Globalization Weekly assignment

Global Business Today 7e
by Charles W.L. Hill

Welcome to Global Business Today, Seventh Edition by Charles W.L. Hill.

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Chapter 1
Globalization

Chapter 1: Globalization

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Introduction
In the world economy today, we see
fewer self-contained national economies with high barriers to cross-border trade and investment
a more integrated global economic system with lower barriers to trade and investment
over $4 trillion in foreign exchange transactions daily
over $12 million of goods and $3.3 trillion of services being sold across national borders
the establishment of international institutions

You’ve probably heard the term globalization on the news, or at your job, or perhaps you’ve read about globalization in the newspaper or on a web site. But what does it really mean? We can define globalization as the shift away from self-contained national economies that are closed to cross-border trade towards a more integrated and interdependent world economy where millions of dollars of goods and services are traded daily.

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What Is Globalization?
Question: What is globalization?
Answer:
Globalization refers to the trend towards a more integrated global economic system
Two key facets of globalization are:
the globalization of markets
the globalization of production

Think for a minute about your day so far. Perhaps you work up this morning in a bed made by Sweden’s Ikea, got dressed in a shirt made in Guatemala and American Levi’s jeans that were produced in China. After putting on your Brazilian made shoes, you drove to work in your Nissan that was made in Tennessee. On the way to your job for a company that is headquartered in France, but has operations in the U.S., you might have talked to your friend on your Nokia cell phone that was designed in Finland, about getting together later for Spanish style tapas and Corona beer from Mexico. As you can see, your day has already been filled with the effects of globalization.

The effects of globalization can be seen everywhere. Think about the cars people drive—cars with American names like Ford that were actually assembled in Mexico, or German BMWs made in South Carolina, or a South Korean Hyundai made in Alabama. Think about the food people eat. We talk about going out for Chinese food or Japanese sushi. In Moscow, people line up to try their first Big Mac. You can buy your favorite Starbucks coffee in most countries in the world. Next, think about how globalization has changed the working world. If you’ve already got a job, you might be working for a large multinational company or maybe a smaller company that exports to other countries. If you’re just starting your job search, you’ve probably noticed that many companies rely on international markets for some part of their revenues, or on suppliers located in different countries. Finally, check the labels of your clothes and shoes. You’ll probably find that very few items are actually made in the U.S. Your Nike shoes for example, might be made in China, and your American Eagle sweatshirt is probably made in low wage labor country like Indonesia. If you’ve ever been to other countries, you may have noticed that people now dress in a similar way everywhere. You can shop at the Gap in New York, and also in Paris!

So, in answer to the question what is globalization, we can say that globalization refers to the trend towards a more integrated global economic system. Two key parts of the globalization process are the globalization of markets and the globalization of production.

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The Globalization of Markets
Globalization of markets – the merging of historically distinct and separate national markets into one huge global marketplace
In many markets today, the tastes and preferences of consumers in different nations are converging upon some global norm
Coca Cola, Starbucks, Sony PlayStation, and McDonald’s hamburgers, IKEA furniture

The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. As trade barriers between countries fall, companies like Ikea, Sony, and Coca-Cola are able to sell their product to a global market where consumers are more and more alike. And, as the companies benefit from these global opportunities, they also promote even greater globalization.

Keep in mind though, that the globalization of markets doesn’t mean that consumers are the same everywhere, and differences between markets no longer exist. National markets are still very relevant, challenging companies to develop different marketing strategies and operating procedures.

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The Globalization of Production
Globalization of production – the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor energy, land, and capital)
Goal: lower overall cost structure or improve the quality or functionality of their product and gain competitive advantage
Boeing and Vizio

The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. Companies hope that by sourcing and producing their product in the optimal location, wherever in the world that might be, they will be able to better compete against their rivals.

Boeing, for example, is outsourcing about 65 percent of its 787 aircraft to foreign companies. About 35 percent of the jet will be made by three Japanese companies! Boeing believes that this strategy allows it to use the best suppliers in the world, an advantage that will help it win market share over its rival Airbus Industries. Similarly, China’s Lenovo, a computer manufacturer, acquired IBM’s PC division to help the company become a global player in the market. The company’s ThinkPad is designed in the U.S., but assembled in Mexico using parts from Thailand, Malaysia, and South Korea.

Thanks to advances in shipping, even perishable products like flowers, can be produced in optimal locations and then shipped around the world. Ecuador, for example, has become a global supplier of roses in recent years. Now, the country supplies about 70 percent of the roses sold in the U.S!

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The Emergence of Global Institutions
Global institutions
manage, regulate, and police the global market place
promote the establishment of multinational treaties to govern the global business system
the World Trade Organization (WTO) – polices world trading system and ensures nations adhere to the rules established in WTO treaties
In 2010, its 154 members accounted for 97% of world trade
the International Monetary Fund (IMF) – maintains order in the international monetary system

As more business activities takes place across national borders, several global institutions have emerged to manage, regulate, and police the global marketplace, and to promote the establishment of multinational treaties to govern the global business system. We’ll talk more about these institutions in later chapters, but for now, let’s take a quick look at some of them.

One of the most important global institutions is the World Trade Organization, or WTO, which is responsible for policing the world trading system, and making sure that members adhere to trade treaties. The 154 nations that account for about 97 percent of the world’s trade are all WTO members, so the organization is very influential in working toward an open business system where goods can cross national borders without barriers to trade and investment.

The International Monetary Fund, or IMF, is responsible for maintaining order in the international monetary system, and as we’ll see in later chapters, is a significant player in the global economy.

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The Emergence of Global Institutions
the World Bank – promotes economic development
the United Nations (UN) – maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations

The World Bank promotes economic development by making loans to cash-strapped nations wishing to make significant infrastructure improvements like building dams or roads.

Finally, the United Nations, or UN, is committed to preserving peace through international cooperation and collective security. Nearly every country in the world belongs to the UN, and accepts its basic principles of international relations.

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Drivers of Globalization
Question: What is driving the move toward greater globalization?
Answer:
declining trade and investment barriers
technological change

You might be wondering what prompted the move toward globalization. Two macro factors are important: first, the decline in trade and investment barriers that has taken place since World War II, and second, technological change, specifically dramatic improvements in communication, information processing, and transportation technologies. Let’s talk about each of these.

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Declining Trade and Investment Barriers
International trade occurs when a firm exports goods or services to consumers in another country
Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country
During the 1920s and 1930s, many nations erected barriers to international trade and FDI to protect domestic industries from foreign competition

It wasn’t always so easy to trade with other countries. During the 1920s and 1930s, many countries erected barriers to the free flow of goods across borders, and also limited the ability of firms to invest. When a firm invests resources in business activities outside its home country, we say foreign direct investment or FDI has taken place.

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Declining Trade and Investment Barriers
After WWII, advanced Western countries began removing trade and investment barriers
Under GATT (the forerunner of the WTO), over 100 nations negotiated further decreases in tariffs and made significant progress on a number of non-tariff issues
Under the WTO, a mechanism now exists for dispute resolution and the enforcement of trade laws, and there is a push to cut tariffs on industrial goods, services, and agricultural products

At the end of World War II, nations, learning from mistakes made in the 1920s and 1930s, worked toward removing barriers that prevented the free flow of goods, services, and capital between countries. The process was formalized using the General Agreement on Tariffs and Trade, or GATT.

The GATT was replaced by the WTO which, like the GATT, provides a forum for dispute resolution and the enforcement of trade laws, and has set new goals for further reducing trade barriers on industrial goods, services, and agricultural products.

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Declining Trade and Investment Barriers
Lower trade barriers help companies view the world as a single market and establish production activities in optimal locations around the globe
This has led to an acceleration in the volume of world trade and investment since the early 1980s

Because of the efforts of the two organizations, we have seen an increase in international trade and also in foreign direct investment.

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Declining Trade and Investment Barriers
Figure1.1: Growth in World Merchandise Trade and Production, 1950 – 2008

As you can see, world trade and production was very limited in the early 1950s, but thanks to the GATT and its role in promoting a reduction in trade barriers, the volume of world trade and world production has increased dramatically, especially since the 1980s.

Because trade barriers are lower, firms like Boeing and Nike are now able to view the world, rather than a single country, as their market, and as a result, the world as a whole is significantly wealthier. Production and sales now take place in multiple markets creating interdependency between countries for goods and services.

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The Role of Technological Change
Since World War II, there have been major advances in communication, information processing, and transportation
The microprocessor – lowered the cost of global communication and the cost of coordinating and controlling a global organization
U.S. web-based transactions – $133 billion in 2008
1.6 billion Internet users in 2009
Commercial jet aircraft and super freighters and the introduction of containerization – simplify trans-shipment from one mode of transport to another

The role of technological change has also been critical to the globalization of markets. Major advances in communication, information processing, and transportation technology have made what had been possibilities into tangible realities!

The cost of global communication has fallen because advances in telecommunications and information processing help firms coordinate and control global organizations at a fraction of what it might have cost even a decade ago. The microprocessor that facilitates high-power, low-cost computing is perhaps the most important of these developments.

