{"id":6527,"date":"2016-08-19T19:34:13","date_gmt":"2016-08-19T19:34:13","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&p=6527"},"modified":"2017-04-18T18:13:54","modified_gmt":"2017-04-18T18:13:54","slug":"global-trade-forces","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-wmopen-introbusiness\/chapter\/global-trade-forces\/","title":{"raw":"Global Trade Forces","rendered":"Global Trade Forces"},"content":{"raw":"

Sociocultural Differences<\/h2>\r\n\"Photo<\/a>\r\n

Culture<\/h3>\r\nCulture<\/strong> refers to the influence of religious, family, educational, and social systems on people, how they live their lives, and the choices they make. Business\u00a0always exists in an environment shaped by culture. Organizations\u00a0that intend to sell\u00a0products and services in different countries must be sensitive to the cultural factors at work in their target markets. Even cultural differences between different countries\u2014or between different regions in the same country\u2014can seem small, but businesses that\u00a0ignore them risk failure in their ventures.\r\n\r\nCulture is complex, and fully appreciating its influence takes significant time, effort, and expertise. Certain\u00a0features of a culture can create an illusion of similarity, but businesses need to delve\u00a0deeply to make sure they truly understand the people and environments in which they work. Even a common language does not guarantee similarity of interpretation. For example, in the U.S. we purchase \u201ccans\u201d of various grocery products, but the British purchase \u201ctins.\u201d In India, where English is one of a number of officially recognized languages, \"matrimonial\" is used as a noun in casual conversation, referring to personal ads in newspapers seeking marriage partners.\r\n\r\nSeveral dimensions of culture that require particular attention from global businesses are listed below.\r\n

Language<\/h4>\r\nThe importance of language differences can't\u00a0be overemphasized, and\u00a0there are nearly three thousand languages in the world. Language differences can be a challenge for businesses designing international marketing campaigns, product labels, brand and product names, tag lines, and so on. Finding a single brand name that works universally in terms of pronunciation, meaning, and \"ownability\" is a monumental challenge. Of course, correct and grammatical use of language in business communication is essential for a product, brand, or company to be viewed as credible, trustworthy, and of high quality.\r\n\r\nThe language issue\u00a0becomes more complicated\u00a0when a country has more than one officially recognized language. To illustrate, in Canada, national law requires that labels include both English and French. In India and China, more than two hundred different dialects are spoken. India has more than twenty officially recognized languages. Mainland China's official spoken language is Standard Chinese, and several autonomous regions have designated other additional official languages. Meanwhile in Hong Kong and Macau, Cantonese Chinese, English, and Portuguese are the official languages. Clearly language can quickly become a very challenging\u00a0issue for businesses!\r\n\r\nFinally, businesses should be attuned to what they communicate when they choose which languages to use\u2014or not use. In Eastern Europe, for example, the long history of Soviet occupation during the Cold War has left many inhabitants with a negative perception of the Russian language. Products that carry Russian labeling may suffer accordingly.\r\n

Customs and Taboos<\/h4>\r\nAll cultures have their own unique sets of customs and taboos. It's important for businesses to learn about these customs and taboos so they'll\u00a0know what is acceptable and unacceptable for their foreign operations. For\u00a0<\/span>example, in Japan, the number four is considered unlucky, and products packages containing four items are avoided by many consumers. In Middle Eastern countries where Islamic law is strictly observed, images displaying the uncovered arms or legs of the female body are considered offensive. Meanwhile in Egypt, where many women wear the headscarf or hijab in public, an increasing number of younger women are in work and educational settings where gender segregation does not exist. Businesses struggle with whether to portray women with or without the hijab, knowing that they risk offending some of their target audience with either choice. Businesses should seek guidance from native experts familiar with local culture and customers.\r\n

Values<\/h4>\r\nThe role of values in society is to dictate what is acceptable or unacceptable. Values are part of the societal fabric of a culture, and they can also be expressed individually, arising from the influence of family, education, moral, and religious beliefs. Values are also learned through experiences. As a result, values can influence consumer perceptions and purchasing behavior. For example, consumers in some countries, such as the United States, tend to be individualistic and make many purchasing decisions based on their own personal preferences. In other countries, such as Japan, the well-being of the group is more highly valued, and buying decisions are more influenced by the well-being of the group, such as the family. Based on these differences in values, it is not surprising that ads featuring individuals tend to do better in countries where individualism is an important value, and ads featuring groups do better in countries where the group's well-being is a higher value.\r\n

Time and Punctuality<\/h4>\r\nDifferent cultures have different sensitivities around time and punctuality. In some countries, being slightly late to a meeting is acceptable, whereas in other countries it's very insulting. For cultures that highly value punctuality, being on time is a sign of good planning, organization, and respect. In cultures where precise punctuality is less important, there is often a greater emphasis on relationships. The fact that a meeting happens is more important than when it happens.\r\n\r\nWhile there are cultural stereotypes about time management (such as the laid-back \"island time\" many residents of island nations refer to), the best rule of thumb in business is to be punctual and meet deadlines as promised. You will not insult people by following this rule. Also, it's wise not to apply popular stereotypes to individual people for whom the cultural stereotype may or may not be true. You should let a person's behavior speak for itself, and always treat others with the same level of courtesy you would expect from them.\r\n

