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The student will . . . •Identify international cultural differences as well as their impact on the business community. •Identify and differentiate between types of governments and political environments. •Identify the economic systems and how they answer the 3 economic questions.
Globalization of Markets
• One significant reason is technological—because of
improved transportation and communication opportunities today, trade is now more practical.
• Consumers and businesses now have access to the very
best products from many different countries.
• Increasingly rapid technology lifecycles also increases
the competition among countries as to who can produce the newest in technology.
• To accommodate these realities, countries in the last
several decades have taken increasing steps to promote global trade through agreements such as the General Treaty on Trade and Tariffs, and trade organizations such as the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the European Union (EU).
Stages in the International
A purely domestic firm focuses only on its home market, has no current ambitions of expanding abroad, and does not perceive any significant competitive threat from abroad.
Such a firm may eventually get some orders from abroad, which are seen either as an irritation (for small orders, there may be a great deal of effort and cost involved in obtaining relatively modest revenue) or as "icing on the cake."
As the firm begins to export more, it enters the export stage, where little effort is made to market the product abroad, although an increasing number of foreign orders are filled.
In the international stage, as certain country markets begin to appear especially attractive with more foreign orders originating there, the firm may go into countries on an ad hoc basis—that is, each country may be entered sequentially, but with relatively little learning and marketing efforts being shared across countries.
In the multi-national stage, some efficiencies are pursued by standardizing across a region (e.g., Central America, West Africa, or Northern Europe).
Finally, in the global stage, the focus centers on the entire World market,
with decisions made optimize the product’s position across markets—the home country is no longer the center of the product. An example of a truly global company is .
Some forces in
• Comparative advantage, which suggests trade between countries is
beneficial because these countries differ in their relative economic strengths—some have more advanced technology and some have lower costs.
• The International Product Life Cycle suggests that countries will
differ in their timing of the demand for various products. Products tend to be adopted more quickly in the United States and Japan, for example, so once the demand for a product (say, VCRs) is in the decline in these markets, an increasing market potential might exist in other countries (e.g., Europe and the rest of Asia).
• Internalization/transaction costs refers to the fact that developing
certain very large scale projects, such as an automobile intended for the World market, may entail such large costs that these must be spread over several countries.
Dealing with culture
Culture is defined as "A learned, shared, compelling,
interrelated set of orientations for members of
Learned. Culture is not genetically based—if that were the case cultures across the World would have been much more similar to each other. We learn what is considered appropriate in our culture through trial and error. If a child engages in competitive behavior, this might be rewarded in the United States with the expression of parental approval, while in Japan it might result in subtle shows of disapproval, such as lack of attention.
Shared. The beliefs, interpretations, and behaviors are shared by all or most of the people within the culture, so that it becomes a truly society-wide phenomenon.
Compelling: Culture must have implications (such as social disapproval if contradicted) in order to be considered important.
Interrelated. Although there may be conflicts between elements of culture (e.g., respect for seniority may come into conflict with a growing value of achievement in Singapore), for the most part, elements of culture constitute a coherent and relatively consistent whole. For example, the tendency for Japanese business people to bow when meeting each other and the tendency of lower level Japanese employees to show great deference to their superiors are both manifestations of a strong emphasis on respect.
• Within the Muslim tradition, the dog is considered a
"dirty" animal, so portraying it as "man’s best friend" in an advertisement is counter-productive.
• Packaging, seen as a reflection of the quality of the
"real" product, is considerably more important in Asia than in the U.S., where there is a tendency to focus on the contents which "really count."
• Many cultures observe significantly greater levels of
formality than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a
Elements of culture
• Beliefs. While Americans may attribute success to hard work or skill,
it may be attributed to luck or connections in other cultures.
• Attitudes. Beliefs, feelings, and behavioral intentions may differ.
While the American may appreciate getting a bargain in a sale, this may conjure up images of not being able to afford the full price in other cultures.
• Goals. While "progress" (having new and improved products, for
example) is considered a good thing in the U.S., many Japanese parents are concerned that the "wa-pro" leaves their children unable to write the traditional Japanese pictographs.
• Values. In the U.S., individual uniqueness is generally considered a
good thing while in some cultures fitting in with the group is a higher priority. Thus, for example, an American may enjoy wearing relatively innovative clothing, which may be frowned upon in a more collectivistic society.
The political situation
• The political relations between a firm’s country of
headquarters (or other significant operations) and another one may become a major issue.
• For example, oil companies which invested in Iraq or
Libya became victims of these countries’ misconduct that led to bans on trade.
• Similarly, American firms may be disliked in parts of Latin
America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former shah.
• Some countries have relatively unstable governments,
whose policies may change dramatically if new leaders come to power by democratic or other means.
• Some countries have little tradition of democracy, and
The division of
• An economic system
is a particular set of social institutions which deals
with the production, distribution and consumption of goods and services in a particular society.
• The economic system is composed of people, institutions and their
relationships to resources, such as the convention of property.
• It addresses the problems of economics, like the allocation and scarcity of
• All economic systems require answers to basic questions, such as: what
to produce, how
to produce it, and who
gets what is produced.
• An economic system is a way of answering these basic questions. • Different economic systems answer them differently.
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