INTERNATIONAL TRADE

LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE

Learning Outcomes

To make you understand as a student of international trade what is the subject all about. To know the concepts involved in international trade and globalization. To understand how does globalization effects the working of the economy of a country.

Objective of the lesson

After studying this lesson, you should understand

The meaning of international trade and globalization. Why is it important to study international business? What are the basic criterias involved in international business?

French music company to promote their record in America. The driver might pull into a drive-through coffee stall run by a Korean immigrant and order single-tall-non-fat latte and chocolate-covered biscotti. The coffee beans come from Brazil and the chocolate from Peru, while the biscotti was made locally using an old Italian recipe. After the song ends, a news announcer might inform the American listener that antiglobalization protests at a meeting of heads of state in Genoa, Italy, have turned vio-lent. One protester has been killed. The announcer then turns to the next item, a story about how an economic slowdown in America has sent Japans Nikkei stock market index to 16-year lows. This is the world we live in. It is a world where the volume of goods, services, and investment crossing national borders has expanded faster than world output every year for the past two decades. It is a world where more than $1.2 billion in foreign exchange transactions are made every day. It is a world in which international institutions such as the World Trade Organization and gatherings of leaders from the worlds most, pow-erful economies have called for even lower barriers to cross-border trade and invest-ment. It is a world where the symbols of material and popular culture are increasingly global: from CocaCola and McDonalds to Sony PlayStations, Nokia cell phones, MTV shows, and Disney films. It is a world in which products are made from inputs that come from all over the world. It is a world in which an economic crisis in Asia can cause a recession in the United States, and a slowdown in the United States re-ally did help drive Japans Nikkei index in 2001 to lows not seen since 1985. It is also a world in which a vigorous and vocal minority is protesting against globalization, which they blame for a list of ills, from unemployment in developed nations to envi-ronmental degradation and the Americanization of popular culture. And yes, these protests really have turned violent. For businesses, this is in many ways the best of times. Globalization has increased the opportunities for a firm to expand its revenues by selling around the world and re-duce its costs by producing in nations where key inputs are cheap. Since the collapse of communism at the end of the 1980s, the pendulum of public policy in nation after nation has swung toward the free market end of the economic spectrum. Regulatory and administrative barriers to doing business in foreign nations have come down, while those nations have often transformed their economies, privatizing state-owned enterprises, deregulating markets, increasing competition, and welcoming investment by foreign businesses. This has allowed businesses both large and small, from both ad-vanced nations and developed nations, to expand internationally. The globa1.retailing industry, profiled in the opening case, is something of a late mover in this development. Some industries, such as commercial jet aircraft, automo-biles, petroleum,
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Introduction
A fundamental shift is occurring in the world economy. We are moving rapidly away from a world in which national economies were relatively self-contained entities, iso-lated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, cul-ture, and business systems. And we are moving toward a world in which barriers to cross-border trade and investment are tumbling; perceived distance is shrinking due to advances in transportation and telecommunications technology; material culture is starting to look similar the world over; and national economies are merging into an interdependent global economic system. The process by which this is occurring is com-monly referred to as globalization. In this interdependent global economy, an American might drive to work in a car designed in Germany that was assembled in Mexico by DaimlerChrysler from compo-nents made in the United States and Japan that were fabricated from Korean steel and Malaysian rubber. She may have filled the car with gasoline at a service station owned by a British multinational company that changed its name from British Petroleum to BP to hide its national origins. The gasoline could have been made from oil pumped out of a well off the coast of Africa by a French oil company that transported it to the United States in a ship owned by a Greek shipping line. While driving to work, the American might talk to her stockbroker on a Nokia cell phone that was designed in Finland and assembled in Texas using chip sets produced in Taiwan that were designed by Indian engineers working at a firm in San Diego, California, called Qualcomm. She could tell the stockbroker to purchase shares in Deutsche Telekom, a German telecommunications firm transformed from a former state-owned monopoly into a global company by an energetic Israeli CEO. She may turn on the car radio, which was made in Malaysia by a Japanese firm, to- hear a popular hip-hop song composed by a Swede and sung by a group of Danes in English who signed a record contract with a