The Internet has made it possible for even small companies to play a role in the global economy. Yet, less than twenty years ago, this technology didn’t even exist. Growth in Internet usage has gone from fewer than 1 million users in 1990 to more than 1.6 billion users in 2009—a quarter of the world’s population!

Improvements in transportation such as containerization and the development of super freighters have also facilitated the growth of globalization. The time it takes people and products to get from one place to another has shrunk, as has the cost.

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The Role of Technological Change
Question: What are the implications of technological change for the globalization of production?

Answer: Lower transportation costs make a geographically dispersed production system more economical and allow firms to better respond to international customer demands

What does all of this mean? These technological innovations have facilitated the globalization of production. Dell for example, takes advantage of these innovations to control its globally dispersed production system. When a customer submits an order via the company’s web site, it’s immediately transmitted to the suppliers of the various components, wherever they are located in the world. Suppliers have real time access to Dell’s order flows, and can then adjust their production accordingly. Dell uses inexpensive airfreight to transport its products to meet demand as needed. The company maintains a customer service operation in India where English speaking personnel handle calls from the U.S.

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The Role of Technological Change
Question: What are the implications of technological change for the globalization of markets?
Answer:
Low cost communications networks help create electronic global marketplaces
Low cost transportation enable firms to create global markets, and facilitate the movement of people from country to country promoting a convergence of consumer tastes and preferences

The globalization of markets has also been facilitated by these technological innovations which have helped create global, electronic marketplaces. Ecuador for example, has become a global supplier of roses thanks to falling transportation costs that make it possible to ship flowers while they’re still fresh. Similarly, television networks like MTV and CNN are received in many countries and are contributing to the development of a sort of global culture that transcends national borders.

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Changing Demographics of the Global Economy
In the 1960s:
the U.S. dominated the world economy and world trade and world FDI
U.S. multinationals dominated the international business scene
about half the world– the centrally planned economies of the communist world– was off limits to Western international business
Today, much of this has changed.

Let’s move on to look at how the demographics of the global economy have changed over the last 50 years.

In the 1960s, the U.S. dominated the world economy and world trade picture. U.S. multinational companies were powerful, and because of the Cold War, a significant portion of the world was off limits to the Western companies.

Today, this picture has changed.

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Changing World Output and World Trade Picture
In the early 1960s:
U.S. – dominant industrial power accounting for about 40.3% of world manufacturing output
By 2008:
U.S. accounted for only 20.7%
Other developed nations experienced a similar decline
Rapid economic growth now in countries like China, India, and Brazil
Further relative decline by the U.S. is likely
So companies may find both new markets and new competitors in the developing regions of the world

By 2008, the U.S. had gone from its position in the 1960s of accounting for more than 40 percent of the world’s manufacturing output, to accounting for just over 20 percent. Countries like China, Brazil, and India have emerged as global economic players.

Most experts expect that similar trends will continue. Countries like the U.S., the U.K., Germany, and Japan that were among the first to industrialize, will continue to see their standings in world exports and world output slip, while developing nations like China, India, and Brazil will see their economies and role in global trade and investment increase.

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Changing World Output and World Trade Picture
Table 1.2: The Changing Demographics of World GDP
and Trade

As you can see from the Table, the U.S., despite its decline, is still the world’s largest exporter. However, China has emerged to challenge the U.S. for this position.

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Changing Foreign Direct Investment Picture
The share of world output generated by developing countries has been steadily increasing since the 1960s
The stock of foreign direct investment (total cumulative value of foreign investments) generated by rich industrial countries is declining
Cross-border flows of foreign direct investment are rising
The largest recipient of FDI is China

A similar trend is taking place with regard to foreign direct investment. In the 1960s, the U.S. accounted for over 66 percent of worldwide foreign direct investment flows. Britain was a distant second with just 10 percent of worldwide investment flows. Today, investments by developing nations are on the rise, while the stock, or total cumulative value, of foreign investments by rich industrial countries is falling.

As you might expect from our earlier discussion, developing nations like China have also become important destinations for foreign direct investment flows. Yum Brands for example, is hoping to capitalize on the emerging middle class in India. The company opened its first Taco Bell store in Bangalore in 2010, and is hoping more will follow. The company modeled its Indian store after its American stores. Yum Brands’ expansion into India follows those of other rivals like McDonald’s and Domino’s Pizza.

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Changing Foreign Direct Investment Picture
Figure 1.2: Percentage Share of Total FDI Stock,
1980 – 2008

Figure 1.2 shows that the stock of foreign direct investment by the world’s six most important sources has changed significantly from 1980 to 2008. In particular, notice the decline by the U.S., and the increase by France, and the world’s developing countries.

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Changing Foreign Direct Investment Picture
Figure 1.3: FDI Inflows, 1988 – 2008

In Figure 1.3, you can see the growth in cross-border flows of foreign direct investment and also the importance of developing nations as destinations for investment. These two trends reflect the internationalization of companies that we have discussed.

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The Changing Multinational Enterprise
A multinational enterprise is any business that has productive activities in two or more countries
Since the 1960s:
there has been a rise in non-U.S. multinationals
there has been a rise in mini-multinationals

The demographics of the global economy have also shifted in terms of the type of companies that are involved. We define a multinational enterprise as any business that has productive activities in two or more countries.

Two important trends to consider are the rise in non-U.S. multinationals and the growth in the number of mini-multinationals. Let’s talk about each of these trends.

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The Changing Multinational Enterprise
Globalization has resulted in a decline in the dominance of U.S. firms in the global marketplace
In 1973, 48.5 % of the world’s 260 largest MNEs were U.S. firms
By 2008, just 19 of the world’s 100 largest non-financial MNEs were from the U.S., 13 were from France, 13 from Germany, 14 were from Britain, and 10 were from Japan
Small and medium-size firms are now expanding internationally
easier to build international sales via the Internet

In the 1960s, global business activity was dominated by large, U.S. multinational firms. Today, however, things have shifted significantly. Multinational firms from France, Germany, Britain, and Japan have become more important, and there has been a notable decline in the role of U.S. firms. Firms from developing countries such as China and South Korea have also emerged as important players. So, in addition to thinking of American companies like Ford and Microsoft, we now think of South Korea’s Samsung and Hong Kong’s Hutchison Whampoa.

We have also seen an increase in the number of small and medium-sized multinationals, or mini-multinationals. China’s Lenovo for example, acquired IBM’s PC division in 2004, in an effort to become a global player in the PC industry. Lenovo even moved its headquarters to the U.S. as part of its strategy. Traditionally, global markets have been the venue for large firms, but today, thanks to advances in technology like the Internet, international sales can account for a significant share of revenues for small companies, too.

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The Changing World Order
The collapse of communism in Eastern Europe
export and investment opportunities
Economic development in China
huge opportunities despite continued Communist control
Free market reforms and democracy in Latin America
new markets and new sources of materials and production

Finally, the significant change in world order has affected the global economy. The collapse of communism has brought about new opportunities in Eastern Europe, and China’s economic development and enormous population presents huge opportunities for companies.

Mexico and Latin America have also emerged both as new markets, and as source and production locations.

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The Global Economy in the 21st Century
A more integrated global economy
new opportunities for firms
but, political and economic disruptions can throw plans into disarray

The trends of privatization, market deregulation, more open markets, and the removal of cross-border restrictions to trade and investment have created many new opportunities for companies. However, it’s important to remember that political and economic disruptions can ruin even the best laid plans.

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The Globalization Debate

Question: Is the shift toward a more integrated and interdependent global economy a good thing?

Answer:
Many experts believe that globalization is promoting greater prosperity in the global economy, more jobs, and lower prices for goods and services
Others feel that globalization is not beneficial

So far, we’ve focused primarily on the benefits of globalization. But is the shift toward a more integrated and interdependent global economy always a good thing? Not everyone thinks so.

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Antiglobalization Protests
Question: What are the concerns of critics of globalization?

Answer:
Anti-globalization protesters now turn up at almost every major meeting of a global institution
Protesters fear that globalization is forever changing the world in a negative way

Anti-globalization protesters who fear that globalization is forever changing the world in a negative way now turn up at almost every major meeting of global institutions like the WTO and IMF. In some cases, for example in Seattle in 1999, and France in 1999, the protests have been violent. You can learn more about what occurred in France in the Country Focus in your text. Let’s talk about some of the protesters’ concerns.

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Globalization, Jobs, and Income
Critics claim jobs in advanced economies are being lost to low-wage nations
Supporters claim while some jobs may be lost, the economy as a whole is better off
free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently, and that in doing so, all countries will gain

Critics of globalization worry that jobs are being lost to low-wage nations. They argue that falling trade barriers are allowing companies to move manufacturing jobs to countries where wage rates are low. For example, clothing manufacturing has increasingly shifted away from the U.S. where workers might earn $9 per hour to countries like Honduras where wages are less than 50 cents per hour. Critics believe that this leads to falling wages and living standards in the U.S.

Supporters however, claim that free trade will prompt countries to specialize in what they can produce most efficiently, and to import everything else. They argue that the whole economy will be better off as a result. In other words, if you can buy an imported shirt that was made for pennies in Honduras, you’ll have more money to spend on products the U.S. can produce efficiently like software.

