Importing and exporting products from one country to another greatly increases the variety of products available to consumers and businesses. Several forces have combined to spark and sustain globalization. Governments and businesses have become aware of the potential for higher standards of living and increased profits. New technologies make international travel, communication, and commerce faster and less expensive. In addition, some companies expand into foreign markets just to keep up with their competitors.

North America, Europe, and Pacific Asia represent three geographic clusters that are the major marketplaces for international business activity. These major marketplaces include relatively more of the upper-middle-income and high-income nations but relatively few low-income and low-middle-income countries.

Trade treaties are legal agreements that specify how countries will work together to support international trade. The most significant treaties are (1) the North American Free Trade Agreement (NAFTA), (2) the European Union (EU), (3) the Association of Southeast Asian Nations (ASEAN), and (4) the General Agreement on Tariffs and Trade (GATT).

Economists use two measures to assess the balance between imports and exports. A nation’s balance of trade is the total economic value of all products that it exports minus the total economic value of all products that it imports. When a country’s imports exceed its exports, it has a negative balance of trade and it suffers a trade deficit. A positive balance of trade occurs when exports exceed imports, resulting in a trade surplus.

The balance of payments refers to the flow of money into or out of a country. Payments for imports and exports, money spent by tourists, funding from foreign-aid programs, and proceeds from currency transactions all contribute to the balance of payments.

Exchange rates, the rates at which one nation’s currency can be exchanged for that of another, are a major influence on international trade. Most countries use floating exchange rates, in which the value of one currency relative to that of another varies with market conditions.

Countries export what they can produce better or less expensively than other countries and use the proceeds to import what they can’t produce as effectively. Economists once focused on two forms of advantage to explain international trade: absolute advantage and comparative advantage. Today, the theory of national competitive advantage is a widely accepted model of why nations engage in international trade. According to this theory, comparative advantage derives from four conditions: (1) factor of production conditions, (2) demand conditions, (3) related and supporting industries, and (4) strategies, structures, and rivalries.

Several factors enter into the decision to go international. A company wishing to sell products in foreign markets should consider the following questions: (1) Is there a demand for its products abroad? (2) If so, must it adapt those products for international consumption? Companies may also go international through outsourcing and offshoring.

After deciding to go international, a firm must decide on its level of involvement. Several levels are possible: (1) exporters and importers, (2) international firms, and (3) multinational firms. Different levels of involvement require different kinds of organizational structure. The spectrum of international organizational strategies includes the following: (1) independent agents, (2) licensing arrangements, (3) branch offices, (4) strategic alliances (or joint ventures), and (5) foreign direct investment (FDI). Independent agents are foreign individuals or organizations that represent an exporter in foreign markets. Another option, licensing arrangements, represents a contract under which one firm allows another to use its brand name, operating procedures, or proprietary technology. Companies may also consider establishing a branch office by sending managers overseas to set up a physical presence. A strategic alliance occurs when a company seeking international expansion finds a partner in the country in which it wishes to do business. Finally, FDI is the practice of buying or establishing tangible assets in another country.

A country’s culture includes all the values, symbols, beliefs, and language that guide behavior. Cultural values and beliefs are often unspoken; they may even be taken for granted by those who live in a particular country. Cultural factors do not necessarily cause problems for managers when the cultures of two countries are similar. Difficulties can arise, however, when there is little overlap between the home culture of a manager and the culture of the country in which business is to be conducted. Cultural differences between countries can have a direct impact on business practice. Some cultural differences between countries, such as the meaning of time, can be even subtler and yet have a major impact on business activities. Language itself can be an important factor. Beyond the obvious and clear barriers posed by people who speak different languages, subtle differences in meaning can also play a major role.

Managers in international business also have to understand that there are differences in what motivates people in different cultures. Social orientation is a person’s beliefs about the relative importance of the individual versus groups to which that person belongs. A second important dimension is power orientation, the beliefs that people in a culture hold about the appropriateness of power and authority differences in hierarchies, such as business organizations. Uncertainty orientation is the feeling individuals have regarding uncertain and ambiguous situations. Goal orientation is the manner in which people are motivated to work toward different kinds of goals. Time orientation is the extent to which members of a culture adopt a long-term versus a short-term outlook on work, life, and other elements of society.

Economic differences among nations can be fairly pronounced and can affect businesses in a variety of ways. Common legal and political issues in international business include quotas, tariffs, subsidies, local content laws, and business practice laws. Quotas restrict the number of certain products that can be imported into a country, and a tariff is a tax that a country imposes on imported products. Subsidies are government payments to domestic companies to help them better compete with international companies. Another legal strategy to support a nation’s businesses is implementing local content laws that require that products sold in a country be at least partially made there. Business practice laws control business activities within their jurisdiction and create obstacles for businesses trying to enter new markets.

The term protectionism describes the practice of protecting domestic businesses at the expense of free market competition. Although some economists argue that legal strategies such as quotas, tariffs, and subsidies are necessary to protect domestic firms, others argue that protectionism ultimately hurts consumers because of the resulting higher prices.

A final obstacle to international business is that business practices that are legal in one country may not be legal in another. Bribery, the formation of cartels, and dumping are forbidden in the United States, but legal in other countries, which is challenging for U.S. companies trying to enter some foreign markets.