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semi-conductor chips, and computers, have been global for decades. Retailing has been primarily local in orientation, but in a testament to the scope and I pace of globalization, this too is now changing. Falling barriers to cross-border invest-ment have made this possible. Rapid economic growth in developing nations and mar-ket saturation at home- has made globalization a strategic imperative for established retailers seeking to grow their business. Many, such as Wal-Mart and Tesco, feel that they must move aggressively now lest they lose the initiative to early movers like Car-refour. They see their strategic advantage in terms of building a global brand, realizing economies of scale, and leveraging skills across national borders. In this, they are no different from companies in other industries that have already gone global. At the same time, going global is not without problems. This too was evident in the opening case. The grand strategic vision of retailers such as Wal-Mart and Carrefour has often run up against the hard reality that for all the superficial similarities in ma-terial and popular culture and in business systems, doing business in foreign nation still has unique challenges. Because of different tastes and preferences, what sells in Britain may not sell in Thailand, operating systems that give a retailer a competitive advantage in America may be difficult to implement in Mexico, and a brand that means something in Kansas may mean little in Indonesia. The tension evident in the opening case between the economic opportunities associated with going global and the unique challenge associated with doing business across borders is an important one in international business. To begin with, however, we need to take a closer look at the process of globalization. We need to understand what is driving this process, appreciate how it is changing the face of international businesses, and better comprehend why globalization has become a flash point for debate, demonstration, and conflict over the future direction of our civilization. What is globalization? Globalization refers to the shift toward a more integrated and interdependent. World economy. Globalization has two main components; the globaliza-tion of markets and the globalization of production.

A company does not have to be the size of these multinational giants to facilitate, and benefit from, the globalization of markets. In the United States, more than 200,000 small businesses with fewer than 100 employees registered foreign sales in 2000. Typical of these is Hytech, a New York-based manufacturer of solar panels that generates 40,percent of its $3 million in annual sales from exports to five countries, or B&S Aircraft Alloys, another New York company whose exports account for 40 percent of its $8 million annual revenues. Despite the global prevalence of Citicorp credit cards and McDonalds hamburgers it is important not to push too far the view that national markets are giving way to the global market very significant differences still exist between national markets along many relevant dimensions, including consumer taste and preferences, distribution channels, culturally embedded value systems, and the like. These differences frequently require that marketing strategies, product features; and operating practices be customized to best match conditions in a country. For ex ample, automobile companies will promote different car models depending on a range of factors such as local fuel costs, income levels, traffic congestion, and cultural values. Similarly, as we saw in the opening case, global retailers may still need to vary their product mix from country to country depending on local tastes and preferences. The most global markets currently are not markets for consumer products-where national differences in tastes and preferences are still often important enough to act as a brake on globalization-but markets for industrial goods and materials that serve a universal need the world over. These include the markets for commodities such as alu-minum, oil, and wheat; the markets for industrial products such as microprocessors, DRAMs (computer memory chips), and commercial jet aircraft; the markets for com-puter software; and the markets for financial, assets from U.S. Treasury bills to eu-robonds and futures on the Nikkei index or the Mexican peso. In many global markets, the same firms frequently confront each other as competi-tors in nation after nation. Coca-Co las rivalry with Pepsi is a global one, as are the ri-valries between Ford and Toyota, Boeing and Airbus, Caterpillar and Komatsu, and Nintendo and Sega. If one firm moves into a nation that is not currently served by its rivals, those rivals are sure to follow to prevent their Competitor from gaining an ad-vantage. The opening case revealed that retailers such as Wal-Mart, Carrefour, and Tesco are starting to engage in a global rivalry. As firms follow each other around the world, they bring with them many of the assets that served them well in other national marketsincluding their products, operating strategies, marketing strategies, and brand names-creating some homogeneity across markets. Thus, greater uniformity replaces diversity. Due to such developments, in an increasing number of industries it is no longer meaningful to talk about the German market, the American market, the Brazilian market, or the Japanese market; for many firms there is only the global market. The Globalization of Production The globalization of production refers to the sourcing of goods and services from loca-tions around the globe to take advantage of national differences in the cost and qual-ity of
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INTERNATIONAL TRADE