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Globalization, Labor Policies, and the Environment
Critics argue free trade encourages firms from advanced nations to move manufacturing facilities offshore to less developed countries with lax environmental and labor regulations
Supporters claim tougher environmental regulation and stricter labor standards reflect economic progress
as countries get richer as a result of globalization, they raise their environmental and labor standards
free trade does not lead to more pollution and labor exploitation, it leads to less

Another concern raised by protesters is that free trade encourages firms from advanced nations, where there are costly environmental standards, to move manufacturing facilities offshore to less developed countries with lax environmental and labor regulations.

However, advocates of globalization claim that environmental regulation and stricter labor standards go hand in hand with economic progress, so foreign direct investment actually encourages countries to raise their standards. Studies support this claim with the exception of carbon dioxide emissions which appear to rise along with income levels. Advocates of globalization argue that by tying free trade agreements to the implementation of tougher environmental and labor laws, economic growth and globalization can occur together with a decrease in environmental pollution.

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Globalization and National Sovereignty
Critics worry economic power is shifting away from national governments and toward supranational organizations such as the WTO, the European Union (EU), and the UN
Supporters argue that the power of these organizations is limited to what nation-states collectively agree to grant
the organizations must be able to persuade members states to follow certain actions
without the support of members, the organizations have no power

A third concern raised by critics of globalization is the worry that economic power is shifting away from national governments and towards supranational organizations like the WTO and the European Union, or EU.

However, globalization’s supporters argue that the power of these organizations is limited to what they are granted by their members. They also point out that the organizations are designed to promote the collective interests of members, and they won’t gain support for policies that don’t achieve this goal.

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Globalization and the World’s Poor
Critics argue the gap between rich and poor has gotten wider and the benefits of globalization have not been shared equally
Supporters suggest that the actions of governments have made limited economic improvement in many countries
many of the world’s poorest nations are under totalitarian regimes, suffer from endemic corruption, have few property rights, are involved in war, and are burdened by high debt

Finally, critics of globalization worry that the gap between rich and poor is growing and that the benefits of globalization haven’t been shared equally.

While supporters of globalization concede the gap between rich and poor has gotten wider, they also contend that it has more to do with the policies countries have followed than with globalization. For example, many countries have chosen to pursue totalitarian regimes, or have failed to contain population growth, and many countries have huge debt loads that are stagnating economic growth.

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Managing in the Global Marketplace
Question: What does the shift toward a global economy mean for managers within an international business?
Answer:
Managing an international business (any firm that engages in international trade or investment) differs from managing a domestic business in four key ways

So, what does all of this mean for companies?

Managing an international business, or any firm that engages in international trade or investment, is different from managing a domestic business for many reasons.

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Managing in the Global Marketplace
Countries differences require companies to vary their practices country by country
Managers face a greater and more complex range of problems
International companies must work within the limits imposed by governmental intervention and the global trading system
International transactions require converting funds and being susceptible to exchange rate changes

Countries differ, the range of problems faced by mangers is greater and more complex, and government intervention in markets creates limitations for companies, as does the global trading system. Finally, firms must deal with exchange rate changes when they conduct international transactions that require converting funds to other currencies.

We’ll be talking more about these ideas in later chapters.

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Classroom Performance System
The trend away from distinct national economic units and toward one huge global market is known as
Internationalization
Economic integration
Globalization
Privatization

derek (dh)

Now, let’s see how well you understand the material in this chapter. I’ll ask you a few questions. See if you can get them right. Ready?

Question 1: The trend away from distinct national economic units and toward one huge global market is known as

a) internationalization

b) economic integration

c) globalization

d) privatization

If you picked C, you’re right!

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Classroom Performance System
Which of the following is not an example of a global institution?
The Federal Reserve
The International Monetary Fund
The World Bank
The World Trade Organization

Question 2: Which of the following is not an example of a global institution?

a) the Federal Reserve

b) the International Monetary Fund

c) the World Bank

d) the World Trade Organization

If you picked A, you’re correct!

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Classroom Performance System
Coca-Cola, Sony Playstations, and McDonald’s hamburgers are all examples of
American products
Global products
Industrial products
National products

Question 3: Coca-Cola, Sony Playstations, and McDonald’s hamburgers are all examples of

a) American products

b) Global products

c) Industrial products

d) National products

If you picked B, you’re doing great!

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Classroom Performance System
Which organization provides a mechanism for dispute resolution and the enforcement of trade laws?
The UN
The IMF
The WTO
The World Bank

Question 4: Which organization provides a mechanism for dispute resolution and the enforcement of trade laws?

a) the UN

b) the IMF

c) the WTO

d) the World Bank

Did you pick C? I hope so!

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Classroom Performance System
Which of the following statements is true?
The U.S. has been accounting for an increasing share of world trade in recent years
The U.S. has been accounting for an increasing share of world foreign direct investment in recent years
The U.S. has been accounting for an increasing share of world output in recent years
The share of world trade accounted for by China has been increasing in recent years

Question 5: Which of the following statements is true?

a) the U.S. has been accounting for an increasing share of world trade in recent years

b) the U.S. has been accounting for an increasing share of world foreign direct investment in recent years

c) the U.S. has been accounting for an increasing share of world output in recent years

d) the share of world trade accounted for by China has been increasing in recent years

The correct answer is D. Did you get it right?

