The distribution of the world’s natural resources is highly unequal. Norway is blessed with an abundance of oil, making it among the richest countries in the world, whereas its equally cold neighbor Finland has to live by its wits without such resources. Much of Algeria and Namibia is arid desert, whereas Brazil and Indonesia are lush and tropical. Chile is loaded with copper and Australia with iron ore and coal, while South Korea and Bangladesh are bereft of any natural resources.

Welcome to International Management Behavior: Global and Sustainable Leadership, ninth edition!

This book is not just a book about global business. It is about people who conduct business – and manage other types of organizations – in a global environment. It discusses and explores typical situations that managers encounter: the problems and opportunities; the frustrations and rewards; the successes and failures; the decisions they must make and the actions they must take.

International management is not an impersonal activity, and it should not be studied solely in an impersonal way. It is important to understand trade theories, to be able to weigh the pros and cons of exporting versus licensing, or to understand the advantages of a joint venture versus a wholly owned subsidiary. But eventually theory must give way to practice; strategizing and debating alternatives must give way to action. Working globally means interacting with colleagues, customers, and suppliers from other countries to achieve a specific outcome. We focus on these interactions, on getting things done with and through other people in an international context.

In the first part of this chapter, we examine how to measure the size and composition of the overall economy. We use these methods to see how saving and investment levels imply how much will be loaned to or borrowed from the rest of the world. Then we define in greater detail the nature of the trade and financial links between the economy and the rest of the world economy. At the end, we discuss how borrowing from the rest of the world affects the status of a country as a net debtor or creditor.

In Chapter 5, we claimed that the watershed between easy and difficult problems is their convexity status. Convex optimization problems are, however, a very broad class and one of their downsides is that the dual problem is not always readily available; see the discussion in Section 5.3. In view of the computational benefits of concurrently solving the primal and dual problems, a natural question arises: Is there a subclass of convex optimization problems that are expressive enough to model relevant real-life problems and, at the same time, allow us for a systematic derivation of the dual akin to linear optimization?

Think about a relationship you have with somebody in your class or workplace. Your initial relationship might be built upon what you know about that person, your shared values and common beliefs – maybe even their personal appearance. The strength of that relationship will change as soon as you start to interact with them. A friendly smile, cheerful greeting and some positive small talk will probably make you think that you might want to get to know this person a little more. Conversely, if you feel ignored, disliked or realise that you value different things, you will probably avoid them in the future. This is what we refer to in this text as student engagement – the relationship that is formed and reformed between students and education.

The exchange rate is the key relative price for an economy open to international trade and finance. The price Americans pay for Japanese automobiles imported into the United States depends on how many dollars it takes to buy 100 yen, i.e., the dollar/yen exchange rate. The stronger the dollar, the more yen it will buy, and therefore the cheaper the imported cars will be. At the same time, a strong dollar makes it harder for US firms to profitably sell heavy earth-moving equipment like bulldozers (say those made by Caterpillar) to the rest of the world. The strength of the dollar against other currencies also affects other sectors, besides trade in manufactured goods. A strong dollar is good for a US tourist visiting Madrid, but places in the United States that cater to foreign tourists, such as Las Vegas, do better business when the dollar is weak.

After decades of roaring growth, the “East Asian Miracle” – as touted in a 1993 book published by the World Bank – seemed to be in full swing. Yet a mere four years later, the region was engulfed in chaos. What became known as the Asian Financial Crisis unfolded in July 1997. As foreign exchange reserves were depleted, the Bank of Thailand was forced to let the Thai baht float freely. The currency immediately depreciated by 21%. By January 1998, the baht was 54% weaker against the dollar than it had been six months earlier. The turmoil was not restricted to Thailand; Singapore, Malaysia, Indonesia, and the Philippines also experienced stresses on their balance of payments as capital flows reversed course, with net flowing out rather than in.

In a 2008 interview on ‘Meet the Press’ on US television, then President-elect Barack Obama, while discussing his intention to implement a stimulus plan to get the economy moving, qualified that ‘things are going to get worse before they get better.’ Things did indeed get worse. By the last quarter of 2008, the US economy was shrinking at an annual rate of 8%, as it sank into its deepest and longest recession since the Great Depression. In Figure 13.1, the blue line shows the drastic decline in the growth rate. Household consumption was trending downward at a rate of nearly 5% per year, business investment in factories and equipment was falling at a rate of 21% per year, and new-home construction was plummeting by a disastrous annual rate of 33%. Clearly, if something could be done, it should be, and swiftly.

