Samenvatting h1
Appreciate the dramatic internationalization of markets.
Global competition is mounting. The huge increase in import penetration, plus the massive
amounts of overseas investment, means that firms of all sizes face competitors from
everywhere in the world. This increasing internationalization of business is requiring
managers to have a global business perspective gained through experience, education, or
both.
Understand the various names given to firms that have substantial operations in more
than one country.
The following definitions are used in this text. A global company is an organization that
attempts to standardize operations worldwide in all functional areas. A multidomestic
company, by contrast, is an organization with multicountry affiliates, each of which formulates
its own business strategy based on perceived market differences. The term international
company is often used to refer to both global and multidomestic firms.
Appreciate the profound effect of the Internet on many international business firms.
The Internet enables small firms to compete globally because they can contact foreign
customers without expensive and time-consuming travel. Sellers can demonstrate their
products to prospects inexpensively and rapidly with video teleconferencing. Home office
managers have closer, more rapid, and less expensive contact with their overseas
operations by using E-mail on the Internet. By means of Web sites on the Internet, firms
advertise, recruit personnel, and provide customer support with a minimum of expense and
effort.
Understand the five kinds of drivers, all based on change, that are leading
international firms to the globalization of their operations.
There are five kinds of drivers, all based on change, that are leading international firms to the
globalization of their operations. Following are the five drivers with an example for each kind:
(1) political—preferential trading agreements, (2) technological—advances in
communications technology, (3) market—global firms become global customers, (4) cost—
globalization of product lines and production helps reduce costs by achieving economies of
scale, and (5) competitive—firms are defending their home markets from foreign competitors
by entering the foreign competitors’ markets.
Comprehend why international business differs from domestic business.
International business differs from its domestic counterpart in that it involves three
environments—domestic, foreign, and international—instead of one. Although the kinds of
forces are the same in the domestic and foreign environments, their values often differ, and
changes in the values of foreign forces are at times more difficult to assess. The international
environment is defined as the interactions (1) between the domestic environmental forces
and the foreign environmental forces and (2) between the foreign environmental forces of
two countries when an affiliate in one country does business with customers in another. An
international business model helps explain this relationship.
Describe the three environments—domestic, foreign, and international—in which an
international company operates.
The domestic environment is composed of all the uncontrollable forces originating in the
home country that influence the firm’s life and development. The foreign environment is
composed of all the forces originating outside the home country that influence the firm. The
international environment is the interaction between the domestic and foreign environment
forces or between sets of foreign environmental forces
Samenvatting h2
Appreciate the magnitude of international trade and how it has grown.
The volume of international trade in goods and services measured in current dollars was
$7.6 trillion in 2001. Merchandise exports, at $6.2 trillion, were 20 times what they were in
1970.
Identify the direction of trade, or who trades with whom.
The percentage of total exports of all the categories of developed nations to other developed
nations is declining with the exception of Canada’s. Most of Canada’s exports to developed
countries go to the United States, and they have been increasing since the U.S.–Canada
Free Trade Agreement went into effect. Developing nations are selling more to each other,
and U.S.–developing country trade is on the rise.
Explain the size, growth, and direction of U.S. foreign direct investment.
The book value of foreign direct investment has grown and now totals over $5.9 trillion. The
American FDI is 1.4 times that of the United Kingdom, the next largest investor, and 2.5
times that of France, the third largest investor. The proportion of global foreign direct
investment accounted for by the United States has been declining, falling from 36 percent in
1985 to 21 percent in 2000. The direction of FDI follows the direction of foreign trade; that is,
developed nations invest in each other just as they trade with each other. Note that because
of the new business environment, many international firms are dispersing the activities of
their manufacturing systems to locations closer to available resources. The decision where to
locate may be either an FDI or a trade decision.
Identify who invests and how much is invested in the United States.
Foreign direct investment in the United States rose from $185 billion in 1985 to $1,321 billion
in 2001. Firms from just seven nations—United Kingdom, Japan, Netherlands, Germany,
France, Switzerland, and Canada—own over 80 percent of the total stock of foreign direct
investment in the United States.
Understand the reasons for entering foreign markets.
Companies enter foreign markets (exporting to and manufacturing in) to increase sales and
profits and to protect markets, sales, and profits. Foreign firms often buy American firms to
acquire technology and marketing know-how. Foreign investment also enables a company to
diversify geographically.
Understand the international market entry methods.
The two basic methods of entering foreign markets are exporting to and manufacturing in
them. Exporting may be done directly or indirectly. A firm may become involved in foreign
production through various methods: (1) wholly owned subsidiaries, (2) joint ventures, (3)
licensing, (4) franchising, and (5) contract manufacturing.