Welcome to Global Business Today, Seventh Edition by Charles W.L. Hill.
Chapter 1: Globalization
You’ve probably heard the term globalization on the news, or at your job, or perhaps you’ve read about globalization in the newspaper or on a web site. But what does it really mean? We can define globalization as the shift away from self-contained national economies that are closed to cross-border trade towards a more integrated and interdependent world economy where millions of dollars of goods and services are traded daily.
Think for a minute about your day so far. Perhaps you work up this morning in a bed made by Sweden’s Ikea, got dressed in a shirt made in Guatemala and American Levi’s jeans that were produced in China. After putting on your Brazilian made shoes, you drove to work in your Nissan that was made in Tennessee. On the way to your job for a company that is headquartered in France, but has operations in the U.S., you might have talked to your friend on your Nokia cell phone that was designed in Finland, about getting together later for Spanish style tapas and Corona beer from Mexico. As you can see, your day has already been filled with the effects of globalization.
The effects of globalization can be seen everywhere. Think about the cars people drive—cars with American names like Ford that were actually assembled in Mexico, or German BMWs made in South Carolina, or a South Korean Hyundai made in Alabama. Think about the food people eat. We talk about going out for Chinese food or Japanese sushi. In Moscow, people line up to try their first Big Mac. You can buy your favorite Starbucks coffee in most countries in the world. Next, think about how globalization has changed the working world. If you’ve already got a job, you might be working for a large multinational company or maybe a smaller company that exports to other countries. If you’re just starting your job search, you’ve probably noticed that many companies rely on international markets for some part of their revenues, or on suppliers located in different countries. Finally, check the labels of your clothes and shoes. You’ll probably find that very few items are actually made in the U.S. Your Nike shoes for example, might be made in China, and your American Eagle sweatshirt is probably made in low wage labor country like Indonesia. If you’ve ever been to other countries, you may have noticed that people now dress in a similar way everywhere. You can shop at the Gap in New York, and also in Paris!
So, in answer to the question what is globalization, we can say that globalization refers to the trend towards a more integrated global economic system. Two key parts of the globalization process are the globalization of markets and the globalization of production.
The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. As trade barriers between countries fall, companies like Ikea, Sony, and Coca-Cola are able to sell their product to a global market where consumers are more and more alike. And, as the companies benefit from these global opportunities, they also promote even greater globalization.
Keep in mind though, that the globalization of markets doesn’t mean that consumers are the same everywhere, and differences between markets no longer exist. National markets are still very relevant, challenging companies to develop different marketing strategies and operating procedures.
The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. Companies hope that by sourcing and producing their product in the optimal location, wherever in the world that might be, they will be able to better compete against their rivals.
Boeing, for example, is outsourcing about 65 percent of its 787 aircraft to foreign companies. About 35 percent of the jet will be made by three Japanese companies! Boeing believes that this strategy allows it to use the best suppliers in the world, an advantage that will help it win market share over its rival Airbus Industries. Similarly, China’s Lenovo, a computer manufacturer, acquired IBM’s PC division to help the company become a global player in the market. The company’s ThinkPad is designed in the U.S., but assembled in Mexico using parts from Thailand, Malaysia, and South Korea.
Thanks to advances in shipping, even perishable products like flowers, can be produced in optimal locations and then shipped around the world. Ecuador, for example, has become a global supplier of roses in recent years. Now, the country supplies about 70 percent of the roses sold in the U.S!
As more business activities takes place across national borders, several global institutions have emerged to manage, regulate, and police the global marketplace, and to promote the establishment of multinational treaties to govern the global business system. We’ll talk more about these institutions in later chapters, but for now, let’s take a quick look at some of them.
One of the most important global institutions is the World Trade Organization, or WTO, which is responsible for policing the world trading system, and making sure that members adhere to trade treaties. The 154 nations that account for about 97 percent of the world’s trade are all WTO members, so the organization is very influential in working toward an open business system where goods can cross national borders without barriers to trade and investment.
The International Monetary Fund, or IMF, is responsible for maintaining order in the international monetary system, and as we’ll see in later chapters, is a significant player in the global economy.
The World Bank promotes economic development by making loans to cash-strapped nations wishing to make significant infrastructure improvements like building dams or roads.
Finally, the United Nations, or UN, is committed to preserving peace through international cooperation and collective security. Nearly every country in the world belongs to the UN, and accepts its basic principles of international relations.
You might be wondering what prompted the move toward globalization. Two macro factors are important: first, the decline in trade and investment barriers that has taken place since World War II, and second, technological change, specifically dramatic improvements in communication, information processing, and transportation technologies. Let’s talk about each of these.
It wasn’t always so easy to trade with other countries. During the 1920s and 1930s, many countries erected barriers to the free flow of goods across borders, and also limited the ability of firms to invest. When a firm invests resources in business activities outside its home country, we say foreign direct investment or FDI has taken place.
At the end of World War II, nations, learning from mistakes made in the 1920s and 1930s, worked toward removing barriers that prevented the free flow of goods, services, and capital between countries. The process was formalized using the General Agreement on Tariffs and Trade, or GATT.
The GATT was replaced by the WTO which, like the GATT, provides a forum for dispute resolution and the enforcement of trade laws, and has set new goals for further reducing trade barriers on industrial goods, services, and agricultural products.
Because of the efforts of the two organizations, we have seen an increase in international trade and also in foreign direct investment.
As you can see, world trade and production was very limited in the early 1950s, but thanks to the GATT and its role in promoting a reduction in trade barriers, the volume of world trade and world production has increased dramatically, especially since the 1980s.
Because trade barriers are lower, firms like Boeing and Nike are now able to view the world, rather than a single country, as their market, and as a result, the world as a whole is significantly wealthier. Production and sales now take place in multiple markets creating interdependency between countries for goods and services.
The role of technological change has also been critical to the globalization of markets. Major advances in communication, information processing, and transportation technology have made what had been possibilities into tangible realities!
The cost of global communication has fallen because advances in telecommunications and information processing help firms coordinate and control global organizations at a fraction of what it might have cost even a decade ago. The microprocessor that facilitates high-power, low-cost computing is perhaps the most important of these developments.
The Internet has made it possible for even small companies to play a role in the global economy. Yet, less than twenty years ago, this technology didn’t even exist. Growth in Internet usage has gone from fewer than 1 million users in 1990 to more than 1.6 billion users in 2009—a quarter of the world’s population!
Improvements in transportation such as containerization and the development of super freighters have also facilitated the growth of globalization. The time it takes people and products to get from one place to another has shrunk, as has the cost.
What does all of this mean? These technological innovations have facilitated the globalization of production. Dell for example, takes advantage of these innovations to control its globally dispersed production system. When a customer submits an order via the company’s web site, it’s immediately transmitted to the suppliers of the various components, wherever they are located in the world. Suppliers have real time access to Dell’s order flows, and can then adjust their production accordingly. Dell uses inexpensive airfreight to transport its products to meet demand as needed. The company maintains a customer service operation in India where English speaking personnel handle calls from the U.S.
The globalization of markets has also been facilitated by these technological innovations which have helped create global, electronic marketplaces. Ecuador for example, has become a global supplier of roses thanks to falling transportation costs that make it possible to ship flowers while they’re still fresh. Similarly, television networks like MTV and CNN are received in many countries and are contributing to the development of a sort of global culture that transcends national borders.
Let’s move on to look at how the demographics of the global economy have changed over the last 50 years.
In the 1960s, the U.S. dominated the world economy and world trade picture. U.S. multinational companies were powerful, and because of the Cold War, a significant portion of the world was off limits to the Western companies.
Today, this picture has changed.
By 2008, the U.S. had gone from its position in the 1960s of accounting for more than 40 percent of the world’s manufacturing output, to accounting for just over 20 percent. Countries like China, Brazil, and India have emerged as global economic players.
Most experts expect that similar trends will continue. Countries like the U.S., the U.K., Germany, and Japan that were among the first to industrialize, will continue to see their standings in world exports and world output slip, while developing nations like China, India, and Brazil will see their economies and role in global trade and investment increase.
As you can see from the Table, the U.S., despite its decline, is still the world’s largest exporter. However, China has emerged to challenge the U.S. for this position.
A similar trend is taking place with regard to foreign direct investment. In the 1960s, the U.S. accounted for over 66 percent of worldwide foreign direct investment flows. Britain was a distant second with just 10 percent of worldwide investment flows. Today, investments by developing nations are on the rise, while the stock, or total cumulative value, of foreign investments by rich industrial countries is falling.
As you might expect from our earlier discussion, developing nations like China have also become important destinations for foreign direct investment flows. Yum Brands for example, is hoping to capitalize on the emerging middle class in India. The company opened its first Taco Bell store in Bangalore in 2010, and is hoping more will follow. The company modeled its Indian store after its American stores. Yum Brands’ expansion into India follows those of other rivals like McDonald’s and Domino’s Pizza.
Figure 1.2 shows that the stock of foreign direct investment by the world’s six most important sources has changed significantly from 1980 to 2008. In particular, notice the decline by the U.S., and the increase by France, and the world’s developing countries.
In Figure 1.3, you can see the growth in cross-border flows of foreign direct investment and also the importance of developing nations as destinations for investment. These two trends reflect the internationalization of companies that we have discussed.
The demographics of the global economy have also shifted in terms of the type of companies that are involved. We define a multinational enterprise as any business that has productive activities in two or more countries.
Two important trends to consider are the rise in non-U.S. multinationals and the growth in the number of mini-multinationals. Let’s talk about each of these trends.
In the 1960s, global business activity was dominated by large, U.S. multinational firms. Today, however, things have shifted significantly. Multinational firms from France, Germany, Britain, and Japan have become more important, and there has been a notable decline in the role of U.S. firms. Firms from developing countries such as China and South Korea have also emerged as important players. So, in addition to thinking of American companies like Ford and Microsoft, we now think of South Korea’s Samsung and Hong Kong’s Hutchison Whampoa.
We have also seen an increase in the number of small and medium-sized multinationals, or mini-multinationals. China’s Lenovo for example, acquired IBM’s PC division in 2004, in an effort to become a global player in the PC industry. Lenovo even moved its headquarters to the U.S. as part of its strategy. Traditionally, global markets have been the venue for large firms, but today, thanks to advances in technology like the Internet, international sales can account for a significant share of revenues for small companies, too.
Finally, the significant change in world order has affected the global economy. The collapse of communism has brought about new opportunities in Eastern Europe, and China’s economic development and enormous population presents huge opportunities for companies.
Mexico and Latin America have also emerged both as new markets, and as source and production locations.
The trends of privatization, market deregulation, more open markets, and the removal of cross-border restrictions to trade and investment have created many new opportunities for companies. However, it’s important to remember that political and economic disruptions can ruin even the best laid plans.
So far, we’ve focused primarily on the benefits of globalization. But is the shift toward a more integrated and interdependent global economy always a good thing? Not everyone thinks so.
Anti-globalization protesters who fear that globalization is forever changing the world in a negative way now turn up at almost every major meeting of global institutions like the WTO and IMF. In some cases, for example in Seattle in 1999, and France in 1999, the protests have been violent. You can learn more about what occurred in France in the Country Focus in your text. Let’s talk about some of the protesters’ concerns.
Critics of globalization worry that jobs are being lost to low-wage nations. They argue that falling trade barriers are allowing companies to move manufacturing jobs to countries where wage rates are low. For example, clothing manufacturing has increasingly shifted away from the U.S. where workers might earn $9 per hour to countries like Honduras where wages are less than 50 cents per hour. Critics believe that this leads to falling wages and living standards in the U.S.
Supporters however, claim that free trade will prompt countries to specialize in what they can produce most efficiently, and to import everything else. They argue that the whole economy will be better off as a result. In other words, if you can buy an imported shirt that was made for pennies in Honduras, you’ll have more money to spend on products the U.S. can produce efficiently like software.
Another concern raised by protesters is that free trade encourages firms from advanced nations, where there are costly environmental standards, to move manufacturing facilities offshore to less developed countries with lax environmental and labor regulations.
However, advocates of globalization claim that environmental regulation and stricter labor standards go hand in hand with economic progress, so foreign direct investment actually encourages countries to raise their standards. Studies support this claim with the exception of carbon dioxide emissions which appear to rise along with income levels. Advocates of globalization argue that by tying free trade agreements to the implementation of tougher environmental and labor laws, economic growth and globalization can occur together with a decrease in environmental pollution.
A third concern raised by critics of globalization is the worry that economic power is shifting away from national governments and towards supranational organizations like the WTO and the European Union, or EU.
However, globalization’s supporters argue that the power of these organizations is limited to what they are granted by their members. They also point out that the organizations are designed to promote the collective interests of members, and they won’t gain support for policies that don’t achieve this goal.
Finally, critics of globalization worry that the gap between rich and poor is growing and that the benefits of globalization haven’t been shared equally.
While supporters of globalization concede the gap between rich and poor has gotten wider, they also contend that it has more to do with the policies countries have followed than with globalization. For example, many countries have chosen to pursue totalitarian regimes, or have failed to contain population growth, and many countries have huge debt loads that are stagnating economic growth.
So, what does all of this mean for companies?
Managing an international business, or any firm that engages in international trade or investment, is different from managing a domestic business for many reasons.
Countries differ, the range of problems faced by mangers is greater and more complex, and government intervention in markets creates limitations for companies, as does the global trading system. Finally, firms must deal with exchange rate changes when they conduct international transactions that require converting funds to other currencies.
We’ll be talking more about these ideas in later chapters.
Now, let’s see how well you understand the material in this chapter. I’ll ask you a few questions. See if you can get them right. Ready?
Question 1: The trend away from distinct national economic units and toward one huge global market is known as
a) internationalization
b) economic integration
c) globalization
d) privatization

