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Discussion 5
Post to the discussion board your response to question 5 of General Electric’s Joint Ventures case on
pages 511-512.
Include in your post personal observations as well as concrete examples from the readings to support your views.
Initial posts should be several paragraphs, include direct references to the readings, and word choice and sentence
structure should be suitable for graduate level work. Responses to your classmates should be constructive in
nature.
Due 7-31
Discussion 6
Post to the discussion board your response to question 4 of the MD International case on pages 548-
549.
Include in your post personal observations as well as concrete examples from the readings to support your views. Initial posts should be several paragraphs, include direct references to the readings, and word choice and sentence structure should be suitable for graduate level work. Responses to your classmates should be constructive in nature.
Due 8-7
Discussion 7
Post to the discussion board your response to questions 1 & 2 of the Adopting International Accounting
Standards case on page 669.
Include in your post personal observations as well as concrete examples from the readings to support your views. Initial posts should be several paragraphs, include direct references to the readings, and word choice and sentence structure should be suitable for graduate level work. Responses to your classmates should be constructive in nature.
Due 8-14
312 Part 3
Regional Economic Integration •
Reseal”cll Task 0globalEDGE ~.glob&11e!Jlge.mSll.edll
..,.~ -«, -“.,.””” ‘f:”””’-
Use the globalEDGETMsite to complete the following
exercises;
Exercise 1
Your company is seekingto expandbyopeningnew cus-
tomer· representative and sales offices in the European
Union (EU), The size of the investment is significant,
and top-management wishes to have a dearer picture of
the current and probable future status of the EU. A col-
league who spent some time living in the ED indicated
that Eurostat might be a comprehensive source to assist
in yourproject, After evaluating the stateoftheEU
based on the statistics and publications available,. pre-
. parean executive summary describing the features you
consider as crucial in completing your report.
Exercise 2·
.:Trade agreements can impact. The cultural interactions
between countries; In fact, the establishment of the Free
• TradeArea of the Americas (ETAA) can be considered a
. threat as well as an opportunity for your company. Iden-
.tify the main negotiating groups a country must consider
whena member. Choose two negotiating groups and jus-
.tify their importance to member countries.
NAfTA and Mexican Trucking
When the North American Free Trade Agreement
(NAFTA) went into effect in 1994, the treaty specified
that by 2000 trucks from each nation would be allowed
to cross each other’s borders and deliver goods to their
ultimate destination. The argument was that such a pol-
icy would lead to great efficiencies. Before NAFTA,
Mexican trucks stopped at the border, and goods had to
be unloaded and reloaded onto American trucks, a pro-
cess that took time and cost money. It was also argued
that greater competition from Mexican trucking firms
would lower the price of road transportation within
NAFTA. Given that two-thirds of cross-border trade
within NAFTA goes by road, supporters argued that the
savings could be significant.
This provision was vigorously opposed by the Team-
sters union in the United States, which represents truck
drivers. The union argued that Mexican truck drivers
had poor safety records, and that Mexican trucks did not
adhere to the strict safety and environmental standards
of the United States. To quote James Hoffa, the presi-
dent of the Teamsters:
Mexican trucks are older, dirtier, and more dangerous
than American trucks. American truck drivers are taken
off the road if they commit a serious traffic violation in
their personal vehicle. That’s not so in Mexico. Limits
on the hours a driver can spend behind the wheel are
ignored in Mexico.
Under pressure from the Teamsters, the United
States dragged its feet on implementation of the truck-
ing agreement. Ultimately the Teamsters sued to stop
implementation of the agreement. An American court
rejected their arguments and stated the country must
honor the treaty. So did a NAFTA dispute settlement
panel. This panel ruled in 2001 that the United States
was violating the NAFTA treaty and gave Mexico the
right to impose retaliatory tariffs. Mexico decided not to
do that, instead giving the United States a chance to
honor its commitment. The Bush administration tried
to do just that, but was thwarted by opposition in Con-
gress, which approved a measure setting 22 new safety
standards that Mexican trucks would have to meet be-
fore entering the United States.
– In an attempt to break the stalemate, in 2007 the U.S.
government set up a pilot program under which trucks
from some 100 Mexican transportation companies could
enter the United States, provided they passed American
safety inspections. The Mexican trucks were tracked, and
after 18 months, that program showed the Mexican carri-
ers had a slightly better safery record than their U.S.
counterparts. The Teamsters immediately lobbied Con-
gress to kill the pilot program. In March 2009 an amend-
ment attached to a large spending bill did just that.
