BRIAN SATTERLEE CROSS BORDER COMMERCE CROSS BORDER COMMERCE
Brian C .. Satterlee SYNERGISTICS Roanoke, Virginia 24024 CROSS
BORDER COMMERCE Copyright 2009 by Brian C. Satterlee All Rights
Reserved. No part of this publication may be reproduced or
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notification where these occur so they may be corrected in
subsequent editions. ISBN 13: 978-1-934748-03-9 Published by
Synergistics Inc., Roanoke, VA 24024 [email protected] Dedicated to
Dr. Anita Satterlee, my loving wife. -VI-ABOUT THE AUTHOR Brian
Satterlee holds earned doctorates in both Business Administration
and in Higher Education. He has been teaching college-level courses
since 1980 and currently serves as Professor of Business
Administration at Liberty University, where he teaches the MBA
courses International Business, Global Financial Markets, and
Developing Global Markets. In 2004 he was recognized with the
Liberty University Chancellor's Award for Teaching Excellence. In
addition to his academic career, he is experienced in business and
industry. During the 1970s and early 1980s, Dr. Satterlee worked in
the construction industry, experiencing increasing levels of
responsibility and authority in both technical and managerial
positions. He has been a successful entrepreneur and engaged in
various small business enterprises over the years. During the
mid-1990s, he was invited to the Caribbean islands of Grenada and
Dominica and to the Central American nation of Belize, where he was
instrumental in assisting non-governmental organizations create and
sustain economic development activity. Dr. Satterlee has served as
consultant to numerous organizations and government agencies in
areas such as productivity improvement, leadership, technology, and
innovation. Other executive-level positions include serving as
business school dean, graduate school dean, and dean of continuing
education. A member of the Oxford Round Table, he has authored
books in the areas of Strategic Management, Knowledge Management,
-Commerce, and International Business. He has published 24
scholarly papers nationally within his disciplines and has been
invited to speak at 25 professional conferences, both national and
international. CONTENTS ABOUTTHEAUTHOR VI PREFACE Xlii UNIT ONE
INTRODUCTION TO CROSS BORDER BUSINESS 3 Key Concepts 3 UNIT
OVERVIEW 4 CHAPTER ONE -THE GLOBALIZATION MOVEMENT 5 Prime
Characteristics and Outcomes of Globalization 5 Growth ofWorld
Trade and Output (1992-Present) 6 Brief Summary of Current U.S.
International Trade Competitive Situation 7 Why Global Business and
International Trade is Important to the U.S.A. 8 Global Business 9
Differences and Similarities with Domestic Business 10 CHAPTER TWO
- HISTORICAL DEVELOPMENTS 12 To the Time of Christ 12 Through the
Middle Ages to the Renaissance 13 To the Industrial Revolution 14
To the Information Age 15 CHAPTER THREE- DRIVING FORCES 16
Reduction in Barriers to Trade 16 Reduction in Barriers to Foreign
Investment 16 Communication Technology 17 Advances in
Transportation Technology 18 Multinational Corporations 18 CHAPTER
FOUR- MACRO IMPACTS 20 Political Impacts of Globalization 20
Economic Impacts of Globalization 21 Social Impacts of
Globalization 21 Cultural Impacts of Globalization21 CHAPTER FIVE-
THE GLOBAL BUSINESS MANAGER 23 Global Mindset vs. the Provincial
Mindset 23 Knowledge, Skills, and Attributes needed for Success 23
How These May be Obtained 24 UNIT 1 EXERCISES 25 UNIT TWO CULTURE
37 Key Concepts 37 UNIT OVERVIEW 38 CHAPTER SIX- BASIC MANAGERIAL
PARADIGMS 39 CHAPTER SEVEN - DIMENSIONS OF CULTURE 40 -VII--VIII-
CONTENTS Communication 40 Different Meanings ofWords across
Languages 40 Verbal 41 Nonverbal 41 High Context vs. Low Context 41
Religion42 Christianity 43 Judaism 43 Islam 44 Hinduism 45 Buddhism