Competing with Integrity and Ethical Decision-Making challenges students to consider their responsibilities as a business leader more broadly than simply from financial, market, or legal perspective. There can also be human, social, or legal consequences from their decisions. The human and social impact of decisions should be considered at the time these decisions are being made. The distinction between integrity and ethics is explored, and differences between ethical and legal behavior are discussed. Major moral philosophies and ethical frameworks are presented and compared. Examples are provided from multiple industries. The Foreign Corrupt Practices Act (FCPA), the Corruption Perceptions Index from Transparency International, and the Integrative Social Contracts Theory (ISCT) are presented. Ethical use of artificial intelligence is seen as an emerging concern for global leaders. The chapter ends with a set of personal guidelines for dealing with ethical dilemmas for global leaders to consider.

In the first part of this chapter, we examine how to measure the size and composition of the overall economy. We use these methods to see how saving and investment levels imply how much will be loaned to or borrowed from the rest of the world. Then we define in greater detail the nature of the trade and financial links between the economy and the rest of the world economy. At the end, we discuss how borrowing from the rest of the world affects the status of a country as a net debtor or creditor.

The particular feature of linear optimization problems is that as long as the decision variables satisfy all the constraints, they can take any value. However, there are many situations in which it makes sense to restrict the solution space in a way that cannot be expressed using linear (in)equality constraints. For example, some numbers might need to be integers, such as the number of people to be assigned to a task. Another situation is when certain constraints need to hold only if another constraint holds. For example, the amount of power generated by a power plant must not be less than a certain minimum threshold only if that generator is turned on. Neither of these two examples can be expressed using only linear constraints, as we have seen up to this point. In these cases, it is often still possible to formulate the problem as an LO problem, although some additional restrictions may be needed on certain variables, requiring them to take integer values only. We will refer to this type of LO problem in which some variables are constrained to be integers as mixed-integer linear optimization (MILO) problems.

In this chapter we consider a variety of non-optimizing mental shortcuts that people use to make sense of the complex world around them. We consider mental models; narrow bracketing and broad bracketing; the diversification heuristic; and the difference between transaction utility and acquisition utility. We then consider mental accounting, whereby people form different mental categories for different sources of incomes/expenditures and money is not fungible across them. This explains diverse phenomena, for example, why people prepay for vacations and post-pay for consumer durables. We consider projection-bias, the tendency to project our current preferences in inferring our future tastes and actions. This is followed by a discussion of Herbert Simon’s aspiration adaptation theory, which gives a boundedly rational approach to decision making. It highlights the procedural aspects of decisions. The final topic in this chapter is behavioral finance. We give a statement of efficient markets hypothesis (EMH), which is the cornerstone of modern finance. We show that EMH is rejected by the evidence. We also give a brief note on corporate finance.

In neoclassical economics, choices reflect considered judgment, so one can use revealed preference arguments for welfare judgments. The evidence from behavioral economics calls this view into question. This chapter considers the proposed modifications to neoclassical welfare economics when people might not be the best judges of their actions. The generic form of paternalism in behavioral economics is soft paternalism that nudges the choices of boundedly rational individuals in a beneficial direction, but the choices of rational individuals are minimally affected. We consider several forms of soft paternalism: libertarian paternalism, asymmetric paternalism, and light paternalism. Our main focus is on libertarian paternalism, and we consider the evidence from several forms of nudges as well as the importance of distinguishing between partial and general equilibrium effects of any policy intervention. We consider the inevitability of the choice architect and the concept of informed consent. We critically evaluate the criticisms of this approach, for example, those by the contractarian approach. We consider applications to sin goods and to the foundations of behavioral public economics.

Leading Organizational Change highlights how a volatile, uncertain, complex, and ambiguous (VUCA) environment challenges preexisting mindsets and moves companies into the “Age of Agile.” Change scenarios that companies face depending on their current performance are described: anticipatory, reactive, and crisis. The change process (assessing the readiness for change, initiating and adopting the change, and reinforcement and realignment) explains how the process of change unfolds, facilitated by a design thinking approach. The dilemma of excessive persistence versus premature abandonment is discussed, suggesting that the trade-offs of staying on or leaving a course of action must be carefully considered. IBM’s change trajectory, which fundamentally altered the company, is described.

Global Leaders in the 21st Century examines the current context of international management and looks at the noteworthy changes in the business and leadership contexts of globalization. A major shift appears to be taking place in the global political economy. The predominant system characterized by global economic agreements, free trade, global supply chains, and multilateral institutions is being challenged by an increase in the primacy of national interests and security. In this volatile, uncertain, complex, and ambiguous (VUCA) environment, traditional ways of managing are not entirely adequate, and global leaders need to develop new skills. This chapter introduces the concept of Mindful Global Leadership and its components of context sensitivity, perspective taking, and a process orientation. It also presents a global leadership typology-based task complexity and relationship complexity.