This time the Mexican government did not let the
United States off the hook. As allowed to under the terms
of the NAFTA agreement, Mexico immediately placed tar-
iffs on some $2.4 billion of goods shipped from the United
States to Mexico. California, an important exporter of agri-
cultural products to Mexico, was hit hard. Table grapes now
faced a 45 percent tariff, while wine, almonds, and juices
Keith Griffin
Highlight
Regional Econormc Integration Chapter 9 31
3.
;:-
Case Discussion Questions
!i’\ What are the potential economi~ benefits of the benefits? object to the trucking provisions in NAFTA? 3. Does it make economic sense for the United 1. O. Gibson, “Round One to the Pub Lady,” The Guardian, 2. Information taken from World Trade Organization web- 3. Ibid. since its inception. The latest version was established in 5. D. Swann, The Economics of the Common Market, 6th ed. 6. See J. Bhagwati, “Regionalism and Multilateralism: An 7. N. Colchester and D. Buchan, Europawer: The Essential 8. A. S. Posen, “Fleering Equality, The Relative Size of the 9. Swann, Economicsof the Common Market; Colchester and A Survey,” The Economist, July 3, 1993; and the European 10. E. 1- Morgan, “A Decade ofEC Merger Control,” Interna- 11. W. Drozdiak, “EU Allows Vivendi Media Deal,” Washington 12. “The European Community: A Survey.” December 13, 2007. ber 30, 1991, pp. 53-54; and “Market Failure: A Survey 15. Alan Riley, “The Single Market Ten Years On,” European 16. C. Randzio-Plath, ”Europe Prepares for a Single Financial 17. See C. Wyploze, “EMU: Why and How It Might Hap- 18. “One Europe, One Economy”; and Feldstein, “The Political “(;- Keith Griffin Entry Strategy and Strategic Alliances Chaptert5 511
Entry strategy and Strategic Alliances
…Use the globalEDGETM site to complete thefollowing Exercise 1 A vital element in a successful international market entry • between partners, As such, the Entrepreneur magazine . pursue franchising as a mode of international expansion. General Electric’s Joint Ventures There are several reasons for the switch in strategy. provided by the franchiser. Are there areas where Exercise 2
.. The U.S. Commercial Service prepares reports known as . . to U.S. investors. Utilize the Country Commercial GE now sees joint ventures as a great way to dip its toe Of course, General Electric has done joint ventures Keith Griffin 512 Part 5 The Strategy and Structure of International Business
a third with Sea Containers of the United Kingdom, OE managers also note that there is no shortage of Nevertheless, joint ventures are no panacea. GE’s .•.~~ ~~~.’tffi..~c.””lf, •••••:
stake to gain access to a foreign market. In 2003, when Case Discussion Questions 1. GE used to prefer acquisitions or greenfield 2. Why do you think that GE has come to prefer 3. What are the risks that OE must assume when it 4. The case mentions that GE has a well-earned (s) forward?5. In addition to its reputation for being a good part- ‘–~~·~i'”~!’!!~~\t:tt7:.m:.t\~~~re.:::r7J!’!:’!C’r.”TITY~~_’~”””””C?”’1’\’!i2b~?·Z’9Ifli ..·t””'”l •.1′. s~
14]~~1;,;e~
1. S. Schifferes, “Cracking China’s Car Market,” BBC News, 2. For interesting empirical studies that deal with the issues- 2001). Also see F Vermeulen and H. Barkeme, “Pace, 3. This can be reconceptualized as the resource base of thE:, . – 4. For a discussion of first-mover advantages, st:;€:- Keith Griffin 548 Part 6 Business Operations
disadvantages of using export credit insurance 4. How do you explain the use of countertrade? ther by2015?Under what scenarios might its 5. How might a company make strategic use of ll~l~e~trt~:;.:tl1.;,;ra~k~”)globaIEDGiEi·;:.g~0ba!edgB”lnsu.edtt Exporting, Importing, and Countertrade
Use the globalEDGPM site to complete the following Exercise 1 Exporting is an important way for small and large compa- Exercise 2 Understanding the specific terminology used in CH~_ …:’ _ . definitions of the following terms related to exporting.’: .,·•••• Mil International Merritt located his company in south Florida to be ment manufacturers don’t sell directly to the region . The company’s success is in part due to its deep- Along the way to becoming a successful exporter, MD’ Keith Griffin Exportma Importing, and Countertrade