Comprehend that globalization of an international firm occurs over at least seven
dimensions and that a company can be partially global in some dimensions and
completely global in others.
A firm can have, and usually does have, an international strategy that is partially
multidomestic in some dimensions and partially global in others. Management must decide
the extent to which the firm should globalize along each dimension.
Discuss the channel members available to companies that export indirectly or directly
or manufacture overseas.
Channel members are available to those who (1) indirectly export or are exporters that sell
for manufacturers, (2) buy for their overseas customers, or (3) purchase for foreign users or
middlemen. Direct exporters use manufacturers’ agents, distributors, retailers, and trading
companies. Firms that manufacture overseas generally have the same kinds of channel
members they have in their domestic market, although their manner of operation may be
different from what they are accustomed to.
Explain the structural trends in wholesaling and retailing.
The retailing trend in Europe and Japan, as well as in many developing nations, is toward
more discounters. Rigid, inefficient distribution systems that depend on high prices are
breaking up. Small retailers as well as large department stores are losing out to discounters.
Wholesalers are being bypassed by retailers
Samenvatting h3
Understand the theories that attempt to explain why certain goods are traded
internationally.
Why do nations trade? Mercantilists did so to build up storehouses of gold. Later, Adam
Smith showed that a nation would export goods that it could produce with less labor than
other nations. Ricardo then proved that even though it was less efficient than other nations, a
country could still profit by exporting goods if it held a comparative advantage in the
production of those goods.
The idea that a nation would tend to export products requiring a large amount of a relatively
abundant factor was offered by Heckscher and Ohlin in their theory of factor endowment.
The international product life cycle theory states that many products first produced in the
United States or other developed countries are eventually produced in less developed
nations and become imports to the very countries in which their production began.
In the 1920s, economists realized that economies of scale affect international trade because
they permit the industries of a nation to become low-cost producers without having an
abundance of a class of production factors. As in the case of comparative advantage, nations
specialize in the production of a few products and trade to supply the rest. The Linder theory
of overlapping demand states that because customers’ tastes are strongly affected by
income levels, a nation’s income level per capita determines the kind of goods they will
demand. The kinds of goods produced to meet this demand reflect the country’s income per
capita level. International trade in manufactured goods will be greater between nations with
similar levels of per capita income. Porter claims that four classes of variables affect a
country’s ability to gain a competitive advantage: demand conditions, factor conditions,
related and supporting industries, and firm strategy, structure, and rivalry.
Comprehend the arguments for imposing trade restrictions.
Special interest groups demand protection for defense industries so that this country will
have their output in wartime and will not depend on imports that might not be available.
Critics say that it would be far more efficient to subsidize some firms, that is, pay them to be
ready. Taxpayers would know exactly what the cost is, as we do in the case of American
steamship companies. New industries in developing nations frequently request barriers to
imports of competing products from developed countries. The argument is that the infant
industry must have time to gain experience before having to confront world competition.
Protectionists argue for protection from cheap imports by claiming that countries with lower
hourly labor rates than their nation’s rates can flood the United States with low-priced goods
and put Americans out of work. However, hourly labor rates are just a small part of
production costs. There are legislated fringe benefits that are a much higher percentage of
the direct wages than is the case in developed nations. Productivity per worker may be
considerably lower in developing nations so that less is produced for a given hourly rate.
Commonly, also, the costs of the other factors of production that must be included in the cost
of production often are higher in developing nations. Others want "fair" competition, that is,
an import duty to raise the cost of the imported good to the price of the imported article to
eliminate any "unfair" advantage that the foreign competitor may have. This, of course,
nullifies the comparative advantage. Companies will also demand that their government
retaliate against dumping and subsidies offered by their competitors in other countries.
Explain the two basic kinds of import restrictions: tariff and nontariff trade barriers.
In response to demands for protection, governments impose import duties (tariff barriers) and
nontariff barriers, such as quotas, voluntary export restraints, and orderly marketing
arrangements, and nonquantitative nontariff barriers, such as direct government participation
in trade, customs and other administrative procedures and standards for health, safety, and
product quality.
State the agreements reached during the Uruguay Round.
As a result of negotiations during the Uruguay Round, governments agreed to eliminate
nontariff barriers such as quotas, VERs, and orderly marketing agreements and bring textiles
and agricultural products under the general trading rules for all products during a 10-year
period.
Appreciate the relevance of the changing status of tariff and nontariff barriers to
businesspeople.