If you picked C, you’re right!
Question 2: Which of the following is not an example of a global institution?
a) the Federal Reserve
b) the International Monetary Fund
c) the World Bank
d) the World Trade Organization
If you picked A, you’re correct!
Question 3: Coca-Cola, Sony Playstations, and McDonald’s hamburgers are all examples of
a) American products
b) Global products
c) Industrial products
d) National products
If you picked B, you’re doing great!
Question 4: Which organization provides a mechanism for dispute resolution and the enforcement of trade laws?
a) the UN
b) the IMF
c) the WTO
d) the World Bank
Did you pick C? I hope so!
Question 5: Which of the following statements is true?
a) the U.S. has been accounting for an increasing share of world trade in recent years
b) the U.S. has been accounting for an increasing share of world foreign direct investment in recent years
c) the U.S. has been accounting for an increasing share of world output in recent years
d) the share of world trade accounted for by China has been increasing in recent years
The correct answer is D. Did you get it right?

Global Business Today 7e
by Charles W.L. Hill

Welcome to Global Business Today, Seventh Edition by Charles W.L. Hill.

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Chapter 3
Differences
in Culture

Chapter 3: Differences in Culture

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Introduction
Cross-cultural literacy – an understanding of how cultural differences across and within nations can affect the way in which business is practiced
important to success in international business
There may be a relationship between culture and the costs of doing business in a country or region
Culture is not static
the actions of MNEs can contribute to cultural change

Have you ever visited another country? If you have, think for a minute about some of the differences you may have seen. Perhaps people dressed differently or ate different types of foods. How did people get around? By car, by train, by motor bike? Was there a particular religion that influenced how society worked? What language was spoken? Did you notice any forms of unspoken language? Your answers to these questions will give you some insight to the country’s culture. We’ll be exploring cultural differences and their effect on business in this chapter.
Even if you haven’t traveled to a foreign country, you can still see cultural differences within the U.S. Think about the concept of time for example. How do people on the East Coast view time? You might have answered that East Coasters often see time as a valuable commodity that shouldn’t be wasted. Now, compare that perspective to how someone from the South might view time. Many Southerners still prefer a slower paced way of life. How might these differences affect the way you would do business in each region?
Just like you might adapt for differences at home, when doing business in foreign countries, you’ll need to adapt as well. We say that companies must have cross-cultural literacy, or an understanding of how cultural differences across and within nations can affect the way in which business is practiced.
It’s also important to consider how culture might affect the cost of doing business in a particular location. For example, some people argue that the Japanese traditions including lifetime employment and long-term decision-making lowered the costs of doing business in the country during the 1960s, 70s and 80s.

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What is Culture?
Question: What is culture?

Answer:
Culture is a system of values (abstract ideas about what a group believes to be good, right, and desirable) and norms (the social rules and guidelines that prescribe appropriate behavior in particular situations) that are shared among a group of people and that when taken together constitute a design for living

So, what is culture? The fundamental building blocks of culture are values, or abstract ideas about what a group believes is good, right, and desirable, and norms, or the social rules and guidelines that prescribe appropriate behavior in particular situations.
You may not think, now that people in so many countries wear blue jeans, drink Coke and Starbucks coffee, eat Big Macs, and listen to MTV, that cultural differences are still important. But you’d be wrong! Long-standing cultural differences still influence how business is being done. Think for a moment about the opening case, and, how MacDonald’s had to adapt its traditional menu to meet the needs of India where the cow is revered.
Also, keep in mind that culture is dynamic, it is always changing. Just think for a moment of how cell phones have changed our culture and those of many others as an example.
We call a group of people who share a common set of values and norms a society, and though we talk about the French culture, and the Japanese culture, and so on, culture is not necessarily divided by national boundaries. Some countries like Switzerland even have multiple distinct cultures. Similarly, some cultures transcend national boundaries. For example, you might think of how the values promoted by Islam influence many countries.

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Values and Norms
Values – provide the context within which a society’s norms are established and justified
Norms – the social rules that govern the actions of people toward one another and can be further subdivided into
folkways – the routine conventions of everyday life
mores – norms that are seen as central to the functioning of a society and to its social life

Let’s look at the elements of culture a little more closely. As we said, values are a fundamental building block of culture. They provide the context within which a society’s norms are established and justified. Values can include things like a society’s attitudes toward individual freedom, loyalty, collective responsibility, marriage, and so on. Values also reflect the political and economic systems of a society. So, for example, the free market system in the U.S. shows that individual freedom is valued.
The social rules that govern people’s actions toward one another are called norms. You can think of norms as being either folkways or mores. Folkways are the routine conventions of everyday life like dress codes, social manners, and neighborly behavior.
Usually, violations of folkways are not a serious matter, but can have a negative effect on business. For example, earlier we mentioned the need to adapt to how people view the concept of time. If we consider time from an international perspective, we can think, in general terms, of people from countries like those in Northern Europe or the U.S., placing a value on time. People from these countries often think of it as a commodity that can be wasted or saved. In contrast, people from Arab or Latin cultures have a much looser concept of time, and don’t worry if they’re late for appointments, or things take longer than originally expected. So, imagine a meeting between a manager from Germany and a manager from Saudi Arabia. If the manager from Germany is kept waiting by the Saudi manager, the German manager might feel slighted, yet the Saudi manager would have no idea why. However, if the managers were aware of the different perspectives of time, the German manager might be more tolerant of the Saudi manager, and the Saudi manager might make a bigger effort to be on time to the meeting!
Rituals are also folkways. So, take the process of exchanging business cards for example. The way a Japanese business manager presents his card will provide information on his rank. The deeper the bow when the card is presented, the greater the respect the manager is showing you. When you receive the card, you can show your respect by examining the card carefully, and bowing in return, and presenting your own card. Contrast this to how cards are exchanged in the U.S.!
Mores are the norms that are central to the functioning of a society and to its social life. Mores may actually become laws. So, we have laws against theft and incest. As you’ve probably guessed, mores are much more significant than folkways, and violating them usually brings serious retribution. Keep in mind though, that what might be acceptable in one country, may be forbidden in another! So, while drinking alcohol is acceptable in Denmark, in Saudi Arabia it’s not.

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Culture, Society, and the Nation-State
Society – a group of people who share a common set of values and norms
There is not a strict one-to-one correspondence between a society and a nation-state
nation- states are political creations that can contain a single culture or several cultures
some cultures embrace several nations

Now, let’s talk about culture and its relationship with society and the nation-state. As we said earlier, a society is a group of people that share a common set of values and norms. In other words, it’s a group bound together by a common culture. Remember though, that nation-states are political creations and so they can contain more than one culture like India and Switzerland do. Keep in mind also that a country can have different societies, and that each society can have its own culture. We mentioned earlier the differences within the U.S.

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The Determinants of Culture
The values and norms of a culture are the evolutionary product of a number of factors at work in a society including
prevailing political and economic philosophies
a society’s social structure
the dominant religion, language, and education

You might be wondering where culture comes from. What determines culture? The answer to this question is that culture is an evolutionary product of a number of factors including the social structure of a society, religion, language, education, and the country’s political and economic philosophies.

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The Determinants of Culture
Figure 3.1: The Determinants of Culture

Let’s talk about each of these factors beginning with social structure. Keep in mind that while social structure and religion influence values and norms, value and norms influence religion and social structure.

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Social Structure
A society’s social structure is its basic social organization

Two dimensions to consider:
the degree to which the basic unit of social organization is the individual, as opposed to the group
the degree to which a society is stratified into classes or castes

The basic social organization of a society is its social structure. There are two important elements to consider here. First, is the degree to which the basic unit of social organization is the individual rather than the group. In general terms, we think of the individual being dominant in Western societies, and the group being more important in other societies.
The second element to consider is the degree to which the society is stratified into classes or castes. You already know that in the U.S. there is a relatively low degree of social stratification and that it’s fairly easy to move between strata. Compare this to the situation in India for example, where there is a high degree of social stratification and very low mobility between strata.

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Individuals and Groups
Group – an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior
groups are common in many Asian societies
many Western countries emphasize the individual

Let’s talk a bit more about the importance of individuals and groups to understanding culture. A group is just an association of two or more people who share a sense of identity or who interact with each other in structured ways based on a common set of expectations. So, you might think of your family as being a group, or perhaps you belong to a recreational or social group. In some societies the group is considered more important, while in others, individual achievements and attributes are more important.