held up by the Venezuelan customs seeking proof that Despite these advantages, it has not all been easy Chapter 16 549
MD International can not only survive such downturns, Case Discussion Questions 1. How does an intermediary such as MD Intema- 2. Why did MD International focus on Latin 3. What would it take for MD International to ~ How important has government assistance been firms such as MD International represents good 1. u.s. Department of Commerce website, “Vellus Products 2. R. A. Pope, “Why Small Firms Export: Another Look,” 3. M. C. White “Marlin Steel Wire Products,” Slate 4. S. T. Cavusgil, “Global Dimensions of Marketing,” in 5. S. M. Mehta, “Enterprise: Small Companies Look to Cul- 6. P. A. Julien and C. Ramagelahy, “Competitive Strategy 7. W. J. Burpitt and D. A. Rondinelli, “Small Firms’ Motiva- 8. Small Business Administration, “The State of Small 9. A. O. Ogbuehi and T. A. Longfellow, “Perceptions of U.S. 10. R. W. Haigh, “Thinking of Exporting!” Columbia Joumal 11. F. Williams, ”The Quest for More Efficient Commerce,” 12. ]. Sparshott, “Businesses Must Export to Compete,” The 13. See Burpitt and Rondinelli, “Small Firms’ Motivations for Keith Griffin dispersed supply chain. What are the causes of these 3. Some critics have claimed that by outsourcing so Cases 669
1. J. L Lunsford, “Jet Blues,”The Wall Street]oumal, December “,S~~IO- Historically, different accounting practices made it very In another example of the implications of differences in I
footing, the move toward common global accounting stan- However, the road toward common accounting stan- 3. What are the benefits of adopting international 1. E. McDonald, “What Happened?” The WalLStreet]ournaI, Keith Griffin Keith Griffin
U trucking provisions in the NAFTA treaty? Who
2. What do you think motivated the Teamsters to
Are these objections fair? Why did Congress
align itself with the Teamsters?
States. to bear the costs of punitive tariffs as al-
lowed for under NAFTA, as opposed to letting
Mexican trucks enter the United States?
February 4,2011, p. 5; J. W. Miller, ”European TV Market
for Sports Faces Turmoil from Legal Ruling,” The Wall
Stxeet ioumol, February 4, 2011; andJ. Wilson, ”What the
Legal Wmngle Means for Armchair Fans,” The Daily Tele-
graph, February 4,2011, p. 8.
site and current as of February 2011, wwwwto.org.
4. The Andean Pact has been through a number of changes
1991. See “Free-Trade Free for All,” The Economist, Janu-
ary 4, 1991, p. 63.
(London: Penguin Books, 1990).
Overview,” Columbia University Discussion Paper 603,
Department of Economics, Columbia University, New
York; A. de la Torre and M. Kelly, “Regional Trade
Arrangements,” Occasional Paper 93, Washington, DC:
International Monetary Fund, March 1992; J. Bhagwati,
“Fast Track to Nowhere,” The Economist, October 18,
1997, pp. 21-24; jagdish Bhagwati, Free Trade Today
(Princeton and Oxford: Princeton University Press,
2002); and B. K. Gordon, “A High Risk Trade Policy,”
Foreign Affairs 82 no. 4 (July/August 2003), pp. 105-15.
Guide to Europe’s Economic Transformation in 1992
(London: The Economist Books, 1990), and Swann, Eco-
nomics of the Common Market.
EU and US Economies in 2020,” The Brookings Institu-
tion, September 2004.
Buchan, Europower: The Essential Guide to Europe’s Economic
Transfo17T1ationin 1992; “The European Union; A Survey,”
The Economist, October 22,1994; “The European Community:
Union website at http://europa.eu.int.
tional Journal of Economics and Business, November 200 1,
pp.451-73.
Post, October 14, 2000, p. E2; D. Hargreaves, “Business as
Usual in the New Economy,” Financial Times, October 6,
2000, p. 1; and D. Hargreaves, “Brussels Clears AOL-
Time Warner Deal,” Financial Times, October 12, 2000,
p.12.
13. Tony Barber, “The Lisbon Reform Treaty,” FT.com,
14. “One Europe, One Economy,” The Economist, Novem-
of Business in Europe,” The Economist, June 8, 1991,
pp.6-1O.
Policy Analyst, December 2002, pp. 65-72.