Exporting firms may find that because tariff and nontariff barriers have been eliminated or
lowered, they can now enter markets that were closed to them. It also is easier for firms to
locate production activities in lower-cost nations to improve the efficiency of their
manufacturing systems. Multidomestic firms may be able to close less efficient plants and
supply those markets by exporting from more efficient ones.
Recognize the weaknesses of GNP/capita as an economic indicator.
For a number of reasons, GNP/capita is a weak market indicator. Transactions worth billions
of dollars go unrecorded because people do business in the underground economy, paying
cash without demanding receipts and invoices. Exchange rates for converting economic data
usually do not reflect consumer purchasing power. International institutions such as the
World Bank and the United Nations have developed a method of comparing GNIs that is
based on purchasing power parity or the Atlas conversion factor.
Identify the common characteristics of developing nations.
Developing nations have certain common characteristics: unequal distribution of income,
technological and regional dualism, large percentage of the population in agriculture, high
population growth, high illiteracy rate, insufficient education, and low saving rates.
Understand the new definition of economic development, which includes more than
economic growth.
The human-needs approach defines economic development as the reduction of poverty,
unemployment, and inequality in the distribution of income.
Understand why some governments are changing from an import substitution strategy
to one of export promotion and the implications of this change for businesspeople.
Governments are changing from using an import substitution strategy to one of export
promotion to become less dependent on developed nations. Also, governments are opening
their borders to imports to force local producers to raise quality and improve prices so that
they can enter world markets. Managers of foreign-owned affiliates can be expected to
export even though the company may prefer to keep exporting and keep the profits for the
home office.
Explain some of the theories of foreign direct investment.
International investment theory attempts to explain why foreign direct investment (FDI) takes
place. Product and factor market imperfections provide firms, primarily in oligopolistic
industries, with advantages not open to indigenous companies. The international product life
cycle theory explains international investment as well as international trade. Some firms
follow the industry leader, and the tendency of European firms to invest in the United States
and vice versa seems to indicate that cross investment is done for defensive reasons. The
internalization theory states that firms will seek to invest in foreign subsidiaries rather than
license their superior knowledge to receive a better return on the investment used to develop
that knowledge.
There are two financially based explanations of foreign direct investment. One holds that
foreign exchange market imperfections attract firms from nations with overvalued currencies
to invest in nations with undervalued currencies. The second theory postulates that FDI is
made to diversify risk. Empirical tests reveal that most FDI is made by large, researchintensive firms in oligopolistic industries.
The eclectic theory of international production explains an international firm’s choice of its
overseas production facilities. The firm must have location and ownership advantages to
invest in a foreign plant. It will invest where it is most profitable to internalize its monopolistic
advantage
Samenvatting h4
Appreciate the influence international organizations have on international businesses
and why understanding it is important for those in business.
International organizations can have profound influence on businesses and businesspeople
worldwide. Most of the organizations discussed in this chapter are organizations of
governments. As a result, they often speak for their member governments and can have
significant power over businesses.
Discuss the structure of the United Nations and explain the activities of the UN in
economic and social fields.
Social fields
The UN organization consists of (1) a 15-member Security Council, of which 5 are
permanent members, which is responsible for the UN’s peacekeeping operations, (2) the
General Assembly, of which every country is a member and in which every country has one
vote, and (3) specialized agencies that conduct studies and assist member-nations in many
fields. The UN has a variety of agencies throughout the world established to facilitate trade
and economic activity.
Explain the purpose of the World Bank and its International Finance Corporation.
The World Bank lends money to developing countries for projects and has begun to insist
that the borrowers put their economic houses in order as a condition for getting loans. The
International Finance Corporation, a very successful arm of the Bank, encourages private
business in developing countries.
Explain the original and revised activities of the International Monetary Fund.
The International Monetary Fund helps developing countries with balance-of-payments
deficits and cooperates with the World Bank’s efforts to correct borrowers’ fiscal and
monetary policies. It began loan renegotiation procedures that have helped deal with the
sovereign debt crisis that came to light in the 1980s.
Understand the importance of the World Trade Organization to world business and
trade.
The WTO attempts to remove trade barriers worldwide. Its membership is composed of the
major trading countries in the world, so it has the potential to significantly influence world
trade. The WTO routinely issues decisions on trade disputes between countries. Criticism of
the WTO, however, has grown stronger in recent years.
Understand the European Union and how it affects business.
The EU is a supranational entity with 15 European member-nations. Its purpose is to
integrate the economies of its member-nations, creating a trading region where goods,
services, people, and capital move freely. In recent years, the EU has made major steps
toward political union as well. The EU is a regional government and as such has regulatory
power over matters including mergers and business operations in Europe. The EU adopted a
common currency, the euro, which is being used in twelve EU countries.
