During the life of the joint venture, over 1 billion barrels of crude oil were extracted from the land. Great Oklahoma left Ecuador in 1992 and turned over all assets and responsibilities for the project to Petroecuador, as was In the early 1960s the great Oklahoma Oil Company entered into a joint venture agreement with the government of Ecuador to explore, and potentially develop, an area of land in the eastern part of the country that was believed to possess significant oil reserves. The agreement called for an equal partnership between Great Oklahoma and Petroecuador, the government-owned oil monopoly. Great Oklahoma was to provide technical expertise and capital, while Petroecuador was to provide rights to the land.
Petroecuador had very limited experience in the oil business and relied heavily on Great Oklahoma to provide advice. In effect Great Oklahoma was to make all decisions in the partnership, manage the day-to-day operations, and then simply provide the government of Ecuador with a source of revenue.
A large oil deposit was discovered in the El Oriente region of Ecuador, an environmentally sensitive region of the rainforest. The government of Ecuador officially held title to this land; however, it was generally accepted that the indigenous people of the region, the Ecuadorian Indians, owned the land. They had occupied the land even before the government of Ecuador was established. In order to gain their cooperation, Great Oklahoma and Petroecuador provided
small incentives for these people, such as the use of electricity and the construction of sporting facilities. On the advice of Petroecuador, no monetary compensation was ever paid by Great Oklahoma to the Indians. During the life of the joint venture over 1 billion barrels of crude oil were extracted from the land. Great Oklahoma left Ecuador in 1992 and turned over all assets and responsibilities for the project to Petroecuador, as was originally agreed to in the joint venture contract. Since that time, significant concerns have been raised about the techniques used by Great Oklahoma in its operations in Ecuador. It has been alleged that the company did not use the same standards in Ecuador that it used in the United States to prevent environmental harm and that significant problems now exist in the region as a result. A lawsuit has been filed in New York on behalf of the Ecuadorian Indians against Great Oklahoma, seeking $1 billion dollars in damages for environmental destruction and related health problems. It has been alleged that over 17 million barrels of oil were dumped in the jungle and that the water system of the area is now extremely polluted and hazardous. An independent team of researchers from the United States concluded that the wildlife population of the El Oriente region has been greatly reduced by the pollution, and that the increasing rates of cancer found among the local people can be traced back to the techniques of oil extraction and careless handling of oil byproducts.
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Great Oklahoma defends its position by stating that it abided by the terms of the joint venture agreement and that the company is no longer involved in the project. The company insists that it followed typical standards in the industry for environmental safety and that the lawsuit is simply an attempt by a few American lawyers to exploit the situation for their own financial gain. Great Oklahoma points out that the Ecuadorian government does not support the Indians lawsuit, and that the case was, in fact, thrown out of an Ecuadorian court.
The joint venture was very important to the government of Ecuador. During its existence, over half the Ecuadorian budget came from revenues from this project. The oil revenue was used to build roads, schools, and hospitals in the area. Great Oklahoma argues that the Ecuadorian Indians are better off because of the project and that the lawsuit in the United States should be dismissed. The company feels that the case has no standing in an American court, and that if another trial is to be held, it should be
held in Ecuador, since it is essentially an Ecuadorian matter. Any alleged illegal activity was conducted in Ecuador and the injured parties are Ecuadorian. Furthermore, if the case is allowed to proceed in the United States, a dangerous precedent will be set in which American corporate activities all over the world will be subject to legal action in U. S. courts. Large judgments will encourage foreigners to sue in American courts in the hopes of winning unreasonably high awards.
Although Great Oklahoma concedes that the environmental landscape of the region needs attention, including the removal of the hundreds of open oil pits scattered throughout the area, the company asserts that the responsibility for these problems rests with its partner, Petroecuador. Great Oklahoma upheld its part of the agreement and followed all applicable laws while in Ecuador.
1. Find the English equivalents for the following words and expressions:
, , , - , , , - , , , , , ;
(), , , , - , , , - .
