The Global Environment

The beginning of chapter 3 discusses the impacts of tariffs, place quotas, and embargos in domestic environments. Companies that need products from countries that have imposed embargo acts will find a way to obtain them. The real issue becomes not actually getting these products, but the increased costs to over come. The book discusses an example that if a U.S. company needed a product from Cuba, the company would have Cuba trade the products to another country such as Canada, which has no embargo imposed and get the product through that channel. This "middleman" results in higher costs. This example stresses the fact that international managers need to be well aware of nations' tariff and quota practices, as well as embargos.

There are different aspects to consider when exporting, importing, outsourcing, etc... Managers need to knowledgeable of the domestic competitive climate as well as the domestic economic climate. These two are crucial for international managers to make big decisions. A manager wouldn't want to be beat by a competitor with a similar strategy on penetrating the same international market. Also being aware of the domestic economic climate could be vital for a struggling company to survive in a weak domestic economy.

An important part of the chapter talks about the formation of the European Union. The EU is made up of 27 European nations and is taking a similar idea that of the U.S. The book states how citizens will describe themselves as "European" rather than German when traveling internationally . Similar to the U.S., one would describe themselves as "American" instead of a "Californian." The EU poses a threat to external companies in regards to protectionism and preferential treatment. It also poses a threat to external companies as potentially not being in contact with the standard-setting body of the EU. This may cause violations of the EU product and safety standards.

NAFTA (North American Free Trade Agreement) - This agreement began in January of 1994 including the countries of Canada, Mexico, and the U.S. This was originally formed to combat the EU, but its mission is quite different from the EU. The NAFTA is still in the early stages of a union and not as cooperative as the EU, but has been successful to reduce tariffs, remove the restrictions of certain products imported/exported, and increase investment opportunities.

One of the more important topics reviewed in chapter 3 is the awareness of cultural differences. Businesses need to adapt to the cultures of new markets they are attempting to enter. An example used in the book was KFC's attempt to enter Brazil. Since the company lacked to recognize the cultural differences between the U.S. and Brazil, their approach failed miserably. This topic is such an important part for a business to succeed in any other country. Culture also affects the way business is conducted.

Competition is viewed very differently from country to country. Some countries consider competition to be a wasteful practice. Japan, for instance, views competition as a wasteful practice, as its main goal is to gain the largest market share while keeping all of their citizens employed. This is very different from the U.S. when competition is wired into our psyches at a very young age. The book touches on topics such as cartels and government owned enterprises in regards to competition. Tariffs and quotas also play a big role in global competition.