Understand the North American Free Trade Agreement and its impact on business.
NAFTA was ratified by Canada, Mexico, and the United States. Its purpose is to facilitate
trade among the three countries. NAFTA lowers tariffs on goods moving from one NAFTA
country to another. NAFTA makes it easier for businesses to sell goods and operate in other
NAFTA countries.
Know about the Organization for Economic Cooperation and Development and its use
as a source of valuable information.
The OECD is an organization of 30 of the world’s wealthiest countries. New countries are
joining as they become more market-oriented democracies. The OECD is an excellent
source of research on many subjects
Samenvatting h5
Understand the historical and present uses and attractiveness of gold.
Since the earliest recorded times, gold has held an allure. People have used it, and continue
to use it, for many purposes, including jewelry, coinage, store of value, and protection
against inflation and political unrest.
Explain the developments shaping the world monetary system from the end of World
War II to the present.
The gold exchange standard, established at Bretton Woods after World War II, worked until
the 1970s, when it collapsed due to inflation and the surplus of U.S. dollars held outside the
United States.
Understand balance of payments (BOP).
BOP accounts measure and compare the amount of money coming into a country with the
amount going out.
Compare the relative strengths and weaknesses of currencies and reasons for them.
Causes for a currency’s relative strengths and weaknesses include relative inflation, balance
of payments, political developments, and confidence in the country’s leaders.
Understand how "Big Mac Currencies" and the purchasing power parity theory are
related.
A Big Mac hamburger is supposed to be the same at every McDonald’s around the world.
Therefore, according to the PPP theory, its cost in the currency of one country compared
with its cost in the currency of a second country should equal the exchange rate between
those currencies.
Identify the major foreign currency exchange (Fx) markets of the world.
London is the largest Fx market, New York the second largest, and Tokyo the third. In Asia, if
trading in yen is disregarded, Singapore is the largest market and is growing rapidly.
Understand that as electronic brokering is becoming more available to smaller banks
and international businesses, the spot currency trading activities of large banks are
diminishing in Europe and North America.
Identify the growth areas for currency traders, which are derivatives, hedges, swaps,
and Asian currencies.
Understand the central reserve asset/national currency conflict of the U.S. dollar and
the reasons and uses for special drawing rights (SDRs).
The U.S. dollar is the currency of the United States, but it is also the major reserve asset of
other countries. It is usually desirable for countries to increase their reserve assets, but that
depends on growing amounts of US$s being in the hands of foreign holders, which may not
be in the best interest of the United States. SDRs were established by the IMF to replace the
U.S. dollar as the main central reserve asset.
Discuss the euro and its present state of acceptance by EU countries.
On January 1, 2002, the euro became the legal tender currency in 12 of the 15 EU countries.
The old national currencies are now known as legacy currencies. Having one currency
instead of 12 has simplified trade and travel and reduced currency exchange costs.
Know that the Maastricht Treaty, in addition to creating the euro, dealt with monetary
policy.
The 12 EU countries that adopted the euro have created what is called the eurozone. Each
of these 12 countries surrendered control of its monetary policy to the European Central
Bank (ECB). The ECB sets monetary policy for the 12 countries on a one-size-fits-all basis
even though they vary widely in size, wealth, inflation rates, and unemployment
Samenvatting h6
Realize that money can be made—and lost—in the foreign exchange (Fx) markets.
The foreign exchange (Fx) markets are worldwide and collectively involve more money than
any other market. On most days, you can trade money 24 hours somewhere in the world. As
a result, there are ample opportunities for buying and selling foreign currency.
Understand Fx quotations, including cross rates.
Fx information can be found in financial publications such as The Wall Street Journal, the
Financial Times, and the financial section of major newspapers. The Wall Street Journal lists
major currencies in terms of their trades with the US$. The spot rate (for delivery in two
business days) is reported for all currencies. For the more heavily traded currencies, 30-, 90, and 180-day forward rates are reported. Cross rates are exchange rates for trading directly
between non-US$ currencies.
Recognize currency exchange risks.
Currency exchange risk may occur whenever payment is required in another currency. The
currency exchange risk is borne by whoever is to receive a foreign currency or is to pay a
foreign currency in the future.
Understand currency exchange controls.
Many developing countries have instituted a system of currency exchange controls, which
restrict the use of local and foreign currencies. Developing countries often have far less hard
(convertible) currencies than they need. They therefore ration them. Anyone wanting hard
currencies may have to apply to a government agency, specifying how much is wanted and
the use to which it will be put.
Understand how financial forces such as balance of payments, tariffs, taxes, inflation,
fiscal and monetary policies, and differing accounting practices affect business.