The Globalization of Markets

The globalization of markets refers to the merging of historically distinct and national markets into one huge global marketplace. Falling barriers to cross-border trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. Consumer product such as Citicorp credit cards, Coca-Cola soft drinks, Sony PlayStation, and McDonalds hamburgers are frequently held, up as prototypical examples of this trend. Firms such as Citicorp, Coca-Cola, McDonalds, and Sony are more than just benefactors of this trend; they are also facilitators of it. By offering a standardized product worldwide they help to create a global market.

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factors of production (such as labor, energy, land, and capital). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. Consider the Boeing Companys latest commercial jet airliner, the 777. The 777 contains 132,500 major component parts that are produced around the world by 545 suppliers. Eight Japanese suppliers make parts for the fuselage, doors, and wings; a sup-plier in Singapore makes the doors for the nose landing gear; three suppliers in Italy manufacture wing flaps; and so on. Part of Boeings rationale for outsourcing so much production to foreign suppliers is that these suppliers are the best in the world at performing their particular activity. A global web of suppliers yields a better final product, which enhances the chances of Boeing winning a greater share of total orders for aircraft than its global rival, Airbus Industrie. Boeing also outsourcers some production to foreign Countries to increase the chance that it will win significant orders from airliners based in that country. The global dispersal of productive activities is not limited to giants such as Boeing. Many much smaller firms are also getting into the act. Consider Swan Optical, a U.S. -based manufacturer and distributor of eyewear. With annual sales revenues of $20 mil-lion to $30 million, Swan, is hardly a giant, yet Swan manufactures its eyewear in low-cost factories in Hong Kong and China that it jointly owns with a Hong Kong- based partner. Swan also has a minority stake in eyewear design houses in Japan, France, and Italy. The company has dispersed its manufacturing and design processes to different locations around the world to take advantage of favorable skill bases and cost structures. Foreign investments in Hong Kong and then China have helped swan lower its cost structure, while investments in Japan, France, and Italy have helped it produce designer eyewear for which it can charge a premium price. By dispersing its manufacturing and design activities, Swan established a competitive advantage for it-self in the global marketplace for eyewear, just as Boeing has tried to do by dispersing some of its activities to other countries. Robert Reich, the former secretary of labor in the Clinton administration, has ar-gued that as a consequence of the trend exemplified by Boeing and Swan Optical, in many industries it is becoming irrelevant to talk about American products, Japanese products, German products, or Korean products. Increasingly, according to Reich, outsourcing of productive activities to different suppliers results in the creation products that are global in nature; that is, global products. But as with the globalization of markets, one must be careful not to push the globalization of production too far substantial impediments still make it difficult firms to achieve the optimal dispersion of their productive activities to locations around the globe. These impediments include formal and informal barriers to trade tween countries, barriers to foreign direct investment, transportation costs, and issues associated with economic and political risk. Nevertheless, we are traveling down the road toward a future characterized by increased globalization of markets and production. Modern firms are important actors in this drama,

by their very actions fostering increased globalization. These firms, however, are merely responding in an efficient manner to changing conditions in their erating environment-as well they should. In the next section, we look at the main drivers of globalization. Drivers of Globalization Two macro factors seem to underlie the trend toward greater globalization. The first is the decline in barriers to the free flow of goods, services, and capital that has oc-curred since the end of World War II. The second factor is technological change, particularly the dramatic developments in recent years in communication, information processing, and transportation technologies. Declining Trade and Investment Barriers During the 1920s and 30s, many of the nation-states of the world erected formidable barriers to international trade and foreign direct investment. International trade oc-curs when a firm exports goods or services to consumers in another country. Foreign direct investment occurs when a firm invests resources in business activities outside its home country. Many of the barriers to international trade took the form of high tar-iffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition. One consequence, however, was beg-gar thy neighbor retaliatory trade policies with countries progressively raising trade barriers against each other. Ultimately, this depressed world demand and contributed to the Great Depression of the 1930s. Having learned from this experience, the advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations. This goal was enshrined in the treaty known as the General Agreement on Tariffs and Trade (GATT). Under the umbrella of GATT, eight rounds of negotiations among member states, which now number more than 140, have worked to lower barriers to the free flow of goods and services. The most recent round of negotiations, known as the Uruguay Round, was completed in December 1993. The Uruguay Round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization (WTO) to police the international trading system. Table 1.1 summarizes the impact of GATT agreements on average tariff rates for manufactured goods. As can be seen; average tariff rates have fallen significantly since 1950 and now stand at 3.9 percent. Discussions aimed at launching a new round of cuts in barriers to cross-border trade and investment were scheduled to begin in LATE 2001. If and when the round begins, the likely focus will be services and agricultural products, where tariffs still remain high. The average agricultural tariff rates are still around 40 percent, and rich nations spend some $300 billion a year in subsidies to support their farm sectors.