2. Translate into Russian:
to abide by the terms of the agreement, to be involved in the project, to follow standards, to conduct activity, to follow laws; to prevent environmental harm; to reduce population, to set a precedent;
equal partnership, source of revenue, incentive, monetary compensation, assets, environmental destruction, financial gain, injured party, responsibilities, by-products, environmental safety, government- owned monopoly;
3. Match the following:
1. environmental a. gain
2. significant b. rates
3. injured c. action
4. financial d. partnership
5. equal e. problems
6. illegal f. party
7. increasing g. safety
8. monetary h. standards
9. to follow i. monopoly
10. government-owned j. compensation
4. Say whether these statements are true or false:
1. The agreement between the Great Oklahoma and Petroecuador provided for an exchange of specialists.
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2. It was Petroecuador and not the Great Oklahoma that was to make all decisions in the partnership as it had great experience in the oil business.
3. Oil reserves had been nearly depleted in Ecuador and that is why the Great Oklahoma saw no point in entering into a joint venture agreement with the Government of Ecuador.
4. The techniques of oil extraction used by the Great Oklahoma caused environmental destruction and related health problems according to the Ecuadorian Indians.
5. The joint venture played a major role in raising the living standards of the Indians.
5. Discuss the following questions:
1. What are the responsibilities of a multinational corporation that operates in a less-developed country? Did the Great Oklahoma Oil Company fulfill these responsibilities?
2. Are the duties of a MNC different in an agreement with a company that is less knowledgeable or experienced?
3. Do you agree with Great Oklahoma that it is not responsible for any environmental damages since it fulfilled its part of the agreement?
4. What could have been done to avoid this problem?
5. Make an outline of the article.
Case 5
PROBLEMS TAXING THE DEMON WEED: TOBACCO AND GRAY MARKET ACTIVITY
The price of smoking is going up. As the federal government increases taxes on tobacco products and tobacco companies raise prices to pay for state-initiated settlements, consumers will see the price of their favorite brands rise. In January 2000 federal taxes on tobacco were raised by 10 cents to 34 cents a pack, and various states have increased their taxes on tobacco as well.
A settlement in 1998 in which the tobacco companies agreed to pay over $200 billion to state governments was designed in theory to compensate state governments for increased health costs, reduce consumption of tobacco, and penalize the tobacco companies for their actions.
Because the foreign markets in which the American tobacco companies sell their products are competitive, domestic consumers will mainly pay the additional costs of higher taxes, litigation, and settlement expenses. Such consumers have seen prices rise by about 70 cents a pack, and higher prices are expected. The price charged for exported tobacco has remained basically unchanged because the American tobacco companies face stiff competition from foreign producers that were not affected by the court settlement or federal
U. S. taxes.
When international companies sell in multiple markets and charge different prices, there is the potential that some of the cheaper products will find their way back into the exporting country. This market is referred to as the gray market and is more likely to develop when the price differentials are large and the product can be easily transported. Small price differences and products that are hard to ship do not lend themselves as well to gray market activity.
With the price differential increasing between American markets and foreign markets, more cigarettes exported from the United States are finding their way back into the United States. It is estimated that 5 percent of the U. S. tobacco market is now gray, and that proportion may rise even further as the effect of new taxes raises
domestic prices even further, According to a spokesman for the Brown & Williamson Tobacco Company, When you raise taxes, you dont change smoking patterns, just buying patterns. Increasing taxation has created a financial incentive for middlemen to redirect the channel of distribution and sell products intended for export back into the United States.
1. Find the English equivalents for the following words and expressions:
, , - , , , , , , , - , ;
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, , - , , , -.
2. Translate into Russian:
to increase taxes, to raise prices, to compensate for something, to reduce consumption, to charge a price, to face stiff competition;
competitive market, domestic consumers, price differentials, gray market, domestic prices, taxation, financial incentive, middleman, distribution channel, additional costs, producer;
3. Match the following:
1. additional a. incentive
2. competitive b. taxes
3. domestic c. costs
4. financial d. consumers
5. increased e. market
4. Say whether these statements are true or false:
1. The price of smoking is going up because of the need to increase health costs.
2. The gray market will exist as long as there are large price differentials in multiple markets.
3. Middlemen are the ones who benefit most from increasing taxation.
5. Discuss the following questions:
1. Which parties in this situation benefit and which parties are harmed by this gray market activity?
2. What can be done to reduce or eliminate this problem?
6. Think of some more questions to the text.
Case 6
TONIA MOTORBIKES:
A CASE OF CHINESE PIRACY
Tonia Motorbikes is the third largest manufacturer of motorized scooters in Japan. The company sells its product, a 125cc vehicle in Japan, Taiwan, Korea, Vietnam, and other Asian markets.
