98 Putting It Together: Global Environment
Summary
This module covered the global business environment. Below is a summary of the topics covered in this module.
Define Globalization
Globalization is a process with a long history. People have been exploring, migrating, and trading with one another throughout human history, and these activities have created interactive networks connecting the different parts of the planet and producing dependent economic relationships. In modern times, globalization can be recognized by noting iconic global corporations, such as Walmart, McDonald’s, or Toyota, that trade across international borders and integrate labor and resources from different countries to sell a product or service in the global marketplace. (From Regional Geography of the World.)
Why Do Nations Trade?
Why do countries trade? Shouldn’t a strong country such as the United States produce all of the computers, television sets, automobiles, cameras, and VCRs it wants rather than import such products from Japan? Why do the Japanese and other countries buy wheat, corn, chemical products, aircraft, manufactured goods, and informational services from the United States? Because countries have different natural, human, and capital resources and different ways of combining these resources, they are not equally efficient at producing the goods and services that their residents demand. The decision to produce any good or service has an opportunity cost, which is the amount of another good or service that might otherwise have been produced. Given a choice of producing one good or another, it is more efficient to produce the good with the lower opportunity cost, using the increased production of that good to trade for the good with the higher opportunity cost.
Comparative vs. Competitive Advantage
A nation has a comparative advantage at producing something if it can produce it at a lower cost than another. A competitive advantage is a term describing attributes that allows a nation to outperform competing nations. These attributes may include access to natural resources, such as high-grade ores or inexpensive power, highly skilled personnel, geographic location, high entry barriers, etc.
How Cultural, Economic, and Legal or Political Barriers Impact, Restrict, or Support International Trade
Firms desiring to enter international business face several obstacles. The most common barriers to effective business are cultural, social, and political barriers, and tariffs and trade restrictions.
The first one that can impede effective business is cultural barriers. A nation’s culture can restrict international business activities. Culture consists of a country’s general concepts and values and tangible items such as food, clothing, and buildings. The second barrier is the social forces that can create obstacles to international trade. Social forces include family, education, religion, and customs. In some countries, purchasing items as basic as food and clothing can be influenced by religion. Individuals do not have the same choices in food, clothing, and health care in every nation. The third one is political barriers. The political climate of a country can have a major impact on international business. Nations experiencing intense political unrest may change their attitude toward foreign firms at any time; this instability creates an unfavorable atmosphere for international trade.The last one is the tariffs and trade restrictions. Tariffs and trade restrictions are also barriers to international business. A nation can restrict trade through import tariffs, quotas and embargoes, and exchanges controls.
Ethical Issues in International Trade
Culture impacts how local values influence the concept of global business ethics. Each professional is influenced by the values, social programming, and experiences he or she has absorbed since childhood. These collective factors affect how a person perceives an issue and the associated correct or incorrect behavior. For some cultures, the evolution of international business and culture sometimes creates a conflict, such as what is seen in gift-giving practices or views on women in the workplace.
The IMF and the World Bank
The IMF’s key roles are the following: promote international monetary cooperation; facilitate the expansion and balanced growth of international trade; promote exchange stability; assist in the establishment of a multilateral system of payments; give confidence to members by making the IMF’s general resources temporarily available to them under adequate safeguards; shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.
The World Bank has one central purpose: to promote economic and social progress in developing countries by helping raise productivity so that their people can live a better and fuller life. The World Bank provides more than $46.9 billion for 303 projects in developing countries worldwide, with financial and/or technical expertise aimed at helping those countries reduce poverty. The Bank is currently involved in more than 1,800 projects in virtually every sector and developing country.
International Trade: GATT and WTO
The GATT consists of a set of promises or commitments that countries make to one another regarding their own trade policies. The goal of the GATT is to make trade freer (i.e., to promote trade liberalization), and thus the promises countries make must involve reductions in trade barriers.
The WTO’s main purpose is to monitor the trade liberalization agreements reached by GATT-member countries in the Uruguay Round. The most important “power” of the WTO is its ability to adjudicate disputes between member countries regarding compliance with the agreements.
Synthesis
Remember the humble banana we talked about at the start of this module? Now you know at least some of what it takes to get bananas from Brazil to your local grocery store: trade agreements, currency exchange rates, compliance with federal laws, bribery and possible corruption, national comparative advantages, tariffs, trade restrictions, cultural differences, and more. Those are just a few of the things that had to fall into place to get those bananas into your local market and ultimately into a banana split served at the local ice cream shop!