INTERNATIONAL TRADE

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Table 1.1

1913 1950 1990 2000 France Germany Italy Japan Holland Sweden 21% 20 18 30 5 20 18% 26 25 11 9 23 14 5.9% 3.9% 5.9 5.9 5.3 5.9 4.4 5.9 4.8 3.9 3.9 3.9 3.9 3.9 3.9 3.9

Average Tariff Rates on Manufactur ed Products

nation-states are becoming more intertwined. As trade expands, nations are becoming increasingly dependent on each other fat important goods and services. The evidence also suggests that foreign direct investment is playing an increasing role in the global economy as firms ranging in size from Boeing to Swan Optical in-crease their cross-border investments. The average yearly outflow of FDI increased from about $25 billion in 1975 to a record $1.3 trillion in2000. The flow of FDI not only accelerated over the last quarter century, but it also has accelerated faster than the growth in world trade. For example, between 1990 and 2000, the total flow of FDI from all countries increased about fivefold, while world trade grew by some 82 percent and world output by 23 percent. As a result of the strong FDI flow, by 2000 the global stock of FDI exceeded $6 trillion. In total, by 2000, 60,000 parent companies had 820,000 affiliates in foreign markets that the collectively produced an estimated $14 tril-lion in global sales, nearly twice as high as the value of global exports. The globalization of markets and production arid the resulting growth of world trade, foreign direct investment, and imports all imply that firms are finding their home markets under attack from foreign competitors. This is true in Japan, where U.S. companies such as Kodak, Procter & Gamble, and Merrill Lynch are expanding their presence. It is true in the United States, where Japanese automobile firms have taken market share away from General Motors and Ford. And it is true, in Europe, where the once dominant Dutch company Philips has seen its market share in the consumer electronics industry taken by Japans JVC, Matsushita, and Sony. The bot-tom line is that the growing integration of the world economy into a single, huge marketplace is increasing the intensity of competition in a range of manufacturing -and service industries. Figure 1.1 The Growth of world Trade and World Output

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Britain United States 44

In addition to reducing trade barriers, many countries have also been progressively removing restrictions to foreign direct investment (FDI). Between 1991 and 2000, of the 1,121 changes worldwide in the laws governing foreign direct investment, 95 per-cent created a more favorable environment for FDI, according to the United Nations. During 2000 alone, 69 countries made 150 changes to regulations governing foreign di-rect investment, of which 147 (or 98 percent) were more favorable to foreign in-vestors. A dramatic increase in the number of bilateral investment treaties designed to protect and promote investment, between two countries also reflects governments desire to facilitate FDI. As of 2000, there were 1,856 such treaties in the world involv-ing over 160 countries, a 10-fold increase from the 181n-eaties that existed in 1980. Such trends facilitate both the globalization of markets and the globalization of pro-duction. The lowering of barriers to international trade enables firms to view the world, rather than a single country, as their market. The lowering of trade and investment bar-riers also allows firms to base production at the optimal location for that activity, serv-ing the world market from that location. Thus, a firm might design a product ill one country, produce component parts in two other countries, assemble the product in yet another country, and then export the finished product around the world. The lowering of trade barriers has facilitated the globalization of production. According to data from we World Trade Organization, the volume of world trade has grown consistently faster than the volume of world output since 1950. From, 1950 to 2000, world trade expanded almost 20-fold, far out stripping world output, which grew by six and half times. As suggested by Figure 1.1, the growth in world trade seems to have accelerated in recent years. In 2000, the last year for which full data are avail-able, it increased by a strong 12.5 percent. The global economic slowdown that oc-curred in 2001, along with the-economic aftermath of the September 11th terrorist attacks on the United States, indicate that 2001 may be the first year in almost two decades during which the volume of world trade contracted. If history is any guide, however, any such contraction will be modest and short lived. The data summarized in Figure 1.1 imply two things. First, more firms -are doing what Boeing does with the 777: dispersing parts of their overall production process to different locations around the globe to drive down production costs and increase product quality. Second, the economies of the worlds