Market,” Intereconomic, May-June 2004, pp. 142-46;
T. Buck, D. Hargreaves. and P. Norman. “Europe’s Single
Financial Market,” Financial Times, January 18, 2005,
p. 17; “The Gate-keeper,” The Economist, February 19,
2005, p. 79; P. Hofheinz, “A Capital Idea: The European
Union Has a Grand Plan to Make Irs Financial Markers
More Efficient,” The Wall Street Journal, October 14,
2002,p. R4; and “Banking on McCreevy: Europe’s Single
Market,” The Economist, November 26, 2005, p. 91.
pen,” Journal of Econamic Perspectives 11 (1997), pp. 3-22;
and M. Feldstein, “The Political Economy of the Euro-
pean Economic and Monetary Union,” Journal of Eco-
nomic Perspectives 11 (1997), pp. 23-42.
Economy of the European Economic and Monetary Union,”
Highlight
exercises:
strategy is an appropriate fit of skills and capabilities .
annually publishes a ranking of the “Top Global
Franchises.” Provide a list of the top 1o companies that
Study one of these companies in detail and provide a
description of its business model, its international ..
expansion pattern, desirable qualifications. in possible
franchisees, and the support and training typically.
Historically at General Electric, if you wanted to enter a
foreign market, you either acquired an established firm in
that market or you went alone, establishing a greenfield
subsidiary. Joint ventures with a local company were
almost never considered. The prevailing philosophy was
that if GE didn’t have full control, you didn’t do the deal.
However, times have changed. Since the early 2000s
joint ventures have become one of the most powerful
strategic tools in GE’s arsenal. To enter the South Korean
market, for example, GE Money, the retail lending arm
of GE’s financial services business, formed joint ventures
with Hyundai to offer auto loans, mortgages, and credit
cards. GE has a 43 percent stake in these ventures. Simi-
larly, in Spain it has formed several joint ventures with
local banks to provide consumer loans and credit cards to
Spanish residents, and in Central America it has a joint
venture with BAC-Credomatic, the largest bank in the
region.
For one thing, GE used to be able to buy its way into
majority ownership in almost any business, but prices for
acquisitions have been bid so high that GE is reluctant
to acquire for fear of overpaying. Better to form a joint
venture, so the thinking goes, than risk paying too much
for a company that turns out to have problems that are
discovered only after the acquisition. Just as importantly,
improvement can be made for the company to maintain
competitiveness? Provide sufficient justification for your.
position.
the “Country Commercial Guide” for countries of interest
Guide for Russia to gather information on this country’s .
energy and mining industry. Considering that your com-
pany has plans to enter Russia in the foreseeable future,
select the most appropriate entry. method. Be sure to
support your decision with the information collected.
into foreign markets where it lacks local knowledge.
Also, in certain nations, China being an example, eco-
nomic, political, legal, and cultural considerations make
joint ventures an easier option than either acquisitions
or greenfield ventures. GE believes it can often benefit
from the political contacts, local expertise, and business
relationships that the local partner brings to the table,
to say nothing of the fact that in certain sectors of the
Chinese economy and some others, local laws prohibit
other entry modes. GE also sees joint ventures as a good
way to share the risk of building a business in a nation
where it lacks local knowledge. Finally, under the
leadership of CEO Jeffrey Immelr, GE has adopted
aggressive growth goals, and it feels that entering via
joint ventures into nations where it lacks a presence is
the only way of attaining these goals. Fueled by its large
number of joint ventures, GE has rapidly expanded its
international presence over the past decade. For the first
time, in 2007 the company derived the majority of its
revenue from foreign operations.
in the past. For example, it has a long-standing 50-50
joint venture with the French company Snecma to make
engines for commercial jet aircraft, another with Fanuc
of Japan to make controls for electrical equipment, and
Highlight
which has become one of the world’s largest companies
leasing sliipping containers. But all of these ventures
came about only after OE had explored other ways to
gain access to particular markets or technology. While
OE formerly used joint ventures as the last option, they
are now often the preferred entry strategy.
partners willing to enter into a joint venture with the
company. The company has a well-earned reputation for
being a good partner to work with. OE is well known for
its innovative management techniques and excellent
management development programs. Many partners are
only too happy to team up with GE to get access to this
know-how. The knowledge flow, therefore, goes both
ways, with OE acquiring access to knowledge about
local markets, and partners learning cutting-edge
management techniques from GE that can be used to
boost their own productivity.
agreements normally give even the minority partner in
a joint venture veto power over major strategic
decisions, and control issues can scuttle some ventures.