Business managers must be prepared to react to financial forces that can affect the
business. These include balance-of-payments deficits, tariffs and other taxes, inflation, and
fiscal or monetary policies of the host government. Accounting policies and practices differ
from country to country, so businesses must conform to host country rules and translate the
resulting numbers for them to be understood by people in the home country.
Understand sovereign debt, its causes, and its solutions.
Sovereign debt is the debt of a government. Commercial and investment banks are in the
business of lending money or underwriting bonds through which governments borrow money.
As governments receive the borrowed money, corruption and inefficiency can arise, so that a
lot of the money does not benefit the country or its people. Some of the debt is repaid, but
much is rescheduled or swapped for assets or other uses.
Recognize that a new small business in a developing country might be a better credit
risk than the government in a developing country.
Some of the best credit risks in developing countries are the small business entrepreneurs
Samenvatting h7
Understand the purpose of economic analyses.
To keep abreast of the latest economic developments and also to plan for the future, firms
regularly assess and forecast economic conditions at the local, state, and national levels.
When they enter international operations, the economic analysis increases in complexity
because managers are operating in two new environments: foreign and international. There
are more economies to study, and these economies are frequently highly divergent.
Recognize the economic and socioeconomic dimensions of the economy.
The various functional areas of a firm require data on the size and rates of change of a
number of economic and socioeconomic factors. Among the more important economic
dimensions are GNP, GNP/capita, distribution of income, personal consumption
expenditures, private investment, unit labor costs, and financial data, such as exchange
rates, inflation rates, interest rates, and the amount of a nation’s foreign debt. The principal
socioeconomic dimensions are total population, rates of growth, age distribution, population
density, and population distribution.
Understand the importance of a nation’s consumption patterns and the significance of
purchasing power parity.
Marketers must know how consumers allocate their discretionary incomes, since this is
money spent on their products. They must also use purchasing power parity (PPP) to
understand what the true purchasing power of a nation is. Consumers in a nation whose
GDP appears to be too low to be a viable market may have some discretionary buying power
when the GDP based on market exchange rates is converted to a GDP based on PPP.
Understand the degree to which labor costs can vary from country to country.
Hourly labor rates, especially when stated in U.S. dollars, change rather rapidly. There are
three factors that are responsible: (1) real changes in compensation, (2) changes in
productivity, and (3) changes in exchange rates.
Understand the significance for businesspeople of the large foreign debts of some
nations.
Large foreign debts may indicate that the government will impose exchange controls on its
country’s businesses. If a large part of the country’s export earnings go to service its external
debt, there will be little remaining for use by firms in the country to pay for imports of raw
materials, components used in their products, and production machinery. The government
could impose price and wage controls. There is also the possibility that firms can buy some
of the discounted debt to obtain local currency at a favorable exchange rate.
Ascertain the reasons for the worldwide downward trend in birthrates and its
implications for business people.
Birthrates are declining in nearly all nations because (1) governments are providing family
planning programs, (2) women are continuing their education and marrying later, and (3) a
greater degree of urbanization is enabling women to become employed and self-supporting,
which contributes to a delay of marriage.
Understand indicative plans and their importance for business people.
National economic plans provide an insight into government expectations. In centrally
planned economies, national plans are often the equivalent of market studies. Many
developed and developing nations use indicative plans to set out their goals and provide
some general policy statements as to how they will be achieved
Samenvatting h8
Appreciate the relevance to businesspeople of four elements of geography: (1)
location, (2) topography, (3) climate, and (4) natural resources.
Throughout this chapter, we present practical examples to show you why these four
geographical elements are relevant to businesspeople. Frequently, you will find a section
headed "Relevance for Businesspeople."
Understand the importance of a country’s location in political and trade relationships.
A nation’s location is a significant factor in its political and trading relationships. Austria, for
example, located on the borders of both Eastern and Western Europe, has become the
financial intermediary between the two regions as well as regional headquarters for
numerous international firms that have Eastern European operations. Two major trading
partners of the United States, Canada and Mexico, are located on its borders.
Understand how surface features contribute to economic, cultural, political, and social
differences among nations and among regions of a single country.
Mountains divide nations into smaller regional markets that often have distinct cultures,
industries, and climates. Sometimes even the languages are different. Deserts and tropical
forests act as barriers to people, goods, and ideas.
Comprehend the importance of inland waterways and outlets to the sea.
Bodies of water attract people and facilitate transportation. Water transportation has
increased even after the building of railroads and highways. Various European firms are
shipping goods in barges on the Rhine waterway instead of using highways.
Recognize that climate exerts a broad influence on business.