Having said all this, declining trade barriers cant be taken for granted demands for protection from foreign competitors are still often heard in countries around the world, including the United States. Al-though a return to the restrictive trade policies of the 1920s and 30s is unlikely, it is not clear whether the political majority in the industrialized world favors further reductions in trade barriers. If trade barriers decline no further, at least for the time be-ing, a temporary limit may have been reached in the globalization of both markets and production. The Role of Technological Change The lowering of trade barriers made globalization of markets and production a theo-retical possibility. Technological change has made it a tangible reality. Since the end of World War II, the

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world has seen major advances in communication, information processing, and transportation technology, including the explosive emergence of the Internet and World Wide Web. In the words of Renato Ruggiero, director general of the World Trade Organization, Telecommunications is creating a global audience. Transport is creating a global village. From Buenos Aires to Boston to Beijing, ordinary people are watching MTV theyre wearing Levis Jeans, and theyre-listening to Sony Walkmans as they commute to work. Microprocessors and Telecommunications Perhaps the single most important innovation has been development of the microprocessor, which enabled the explosive growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by individuals and firms. The microprocessor also underlies many recent advances in telecommunications technology. Over the past 30 years, global communications have been revolu-tionized by developments in satellite, optical fiber, and wireless technologies, and now the Internet and the World Wide Web. These technologies rely on the microproces-sor to encode, transmit, and decode the vast amount of information that flows along these electronic highways. The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moores Law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months). As this happens, the costs of global communications are plummeting, which lowers the costs of coordinating and controlling a global organization. Thus, between 1930 and 1990, the cost of a three-minute phone call between New York and London fell from $244.65 to $3.32. The Internet and World Wide Web The phenomenal recent, growth of the Internet and the associated World Wide Web (which utilizes the Internet to communicate between World Wide Web sites) is the latest expression of this development. In 1990, fewer than 1 million users were connected to the Internet. By 1995 the figure had risen to 50 million. In 2001 it grew to 490 million. By the year 2005, forecasts suggest that the Internet may have over 1.12billion users, or about 18 percent of the worlds population. In July 1993, some 1.8 million-host computers were connected to the Internet (host computers host the Web pages of local users). By January 2001, the number of host computers had increased to109 million and the number is still growing rapidly. In the United States, where In-ternet usage is most advanced, 58 percent of the population had Internet access at home by July 2001. the rate of growth in Internet adoption is now slowing markedly in the United States as the market becomes more saturated. The increase in total Internet usage is also slowing. However, most-observers believe that this is due to the dominance of slow connections to the Internet (telephone lines) and they believe that once high-speed connections become more widely available (such as cable modems that can transmit data 1,000 times faster-than a slow telephone line with a conventional modem), we will see a sharp upswing in the volume of traffic on the Web. The Internet and World Wide Web (WWW) promise to develop into the infor-mation backbone of tomorrows global
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economy. According to Forrester Research, the value of Webbased transactions hit $657 billion in 2000, from virtually nothing in 1994, and could grow, to $6.8 trillion by 2004, with the United States accounting for 47 percent of all Web-based transactions (see Figure 1.2). Many of these transactions are not business-to-consumer transactions (e-commerce), but businessto-business (or e-business) transactions. The greatest current potential of the Web seems to be in the business-to-business arena. Included in the expanding volume of Web-based traffic is a growing percentage of cross-border trade. Viewed globally, the Web is emerging as an equalizer. It rolls back some of the constraints of location, scale, and time zones. The Web allows businesses, both small and large, to expand their global presence at a lower cost than ever before. One example is a small California-based start-up, Cardiac Science, which makes defibrillators and heart monitors. In 1996, Cardiac Science was itching to break into inter-national markets but had little idea of how to establish an international presence. By1998, the company was selling to customers in 46 countries and foreign sales accounted for 85 percent of its $1.2 million revenues. Although some of this business was developed through conventional export channels, a growing percentage of it came from hits to the companys website, which, according to the companys CEO, attracts in-ternational business people like bees to honey. Similarly, 10 years ago no one would have through that a small British company based in Stafford would have been able to build a global market for its products by utilizing the Internet, but that is exactly what Bridgewater Pottery has done. Bridgewater has traditionally sold premium pottery through exclusive distribution channels, but the company found it difficult and labori-ous to identify new retail outlets. Since establishing an Internet presence in 1997, Bridgewater has conducted a significant amount of business with consumers in other countries who could not be reached through existing channels of distribution or could not be reached cost effectively. The Web makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. Figure 1.2 Worldwide E-Commerce Growth Forecast