46 Confucianism 47 Shinto 47 Ethics 48 Definitions 48 Corporate
Social Responsibility 49 The Issue of Corruption 49 Values and
Attitudes 51 Variances in Attitudes across Cultures 51 Concept
ofTime 52 Dealing with Change 52 The Role of Gender 53 Social
Status 53 Business Manners and Customs across National Cultures 53
Social Structures 54 CHAPTER EIGHT- CROSS-CULTURAL ANALYSIS MODELS
56 Hofstede's Dimensions of Culture 56 Trompenaar's Model of
Culture 58 UNIT 2 EXERCISES 61 UNIT THREE ECONOMIC, LEGAL,
POLITICAL, AND RISK FACTORS 73 Key Concepts 73 UNIT OVERVIEW 7 4
CHAPTER NINE - POLITICAL/LEGAL 75 Why Governments Intervene in
Global Trade-Importance to Nation, Businesses, Workers, and
Consumers 75 Special Government Agencies 76 Subsidies 76 Export
Financing 76 Foreign Trade Zones 77 Government Actions that
Restrict Trade 78 Tariffs, Quotas, and Embargoes 78 Local Content
Requirements 80 Administrative Delays 80 Currency Controls 80 Types
ofLaw 80 Common Law 81 Civil Law 81 Theocratic Law 81
Standardization of Laws 82 Property Rights 82 Copyrights 83 CHAPTER
TEN - ECONOMIC SYSTEMS 84 Individualist vs. Collectivist Economic
Values 84 Types of Economic Systems 85 Centrally Planned Economic
System 85 Market Economic System 86 Mixed Economic System 87
Classification ofNations 87 Developed Nations 87 Newly
Industrialized 88 Developing 88 Basic Issues in Economic
Development 89 National Production-GNP vs. GDP 89 Purchasing Power
Parity (PPP) 89 Human Development Index 90 CHAPTER ELEVEN -
INTERNATIONAL BUSINESS RISK 92 Ownership Risk 92 Operation Risk 92
Transfer Risk 92 Sources of Risk 92 Corruption and Bribery 93
Unstable Political System 93 Excess Involvement of Military or
Religious Leaders in Governments 93 Internal Conflict among Ethnic
and Religious Groups 94 Unstable Relations with Other Nations 94
CONTENTS - IX-Causes of Risk 94 Violence and Conflict 95 Terrorism
and Kidnapping 95 Confiscation, Expropriation, and Nationalism 95
UNIT 3 EXERCISES 97 UNIT FOUR- TRADE AND FOREIGN DIRECT INVESTMENT
109 Key Concepts 109 UNIT OVERVIEW 110 CHAPTER TWELVE- THEORETICAL
FOUNDATIONS 111 Pre-Industrial Revolution-Mercantilism 111 Absolute
Advantage Theory 111 Comparative Advantage Theory 112 Factor
Proportions Theory 115 International Product Life Cycle Themy 116
New Trade Theory 116 CHAPTER THIRTEEN- GLOBAL TRADING AND INVESTING
SYSTEMS 118 General Agreement on Tariffs and Trade (GATT) 118 World
Trade Organization (WTO) 119 Foreign Direct Investment 119 Why
Companies Engage in FDI 120 CHAPTER FOURTEEN -THE ROLE OF
GOVERNMENT IN INTERNATIONAL BUSINESS 121 Components 121 Current
Account 121 Capital Account 121 -X- CONTENTS The Issue of Surpluses
and Deficits 122 Government and Global Management Issues in FDI 122
Government Interventions 123 Increase Global Competitiveness 123
Keep Balance of Payments under Control 123 Acquire New Technologies
and Managerial Skills from Foreign Firms Entering their Markets 124
Protectionism-Restrictions in Ownership 124 Business Managers 125
Ownership Control 125 Make or Buy Decisions 126 Labor and
Production Costs 126 Economic Development Incentives 126 UNIT 4
EXERCISES 129 UNIT FIVE FX MARKETS AND GLOBAL MONETARY SYSTEMS 141
Key Concepts 141 UNIT OVERV1EW 142 The Importance of Global
Financial Markets 142 Importance to Borrowers 142 Importance to
Lenders 143 CHAPTER FIFTEEN- FOREIGN EXCHANGE MARKETS 144 Overview
144 Functions 144 Currency Quotations and Terminology 145
Purchasing Power Parity (PPP) 147 Institutions 149 Effect of
Exchange Rates on Global Business 152 CHAPTER SIXTEEN- MONETARY
SYSTEMS 155 The Gold Standard 155 1880s to World War II 155 Demise
of the Gold Standard 156 The Bretton Woods Agreement-1944 to 1971
157 Fixed Exchange Rates 157 Establishment of the International
Monetary Fund (IMP) 158 Establishment of the World Bank 158 Demise