The differences in climatic conditions among a firm’s markets can significantly affect its
marketing mix. A product sold for use in northern Canada may need protection against cold
weather, while the same product used in the tropics may require extra cooling to resist the
heat. Heavy seasonal rains can require the firm to carry large inventories because of the
difficulty in replenishing stock in inclement weather.
Understand why managers must monitor changes in the discovery and the use of
mineral resources and energy sources.
The discovery of a new energy source or the reduction in the cost of producing an alternative
source may offer a company an opportunity to economize on its use of energy. A new oil or
mineral find might provide a country with new income, which in turn could make it a valuable
customer for international firms, as occurred in the Middle East when crude oil prices tripled.
On the other hand, imagine what would happen to the income of oil-producing nations if
hydrogen became an economical fuel.
Understand why managers must be alert to changes in a nation’s infrastructure.
New roads, bridges, and canals often open new markets in developed and developing
countries.
Appreciate the impact of industrial disasters such as the Alaskan oil spill and the
Bhopal accident on global and multinational firms.
Industrial accidents such as the Bhopal disaster and the Alaskan oil spill have caused both
developed and developing nations to be more concerned about the protection of natural
resources. International chemical manufacturers are reassessing their positions concerning
joint ventures when they cannot control the choice of equipment, plant safety, and
maintenance.
Samenvatting h9
Understand the significance of culture for international business.
To be successful in their relationships overseas, international businesspeople must be
students of culture. They must not only have factual knowledge; they must also become
culturally sensitive. Culture affects all functional areas of the firm.
Understand the sociocultural components of culture.
Although experts differ about the components of culture, the following is representative of
what numerous anthropologists believe exist: (1) aesthetics, (2) attitudes and beliefs, (3)
religion, (4) material culture, (5) education, (6) language, (7) societal organization, (8) legal
characteristics, and (9) political structures.
Appreciate the significance of religion to businesspeople.
Knowing the basic tenets of other religions will contribute to a better understanding of their
followers’ attitudes. This may be a major factor in a given market.
Comprehend the cultural aspects of technology.
Material culture, especially technology, is important to managements contemplating overseas
investment. Foreign governments have become increasingly involved in the sale and control
of technical assistance. Technology may enable a firm to enter a new market successfully
even if its competitors are already established there. It often enables the firm to obtain
superior conditions for an overseas investment because the host government wants the
technology.
Grasp the pervasiveness of the Information Technology Era.
Businesspeople must keep abreast of the changes in information technology to avoid falling
behind their competitors. The Internet enables small firms to compete in the global market, a
fact that provides new opportunities for some firms and new competition for others.
Businesspeople who can capture information from transaction data have a significant
advantage over those who cannot. The opinion in the retailing industry is that this capability
is the primary reason for Wal-Mart’s success, for example.
Understand why businesspeople must follow the worldwide trends of formal
education.
Figure 9.5 shows the dramatic increase in the educational levels of adults living in countries
of all economic levels. International firms must be prepared to meet the needs of bettereducated and more sophisticated customers as well as a better-educated work force.
Discuss the impact of the "brain drain" and the "reverse brain drain" on developed
and developing nations.
Developed nations have received thousands of scientists and highly trained professionals
from developing nations without contributing any part of the cost of their education. They also
have lost hundreds of scientists who obtained industry experience in developed countries to
recruiters from their countries of origin.
Appreciate the importance of the ability to speak the local language.
Language is the key to culture. A feel for a people and their attitudes naturally develops with
a growing mastery of their language.
Recognize the importance of the unspoken language in international business.
Because the unspoken language can often tell businesspeople something that the spoken
language does not, they should know something about this form of cross-cultural
communication.
Discuss the two classes of relationships within a society.
A knowledge of how a society is organized is useful because the arrangement of
relationships within it defines and regulates the manner in which its members interface with
one another. Anthropologists have broken down societal relationships into two classes: those
based on kinship and those based on free association of individuals.
Discuss Hofstede’s four cultural value dimensions.
Geert Hofstede interviewed IBM employees in 67 countries and found that the differences in
their answers to 32 statements could be based on four value dimensions: (1) individualism
versus collectivism, (2) large versus small power distance, (3) strong versus weak
uncertainty, and (4) masculinity versus femininity. These dimensions help managers
understand how cultural differences affect organizations and management methods
Samenvatting h10
Identify the ideological forces that affect business and understand the terminology
used in discussing them.
We discussed capitalism, communism, socialism, conservative, liberal, right wing, and left
wing.
Understand that although most governments own businesses, they are privatizing
them in growing numbers.