In an effort to reduce labor costs and to penetrate the Chinese market, Kenichi Hoskia, CEO of Tonia, decided to establish a manufacturing operation on the Chinese mainland. Tonia invested $17 million in a state-of-the-art production facility. The Chinese government had insisted on Tonia making a major commitment in order to enter China, including the establishment of a facility equipped with Tonias most advanced manufacturing technology.
Tonia formed a joint venture with Chinas Happy Motors, a large, state-owned motorbike manufacturer. Tonia was required to share its technology secrets with Happy as a condition of the joint venture agreement. At first Kenichi resisted; however, the Chinese government assured him that it was in the best interests of both partners to keep the information secret. The Chinese government guaranteed that no one outside the partnership would be allowed access to any of Tonias trade secrets. Since this guarantee came from high levels of the Chinese government, Kenichi felt more comfortable letting Happy Motors gain insight into the recent advances Tonia had made in small engine design. The thought of a market with 1.25 billion consumers was also a factor in his decision to share critical trade information.
After only five months of producing motorbikes in China, a Tonia employee noticed the Tonia 125 model being sold over the Internet for
$1200. Since the machine sold for $2,400 in Japan and $1,600 in China, the employee questioned how a new bike could be sold so cheaply. Further investigation led Tonia to Yiwu, China, where the seller was located, ft was learned that Yiwu is the counterfeit capital of China a place where counterfeiters from all over the country come to distribute their goods. Upon investigation, Tonia employees learned that the motorbikes being sold under the Tonia brand name were indeed counterfeit products. With the help of an investigator in China, Tonia learned that not only were counterfeit bikes being sold in China, but that they were being exported to other Asian countries and some were even being exported to the United States and Europe. It was obvious to Kenichi that someone at Happy Motors had sold Tonias technology. Not only was Tonia losing sales due to the counterfeit goods, but Kenichi also worried that if the quality of the product were inferior, consumers in important markets would be lost for future sales. Kenichi feared that if this situation were left unchecked, the potential existed to ruin the strong brand name Tonia had established.
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Kenichi continued to investigate the source of the counterfeited goods but was unable to determine where the products were being manufactured. Rumor had it that a former Taiwanese counterfeiter, who was expelled from Taiwan when the government cracked down on product piracy, had moved to the Guangdong province of China and was manufacturing Tonia brand scooters there. It was also rumored that this individual had connections with Chinese government officials; however, there was no proof that these rumors were true.
After six months of investigation, Kenichi still could not determine the source of the counterfeit bikes and it was becoming clear that further investigation would probably not reveal the source. Kenichi did learn that, regardless of official government policy, product piracy was rampant in China. Weak laws, poor enforcement, and light penalties made counterfeiting a very lucrative and attractive business in China. Kenichi sat in his office and pondered his next move.
1. Find the English equivalents for the following words and expressions:
, - , , , , ;
, , - , , , , - , , , .
2. Translate into Russian:
manufacturer, production facility, advanced technology, recent advances, employee, seller, counterfeit (ed) goods, inferior quality, lucrative business, consumer;
to reduce labor costs, to penetrate a market, to establish a manufacturing operation, to form a joint venture, to share technology secrets, to lose sales.
3. Match the following:
1. labor a. business
2. strong b. quality
3. production c. brand name
4. joint d. advances
5. manufacturing e. costs
6. inferior f. facility
7. lucrative g. operation
8. recent h. venture
9. advanced i. goods
10. counterfeit (ed) j. technology
4. Say whether these statements are true or false:
1. CEO of Tonia thought it wrong to loose a market with 1.25 bln. consumers and that is why he agreed to the condition of the joint venture agreement.
