamic
because it is changing over time, and it is enterprising as business managers carry
out new techniques and maximize everyone’s benefit through exploiting markets at
the global level and reduce production costs.
To elaborate, recalling that the process of globalization of the world economy

started more than 3,000 years ago is noteworthy. From another perspective, its roots
go back to the emergence of state communities in Europe after the fourteenth century
and it has been expanding rapidly since the seventeenth century. Between 1870 and
the First World War, the free flow of labor was impressive and capital moved freely
among major countries. The US magazine Forbes considered Richard Cobden as
a father of globalization. In fact, the nineteenth-century British liberal Cobden
dedicated his life to promoting the benefits of embracing free trade, as it serves for
civilizations in all the nations of the world. When free trade ideals spread throughout
the world, investment flows and labor movements followed. For instance, only in
the second half of the nineteenth century did 15 million people cross the Atlantic to
settle in North America.
Yet, the use of the term globalization is a more recent phenomenon. It is argued
that academic circles did not recognize this until the 1980s, and unquestionably after
Marshall McLuhan (1960) introduced the term “global village.” McLuhan’s book
made the idea of a global village interconnected by an electronic nervous system
part of our culture. Surely, we have different definitions of globalization. We can
think about economic definition, political definition, and managerial definition. For
example, and in keeping with some standard definitions, globalization would be an
increasing internationalization of the production, distribution, and marketing of goods
and services, which causes a functional integration of national economies within
the circuits of industrial and financial capital. In addition, the political definitions
are not less important here. In this book, we aim to substantiate that the process of
globalization is intensifying the level of interactions and interdependence between
states and cultures, in which national boundaries are less important sometimes. Under
a managerial perspective, which fits this book also, this process of interaction and
interdependence could mean a tendency toward regionalization of people’s cultures.
Overall, this book approaches this considerable topic taking into account several of
these perspectives and interpreting them under a cultural perspective.
In this continuing process of globalization of economics and business, it
is important to recall the notion of Fordism. This goes back to Henry Ford who



2

Global Business Management

significantly improved the method of mass production and developed the assembly
line method of manufacturing early in the twentieth century in the United States. The
new method consisted of domestic mass production coupled with mass consumption
and higher social stability by paying higher wages and enabled workers/consumers
to purchase a larger flow of created goods. From a technical perspective, the notion
built on a cycle of mass production and mass consumption, and the production of
standardized consumer goods that were sold in protected domestic markets. While
the standard example was post-war America, but with different varieties of Fordism
across Western economies, it is believed that Fordism broke down between the late
1960s and the mid-1970s. Western economies experienced slower economic growth,
rising inflation, and growing unemployment. That period after Fordism has been
termed post-Fordism and neo-Fordism, the former implying that global capitalism
has made a clean break from the original notion of Fordism while the latter that
elements of the Fordist regimes of capital accumulation still exist. The passage
from Fordism to post-Fordism or neo-Fordism is partially explained by the fact that
during Ford’s time workers were relatively unskilled and they could form unions
which became quite strong, especially in Western Europe. But trade union strength
is believed to have declined over time, while production shifted from the rich West
to less developed countries where production was cheaper, and local workers could
not purchase the product they produced. Such post-Fordism arose partially due
to interconnectedness of countries and regions in the world and the movement of
capital that is increasingly more “barrierless”, and partially by governments that
have reduced their invasiveness in the economic sphere. In addition and in contrast
to the Ford years, Western economies have experienced a shift from traditional

manufacturing toward service and the knowledge economy.
Throughout this book we attempt to prove a message: despite claims that the
world between 1820 and 1913 was more borderless than it is today, nevertheless,
today’s world differs significantly from that of a century ago. The world economy
is broader as for the number of national markets engaged, and it is deeper as for
the density and velocity of interaction and flows of trade and finance; the dominant
mode of organization of the world economic transactions has changed significantly
from the market (trade and portfolio investment) to internationalization of production
through international corporations.
In addition, several forces are paving the way for a new global economic
environment. One is a clear trend toward regionalization and demographic change
(for example, NAFTA and the EU). Another is the fast growth in newly industrialized
countries (NICs) because of a catch-up effect and resources being transferred to
more productive sectors, and the shift of labor-intensive production to low-cost
countries. No less important has been the abatement of ideological conflicts and the
end of the Cold War, the implosion of the Soviet bloc and the new open doors policy
in China since the late 1970s, and market reforms. Also market reforms in southern
America (for example, Chile, Brazil), the rising influence of the non-governmental
organizations (NGOs) in addressing and regulating a wide range of international
issues, mobility of capital across the globe, the expanding role of international
corporations in the global marketplace should all be considered as global economic
forces. It should also be noted that most of them were US-based a few decades ago,