Even governments that consider themselves capitalist and conservative own some
businesses. But almost all governments—with the United States lagging behind—are
privatizing and getting out of business.
Explain the changing sources and reasons for terrorism and the methods and growing
power of terrorists.
The former Soviet Union and Eastern European satellite countries no longer finance, train,
and shelter terrorists, but they have been replaced by countries such as Iran, Iraq, Libya,
North Korea, and Syria. Radical Islamic fundamentalists represent a growing threat with their
hatred of Christians, Hindus, Jews, secularists, democrats, and the West generally. They are
infuriated by the peace moves between Israel and its Arab neighbors. Nuclear terrorism is a
new fear, as security has failed at nuclear sites in the former Soviet Union and enriched
uranium is being stolen and smuggled around the world.
Explain steps that traveling international business executives should take to protect
themselves from terrorists.
Before international business executives travel abroad and after they arrive in the host
country, they should take steps to protect themselves from terrorists. See Figures 10.5 and
10.6.
Understand the importance to business of government stability and policy continuity.
Business can rarely thrive in a country with an unstable government or rapid, drastic policy
changes. See the section about Bolivia.
Discuss the power sources of international organizations, labor unions, and
international companies.
Large international businesses have political power, as do labor unions and international
organizations such as the UN and the EU.
Understand country risk assessment by international business.
Country risk assessment is now considered a necessity by most international businesses
before they commit people, money, or technology to a foreign country. CRA involves
evaluating a country’s economic situation and policies as well as its politics
Samenvatting h11
Appreciate the complexity of the legal forces that confront international business.
International business is affected by many thousands of laws and regulations issued by
states, nations, and international organizations. Some are at cross-purposes, and some
diminish the ability of firms to compete with foreign companies.
Recognize the importance of foreign law.
Miscellaneous laws in host countries can trip up foreign businesspeople or tourists. Charges
can range from not carrying an alien registration card to narcotics possession.
Understand contract devices and institutions that assist in interpreting or enforcing
international contracts.
International contracts should specify which country’s law and courts should apply when
disputes arise. The UN’s CISG and the EU’s Rome Convention have established rules for
solving contract disputes. Arbitration is an increasingly popular solution.
Anticipate the need and methods to protect your intellectual property.
Patents, trademarks, trade names, copyrights, and trade secrets are referred to as
intellectual properties. Pirating of those properties is common and is expensive for their
owners. The UN’s World Intellectual Property Organization (WIPO) was created to administer
international property treaties, as was TRIPS, a WTO agency with a similar purpose.
Recognize how industrial espionage affects international business.
Industrial espionage is one company’s attempt to steal another company’s trade secrets, a
crime punishable in some countries by fines or imprisonment.
Understand that many taxes have purposes other than to raise revenue.
Certain taxes have purposes other than to raise revenues. For example, some aim to
redistribute income, discourage consumption of certain products, encourage use of domestic
goods, or discourage investment abroad. In addition, taxes differ from country to country. Tax
treaties, or conventions, between countries can affect decisions on investment and location.
Discuss enforcement of antitrust laws.
The United States and the European Union enforce antitrust laws extraterritorially. This is a
concern for companies operating in many countries because of the complexity of dealing with
so many laws in different jurisdictions.
Appreciate the risk of product liability legal actions, which can result in imprisonment
for employees or fines for them and the company.
Product liability refers to the civil or criminal liability of the designer or manufacturer of a
product for injury or damages it causes. In several ways, product liability is treated differently
in the U.S. legal system than in other countries. For example, only in the United States does
one find lawyers’ contingency fees, jury trials of these cases, and punitive damages.
Although the principle of strict liability has been adopted in Europe, defendants are permitted
to use state-of-the-art defenses and countries can put a cap on damages. Product liability is
virtually unknown in Japan
Samenvatting h12
Recognize forces beyond management control that affect the availability of labor.
Labor quality and labor quantity are forces beyond a company’s control. There are a finite
number of employees available in any labor pool with the skills required to meet an
employer’s needs.
Understand the reasons that cause people to leave their home countries.
In many parts of the world, wars, revolutions, racial and ethnic battles, and political
repression cause people to flee. Others go to other countries in hopes of better jobs and pay.
Discuss guest workers.
Guest workers move to a host country to perform specific types of jobs, usually in service,
factory, or construction work. But when a country’s economy slows, its native workers may
want the jobs held by guest workers. Racial friction has developed in some countries
because of guest workers.
Understand the basics of the immigration system in the United States.
The United States admits people from throughout the world as immigrants (permanent) and
nonimmigrants (temporary). Many come to the United States for employment, while others
come to the United States to be reunited with family members. The United States also grants
asylum to those fleeing persecution.
