Chapter Four
National Differences Facing Operations
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Chapter Objectives
 To appreciate that companies face vastly different
operating environments when they operate abroad
 To realize the importance of analyzing countries’
political and economic strategies and performance
 To sense how different political and economic
systems affect the conduct of business
 To recognize how countries’ demographic
differences affect business environments
 To comprehend some of the major cultural
differences among countries that impact
international business
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Introduction
 Once a company leaves its home country, it
enters a vastly different operating
environment
 Generally, managers operate more easily in
countries similar to their homes
 Three dimensions of countries’ environments
to be explored include:
• Legal-political
• Economic
• Human
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Introduction
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Politics and Economics
 Country analysis: examines the political and economic strategy

and performance of the nation state
Country analysis involves three steps:
• Step 1: identify the strategy, context, and performance of the
country
Involves looking at goals and policies
Context refers to the political, institutional, ideological,
physical, and international environments in which a firm
does business
Performance refers to indicators of economic activity
• Step 2: evaluate the performance to explain what is happening
in the country at present and why
International monetary fund
• Step 3: generate scenarios for future performance
Forecasting where a country may head in the future is
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Politics and Economics
 Three broad areas of the political environment:
• Political system
Democratic systems
o Involves wide participation by citizens in the decisionmaking process
o Can be liberal or conservative but rarely reach extremes
such as reactionary or radical
Nondemocratic systems – totalitarian systems
o A single party, individual, or group of individuals
monopolizes political power
o Decision making is restricted to a few individuals
• Political stability
Democratic regimes tend to be relatively more stable
than totalitarian regimes
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Politics and Economics
• Role of government in business
Individualistic governments: believe in minimal
intervention
Communitarian regimes: there is a focus on prestige,
authority, and hierarchy
Whether a country is communitarian or individualistic, it can
try to bring business activity into line with community needs
through three principal methods:
o Promotion of marketplace competition
Varies from country to country
o Regulation of the marketplace
May have to do with whether or not a country
allows foreign investment to come in and whether
or not it promotes foreign trade
o Establishing a partnership with business
The relationship between government and business
varies around the world
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Politics and Economics
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Politics and Economics
The Legal Environment
• Legal systems differ in terms of their nature:
Common law: based on tradition,
•
•
precedent, and usage
Civil law: based on a detailed set of
written laws
Theocratic law: based on religious
precepts
National laws affect business within a country
or business among countries
Laws exist that govern cross-border activities
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Politics and Economics
 The Economic Environment
• Traditional factors of production: land, capital, and technology
A company conducting business overseas must determine the key
factors of production in that country and how it can take advantage of
them
Network of reliable suppliers
• Solid strategy, structure, and rivalry in order for firms to create,
•
•
•
organize, and manage effectively
Size of demand is typically measured in gross national product
(GNP) which is the market value of final goods and services newly
produced by domestic factors of production
An alternative to GNP is gross domestic product (GDP) which is
the value of production that takes place within a nation’s borders
without regard to whether production is done by domestic or
foreign factors
Another measure of market size is GNP or GDP per capita
Important because it gives an idea of the wealth and potential
purchasing power of individuals in a country
• Developing countries or emerging economies
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Politics and Economics
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Politics and Economics
 General types of national economies:
• Market economy: rest on the idea that consumers,
by virtue of what they do and do not buy, determine
the relationships among price, quantity, supply, and
demand
• Consumer sovereignty:
consumers
influence the allocation of resources through
their demand for products
•
•
This is the cornerstone of a market economy
Centrally planned economy: the government owns
and controls all resources
Historically these were found in communist countries
Mixed economy: virtually all economies have
varying degrees of private and public ownership of
production factors
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 A good example of the interplay of political and
economic forces and their impact on corporate practices
is the Asian financial crisis that began in 1997
 Two theories for the cause of this crisis:
• Too much government influence and control
• Bad private sector decisions
 The Asian financial crisis teaches that:
• An economic crisis can occur quickly and affect companies’
•
•
operations very negatively
Economic conditions in one country can impact those of another
country
To be successful in this global economy, it is important to
understand political and economic forces
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People of the World
 Current estimates suggest there are more than 6.5
billion people living in more than 200 different
countries
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People of the World
Demography:
the statistical analysis of the
properties of a particular population
Population: helps define a company’s market
potential
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People of the World
 Another way to examine the population of a country is through
its age distribution
• Can indicate the potential market for youth-oriented versus
elderly-oriented products
• Indicates how many people may be available in the
workforce
 Population growth: defined as a percent per year of the total
population
• High-income countries’ population growth is less than 1%
• Developing countries’ population growth typically exceeds
1%
 There are a number of ways to measure the health of a
society, which is important in terms of a good workforce as
well as a consuming population
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People of the World
 Culture: influences where businesses decide to open operations,
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

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how people are managed, and the products sold
• Culture shock: anxiety triggered by the challenge of learning
and coping with a new culture
Overt cultural differences: the differences immediately noticed
when visiting a foreign country or in contact with a foreign visitor
• Most nations help businesspeople prepare for overseas business
culture
There are many subtle cultural differences that are difficult to identify
and cope with when dealing with foreign businesspeople
Roles and relationships between people in the workplace
• Nature of friendships
• Concepts of time and space
• Approaches to problem solving
An understanding of subtle cultural differences often determines
success or failure in global business matters
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People of the World
 A psychological view of culture assumes that culture is made up of

specific learned norms within a community that are based on
fundamental values
• Understanding a particular culture demands one to understand
the fundamental values that it endorses
Seven principal types of cultural values:
• Power distance: describes the relationship between more
powerful and less powerful members of a group
• Individualism versus collectivism:
• Masculinity versus femininity
• Uncertainty avoidance: deals with a society’s tolerance for
uncertainty and ambiguity
• Long-term versus short-term orientation
• Monochronic versus polychronic
• Idealistic versus pragmatic
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People of the World
 Communication is a key dimension of culture
 Overseas endeavors face conversational
challenges
 Document translation presents additional
challenges
 The silent language of business includes
nonverbal issues such as color association, sense
of appropriate distance, time and status cues, and
body language
 One of the best approaches to managing cultural
challenges in global markets is to observe the
happenings around you, emulate well-regarded
people, and respect the other cultures
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