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CHAPTER 11 • GLOBAL/INTERNATIONAL ISSUES 333

8. A firm’s power and prestige in domestic markets may be significantly enhanced if
the firm competes globally. Enhanced prestige can translate into improved negotiat-
ing power among creditors, suppliers, distributors, and other important groups.

The availability, depth, and reliability of economic and marketing information in
different countries vary extensively, as do industrial structures, business practices, and the
number and nature of regional organizations. There are also numerous potential disadvan-
tages of initiating, continuing, or expanding business across national borders, such as the
following:
1. Foreign operations could be seized by nationalistic factions.
2. Firms confront different and often little-understood social, cultural, demographic,
environmental, political, governmental, legal, technological, economic, and
competitive forces when doing business internationally. These forces can make
communication difficult in the firm.
3. Weaknesses of competitors in foreign lands are often overestimated, and strengths
are often underestimated. Keeping informed about the number and nature of
competitors is more difficult when doing business internationally.
4. Language, culture, and value systems differ among countries, which can create
barriers to communication and problems managing people.
5. Gaining an understanding of regional organizations such as the European Economic
Community, the Latin American Free Trade Area, the International Bank for
Reconstruction and Development, and the International Finance Corporation is
difficult but is often required in doing business internationally.
6. Dealing with two or more monetary systems can complicate international business
operations.

The Global Challenge

Foreign competitors are battering U.S. firms in many industries. In its simplest sense, the
global challenge faced by U.S. business is twofold: (1) how to gain and maintain exports to
other nations and (2) how to defend domestic markets against imported goods. Few com-
panies can afford to ignore the presence of international competition. Firms that seem insu-
lated and comfortable today may be vulnerable tomorrow; for example, foreign banks do
not yet compete or operate in most of the United States, but this too is changing.
America’s economy is becoming much less American. A world economy and mone-
tary system are emerging. Corporations in every corner of the globe are taking advantage
of the opportunity to obtain customers globally. Markets are shifting rapidly and in many
cases converging in tastes, trends, and prices. Innovative transport systems are accelerating
the transfer of technology. Shifts in the nature and location of production systems, espe-
cially to China and India, are reducing the response time to changing market conditions.
More and more countries around the world are welcoming foreign investment and
capital. As a result, labor markets have steadily become more international. East Asian
countries are market leaders in labor-intensive industries, Brazil offers abundant natural
resources and rapidly developing markets, and Germany offers skilled labor and technol-
ogy. The drive to improve the efficiency of global business operations is leading to greater
functional specialization. This is not limited to a search for the familiar low-cost labor in
Latin America or Asia. Other considerations include the cost of energy, availability of
resources, inflation rates, tax rates, and the nature of trade regulations.
Many countries became more protectionist during the recent global economic reces-
sion. Protectionism refers to countries imposing tariffs, taxes, and regulations on firms
outside the country to favor their own companies and people. Most economists argue that
protectionism harms the world economy because it inhibits trade among countries and
invites retaliation.
When China joined the World Trade Organization in 2001, that country agreed to
respect copyright protections and liberalize restrictions on the import and distribution of
foreign-made goods. However, Chinese counterfeiters still can be criminally prosecuted