2. Its quite common for state-owned enterprises in China to engage in product piracy.
3. Chinese Government made every effort not to allow anyone access to any of Tonias trade secrets.
4. Kenichis next step was to end the partnership and pull out of China.
5. Discuss the following questions:
1. Do you find it conceivable that state-owned enterprises in China are engaging in product piracy?
2. What should Kenichi do about this problem?
Case 7
PEGASUS FOOTWEAR: TRAMPLING ON RELIGION
Pegasus Footwear was an international manufacturer, well known throughout the world for its product design and marketing savvy. Products were designed at company headquarters in the United States, and Pegasus used an extensive system of contract manufacturing to produce a variety of mostly athletic shoes sold throughout the world.
Charles Clark, or C. C., was the regional manager in charge of Pegasus operations in Southeast Asia. Clark, a British citizen, was responsible for manufacturing and marketing in the entire region. C. C. had been with Pegasus for 10 years and was recently promoted to his present position. The position was seen as a very important one, since most of the contract manufacturing for Pegasus occurred in this region of the world. C. C. was a graduate of Oxford University and began work at corporate headquarters in Los Angeles shortly after receiving his
M.B.A. from Stanford. His management style was often described as visionary; however, some of the local managers felt that C. C. possessed a somewhat condescending attitude toward employees from less-developed countries.
C. C. and his team in Southeast Asia were considered very successful by top management back at corporate headquarters. As a result, C. C. earned an unusual degree of autonomy for his group. C. C. oversaw the manufacturing operations in the region (which employed over 1,000 people) and was primarily responsible for the marketing of products that were manufactured in the region.
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Most of the products, however, were sold in the United States and Europe, and responsibility for marketing in these regions was held by the respective regional managers. All product design was created in the Los Angeles office.
When C. C. arrived in his office on Tuesday morning, he received word of a problem. Storeowners in Indonesia were reporting problems with a particular shoe that had recently been designed by Pegasus.
Figure 1 Pegasus Shoe Design
The shoe called AirBurner was upsetting Muslim consumers who objected to the design found on the outer heel of the shoe. The design (Figure 1), which spelled air, was written to resemble fire, but some consumers felt that the design spelled Allah in Arabic (Figure 2).
Figure 2
Since the shoe is considered by many to be the dirtiest part of clothing, it was considered a major insult to find the word for Allah, or God written there. Storeowners tried to explain that the word was not Allah but rather air, written in flaming letters. Most consumers were not satisfied with the explanation.
C. C. asked for an accounting of the number of shoes produced with the design and was told that 100,000 pairs had already been produced, and that more were being made. One-fourth were to be sold in his region and the rest were on sale in other parts of the world. Although each shoe had a direct cost of production to Pegasus of $6.75 and a recall of all 25,000 pairs in his region would not significantly affect profitability, CC decided not to recall the controversial shoes. He stated:
Pegasus is proud of the fact that we have never had a product recall and we dont intend to start one with this silly design issue. The design clearly spells the word air and it should not be an insult to anyone. C. C. felt that the whole issue would blow over in a few days and that a recall would just tarnish the image of Pegasus Footwear.
The problem did not go away, and on Thursday C. C. received an urgent call from an employee in Indonesia who informed him that angry crowds were damaging stores that carried the shoe. Newspapers in the country had reported the story and implied that the product was part of an America plot to discredit and insult Muslims. An international Muslim organization was now calling for a worldwide boycott of all Pegasus products and there was fear that the problem would spread to other countries with significant Muslim populations. C. C. had just been told that the CEO of Pegasus Footwear was waiting on the telephone to speak with him and that she was quite upset about the whole affair.
1. Find the English equivalents for the following words and expressions:
, , , , , , , , , , ;
, , , , , ( ), , - , -.
2. Translate into Russian:
manufacturing, position, employee, top management, consumer, cost of production, direct costs, profitability, management style, manufacturing operations, product recall, top management;
to be in charge of (to be responsible for), to be promoted, to employ, to manufacture (to produce), to be on sale, to call for a boycott, to be with a company, to oversee manufacturing operations, to affect profitability.
