The globalization of markets refers to the movement away from thinking of the market as being local or national to being the entire world. Businesses need to “think globally but act locally,” which means that companies must market their products so that they appeal to their local customers.

The globalization of production refers to the trend of individual firms to disperse parts of their production processes to different locations around the world to take advantage of lower costs or enhance the quality of products. The globalization of production often involves outsourcing, which is contracting with another firm to produce part of a product that formerly was produced in-house. Offshore outsourcing (offshoring) has become a significant concern for U.S. workers.

The decline in trade and investment barriers, which are government barriers that inhibit the free flow of goods, services, and financial capital across national boundaries, is one factor that has led to increased globalization. This decline has encouraged developing nations to become involved in international trade and allowed companies to base production facilities at the lowest-cost locations.

Technological changes that have also contributed to the rise in globalization include the following:

• Teleconferencing, which allows businesspeople to conduct meetings with contacts around the world

• Information technology, such as the Internet and cable and satellite television systems, which allow companies to advertise and sell products on a global scale

The theory of comparative advantage states that specialization and trade between countries benefit all who are involved. This is true because countries that participate in international trade experience higher standards of living because of the greater quantity and variety of higher-quality products sold at lower prices.

The costs of international trade are borne by those businesses and their workers whose livelihoods are threatened by foreign competition. Businesses may lose market share to foreign companies and have to lay off workers as a result.

The different types of trade barriers are tariffs, subsidies, quotas, and administrative trade barriers:

Tariffs are taxes imposed on a foreign good or service.

Subsidies are government payments to domestic producers in the form of a cash grants, tax concessions, or low-cost loans.

Quotas are quantity limitations on the amount of an export allowed to enter a country.

Administrative trade barriers are government bureaucratic rules designed to limit imports. One example is a local content requirement, which is a requirement that some portion of a good be produced domestically.

The three basic strategies of international business are the global strategy, the multidomestic strategy, and the transnational strategy.

There are eight common ways for a company to enter foreign markets, as follows:

• Exporting, the sale of domestically produced goods in a foreign market

• Turnkey projects, exporting a firm’s technological know-how in exchange for a fee

• Franchising, selling a well-known brand name or business method in exchange for a fee and percentage of the profits

• Licensing, an agreement in which the licensor’s intangible property may be sold or made available to a licensee for a fee

• Joint ventures, the shared ownership in a subsidiary firm

• Strategic alliances, cooperative agreements between competitors

• Contract manufacturing, subcontracting part or all of the manufacturing of goods to an outside firm

• Wholly owned subsidiary, establishing a foreign facility owned entirely by the investing firm

An exchange rate is the rate at which one currency is converted into another.

Currency appreciation is the increase in the exchange rate of a nation’s currency, which causes the price of imports to fall and the cost of exports to rise. Currency depreciation is the decrease in the exchange rate of a nation’s currency and creates the opposite effect.

Economic growth and development present a challenge because some countries lack the infrastructure necessary to transport goods effectively.

Ethnocentrism the belief that one’s own culture is ­superior to all others, can lead to conflict when ­conducting business globally. Other sociocultural ­challenges include differences in aesthetics, religion, and attitudes toward time and work.

International businesses prefer stable governments. However, many countries do not offer this kind of political and economic environment. Government decisions about taxation, infrastructure investments, and antitrust law enforcement can all affect global business.

From a legal standpoint, the differences in laws and regulations around the world provide challenges for conducting business. There are no universal laws or policies for governing contracts, product safety and liability standards, or property rights.

Bribery is an ethical challenge facing international ­businesses. Decisions about whether to conform to a home country’s environmental, workplace, and product-safety standards while operating in a foreign country are other ethical dilemmas.