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Figure 1.3 The Shrinking Globe 1500-1840

INTERNATIONAL TRADE
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Best average speed of horse-drawn coaches and sailing ships, 10 mph. 1850-1930

Steam locomotives average 65 mph. Steamships average 36 mph. 1950s

Propeller aircraft 300-400 mph. 1960s

Jet passenger aircraft 500-700 mph. The Web makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. Transportation Technology
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In addition to developments in communication technology, several major innovations in transportation technology have occurred since World War II. In economic terms, the most important are probably the development of commercial jet aircraft and su-perfreighters and the introduction of containerization, which simplifies transshipment from one mode of transport to another. The advent of commercial jet travel, by reducing the time needed to get from one location to another, has effectively shrunk the globe (see Figure 1.3). In terms of travel time, New York is now closer to Tokyo than it was to Philadelphia in the Colonial days. Containerization has revolutionized the transportation business, significantly low-ering the costs of shipping goods over long distances. Before the advent of container-ization, moving goods from one mode of transport to another was very labor intensive, lengthy, and costly. It could take days and several hundred longshoremen to unload a ship and reload goods onto trucks and trains. With the advent of widespread containerization in the 1970s and 1980s, the whole process can be executed by a handful of longshoremen in a couple of days. Since 1980, the worlds containership fleet has more than quadrupled, reflecting in part the growing volume of international trade -and in part the switch to this mode of transportation. As a result of the efficiency gains -associated with containerization, transportation costs have plummeted, making it -much more economical to ship goods around the globe, there by helping to drive the globalization of markets and production. Between 1920 and 1990 the average ocean freight and port charges per ton of U.S. export and import cargo fell from $95 to $29 (in 1990 dollars). The cost of shipping freight per ton-mile on railroads in the United States fell from 3.04 cents in 1985 to 2.3 cents in 2000, largely as a result of efficiency gains from the widespread use of containers. An increased share of cargo now goes by air. Between 1930 and 1990, average air transportation revenue per passenger mile fell from $0.68 to $0.11. Implications for the Globalization of Production As transportation costs associated with the globalization of production declined, dispersal of production to geographically dispersed locations became more economical. As a result of the technological innovations discussed above, the real costs of information processing and communication have fallen dramatically in the past two decades. These developments make it possible for a firm to create and then manage a globally dispersed production system, further facilitating the globalization of production. A worldwide communications network has become essential for many international businesses. For example, HewlettPackard uses satellite communications and information processing technologies to link its worldwide operations. Hewlett Packards product development teams consist of individuals based in different coun-tries (e.g., Japan, the United States, Great Britain, and Germany). When developing new products, these individuals use videoconferencing to meet on a weekly basis. They also communicate with each other daily via telephone, electronic mail, and fax. Communication technologies have enabled Hewlett-Packard to integrate its global