Business Norms<\/h4>\r\nBusiness norms vary from one country to the next and may present challenges to foreigners not used to operating according to the particular norms of the host country. In business meetings in Japan, for example, it's expected that the most senior person representing an organization will lead the discussion, and more junior-level colleagues may not speak at all. The role of alcohol in business meetings varies widely by culture: In Middle Eastern cultures where alcohol is forbidden, it may be insulting to serve or even offer an alcoholic beverage. In China, many rounds of toasts are customary as part of formal dinner meetings.\r\n\r\nLikewise, business norms around greetings and physical contact also vary. American-style handshakes have become accepted as a business norm in many cultures, but this custom is not universal. In Japan and some other Asian cultures, a respectful bow is the traditional business greeting, although the handshake is becoming more common. In Islamic cultures, contact between men and women is a sensitive issue, even in business settings. In those regions and cultures, it's best to shake hands with a woman only if she extends her hand first. Similarly, Western women may avoid causing embarrassment by shaking hands only if a hand is extended to her. In India, the namaste (a slight bow with hands brought together on the chest) remains a respectful, if traditional, business greeting particularly when interacting with women and older people.\r\n\r\nAlways seek guidance from a trusted colleague or friend who has experience in the local customs and can offer coaching on proper etiquette.\r\n

Religious Beliefs and Celebrations<\/h4>\r\nAs discussed earlier in this module, religious beliefs and practice can strongly influence what consumers buy (or don't buy), when and where they shop, and how they conduct business. It's important for companies\u00a0to understand the influence of religion on consumer culture in the markets where they operate, so that their business\u00a0activities can be appropriately sensitive. Failing to respect religious beliefs or cultures can seriously undermine the reputation of a company or brand. At the same time, businesses that\u00a0are attuned to the impact of religion on culture can more easily integrate their operations and employees into the local culture.\r\n\r\nFor example, all the major world religions observe holidays that include feasting and gift giving. These festival seasons tend to be prime shopping seasons as well. Holidays originating from the prominent religion of a country or region create sensitivities about certain products: in the Hindu religion, cows are considered sacred and people refrain from eating beef. Observant Jews and Muslims consider pork unclean, and they consume only kosher or halal meats, respectively. Many religions eschew alcohol: for example, devout Sikhs, Muslims, Mormons, Buddhists, and conservative Southern Baptists all refrain from drinking.\r\n\r\nReligious beliefs may cause sensitivities around revealing images or sexually suggestive material. Religious beliefs associated with the symbolism of different colors may create either preferences for or rejection of certain products. The link between religious practice and gender roles may affect which members of the family influence which types of buying decisions. It is important, however, for businesses not to oversimplify how decision making happens in these settings. Even if a woman, for example, is not the primary buyer, she may exercise strong influence of many consumer decisions. Here, as in other areas of cultural impact, is it crucial for businesses to educate themselves about the people and cultures they are targeting for business in order to use cultural knowledge to their advantage.\r\n