In january 2007, for example, GE announced it would
enter into a venture with Britain’s Smiths Group to
make aerospace equipment. However, nine months
later, GE ended talks aimed at establishing the venture,
stating they could not reach an agreement over the
vision for the joint venture. GE has also found that as
much as it would like majority ownership, or even a
50150 split, sometimes it has to settle for a minority
~.iQ~~.
GE entered into a joint venture with :f1yundaj to offer
auto loans, it did so as a minority partner even though it
would have preferred a majority position. Hyundai had
refused to cede control over to GE.63
ventures as an entry mode rather than joint
ventures. Why do you think this was the case?
joint ventures in recent years? Do you think that
the global economic crisis of 2008-2009 might
have affected this preference in any way? If so,
how?
enters into a joint venture? Is there any way for
GE to reduce these risks?
reputation for being a good partner. What are the
likely benefits of this reputation to GE? If GE
were to tarnish its reputation by, for example,
opportunistically taking advantage of a partner,
how might this impact the company going
ner, what other assets do you think GE brings to
the table that make it an attractive joint-venture
partner?
May 17, 2007; N. Madden, “Led by Buick,
Carmaker Learning Fine Points of Regional China Tastes,”
Automotive News, September 15, 2008, pp. 186-90; “GM
Posts Record Sales in China,” Toronto Star, January 5,
2010, p. B4; and “GM’s Sales in China Top US,” Investor’s
Business Daily, January 25,2011, p. A1.
of timing and resource commitments, see T. Isobe,
S. Makino, and D. B. Montgomery, “Resource Commit-
ment, Entry Timing, and Market Performance of Foreign
Direct Investments in Emerging Economies,” Academy of
Management Journal 43, no. 3 (2000), pp. 468-84; and
Y. Pan and P. S. K. Chi, “Financial Performance and
Survival of Multinational Corporations in China,”
Strategic ManagementJauma120, no. 4 (1999), pp. 359-74.
A complementary theoretical perspective on this issue
can be found in V. Govindarjan and A. K. Gupta, The
Quest for Global Dominance (San Francisco: [ossev-Bass,
Rhythm and Scope: Process Dependence in Buildinga
Profitable Multinational Corporation,” Strategic Manage”:
mentloumal23 (2002), pp. 637-54. —
entrant, relative to indigenous competitors. For work tlliIl;
focuses on this issue, see W. C. Bogner, H. Thomas, arid- .
). McGee, “A Longitudinal Study of the Competitive Pos~
tions and Entry Paths of European Finns in the U.S. Phai;’
maceutical Market,” Strategic ManagementJoumal17 (1996J; .
pp. 85-107; D. Collis, “A Resource-Based Analysis of Globel ”
Competition,” Strategic Management Journal 12 (199l)~
pp. 49-68; and S. Tallman, “Strategic Management ModelS;
and Resource-Based Strategies among MNEs in a HO$f
Market,” Strategic ManagementJoumal12 (1991), pp. 69.-82}
M. Lieberman and D. Montgomery, “First-Mover Adv~i’·:>
rages,” Strategic Management Journal 9 (Summer Speci~~(~
Issue, 1988), pp. 41-58. … ,-
Highlight
rather than: a letter of credit for exporting (a) a .’
luxury yacht from California to Canada, and
(b) machine tools from New York to Ukraine?
Under what scenarios might its use increase fur-
‘. use decline?
countertrade schemes as a marketing weapon to
generate export revenues? What are the risks as-
sociated with pursuing such a strategy?
.-.~~~~ _::’:’~’::::-;O:-7′:~””-:.::7_~’;;’f’-~;/
exercises:
nies to introduce products and develop new markets. In
fact, the Internet is rich with ‘resources that offer
guidance to companies wishing to expand their markets
through exporting. The trade tutorials at the globalEDGE
website provide links to these resources. Identify five
sources and provide a description of the services avail-
able for new exporters through each source.
import/export process is necessary prior to
ny’s first international venture. Utilize the glclhalE1DCJE
Glossary of International Business Terms to identify
and importiug:ad valorem tariff, consignment, embargo.,:
global quota, invisible barriers to trade, letter of
mercantilism, and section 201.