of the Bretton Woods Agreement 158 Floating Exchange Rates-1973 to
Present 158 Managed Float System 159 European Monetary System-1979
to Present 160 Exchange Rate Mechanism 160 Maastricht Treaty 160
UNIT 5 EXERCISES 163 UNIT SIX TRADEAGREEMENTS 175 Key Concepts 175
UNIT OVERV1EW 176 CHAPTER SEVENTEEN - DEVELOPMENTAL STAGES 178
Preferential Trade Area 178 Free Trade Area 178 Customs Union 179
Common Market 179 Economic Union 179 CHAPTER EIGHTEEN- REGIONAL
ECONOMIC INTEGRATION 181 Regional Agreements 181 The Americas 181
Europe (European Union-EU) 184 Asia 186 Middle East 187 Mrica 188
UNIT 6 EXERCISES 193 UNIT SEVEN GLOBAL MARKET ENTRY 205 Key
Concepts 205 UNIT OVERVIEW 206 CHAPTER NINETEEN- EXPANDING INTO
GLOBAL MARKETS 207 Conditions Necessary for Expansion into Global
Markets 207 Managerial Commitment 208 Motivation 209 CONTENTS -XI
-CHAPTER TWENTY- MARKET ENTRY CONSIDERATIONS AND FACTORS 211 Basic
Entry Considerations and Questions 211 Location-Which Markets to
Enter? 211 Timing-When is The Best Time To Enter These Markets? 212
Scale-Large Scale or Small Scale? 213 Key Factors That Influence
the Entry Mode Selection 213 International Experience of the Firm
213 Size of the Market 214 Production and Shipping Costs 214
Environments-Political, Legal, Cultural, Labor, etc. 215 CHAPTER
TWENTY-ONE- MODES OF BUSINESS ENTRY 217 Exporting and Importing 217
The Importance and Use of Intermediaries 217 Facilitators 219
Licensing and Franchising 221 Management Contracts 222 Turnkey
Projects 222 Joint Ventures 223 Wholly Owned Subsidiaries 224 UNIT
7 EXERCISES 225 UNIT EIGHT MANAGING OPERATIONS 235 Key Concepts 23
5 UNIT OVERVIEW 236 CHAPTER TWENTY-TWO- PLANNING ISSUES 237 - XII -
CONTENTS Capacity 237 Facilities Location 237 Location Economies
238 Centralization vs. Decentralization 239 Process 239
Standardization vs. Adaptation 240 Facilities Layout 240 Malee or
Buy Decisions 241 Selection and Acquisition of Raw Materials 241
Selection and Acquisition of Fixed Assets 242 CHAPTER TWENTY-THREE-
PRODUCTION ISSUES 244 Continuous Improvement 244 TQM 244 ISO 9000
245 Just-in-Time Systems 246 Inventory 248 CHAPTER TWENTY-FOUR-
GLOBAL LOGISTICS AND SUPPLY CHAIN MANAGEMENT 249 Global Logistics
(Materials Management and Physical Distribution)249 Supply Chain
Management 251 UNIT 8 EXERCISES 253 ENDNOTES 263 INDEX 273
-XIII-PREFACE The Small Business Administration (SBA) reports that
99 percent of all independent enterprises in the United States have
fewer than 500 employees, accounting for 52 percent of all U.S.
workers. Further, 19.6 million Americans work for organizations
employing fewer than 20 workers, 18.4 million work for firms
employing between 20 and 99 workers, and 14.6 million work for
firms with 100 to 499 workers. By contrast, 47.7 million Americans
work for firms with 500 or more employees. Cross border commerce,
also known as international business or global business, offers
exciting possibilities for small businesses. Yet, less than half of
American businesses pursue the opportunities of cross border
commerce. Why is this so? Some say doing business overseas is too
risky, or that impenetrable regulations malhrough the mechamcs of
free market Collectivism _..-e:- Official export credit agency of
the United States Local Content Requirement Y. Transitioning from
developing to developed nation Human Development Index (HDI)Gj
Alleviate some of the cost associated with free trade Trade on
self-sufficiency, control; self-Orientation Developed Nation ci5
System that allows for the simultaneous operation of / .r
public/private owned enterprises Gross National Product (GNP) I-ll
[Governments block within a .. Export-Import Bank (Ex-ImBank)
Greatest wealth and resources; HDI of 0.8 or higher Individualism
/y Loan: exporter is covered; value of cover