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Individuals and Groups
In societies where the individual is emphasized
individual achievement and entrepreneurship are promoted
but, this can encourage job switching, competition between individuals in a company rather than team building, and a lack of loyalty to the firm
In societies where the group is emphasized
cooperation and team work are encouraged and life time employment is common
but, individual initiative and creativity may be suppressed

Think about your favorite sports team for a minute. You probably know its record, and many of players, and you can probably tell me a lot about a few stars. What does this tell you about this particular group? In many Western societies, there is a strong focus on the individual and individual achievements. How does this affect business? Well, it can be both beneficial and harmful. On one hand, the focus on individual achievements leads to a high degree of entrepreneurship which is beneficial because it’s linked to the development of new products and processes. On the other hand, the focus on the individual also leads to a lot of managerial mobility, and so, there is a lack of loyalty and commitment to individual firms, and there is competition between individuals within a firm rather than team building for the sake of the organization. You’ve probably experienced some of these issues yourself.
Think about your favorite sports team for a minute. You probably know its record, and many of players, and you can probably tell me a lot about a few stars. What does this tell you about this particular group? In many Western societies, there is a strong focus on the individual and individual achievements. How does this affect business? Well, it can be both beneficial and harmful. On one hand, the focus on individual achievements leads to a high degree of entrepreneurship which is beneficial because it’s linked to the development of new products and processes. On the other hand, the focus on the individual also leads to a lot of managerial mobility, and so, there is a lack of loyalty and commitment to individual firms, and there is competition between individuals within a firm rather than team building for the sake of the organization. You’ve probably experienced some of these issues yourself.
In contrast, many Asian societies focus on the group as the primary form of social organization. So, rather than looking at the individual achievements of a Japanese manager, you might look at the standing of the group that he belongs to. In fact, rather than identifying themselves by the job they do, for example marketing manager, Japanese business men often identify themselves as belonging to a particular company, so they might say they belong to Sony or Toyota. You’ve probably heard of the lifetime employment system that is often associated with Japanese companies that reflects this commitment. From a business perspective, this means that there is a strong incentive to work together for the common good, rather than focus on individual achievements. Many experts believe that this cooperative atmosphere has been central to Japanese success.
So, is the group emphasis always better? Not necessarily! Just like societies that emphasize the individual, there are drawbacks from emphasizing the group. One drawback in Japan for example, is a lack of incentive for individual creativity and initiative, and consequently entrepreneurial activity.

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Social Stratification
All societies are stratified on a hierarchical basis into social categories, or social strata
usually defined by characteristics such as family background, occupation, and income
Societies differ in terms of
the degree of mobility between social strata
the significance attached to social strata in a business context

Now, let’s move on to the second important element of social organization, how a society is stratified. Remember, all societies are stratified into different categories. So, for example, you might say that you belong to the middle class. Because you are born into the social category that you’re parents are in, your chances for success depend on them. People born toward the top of the social hierarchy tend to have better education, heath, standards of living, and so on.

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Social Stratification
Social mobility- the extent to which individuals can move out of the strata into which they are born
The most rigid system is the caste system – a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position are unlikely
A less rigid system is the class system – a form of open social stratification in which the position a person has by birth can be changed through achievement or luck

Suppose you don’t like your lot in life. Can you move? We use the term social mobility to refer to the extent to which individuals can move out of the strata into which they are born. How easy it is to move depends on the society.
The most rigid type of society is the caste system where a person’s social position is determined by their family, and change is virtually impossible. So, if you’re born into a family of shoemakers, you can more or less count of being a shoemaker yourself! India is probably the best modern example of how a caste system works. There are four main castes, and even though it was officially abolished in 1949, its influence still remains today, particularly in rural areas. You can learn more about India’s caste system in the Country Focus in your text.
The class system that exists in countries like the U.S. is a much less rigid system of stratification. You probably know stories of immigrants coming to the U.S. with only the clothes on their backs, and managing to work their way up to the top of the social hierarchy. In a class system, mobility is possible either through luck or personal achievements.

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Social Stratification
Question: What is the significance of social stratification for business?
Answer:
In cultures where class consciousness (a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with others) is high, the way individuals from different classes work together may be prescribed
antagonism between labor and management can raise the costs of doing business

Why is social stratification important to companies? How people perceive themselves in terms of their class background influences their relationships with others. So, in countries with high levels of class consciousness, antagonistic relationships may exist between classes. Think of Britain for example. The country’s well defined classes have led to many disputes between labor and management over the years.
While Britain today is moving toward a less class conscious society, China is moving in the opposite direction! Today, because of the sharp contrast in education, health care, and so on, between the rural population and urban dwellers that existed during the Communist regime, a new class structure is beginning to emerge. Peasants looking for jobs are moving into cities where a new set of classes is emerging based on occupation.

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Religious and Ethical Systems
Religion – a system of shared beliefs and rituals that are concerned with the realm of the sacred
Religions with the greatest following are
Christianity (1.7 billion adherents)
Islam (1 billion adherents)
Hinduism (750 million adherents)
Buddhism (350 million adherents)
Confucianism also influences behavior and shapes culture in many parts of Asia

Religion also plays a big role in culture, especially in countries where a single religion is dominant. We define religion as the systems of shared beliefs and rituals that are concerned with the realm of the sacred. The religions with the greatest following today are Christianity, Islam, Hinduism, and Buddhism. You might also include Confucianism with these. While not strictly a religion, Confucianism influences behavior and shapes culture in many parts of Asia.

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Religious and Ethical Systems
Map 3.1: Dominant Religions

So, let’s talk about some of the key elements of each religion. You’ll notice that, as we said before, Christianity has the largest following with about 1.7 adherents, followed by Islam with about 1 million adherents, Hinduism with 750 adherents, and finally, Buddhism with about 350 million adherents.

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Religious and Ethical Systems
Ethical systems – a set of moral principles, or values, that are used to guide and shape behavior
the ethical practices of individuals within a culture are often closely intertwined with their religion

Closely related to religion are ethical systems, or sets of moral principles or values that guide and shape behavior. So, you might think of Christian ethics or Islamic ethics.

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Christianity
Christianity is the most widely practiced religion
common throughout Europe, the Americas, and other countries settled by Europeans

Question: What are the economic implications of Christianity?
Answer:
In 1904, Max Weber suggested that it was the Protestant work ethic (focus on hard work, wealth creation, and frugality) that was the driving force of capitalism

About 20 percent of the world’s population is Christian. Most followers live in Europe, the Americas, or other countries settled by the Europeans. Christians are divided into Roman Catholics, those who belong to the Orthodox Church, and Protestants.
You may have heard of the famous German sociologist Max Weber who made the connection between Protestant ethics and capitalism in 1904. Weber believed that the Protestant ethics of hard work and value creation were instrumental to the development of capitalism.

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Islam
Islam is an all-embracing way of life that governs one’s being
Muslims believe that there is one true omnipotent God
Question: What is Islamic fundamentalism?
Answer:
Islamic fundamentalism is associated in the Western media with militants, terrorists, and violent upheavals,
the vast majority of Muslims claim that Islam teaches peace, justice, and tolerance
fundamentalists have gained political power in many Muslim countries, and have tried to make Islamic law the law of the land

Islam, with its 1 billion followers, is the second largest religion in the world. Its adherents are called Muslims, and are found in more than 35 countries, particularly in the Middle East. Islam has its roots in Judaism and Christianity, and holds that those who forgo worldly gain and power to seek the favor of Allah will be the real winners. Islam is an all-embracing way of life—prayers take place 5 times a day, women dress in a certain manner, and pork and alcohol are forbidden.
The attacks on the World Trade Center have increased public knowledge of Islamic fundamentalism. Many people believe that Islamic fundamentalists are violent terrorists. However, Islam actually teaches peace, justice, and tolerance. The violence that we often associate with Islamic fundamentalism actually involves only a small minority of all fundamentalists. Most live peacefully, and are deeply committed to their religious beliefs and principles. Many have turned to symbols to signify their commitment to their faith. So, for example, you see women covered head to toe in public.

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Islam
Question: What are the economic implications of Islam?

Answer:
Under Islam, people do not own property, but only act as stewards for God and thus must take care of that which they have been entrusted with
Islam is supportive of business, but the way business is practiced is prescribed
businesses that are perceived to be making a profit through the exploitation of others, by deception, or by breaking contractual obligations are unwelcome

How does Islam affect business? The Koran, which is the sacred book for Islam like the Bible is for Christianity, supports free enterprise and legitimate profits, and the right to protect private property, but advocates using profits in a righteous socially- beneficial manner. So, for example, as we pointed out before, the Country Focus in your text notes that prayer rooms are common in Turkey, and time is set aside to pray.