Political and Economic Differences<\/h2>\r\n\"Long\r\n\r\nThe\u00a0<\/span>political economy<\/span>\u00a0<\/span><\/strong>of a country refers to its political and economic systems, together. The political system includes the set of formal and informal legal institutions and structures that comprise the government or state and its sovereignty over a territory or people. As you know, political systems can differ in the way they view the role of government and the rights of citizens (compare, for example, the democratic political system of Canada with the communist system of North Korea).\u00a0As you\u2019ll recall, the economic system refers to the way in which a country organizes its economy: most are command, market, or mixed economies.\r\n\r\nThe nature of a country\u2019s political economy plays a big role in whether it is attractive to foreign business and entrepreneurship. Historically, there has been a direct relationship between the degree of economic freedom in a country and its economic growth\u2014the more freedom, the more growth, and vice versa. For decades, the Chinese government maintained an ironclad grip on all business enterprise, which effectively prevented foreign businesses from fully engaging with the Chinese market. That climate has tempered, however, and now the political economy of China is much more open to foreign investment, though it is still not as open as Europe or the U.S.\r\n\r\nBusinesses seeking global opportunities must consider other economic factors beyond a country\u2019s political economy. For one thing, they will want to target the markets and countries where people have the highest incomes and the most disposable income. The world map below shows just how much variation there is in the gross national income (GNI) per person among the nations of the world.\r\n\r\n\"World\r\n\r\nHowever, often those markets are not where\u00a0new<\/em>\u00a0opportunity exists, so businesses have to pursue what economists refer to as \u201cemerging markets.\u201d The four largest emerging and developing economies are the BRIC countries (Brazil, Russia, India, and China). One means of measuring a country\u2019s level of economic development is by its purchasing power parity (PPP), which enables economists to compare countries with very different standards of living. The PPP for a given country is determined by adjusting up or down\u00a0as compared to the cost of living in the United States.\r\n\r\n[caption id=\"attachment_6549\" align=\"alignright\" width=\"250\"]\"India<\/a> India has the world's second-largest mobile-phone user base: 996.66 million users as of September 2015. Shown here is a rooftop mobile phone tower in Bangalore.[\/caption]\r\n\r\nHowever, there is often more to a country's economic story than its PPP or GNI. Consider India: As an emerging market, India is attracting significant attention from businesses all around the globe. It has the second-fastest-growing automotive industry in the world. According to a 2011 report, India\u2019s GDP at purchasing power parity could overtake that of the United States by 2045.\u00a0During the next four decades, Indian GDP is expected to grow at an annualized average of 8 percent, making it potentially the world's fastest-growing major economy until 2050.\u00a0The report highlights key growth factors: a young and rapidly growing working-age population; growth in the manufacturing sector because of rising education and engineering skill levels; and sustained growth of the consumer market driven by a rapidly growing middle class.\r\n\r\nAt the same time, surveys continue to emphasize the chasm between two contrasting pictures of India\u2014on one side,\u00a0<\/span>an urban India, which\u00a0boasts of large-scale space and nuclear programs, billionaires, and information technology expertise, and a rural India on the other, in which 92 million households (51 percent) earn their living by manual labor. In 2014, a report by the Indian Government Planning Commission estimated that 363 million Indians, or 29.5 percent of the total population, were living below the poverty line.\r\n\r\nAnother aspect of a country's political economy is the stability of its current government. Business activity tends to grow and thrive when a country\u00a0is politically stable. When a country\u00a0is politically unstable, multinational firms can still conduct business profitably, but there are higher risks and often\u00a0higher costs associated with business operations.\u00a0Political instability makes a country less attractive from a business investment perspective, so foreign and domestic companies doing business there must often pay higher insurance rates, higher interest rates\u00a0on business loans, and higher costs to protect the\u00a0security of their employees and operations. Alternatively, in countries with stable political environments, the market and consumer behavior are more predictable, and organizations can rely on governments to enforce\u00a0the rule of law.\r\nAs you can see, the desirability of a country as a potential market or investment site depends on a host of complex, interrelated factors. To further complicate matters, once a business arrives in a foreign market, it must also contend with the uncertainty of exchange rates. An\u00a0<\/span>exchange rate<\/span><\/strong>\u00a0is the value of one country\u2019s currency relative to the value of another country\u2019s currency. <\/span>For example, an exchange rate of 119 Japanese yen (JPY, \u00a5) to the United States dollar (US$) means that \u00a5119 will be exchanged for each US$1, or US$1 will be exchanged for \u00a5119.\r\n\r\nEach country, using various mechanisms, manages the value of its currency. A market-based exchange rate will change whenever the value of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than the available supply (this does not mean that people no longer want money, only that they prefer to hang on to their wealth in some other form, possibly another currency).\r\n\r\nThe video below will provide a complete picture of exchange rates and how they impact trade:\r\n\r\nhttps:\/\/youtu.be\/geoe-6NBy10\r\n\r\nClearly, exchanges rates are an important consideration for companies wanting to take their business global, since they will likely have to buy and sell even the most mundane commodities once they arrive in the foreign market. Local labor wants to be paid in its nation\u2019s currency, and if the exchange rate of that currency changes\u00a0in a way that makes it more valuable, then the business\u2019s costs rise unexpectedly. Although businesses try to anticipate and plan for fluctuations\u00a0in exchange rates, currency values are determined by supply and demand,\u00a0and businesses are at the mercy of\u00a0market forces beyond their control.\r\n

Legal Differences<\/h2>\r\n\"Australian<\/a>\r\n\r\nGovernments around the world maintain laws that regulate business practices. In some countries, these laws are more heavy-handed, and in others, the business climate is less regulated and structured. Some laws and regulations, such ones governing property rights and contracts, are designed to create a stable environment for business (both domestic and international)\u2014by establishing\u00a0 the establishment and enforcement of property rights and contracts, for example. Others are designed to protect consumers and the environment, requiring businesses to adhere to responsible, safe, and ethical practices. Still other laws and regulations privilege domestic businesses and protect or partially shield them from foreign competition. There are even laws and regulations that affect\u00a0what marketers are allowed to include in marketing communications, although these are more strict\u00a0in some countries than in others.\u00a0And of course, some laws and regulations deal with taxation and other costs of conducting\u00a0business.\r\n\r\nBusinesses must understand and conform to the legal and regulatory environments of the countries and regions in which they operate. The following is a short list of common regulatory areas that affect businesses globally:\r\n