3. Match the following:
1. contract a. costs
2. management b. manufacturing
3. manufacturing c. operations
4. direct d. management
5. top e. style
4. Say whether these statements are true or false:
1. C. C. had no special training in business, but was appointed the regional manager due to his management style being visionary.
2. Storeowners succeeded in persuading consumers that the design clearly spelled air.
3. The whole affair sparked mass protests across the country and the event got full coverage in the local newspapers.
4. The problem did not go away and so C. C. took a decision to recall the product.
5. Discuss the following questions:
1. What went wrong in this situation?
2. Do you think that an early recall of the product would have headed off the problem?
3. What would you recommend to C. C. and Pegasus?
4. What is the main idea of the text?
Keys to Training Exercises
Case 1, Part 1
Ex. 1. sales growth; enormous potential; according to some estimates; high volume; birth rates; low price; sales overseas; quick service; salesman; potential sales;
to be based on core values; to build a strong brand image; to invent a new concept; to establish an outlet; to derive profits; to be a success; to pioneer fast food.
Ex. 2. , - ; , - , , , ;
, , , - , , , , , , .
Ex. 3. a. quick service, b. core value, c. strong brand image, d. high volume, e. potential sales, f. aggressive expansion, g. enormous potential, h. low price, i. sales overseas, j. birth rates.
Ex. 4. 1. true. 2. false. 3. true. 4. true.
Case 1, Part 2
Ex. 1. to remove barriers to trade; to experience a severe crisis; to impose restrictions; to loosen restrictions; to represent a challenge; to reduce tariffs;
to be located; to experience difficulties;
major changes; a multinational; primary product; low purchasing power; vulnerable position; consumption; consumers; product offerings; significant percentage; per capita.
Ex. 2. , , , - , , ( - ), - , ;
, , , - , , ( ), , , , .
Ex. 3. a. big challenge, b. significant percentage, c. severe crises, d. major changes, e. reduced tariffs, f. brisk business, g. vulnerable position, h. low purchasing power, i. product offerings, j. primary product.
Ex. 4. 1. true. 2. true. 3. false. 4. true.
Case 2, Part 1
Ex. 1. to challenge something; to be in excess of; to lead an enterprise; to be with a company; to make a profit; to provide a return on invested capital; to develop a manufacturing capacity; to supervise the making of ice cream; to employ; to sell on the retail level; to be appointed manager; gross sales; on-the-job training; position; a sense of social responsibility; consumption; pretax profit; sales growth; corporate values; product
quality, production manager.
Ex. 2. , -, - , , , - , , , , - , - ;
, , , , , - , , , , .
Ex. 3. a. gross sales, b. social responsibility, c. manufacturing capacity,
d. corporate values, e. entrepreneurial spirit, f. pretax profit, g. invested capital, h. on-the-job training, i. production manager, j. product qualiry.
Ex. 4. 1. true. 2. false. 3. true. 4. true.
Case 2, Part 2
Ex. 1. business practices; near-term profitability; mutual agreement management team; growth strategy; economic environment; business community; employee recruitment; joint venture; supplier relationships; business environment; entrepreneurship; corporate culture;
to conduct business; to be in charge of something; to experience problems; to end the partnership (the venture); to make decisions; to provide the capital; to establish an operation (business); to reach an agreement; to pay bribes; to be a success.
Ex. 2. , , , , , , - -, , , ;
, -, , - , ; , , , - , , , , .
Ex. 3. a. joint venture, b. near-term profitability, c. growth strategy,
d. business environment, e. mutual agreement, f. supplier relationships,
g. entrepreneurial spirit, h. equal partnership, employee recruitment,
j. corporate culture.
Ex. 4. 1. true. 2. false. 3. true. 4. true.
Case 3
Ex. 1. market share, labor costs, low-cost production, quality issues, productivity level, strong demand for, joint venture, consumers, competitor, production costs, taxes;
to reduce costs, to increase sales, to go into debt, to run the plant, to regain leadership role, to raise wages, to declare bankruptcy; to improve quality, to enter the market, to manufacture, to experience problems with, to increase tariffs.
