4.1 Globalization: The Collapse of Time & Distance

• Globalization is the trend of the world economy toward becoming a more interdependent system. Globalization is reflected in three developments: (1) the rise of the global village and e-commerce; (2) the trend of the world's becoming one big market; and (3) the rise of both megafirms and Internet-enabled minifirms worldwide.
• The rise of the "global village" refers to the "shrinking" of time and space as air travel and the electronic media have made global communication easier. The Internet and the World Wide Web have led to e-commerce, the buying and selling of products and services through computer networks.
• The global economy is the increasing tendency of the economies of the nations of the world to interact with one another as one market instead of many national markets.
• The rise of cross-border business has led to the rise of megamergers, as giant firms have joined forces, and of minifirms, small companies in which managers can use the Internet and other technologies to get enterprises started more easily and to maneuver faster.

4.2 You & International Management

• Studying international management prepares you to work with foreign customers or partners, with foreign suppliers, for a foreign firm in the U.S., or for a U.S. firm overseas. International management is management that oversees the conduct of operations in or with organizations in foreign countries.
• The successful international manager is not ethnocentric or polycentric but geocentric. Ethnocentric managers believe that their native country, culture, language, and behavior are superior to all others. Polycentric managers take the view that native managers in the foreign offices best understand native personnel and practices. Geocentric managers accept that there are differences and similarities between home and foreign personnel and practices, and they should use whatever techniques are most effective.

4.3 Why & How Companies Expand Internationally

• Companies expand internationally for at least five reasons, all of which have to do with making or saving money. They seek (1) cheaper or more plentiful supplies, (2) new markets, (3) lower labor costs, (4) access to finance capital, and (5) avoidance of tariffs on imported goods or import quotas.
• There are five ways in which companies expand internationally. (1) They engage in global outsourcing, using suppliers outside the company and the U.S. to provide goods and services. (2) They engage in importing, exporting, and countertrading (bartering for goods). (3) They engage in licensing (allow a foreign company to pay a fee to make or distribute the company's product or service) and franchising (allow a foreign company to pay a fee and a share of the profit in return for using the first company's brand name and a package of materials and services). (4) They engage in joint ventures, a strategic alliance with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country. (5) They become wholly-owned subsidiaries, or foreign subsidiaries that are totally owned and controlled by an organization.

4.4 Economic & Political-Legal Differences

• Among the differences with which international managers must cope are (1) economic differences and (2) political-legal differences.
• Four economic differences that managers must deal with include (1) different economic systems, (2) economic development, (3) infrastructure and resources, and (4) currency exchange rates.
• The principal economic systems are free market, command, and mixed economies. (1) In a free-market economy, the production of goods and services are controlled by private enterprise and the interaction of the forces of supply and demand, rather than by the government. (2) In a command economy, or central-planning economy, the government owns most businesses and regulates the amounts, types, and prices of goods and services. (3) In a mixed economy, most of the important industries are owned by the government, but others are controlled by private enterprise.
• Countries may be divided between developed countries (those with a high level of economic development and generally high average level income) and less-developed countries (nations with low economic development and low average incomes).
• International companies are concerned about a foreign country's infrastructure (the physical facilities that form the basis for its level of economic development, such as roads and schools) and resources (labor and equipment).
• Companies operating internationally also have to be concerned about currency exchange rates. The exchange rate is the rate at which one country's currency can be exchanged for another country's currency.
• Managers operating internationally also need to be concerned about three kinds of political-legal differences: (1) democratic versus totalitarian political systems, (2) political risk, and (3) laws and regulations.
• Governmental systems may be democratic or totalitarian. Democratic governments rely on free elections and representative assemblies. Totalitarian governments are ruled by a dictator, a single political party, or a special-membership group.
• Political risk is defined as the risk that political changes will cause loss of a company's assets or impair its foreign operations. Two political risks a company doing business abroad might anticipate are instability, such as riots or civil disorders, and expropriation, defined as a government's seizure of a foreign company's assets.
• International companies have to work with numerous laws and regulations. The United States has legislation under the Foreign Corrupt Practices Act of 1977 that makes it illegal for employees of U.S. companies to bribe decision makers in foreign nations.

4.5 The World of Free Trade: Regional Economic Cooperation

• Free trade is the movement of goods and services among nations without political or economic obstructions.
• Countries often use trade protectionism—the use of government regulations to limit the import of goods and services—to protect their domestic industries against foreign competition. Three barriers to free trade, or devices by which countries try to exert protectionism, are tariffs, import quotas, and embargoes. (1) A tariff is a trade barrier in the form of a customs duty, or tax, levied mainly on imports. (2) An import quota is a trade barrier in the form of a limit on the numbers of a product that can be imported. (3) An embargo is a complete ban on the import or export of certain products.
• Three principal organizations exist that are designed to facilitate international trade. (1) The World Trade Organization is designed to monitor and enforce trade 131 agreements. (2) The World Bank is designed to provide low-interest loans to developing nations for improving transportation, education, health, and telecommunications. (3) The International Monetary Fund is designed to assist in smoothing the flow of money between nations.
• A trading bloc is a group of nations within a geographical region that have agreed to remove trade barriers. There are four major trading blocs: (1) North American Free Trade Agreement (NAFTA) (U.S., Canada, and Mexico); (2) European Union (EU) (25 trading partners in Europe); (3) Association of Southeast Asian Nations (ASEAN) (10 countries in Asia); (4) Mercosur (Argentina, Brazil, Paraguay, Uruguay, Chile, and Bolivia).
• Besides joining together in trade blocs, countries also extend special, "most favored nation" trading privileges—that is, grant other countries favorable trading treatment such as the reduction of import duties.

4.6 The Importance of Understanding Cultural Differences

• A nation's culture is the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people. Visitors to another culture may experience culture shock—feelings of discomfort and disorientation. Managers trying to understand other cultures need to understand four basic cultural perceptions embodied in (1) language, (2) nonverbal communication, (3) time orientation, and (4) religion.
• Regarding language, when you are trying to communicate across cultures you have three options: speak your own language (if others can understand you), use a translator, or learn the local language.
• Nonverbal communication consists of messages sent by means other than the written or the spoken word, and these nonverbal messages can vary according to culture. Five ways in which nonverbal communication is expressed are through interpersonal space, eye contact, facial expressions, body movements and gestures, and touch.
• Time orientation of a culture may be either monochronic (preference for doing one thing at a time) or polychronic (preference for doing more than one thing at a time).
• Managers need to consider the effect of religious differences. In order of size (population), the major world religions are Christianity, Islam, Hinduism, Buddhism, Chinese traditional religion, and Judaism.