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Hinduism
Hinduism – focuses on the importance of achieving spiritual growth and development, which may require material and physical self-denial
practiced primarily on the Indian sub-continent

Question: What are the economic implications of Hinduism?
Answer:
Hindus are valued by their spiritual rather than material achievements
Promotion and adding new responsibilities may not be the goal of an employee, or may be infeasible due to the employee’s caste

Spiritual growth and development are the central tenets of Hinduism which is practiced by about 750 million people who mainly live in India. Hinduism is the oldest religion in the world, and goes back about 4000 years. Many Hindus believe that the way to achieve nirvana is through material and physical self-denial.
You probably already know that Hindus consider the cow to be sacred. Consequently, many Hindus avoid beef—a situation which created considerable challenges for McDonald’s when it expanded into India in the 1990s! McDonald’s had to develop some new sandwich options like its mutton burger in order to get around this issue.
For other companies, Hinduism also creates interesting challenges. Because the religion emphasizes spiritual rather than individual achievement, the drive for entrepreneurial behavior that is so common among Protestants for example, is not present. So, a devout Hindu may not see promotion or additional responsibilities as being desirable.

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Buddhism
Buddhists – stress spiritual growth and the afterlife, rather than achievement while in this world
found mainly in Central and Southeast Asia, China, Korea, and Japan

Question: What are the economic implications of Buddhism?
Answer:
Buddhism does not support the caste system, so individuals do have some mobility and can work with individuals from different classes
entrepreneurial activity is acceptable

Buddhism’s 350 million followers are located mainly in Central and Southeast Asia, China, Korea, and Japan. Buddhism stresses spiritual achievement and the afterlife over involvement in this world.
So, as with Hinduism, there is a lack of emphasis on entrepreneurial behavior. However, because Buddhism doesn’t support the caste system, and mobility between classes is an option, there may be some entrepreneurial drive.

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Confucianism
Confucianism – teaches the importance of attaining personal salvation through right action
the need for high moral and ethical conduct and loyalty to others is central
practiced mainly in China

Question: What are the economic implications of Confucianism?
Answer:
Three key teachings of Confucianism – loyalty, reciprocal obligations, and honesty – may all lead to a lowering of the cost of doing business in Confucian societies

Finally, remember that Confucianism, which is practiced mainly in China, is not really a religion, but more of an influential ideology. Confucianism teaches the importance of attaining personal salvation through right action. Moral and ethical conduct is important, as is loyalty.
What do the principles of Confucianism mean for business? Well, because of the key principles of the ideology—loyalty, reciprocal obligations, and honesty—the cost of doing business can be lower. You might think of the concept of guanxi that is so important to business in China. You can learn more about the importance of maintaining strong guanxi, or the relationship networks that are supported by reciprocal obligations, that are so vital to success in China in the Management Focus and the Closing Cases in your text.
Similarly, if people behave in a moral, honest way, expensive contracts to protect companies are not necessary. Many people believe that Japan owes its success in the auto industry to the strong relationships that exist between the auto companies and their suppliers.

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Language
Countries differ in terms of language or means of communication
There are two forms language
spoken
unspoken
Language is one of the defining characteristics of culture

Now, let’s move on to look at how language defines culture. Language of course, is how we communicate with each other both in the spoken form and in the unspoken form, but it’s also how we perceive the world. Think for a minute about snow. You might say “oh, look, it’s snowing” and your friend would know exactly what you mean. But the Inuit or Eskimo people would have no idea what you meant. Why not? Because the Inuit have 24 different ways of describing what you probably think of as only snow!

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Spoken Language
Countries with more than one spoken language often have more than one culture
Chinese is the mother tongue of the largest number of people in the world
English is the most widely spoken language in the world, and is becoming the language of international business
However, knowledge of the local language is beneficial, and in some cases, critical for business success

We mentioned earlier that some countries have more than one distinct culture. Does this mean they have more than one language, too? Very often, the answer is yes! You probably already know that Canada has both an English speaking and a French speaking area—both with their own cultures. Belgium is divided into Flemish and French speakers, and four different languages are spoken in Switzerland!
Do you know which language is the most widely spoken language in the world? If you answered English, you’re right! But keep in mind that Chinese is the mother tongue of the largest number of people! Now you may be wondering if it’s important, given that English is so widely spoken in the business world, to learn a foreign language. The answer is yes!
Remember, that just because people may speak English, it may not be the English you’re familiar with. One American executive with MobiTV recently wasn’t sure whether to be concerned or happy with his British client called to say she was “chuffed to the mint balls.” A late-night translation by his British colleagues revealed that she was happy.
Furthermore, learning a foreign language signals to your host that you’re making an effort to meet his needs, just as he has made an effort to meet yours. And don’t forget that failing to learn the local language can result in costly blunders.
For years, China has had a reputation for making poor English translations, in fact, the translations are commonly known as Chinglish. For example, instead of finding a sign for a handicapped restroom, signs might refer to toilets for deformed persons. Stay of the grass signs on park lawns are translated into show mercy for the slender grass! In 2007, China decided that in anticipation of holding the 2008 Summer Olympics, it was time to try to correct public signage. So, the country established teams of linguistic monitors to go around Beijing and look for signs that have poor translations. Many Westerners are now lamenting what they believe is a passing of a cultural tradition!

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Unspoken Language
Unspoken language – nonverbal cues
examples include facial expressions and hand gestures
can be important for communication
Many nonverbal cues are culturally bound and because they may be interpreted differently, can result in misunderstandings

Now, let’s talk about unspoken language. Think for a moment about how you stand when you’re talking with another person. You probably stand about an arm’s length away. But in Latin America people tend to stand much closer together. Now picture yourself at a business meeting with someone from Brazil. He might try to stand at his customary distance causing you take a step backward because he’s invaded your personal space. You may be annoyed at him for standing so close to you, and he may interpret your response as aloofness. Your meeting is already off to a bad start!
It’s very important in international business to understand nonverbal cues. Think for a moment about the circle you might make with your thumb and forefinger. In the U.S., you’ve signaled a positive response, but if you make the same gesture in Greece, you’ve just insulted someone! So, because facial expressions, hand gestures, and other types of unspoken language can mean different things in different cultures, it’s important to do your homework before meeting with someone from another culture.

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Education
Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical skills that are indispensable in a modern society
The knowledge base, training, and educational opportunities available to a country’s citizens can also give it a competitive advantage in the market and make it a more or less attractive place for expanding business
The general education level of a country is a good indicator of the types of products that might sell in that location or the type of promotional materials that might be successful

Another element of culture is education. You already know that formal education is important to gain the skills you need to be productive in modern society, but did you know that a country’s education system can be an important determinant of competitive advantage? Michael Porter has pointed out that Japan’s success story began with its well educated workforce. Today, India is an attractive destination for investment because of its well-educated workforce.
A country’s education system can also be an indicator of what products might sell well, and what types of promotional materials should be used. So, in a country where literacy rates are low, written promotions won’t work well.

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Culture and the Workplace
Question: How does a society’s culture impact on the values found in the workplace?

Answer:
Geert Hofstede isolated four dimensions that summarized different cultures
Power distance
Individualism versus collectivism
Uncertainty avoidance
Masculinity versus femininity

We’ve already talked a bit about how culture affects the workplace, but let’s look at this issue a little more closely. How does a society’s culture affect workplace values?
One of the most extensive studies exploring this was done from 1967 to 1973 by an IBM psychologist called Geert Hofstede. Hofstede isolated four dimensions that he argued explained different cultures. Let’s talk about each dimension.

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Culture and the Workplace
Power distance – how a society deals with the fact that people are unequal in physical and intellectual capabilities
Individualism versus collectivism – the relationship between the individual and his or her fellows
Uncertainty avoidance – the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity
Masculinity versus femininity – the relationship between gender and work roles
Hofstede later added a fifth dimension, Confucian dynamism – captures attitudes towards time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors

The first, power distance, focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities. A culture would rank high on this dimension if it allowed these inequalities to grow over time into inequalities in wealth and power. Cultures that ranked low on power distance played down the inequalities.
The second dimension, individualism versus collectivism, focused on the relationship between the individual and her fellows. You already know that in individualistic societies, individual achievement and freedom are valued, and that in collectivist societies the ties between individuals are stronger.
Hofstede’s third dimension, uncertainty avoidance, measured the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty. So, in a culture that ranked high on uncertainty avoidance, people placed a premium on job security, retirement benefits, and so on, while in a low uncertainty culture, people were more willing to take risks, and were less resistant to change.
Finally, the fourth dimension, masculinity versus femininity, looked at the relationship between gender and work roles. In cultures that were identified as masculine, there was a sharp distinction between sex roles, and traditional masculine values influenced cultural ideals, while in a more feminine culture, there was little differentiation between men and women in the same job.

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Culture and the Workplace
Table 3.1: Hofstede’s Four Dimensions

Can you guess where your country would rank on each of these four dimensions? As you can see, Hofstede developed an index score for each of the dimensions and then ranked countries accordingly.
You probably already guessed that Western nations like the U.S., Britain, and Canada all scored high on the individualism scale, and low on the power distance scale. In contrast, Japan ranked high on uncertainty avoidance, and high on masculinity. These results match the typical stereotype of Japan being a male dominated society where the tradition of lifetime security is important. Notice that both Denmark and Sweden ranked low on uncertainty avoidance and low on masculinity. Again, there results probably support what you already know about these countries.
While Hofstede’s work is useful in helping us to understand different cultural dimensions, it does have some problems. The study was undertaken by Westerners and so is probably somewhat biased, it does not allow for more than one culture to exist in a country, and it was conducted by asking IBM employees in different countries various questions, and so could be biased simply by the type of people who worked at IBM. Finally, don’t forget that cultures evolve, and that what might have held 30 or 40 years ago could be very different today!