Al Merritt founded MD International in 1987. A former
salesman for a medical equipment company, Merritt saw
an opportunity to act as an export intermediary for med-
ical equipment manufacturers in the United States. He
chose to focus on Latin America and the Caribbean, a
region that he already had experience in. Also, trade
barriers were starting to fall throughout the region as
Latin governments embraced a more liberal economic
ideology, creating an opening for entrepreneurs such as
Merritt. Local governments were also expanding their
spending on health care, creating an opportunity that
Merritt was poised to exploit.
close to his market. Since then, the company has grown
to become the largest intermediary exporting medical
devices to the region. Today the company sells the prod-
ucts of more than 30 medical manufacturers to some
600 regional distributors. While many medical equip-
because of the sizable marketing costs, MD can afford to
because it goes into those markets with a broad portfolio
of products.
rooted knowledge and understanding of the Latini
American market. MD works very closely with teams of
doctors, biomedical engineers, microbiologists, and mar~:’
keting managers across Latin America to understand_Y
their needs and what the company can do for them. The>
sale of products to customers is typically only the begin- …..
ning of a relationship. MD International also provides
training to medical personnel in the use of devices and’
extensive after-sale service and support. ..
International has leaned heavily upon export assistance …..
programs established by the U.S. government. For ex-‘
ample, in the early 2000s a shipment to Venezuela was
Highlight
the medical devices were not intended for military use.
Within two days, staff at the U.S. Export Assistance
Center in Miami arranged for the U.S. embassy in
Venezuela to have a letter written and delivered to the
customs officials, assuring them that the products had
no military applications, and the shipment was released.
Merritt has also worked extensively with the Expon-
Import Bank to gain financing for its exports (the corn-
pany needs to finance the inventory that it exports).
going for MD International. Latin American economies
have often been highly cyclical, and MD International
has ridden those cycles with them. In 2001, for example,
after several years of solid growth, an economic crisis in
both Argentina and Brazil, coupled with a slowdown in
Mexico, resulted in losses for the year and forced Merritt
to lay off one-third of his staff and cut the pay of others,
which included a 50 percent pay cut for himself. Things
started to improve in 2002, and the weak dollar in the
mid- 2000s also helped to boost expon sales. However,
the global financial crisis of 2008 ushered in another
tough period; although prior experience suggests that
but also come out stronger as weaker competitors fall by
the wayside.”
tiona Icreate value for the manufacturers that
use it to sell medical equipment in fQreign mar-
kets? Why do they want to use MD, Interna-
tional rather than export directly themselves?
America? What are the benefits of this regional
approach? What are the potential drawbacks?
start exporting to other regions such as Asia or
Europe? Given this, would you advise Al Merritt
to continue his regional focus going forward or
to add other regions?
l:J to MD International? Do you think helping
use of taxpayer money?
Inc.,” www.export.gov; C. K. Cultice, “Best in Show:
Vellus Products,” World Trade, January 2007, pp. 70-73;
and C. K. Cult ice, “Lathering up World Markets,” Busi~
ness America,” July 1997, p. 33.
journal. of Small Business Management 40 (2002), pp. 17-26.
Magazine, November 10, 2010.
Marketing, ed. P. E. Murphy and B. M. Enis (Glenview, 1L:
Scott, Foresman, 1985), pp. 577-99.
tivate Foreign Business,” The Wall Stseex Ioumol, July 7,
1994, p. B2.
and Performance of Exporting SMEs,” Entrepreneurship
Theory and Practice, 2003, pp. 227-94.
nons for Exporting: To Earn and Learn?” Journal of SmaU
Business Management, October 2000, pp. 1-14; and
J. D. Mittelstaedt, G. N. Harben, and W. A. Ward, “How
Smaills Too Small?” Journal of SmaLl Business Management
41 (2003), pp. 68-85.
Business 1999-2000: Report to the President,” 2001;
www.sba.gov/advo/stats/stateofsb99_00 ;and D. Ransom,
“Obama’s Math: More Exports Equals More Jobs,” The
Wall Street Journal. February 6, 2010.
Manufacturing Companies Concerning Exporting,”
Journal of Small Business Management, October 1994,
pp. 37-59; and U.S. Small Business Administtation,
“Guide to Exporting,” www.sba.gov/oit/info.Guide-
to Exportlng/index.html.
of World Business 29 (December 1994), pp. 66-86.
Financial Times, October 13, 1994, p. 7.