Introduction

3

while in recent years most are no longer US-based. Moreover, the second part of the
1990s and present days have witnessed an increase in mergers and acquisitions, and

ease of flow of foreign direct investment (FDI) and of labor across the globe. Trade
has been expanding faster than world output and the increase in FDI has exceeded
the growth of world output and the growth of international trade. Finally, FDI may
have become the actual engine of world growth, replacing the role of trade. As a
matter-of-fact, the liberalization and restructuring of world economies have induced
international corporations to pursue an ample range of investment activities; from
the protectionism of the 1920s and 1930s and the time of the Great Depression, to
GATT/WTO for free trade. Technology advances have been quite important after
the Soviet Union launched the first satellite, Sputnik 1, in 1957, beating the US
into space. In this light, the American military became highly alarmed, and in 1958,
President Eisenhower created the Advanced Research Projects Agency to jump-start
US technology and find safeguards against a space-based missile attack. The US
military was particularly concerned about the effects of a nuclear attack on their
communications infrastructure, because they could not respond if they could not talk
or regroup, making the threat of a first strike by the Soviet Union more likely.
Therefore, globalization, stimuli of technological advance, and national saving
rates in the US have been other important key aspects of analysis. The marked
decline in US private savings due to low inflation reduced precautionary savings
by businesses and households, and eased access to domestic and foreign sources of
credit. Government budget surpluses might explain this effect (Loayza, SchmidtHebbel and Serven, 2000). Access to easy credit helped to buy from abroad,
create current account deficits, invest in high technology equipment and increase
the capital stock available, bringing about not only capital widening but, recently,
capital deepening (capital stock growth rates above labor force growth) too, which
in turn have productivity-enhancing effects on labor productivity (and to national
accounts alike) that has been remarkably high in the US, in the recent past and is now
proliferating all around the advanced economies. For example, the rising trends in IT
expenditures can be detected when looking at nominal expenditures on computers.
Peripheral equipments tripled during the 1990s in the US from slightly less than $50
billion in 1990 to $150 billion in 2000.
That being said, a stimulus of information technology has come through a

profound change in the fields of microelectronics, new and improved hardware and
software, telecommunications, and the like. For example, it is easier to memorize
sizeable amounts of information and share information with the rest of the world
inexpensively. Two “laws” about technological advances help us to understand the
occurrence on the velocity with which this process has been changing over time.
The speed-up of this process is so impressive that the specialized literature refers
to these two laws. The Moore law (named after the founder of Intel) predicts that
the contributing power available at a given price doubles every 18–24 months. The
second law, the so-called Gilder law, states that the capacity of communication
may double every six months. These laws of technology improvement give us the
rationale for costs to fall. Technology and further developments in nanotechnology
(a nanometer is a trillionth of a meter) will lead the progress in medicine, power
production, and so forth.


4

Global Business Management

In addition, US domestic policies have an impact on world trends. These
processes are reinforcing the process of globalization in investment and trade.
Regarding foreign direct investment (FDI), after declining over the past three years,
FDI rose 2 per cent more in 2004 than in 2003, states the UNCTAD’s 2005 report.
World investment inflows totaled $648 billion in 2004, up from $208 billion in 1990.
Developing countries received roughly 36 per cent of the world total, while developed
countries lost some 14 per cent over 2003. Selected rich European economies lost
investment inflows. For example, FDI in Germany shrank from $50 billion in 2002
down to less than $38 billion and in France from $49 billion to $24 billion in 2004.
Additionally, the FDI to Luxembourg and the Netherlands decreased. Overall, the
EU-15 (that is, the current EU minus the 10 new member states) fell back by 40 per

cent with respect to investment inflow data in 2003. According to UNCTAD (2005),
cross-border mergers and acquisitions have totaled US$117,889 million (1990−95
annual average), increasing to $593,960 million in 2001, then decreasing to $296,988
million in 2003, increasing again to $380,598 million in 2004.
In contrast to the figures prevailing in Western Europe, Asian economies largely
benefited. In addition, Latin American countries and the Caribbean countries
registered a 44 per cent increment compared with 2003, and they totaled $68 billion.
Africa stood at roughly $18 billion in 2004. China and Hong Kong received $34
billion (this represents a 150 per cent increase on 2003), though also outflows from
these two countries reached $60.6 billion.

Table I.1 Foreign Direct Investment (millions of US dollars)
1985–95
2000
2005
(annual average)
Inflows
182,438
1,409,6
916,3
Outflows
203,256
1,244,5
778,7
Stock–inflows
530,244
5,802,991
10,129,739
Stock–outflows
570,125

6,471,435
10,671,889
Source: UNCTAD (2005 and 2006) and FDI/TNC database (www.unctad.org/fdistatistics)

Deepening cross-border linkages create another important issue in today’s global
discourse concerning a flexible exchange rate regime versus a fixed exchange
rate regime. If countries with fixed exchange rate regimes are more vulnerable to
currency and banking crises, flexible exchange rates tend to do better on effective
management of macroeconomic policy and functioning institutions. According to
Duttagupta, Fernandez and Karacadag (2005), four ingredients would be necessary
for moving to a flexible exchange rate system: a deep and cleaning foreign
exchange market, a coherent policy governing Forex central bank intervention,
an appropriate alternative nominal anchor to replace the fixed exchange rate, and
an effective system for reviewing and managing the exposure of both the public
and the private sectors to exchange rate risk. If many countries have switched to
exchange rate flexibility recently, for instance because of fiscal dominance in Russia
(1993–95) and Venezuela (2002–03), fixed and exchange rate regimes have different