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Cultural Change
Culture evolves over time, although changes in value systems can be slow and painful for a society
social turmoil is an inevitable outcome of cultural change
cultural change is particularly common as countries become economically stronger

Let’s take that thought and move on to cultural change. As we said, culture is evolutionary, and change can often be slow and painful. You are probably familiar with the cultural changes that took place in the U.S. in the 1960s and 1970s when women entered the workforce and demanded to be treated the same way as men. In 2008, Sarah Palin became a candidate for Vice President of the United States. While she didn’t succeed, she did break new ground for women.
The states of the former Soviet Union and its Eastern European neighbors have also been in a state of change in recent years. The fall of Communism ushered in new era of individualism and a shift away from the collectivist values that had been in place for many years. Change is also present in Japan. As we’ve already discussed, an emphasis on group achievements and loyalty has contributed to much of the country’s current success. But Japan’s younger generation is showing signs that these values may not be acceptable anymore. Instead, the younger generation is acting more like Western managers who leave companies in search of more money and rank, who avoid overtime, and who prefer to spend their free time away from the office.
Why do these types of changes occur? Some studies show that economic progress is associated with a shift away from collectivism and towards individualism—this would explain what’s happening in Japan, for example. Other studies show that the effects of economic progress on factors like education and infrastructure also contribute to cultural change. So, as countries get richer, there is a shift away from traditional values. In India, a better standard of living is encouraging many younger people to embrace Western products. Yum Brands is hoping to capitalize on this cultural shift. The company opened its first Taco Bell in India in 2010. Keep in mind though, that these cultural shifts don’t occur overnight—it may take generations before they are really a part of a new culture.

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Implications for Managers
Differences in culture imply that
there is a need for managers to develop cross-cultural literacy
there is a connection between culture and national competitive advantage
there is a connection between culture and ethics in decision making

So, what does all of this mean for managers? Well, as we said at the beginning, it’s vital for firms to develop cross cultural literacy. To be successful, you have to be able to conform and adapt to the value system and norms of the host country. One way you can gain knowledge of the local culture is to hire local citizens. Developing a cadre of cosmopolitan managers who have been exposed to different cultures can also be helpful.

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Cross-Cultural Literacy
Individuals and firms must develop cross-cultural literacy
firms that are ill informed about the practices of another culture are unlikely to succeed in that culture
Individuals must also beware of ethnocentric behavior (a belief in the superiority of one’s own culture)

It’s important to avoid being ethnocentric, or believe that your ethnic group or culture is superior to that of others. You’ve probably heard of the Ugly American, or the American who believes he is better than anyone else, and that his way of doing things is better than anyone else’s. French people have also been accused of sharing this trait. Needless to say, it doesn’t go down well in a business meeting!
When several firms from Silicon Valley opened offices in London in 2006, both the Americans and the English had to learn to adapt to new ways of doing business. Londoners who were accustomed to eating a three course meal at a restaurant found themselves following the Californian style of grabbing a sandwich around the conference table instead! The English also discarded their suits in favor of the more causal approach to dressing that is common in Silicon Valley. One executive from Amgen commented that, unlike the British tradition of eating just at mealtimes, his American colleagues were always eating!
Keep in mind that the need for cross-cultural literacy is not limited to face-to-face meetings. Boeing and Bell Helicopter found this out the hard way when promotional materials for the jointly developed Osprey plane offended many Muslims.

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Culture and Competitive Advantage
The connection between culture and competitive advantage is important because
the connection suggests which countries are likely to produce the most viable competitors
the connection has implications for the choice of countries in which to locate production facilities and do business

Another reason for companies to be aware of cultural differences is the link between culture and competitive advantage. The value systems and norms of a country influence the costs the cost of doing business, which of course then affects the competitive advantage of firms. Remember our discussion of how a society’s class structure affects the relationship between management and labor for example, or how Japan’s strong worker loyalty system, and lifetime employment guarantees affect the success of Japanese companies. Similarly, a more individualistic culture promotes entrepreneurial activities as compared to a culture that emphasizes collective behavior.
These differences provide companies with insight as to which countries are most likely to produce competitors, and which countries will be the best for investing or selling. For example, if you’re comparing two countries with similar wage costs, you’ll recognize that the country with the better education system, less social stratification, and a group identification is probably the better site for production facilities. Similarly, based on cultural differences, we would expect strong competitors to emerge from Pacific Rim nations, as compared to some other parts of the world.

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Classroom Performance System
Abstract ideas about what a society believes to be good right and desirable are called
Attitudes
Norms
Values
Mores

Now, let’s see how well you understand the material in this chapter. I’ll ask you a few questions. See if you can get them right. Ready?
Question 1: Abstract ideas about what a society believes to be good, right, and desirable are called
attitudes
norms
values
mores

If you picked C, you’re right!

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Classroom Performance System
The extent to which an individual can move out of the social strata into which they are born is called
Social stratification
Class mobility
Social mobility
Caste system

Question 2: The extent to which an individual can move out of social strata into which they are born is called
social stratification
class mobility
social mobility
caste system
If you picked C, you’re correct!

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Classroom Performance System
The religion with the largest following in the world is
Christianity
Islam
Hinduism
Buddhism

Question 3: The religion with the largest following in the world is
Christianity
Islam
Hinduism
Buddhism
The correct answer is A. Did you get it right?

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Classroom Performance System
Which of Hofstede’s dimensions measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating uncertainty?
Individualism versus collectivism
Uncertainty avoidance
Masculinity versus femininity
Power distance

Question 4: Which of Hofstede’s dimensions measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating uncertainty?
Individualism versus collectivism
Uncertainty avoidance
Masculinity versus femininity
Power distance
Did you choose b?

Weekly Country Assignment BUSN 201

You MUST type using this template or your work will not be graded.

You MUST cite your sources as you use them. Example…..Indonesia subscribes to the human rights of justice for all (USA Today, 2012).

Also, for each cited source you must include the URL Link where you received the information from

You will submit this assignment in the appropriate drop box.

Do Not…… include this page with your homework.

Download the below template onto your hard drive and use it to complete these assignments.

How To:

For these assignments, you will complete three individually and two as part of a group….see syllabi schedule for the weeks which correspond to the weeks the individual and group country assignments are due.

Each assignment will cover a total of three chapters, see syllabi. For each of those three chapters you will complete the below template. For example the first country assignment is completed as an individual. You will be completing the below template using 2 topics from chapters 1, 2, & 3. You will choose the two topics from each of those chapters. You will be answering parts of the template questions based on the country you chose for that particular assignment. You need to pick 3 different countries. So for the first individual assignment you will choose one country, then for the second assignment, you will choose another country and for the third still another. You are not allowed to complete the assignment using the same country more than once or the USA.

For the group country assignments, you will follow the same instruction as for the individual, except you will be completing as part of a group. So, as part of a group, you will choose one for the first assignment and another country for the second.

The same group you are assigned for the country assignments will be the same group for the Globalization Project.

TEMPLATE

You are to cover:

· County

· Population

· Geographical area

· Major exports

Where

· Major imports

Where

· Major industry

· Natural resources

· What, if any, American business are in operation in this country

· Chapter topic 1

· Textbook Definition

· What does text book say as to why this topic is important to globalization

· What/who does the textbook say this involves and impacts

· Your country related to that topic

· source

· How your country, its workings of your topic affect them becoming or maintain international globalization

· source

· Chapter topic 2

· Textbook Definition
· What does text book say as to why this topic is important to globalization

· What/who does the textbook say this involves and impacts

· Your country related to that topic

· source
· How your country, its workings of your topic affect them becoming or maintain international globalization
· source
· Chapter topic 1
· Textbook Definition
· What does text book say as to why this topic is important to globalization
· What/who does the textbook say this involves and impacts
· Your country related to that topic
· source
· How your country, its workings of your topic affect them becoming or maintain international globalization
· source
· Chapter topic 2
· Textbook Definition
· What does text book say as to why this topic is important to globalization
· What/who does the textbook say this involves and impacts
· Your country related to that topic
· source
· How your country, its workings of your topic affect them becoming or maintain international globalization
· source
· Chapter topic 1
· Textbook Definition
· What does text book say as to why this topic is important to globalization
· What/who does the textbook say this involves and impacts
· Your country related to that topic
· source
· How your country, its workings of your topic affect them becoming or maintain international globalization
· source
· Chapter topic 2
· Textbook Definition
· What does text book say as to why this topic is important to globalization
· What/who does the textbook say this involves and impacts
· Your country related to that topic
· source
· How your country, its workings of your topic affect them becoming or maintain international globalization
· source

Pick one of the following concepts to answer

· What U.S Company could benefit either by exporting or importing with your country, indicating specifics as to what product(s)

· WHY

· source

……. OR

· benefit by opening up doors in your country

· WHY
· source

Must answer both or the following questions

· What hot news is there about your Country and its relevancy on globalization…i.e.,

· source

· How is this important to globalization

· source

Globalization Weekly assignment

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