Understand how high technology is influencing workers and the workplace in the
United States.
As high technology becomes more and more important, many companies in the United
States are seeking workers from other countries to meet their staffing demands. Technology
not only is creating new employment opportunities, it also is making it easier for people
taking these positions to stay in touch with those back home.
Discuss labor productivity.
Several forces, including workers’ skills, affect labor productivity. Greater resources invested
in research and development usually result in better capital equipment for workers and
increased productivity. A country’s tax policies can also influence how much money is
available for R&D, thus affecting productivity.
Understand women’s labor, employment, and social roles.
Since the mid-1970s, more and more women have entered the work force in most
industrialized countries. Because of obstacles such as discrimination and changes in
lifestyles, the growth of their numbers slowed in the 1990s. But acceptability of women in the
work force continues poor or is virtually nil in many other countries.
Discuss differences in labor unions from country to country.
Historically, labor unions have tended to be more political in Europe and more pragmatic in
the United States, but developments during the 1990s and into the 21st century have shown
much more political activism in U.S. unions. Unions have been losing membership in most of
the developed countries.
Understand how labor is getting a voice in management.
Labor participation in management has grown in Europe, Japan, and, later, the United
States. Industrial democracy and worker participation have recently spread in the United
States. This has involved labor–management cooperation, in some instances including union
officials as members of companies’ boards of directors.
Samenvatting h13
Explain why international competition has increased among the United States, Japan,
the EU, and Asian nations.
World competition has intensified, and there are four nations and groups of nations whose
firms are in worldwide competition with each other—the United States, Japan, the EU, and
the NIEs and other Asian nations. Nations do not compete with each other; their firms do—
but most economic and social conditions, as well as political actions, affect the ability of all a
nation’s firms to compete. Using the term national competitiveness is a convenience.
Know the areas in which the United States remains vulnerable to foreign competition.
The United States may be vulnerable due to a variety of factors, including declining
investment in research and development, particularly by the government; a shortage of
knowledge workers and low U.S. test scores at the secondary level; regulatory and legal
requirements and the rising costs of compliance; inadequate tax reform, market-opening
efforts, and protection of intellectual property rights; and a rising trade deficit and
dependence on foreign capital.
Describe the responsibilities of government, management, labor, and consumers in
maintaining the international competitiveness of the United States.
Government must reduce the stifling government bureaucracy that hampers business, help
improve the nation’s education system, reduce the double taxation of dividends, and adopt a
capital gains tax to encourage investment in modern technology. Management must take a
long-term view in planning and should increase its investment in R&D, employee training,
and plant and equipment.
Explain the competitive environment in Japan, the EU, and the developing nations,
including the NIEs.
It appears that both the Japanese and the EU countries are losing some of their
competitiveness compared to the United States. Critics say Europe’s competitiveness
problems stem in part from the fact that European workers are overpaid and overprotected
and get too many holidays, all of which raise Europe’s labor costs. The expensive yen, high
labor costs, and inefficient management practices are causing Japanese industry to lose its
competitiveness. The developing nations and the NIEs are still recovering from the Asian
economic crisis of 1997 and the effects of the technology sector meltdown and associated
worldwide stock market declines that began in mid-2000.
Understand the purpose of the keiretsu in Japanese industry.
A keiretsu is a group of financially connected Japanese firms that tend to do business among
themselves. Two of the most important forms of keiretsu are the vertically integrated
production group found in all Japanese automakers and the horizontal group that is a familyowned conglomerate. American businesspeople and government trade officials claim that the
keiretsu system acts as a barrier to American producers trying to sell to Japanese
companies. Slow domestic growth, deregulation, the opening of financial markets to
international competition, and pressures for reform of corporate governance are loosening
traditional keiretsu relationships.
Appreciate the magnitude and danger of product counterfeiting.
Product counterfeiting is costing industry worldwide as much as $200 billion, some experts
claim. It is especially common in Asia. American producers of software, compact discs, and
videos allege they are losing millions of dollars in sales annually to pirated copies produced
in China.
Understand the importance of industrial espionage.
Industrial espionage is costing American firms billions annually in lost sales. General Motors
accused its former global head of purchasing of sabotage when he and associates left the
firm to join Volkswagen. He allegedly stole company secrets about a new small car that are
said to be worth billions to Volkswagen in product development time saved. There are many
reports of the French secret police spying on foreign industrialists. American and European
competitors think that the gains the French are making in high-tech fields are due to
information stolen by French industrial spies.
Describe the sources of competitive information.
Sources of competitive information are from within the firm, published material, customers,
competitors’ employees, and direct observation