Ex. 2. , , , - , , , , , - , , , ; -, , , - , , - , , , ,
, .
Ex. 3. a. labor costs, b. quality issues, c. joint venture, d. strong demand,
e. market share, f. low-cost production, g. productivity level, h. to reduce costs, i. to enter the market, j. to increase tariffs.
Ex. 4. 1. true. 2. false. 3. false. 4. true.
Case 4
Ex. 1. assets, source of revenue, responsibilities, monetary compensation, financial gain, equal partnership, environmental destruction, by-products, environmental safety, injured party, government-owned monopoly;
to reduce population, to set a precedent, to abide by the terms of the agreement, to follow standards, to conduct activity, to follow laws, to be involved in the project, to prevent environmental harm;
Ex. 2. , , - , , , , ; , , , - , , , - , , , - , , .
Ex. 3. a. environmental safety, b. significant problems, c. injured party,
d. financial gain, e. equal partnership, f. illegal action, g. increasing rates,
h. monetary compensation, i. to follow standards, j. government-owned monopoly.
Ex. 4. 1. false. 2. false. 3. false. 4. true. 5. true.
Case 5
Ex. 1. competitive market, price differentials, gray market, domestic prices, financial incentive, middleman, producer; taxation, domestic consumers, additional costs, distribution channel;
to increase taxes, to face stiff competition, to reduce consumption, to charge a price, to raise prices, to compensate for something.
Ex. 2. , , -, , , - ;
, , , , , - , , , , , .
Ex. 3. a. additional costs, b. competitive market, c. domestic consumers,
d. financial incentive, e. increased taxes. Ex. 4. 1.true. 2. true. 3. true.
Case 6
Ex. 1. to reduce labor costs, to form a joint venture, to lose sales, to penetrate a market, to establish a manufacturing operation, to share technology secrets;
production facility, inferior quality, lucrative business, counterfeit (ed) goods, employee, recent advances, advanced technology, manufacturer, consumer, seller.
Ex. 2. , , , , , , - , , , ;
, , , , , .
Ex. 3. a. labor costs, b. strong brand name, c. production facility,
d. joint venture, e. manufacturing operation, f. inferior quality, g. lucrative
business, h. recent advances, i. advanced technology, j. counterfeit (ed) goods.
Ex. 4. 1. true. 2. true. 3. false. 4. false.
Case 7
Ex. 1. profitability, management style, manufacturing operations, top management, consumer, cost of production, position, product recall, manufacturing, employee, direct costs;
to employ, to manufacture (to produce), to be with a company, to call for a boycott, to be on sale, to be promoted, to oversee manufacturing operations, to affect profitability, to be in charge of.
Ex. 2. , , , - , , , , - , , , - ;
-, ( ), - , , , , , , .
Ex. 3. a. contract manufacturing, b. management style, c. manufacturing operations, d. direct costs, e. top management.
Ex. 4. 1. false. 2. false. 3. true. 4. false.
Cases and Exercises in International Business/Charles A. Rarick, Andreas School of Business, Barry University, Prentice Hall, USA, 2003.
..................................................................................... 3
Case 1 (Part I). WHERES THE BEEF?........................................... 4
Case 1 (Part II). WHERE'S THE BEEF?........................................... 6
Case 2 (Part I). TED & HARRYS ICE CREAM FACTORY.................................. 9
Case 2 (Part II). TED & HARRYS ICE CREAM FACTORY................................. 12
Cace 3. THE TOLEDO BICYCLE COMPANY:
PEDDLING INTO EASTERN EUROPE........................................ 16
Case 4. THE GREAT OKLAHOMA OIL COMPANY:
MNC JOINT VENTURE RESPONSIBILITIES............................... 19
Case 5. PROBLEMS TAXING THE DEMON WEED: TOBACCO AND GRAY MARKET ACTIVITY 23
Case 6. TONIA MOTORBIKES:
A CASE OF CHINESE PIRACY................................................... 25
Case 7. PEGASUS FOOTWEAR:
TRAMPLING ON RELIGION....................................................... 28
Keys to Training Exercises............................................................ 32
.................................................................................... 38