Introduction

5

advantages and disadvantages. Countries have to weigh the costs and benefits in
light of domestic economic circumstances and institutional readiness before moving
from a fixed exchange rate system to a flexible one (see Duttagupta, Fernandez and
Karacadag, 2005). Notwithstanding, flexible exchange rates could offer a better
“safety belt” considering the escalation of cross-border linkages, volatile capital, and
the inspiration to conduct independent monetary policy domestically. These facts
could push the trend toward more exchange rate flexibility in the future.

Globalization also affects unemployment. Global unemployment rose to record
highs in 2005 in spite of continued strong economic growth, reports the International
Labour Organization in its latest annual global employment trends surveys (ILO,
2006). Most notably affected are those between 15 and 24 years of age. This group
makes up half of the world’s unemployed, and their chance to remain unemployed
is three times as high as that of adults. Rising unemployment is a result of rapid
population growth in some parts of the world. Since the employment growth did not
match the population growth, this explains the rise. ILO (2006) makes it clear that
about half of the world’s 2.85 billion workers are subsisting on less than the $2 a
day poverty line—the same as a decade ago. In spite of the world economy growing
by 4.3 per cent in 2005, the number of unemployed climbed to 191.8 million. This
represented an increase of 2.2 million in 2004 and 34.4 million in 1995. As evidence
of this, the global unemployment rate remained steady in 2005 at 6.3 per cent after
two years of decreases. It was down from 6.6 per cent a decade ago—employment as
a share of the working age population stayed virtually unchanged at 61.8 per cent in
2004. The rate in east-Central Europe rose to 9.7 per cent from 9.5 per cent in 2004,
and Asia’s overall unemployment rate remained steady. In East Asia, unemployment
is 3.8 per cent, the lowest in the world. In contrast, the Middle East and North Africa
show a 13.2 per cent unemployment rate, the highest in the world; in Latin America
and the Caribbean, the unemployed rose by about 1.3 million to an unemployed rate
of 7.7 per cent (ILO, 2006). Despite these unfortunate numbers, certain countries in
Europe and Central Asia have succeeded in sustaining low levels of unemployment
without an acceleration of inflation pressures or a worsening of income inequality.
In addition, the failure of many economies to create new jobs out of GDP growth,
combined with natural disasters and rising energy prices, especially affected the
world’s poorest. Of the 500 million poorest people, only 14.5 million managed to
clamber above the $1 a day income level last year (ILO, 2006).
Global employment and economic output naturally interact with production,
and determining where to settle productive factories, where to assemble the final
product, and how to market output regionally or worldwide without breaching

foreign production are becoming increasingly important. The Chinese market for
automobiles has been growing extensively. For example, while the demand for
cars was not intended for consumers until the year 2000, the private market started
purchasing cars at that time which resulted in the growth of the number of cars
sold from about 719,000 cars in 2000 to more than 3,139 million in 2005. The
market for automobiles in China is so promising—especially in highly prosperous
towns—that experts believe it will become the biggest market in the world, and
that companies such as Volkswagen, Psa Peugeot-Citroen, Toyota, Honda, Hyundai,
Nissan, and Fiat are searching for more market share, even if it involves producing


6

Global Business Management

them through joint ventures. Note also that all cars exported to China are taxed up to
25 per cent and a truly broadminded tolerance is not yet available. Moreover, under
a different perspective, the recent Chinese Chery Automobile Company, a Chinese
car manufacturer that produces the QQ, a small city car that sells for less than RMB
50,000 or $6,000, is noteworthy. Founded in 1997, Chery is China’s eighth largest
automaker and sold about 90,000 vehicles in China in 2004. The Chinese carmaker
began making the QQ in 2002, a car that the well-known US General Motors (GM)
believe the Chinese are producing as a carbon copy of the GM Daewoo Matiz, a mini
car developed by its South Korean affiliate Daewoo. As a result, GM filed a lawsuit
against the small Chinese firm asking for a $10 million penalty, alleging that it
“shared remarkably identical body structure, exterior design, interior design and key
components.” While the Chinese carmaker is primarily selling its cars in China—a
small amount sold in Iran, Egypt, Syria, Indonesia, Russia, and Malaysia—the fact
that the US could begin importing this car could represent another perspective of
becoming aware of international business practices and competition.

Besides the issues that we will analyze in the text, perhaps these trends might
affect inequalities, income distributions within and among countries, and future
balanced economic growth alike. Not least, the global economy is a reality for
companies and workers all around the world, and its impact on firm performance of
developed and emerging countries is no doubt occurring. All these themes ought to
be of concern to all students and the public; we hope that this book will serve mainly
as a broad purpose to introduce them to think globally yet not to lose how national
perspectives interact internationally and the fundamental importance of consumers
and their tastes.


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