dispersed operations and to reduce the time needed for developing new products (for details see the Management Focus about Radha Basu, a global manager in the information age). The development of commercial jet aircraft has also helped knit together the worldwide operations of many international businesses. Using jet travel, an America manager need spend a day at most traveling to her firms European or Asian operations. This enables her to oversee a globally dispersed production system. Implications for the Globalization of Markets In addition to the globalization of production, technological innovations have also facilitated the globalization of markets. As noted above, low-cost transportation has made it more economical to ship products around the world, thereby helping to create global markets. Low-cost global communications networks such as the World Wide Web are helping to create electronic global marketplaces. In addition, low-cost jet travel has resulted in the mass movement of people between countries. This has reduced the cultural distance between countries and is bringing about some converge of consumer tastes and preferences. At the same time, global communication networks and global media are creating a worldwide culture. U.S. television networks such as CNN, MTV, and HBO are now received in many countries, and Hollywood films shown the world over. In any society, the media are primary conveyors of culture; as global media develop, we must expect the evolution of something akin to a global culture. A logical result of this evolution is the emergence of global markets for consumer products. The first signs of this are already apparent. It is now as easy to find a Mc Donalds restaurant in Tokyo as it is in New York, to buy a Sony Walkman in Rio as it is in Berlin, and to buy Levis jeans in Paris as it is in San Francisco. The accompanying Management Focus, Homer Simpson-A Global Brand, illustrates the power of the media to create global market opportunities. Despite these trends, we must be careful not to overemphasize their importance. While modern communication and transportation technologies are, ushering in the global village, very significant national differences remain in culture, consumer preferences, and business practices. A firm that ignores differences between countries does so at its peril.

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Case Study
Radha Basu-A Global Manager in the Information Age In the era of globalization, corporations in-creasingly hire the best talent they can find, no matter what the nationality or gender. Radha Basu is a good example of the emerging class of internationally mobile global managers who are equally at home in different cultures and have to manage across borders on a day-to-day basis, aided by modern communications and transportation technology. Radha was born in Madra in southern India in 1953. Raised as a Hindu, she was nevertheless edu-cated by Irish nuns in a Catholic school. Radha was a strong math student and gained entry to an Indian uni-versity to study engineering. She graduated with honors and won admission to the University of Southern Cali-fornia to do
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graduate work in computer science. Later she went to work for Hewlett-Packard where she gained her first international experience as a manager in Germany. That was followed by a stint in India, but she is now back in the United States working for Hewlett- Packard and is a naturalized American citizen. Radhas job spans the world. She manages teams of software engineers spread across 15 time zones in Cali-fornia, Colorado, England, Germany, Switzerland, India, Japan, and Australia. These teams must work together on collaborative efforts, presenting Radha with a daunt-ing management challenge. A generation ago, such a task would have been nearly impossible, but thanks to advances in communications, computing, and air travel, collaboration between such far-flung co-workers is intense and intimate. Radha logs more than 100,000 air miles a year keeping projects on track, and she commu-nicates regularly with colleagues at distant locations us-ing videoconferencing and teleconferencing. She exchanges scores of e-mails a day and sends si-multaneous voice-mail messages to many of the 1,000 people in her division. Impromptu conversations are the staple of her life. She may be awakened at 6 A.M. by a phone call from her Swiss team, which needs approval to sign a contract to sell soft-ware to a major customer, and spend the next hour refining her teams promises to the customer while eating breakfast and driving to work. Like all of her meetings, this one will be held in English, the language of international business. The widespread use of English is a definite plus, but it can cause confusion too, masking differences in style, practices, and interpretations. The same words in the same language dont necessarily mean the same things to people of different nationalities. Radha says she once told some German engineers that they should do something and was puzzled when they didnt. She discovered that to a German, should means that he has the option of not doing it, and the Germans elected to take this option. Now when Radha wants something done, she uses the word must, a word that conveys the imperative to her German colleagues. Source: Adapted from G. Pascal Zachary, The Global Me, Public Affairs, 2000, pp. 51-55. Notes:

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