Washington Times, September 1, 2004, p. C8; “Entrepre-
neur of the Year 2001: Donald Gallion, FCX Systems,”
The State Journal, June 18, 2001, p. SlO; and T. Pierro,
“Exporting Powers Growth of FCX Systems,” The State
Journal, April 6, 1998, p. 1.
Exporting”; and C. S. Katsikeas, L. C. Leonidou, and N. A.
Morgan, “Firm Level Export Performance Assessment,”
Academy of Marketing Science 28 (2000), pp. 493-511.
Highlight
problems? What can a company like Boeing do to
make sure such problems do not occur in the future?
much work, Boeing has been exporting American
jobs overseas. Is this criticism fair? How should the
company respond to such criticisms?
7,2007, p. AI; J. Gapper, “A Cleverer Way to Build a Boe-
ing,” FinancialTimes,July 9, 2007, pLl.]. Teresko, “The
Boeing 787: A Matter of Materials,” Industry Week, Decem-
ber 2007, pp. 34-39; and P Sanders, “Boeing Takes Control
of Plants,” The Wall Street}oumal, December 23, 2009, p. B2.
Adopting International! Accmultil!!g Stlilndardll T
Following a European Union mandate, from January 1,
2005, onward, some 7,000 companies whose stock is pub-
licly traded on European stock exchanges were required to
issue all future financial accounts in a format agreed upon
by the International Accounting Standards Board (IASB).
In addition, some 65 countries outside of the EU have
also committed to requiring that public companies issue
accounts that conform to IASB rules. Even American
accounting authorities, who historically have not been
known for cooperating on international projects, have been
trying to mesh their rules with those of the IASB.
difficult for investors to compare the financial statements
of firms based in different nations. For example, after the
1997 Asian crisis, a UN analysis concluded that before the
crisis two-thirds of the 73 largest East Asian banks hadn’t
disclosed problem loans and debt from related parties, such
as loans between a parent and its subsidiary. About 85 per-
cent of the banks didn’t disclose their gains or losses from
foreign currency translations or their net foreign currency
exposures, and two-thirds failed to disclose the amounts
they had invested in derivatives. Had this accounting in-
formation been made available to the public-as it would
have been under accounting standards prevailing at the
time in many developed nations-it is possible that prob-
lems in the East Asian banking system would have come
to light sooner, and the crisis that unfolded in 1997 might
not have been as serious as it ultimately was.
accounting standards, a Morgan Stanley research project
found that country differences in the way corporate pension
expenses are accounted for distorted the earnings state-
ments of companies in the automobile industry. Most strik-
ingly, while U.S. auto companies charged certain pension
costs against earnings and funded them annually, Japanese
auto companies took no charge against earnings for pension
costs, and their pension obligations were largely unrecorded.
By adjusting for these differences, Morgan Stanley found
that the U.S. companies generally understated their earn-
ings, and had stronger balance sheets, than commonly sup-
posed, whereas Japanese companies had lower earnings and
weaker balance sheets. By putting everybody on the same
dards should eliminate such divergent practices and make
cross-national comparisons easier.
dards has some speed bumps. In November 2004, for ex-
ample, Shell, the large oil company, announced that
adopting international accounting standards would reduce
the value of assets on its balance sheet by $4.9 billion. The
reduction primarily came from a change in the way Shell
must account for employee benefits, such as pensions.
Similarly, following IASB standards, the net worth of the
French cosmetics giant L’Oreal fell from 8.1 billion to
6.3 billion euros, primarily due to a change in the way
certain classes of stock were classified. On the other hand,
some companies will benefit from the shift. The UK-based
mobile phone giant Vodafone, for example, announced in
early 2005 that under newly adopted IASB standards, its
reported profits for the last six months of 2004 would have
been some $13 billion higher, primarily because the com-
pany would not have had to amortize goodwill associated
with previous acquisitions against earnings. 1
accounting standards for (a) investors and (b)
business enterprises?
What are the potential risks associated with a
move in a nation toward adoption of international
accounting standards?
In which nation is the move to adoption of IASB
standards likely to cause revisions in the reported
financial performance of business enterprises, the .
United States or China? Why?
April 26, 1999, p. R6; P. Grant, “IFRS Boosts Vodafone
Profits by Sterling 6.8 Billion,” Accounrancy Age, January 20,
2005; and G. Hinks, “IFRS to Wipe $4.7 billion off Shell’s
Balance Sheet,” Accountancy Age, November 23,2004.
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