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The impact of geography. Geography has a surprisingly large impact on distribution in many areas. While in the U.S., most communities are readily accessible through the Interstate freeway system (or at least from navigable roads that connect the freeways), many foreign areas are more difficult to reach. A large proportion of the population of Latin America, for example, is concentrated at coastal areas due to the inhospitable terrain that predominates the continent. In Europe, connections across mountains were achieved through aggressive tunneling, but this has not yet been affordable in most developing countries. In some areas, the only way to bring most materials in may be air cargo, which is expensive. Goods may be trucked to one relatively accessible retailer, which will then "re-wholesale" to one that can only be reached by jeep, which in turn will resell to a store that may only be reachable through pack animals. Note that, in addition to physical transportation, reliable communication (e.g., mail, phone, fax, Internet) is also essential to allow for the flow of goods.

Protectionism: Although trade generally benefits a country as a whole, powerful interests within countries frequently put obstacles—i.e., they seek to inhibit free trade. There are several ways this can be done:

Justifications for protectionism: Several justifications have been made for the practice of protectionism. Some appear to hold more merit than others:

Dealing with culture. Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to understand. One may violate the cultural norms of another country without being informed of this, and people from different cultures may feel uncomfortable in each other’s presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance).

Warning about stereotyping. When observing a culture, one must be careful not to over-generalize about traits that one sees. Research in social psychology has suggested a strong tendency for people to perceive an "outgroup" as more homogenous than an "ingroup," even when they knew what members had been assigned to each group purely by chance. When there is often a "grain of truth" to some of the perceived differences, the temptation to over-generalize is often strong. Note that there are often significant individual differences within cultures.

Cultural lessons. We considered several cultural lessons in class; the important thing here is the big picture. For example, within the Muslim tradition, the dog is considered a "dirty" animal, so portraying it as "man’s best friend" in an advertisement is counter-productive. Packaging, seen as a reflection of the quality of the "real" product, is considerably more important in Asia than in the U.S., where there is a tendency to focus on the contents which "really count." Many cultures observe significantly greater levels of formality than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker’s point is considered.

Elements of culture—see text.

Cultural characteristics as a continuum. There is a tendency to stereotype cultures as being one way or another (e.g., individualistic rather than collectivistic). Note, however, countries fall on a continuum of cultural traits. Hofstede’s research demonstrates a wide range between the most individualistic and collectivistic countries, for example—some fall in the middle.

Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to interview a large number of IBM executives in various countries, and found that cultural differences tended to center around four key dimensions:

Although Hofstede’s original work did not address this, a fifth dimension of long term vs. short term orientation has been proposed. In the U.S., managers like to see quick results, while Japanese managers are known for take a long term view, often accepting long periods before profitability is obtained.

High vs. low context cultures: In some cultures, "what you see is what you get"—the speaker is expected to make his or her points clear and limit ambiguity. This is the case in the U.S.—if you have something on your mind, you are expected to say it directly, subject to some reasonable standards of diplomacy. In Japan, in contrast, facial expressions and what is not said may be an important clue to understanding a speaker’s meaning. Thus, it may be very difficult for Japanese speakers to understand another’s written communication. The nature of languages may exacerbate this phenomenon—while the German language is very precise, Chinese lacks many grammatical features, and the meaning of words may be somewhat less precise. English ranks somewhere in the middle of this continuum.

Ethnocentrism and the self-reference criterion. The self-reference criterion refers to the tendency of individuals, often unconsciously, to use the standards of one’s own culture to evaluate others. For example, Americans may perceive more traditional societies to be "backward" and "unmotivated" because they fail to adopt new technologies or social customs, seeking instead to preserve traditional values. In the 1960s, a supposedly well read American psychology professor referred to India’s culture of "sick" because, despite severe food shortages, the Hindu religion did not allow the eating of cows. The psychologist expressed disgust that the cows were allowed to roam free in villages, although it turns out that they provided valuable functions by offering milk and fertilizing fields. Ethnocentrism is the tendency to view one’s culture to be superior to others. The important thing here is to consider how these biases may come in the way in dealing with members of other cultures.

Language:  In communicating with someone from a different culture, one needs to be careful not to use slang "neologisms" from one's own culture, which may be misunderstood if interpreted literally.  For example, a "killer product" is understood by Americans to be a great one, while those unfamiliar with the American language might interpret this literally as one that actually "terminates" people.  Since people in other countries believe Americans to be very fond of owning and using guns, this interpretation may not be much of a stretch.  There are certain phrases that we use in the U.S. that are not part of English as it is spoken elsewhere.  Some of these are surprising, such as "feedback," "user friendly," "short list," and "track record."  Sometimes, phrases mean different, and often opposite, things in U.S. and British English--e.g., when Americans "table" an agenda issue, it is postponed while Britons mean to bring it up for immediate discussion when they use that term.  In British English, "corn" means wheat (they call corn maize).

Exchange rates come in two forms:

Trade balances and exchange rates. When exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency. This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home.

Measuring country wealth. There are two ways to measure the wealth of a country. The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars. Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000. However, that $35,000 will not buy as much in Japan—food and housing are much more expensive there. Therefore, we introduce the idea of purchase parity adjusted per capita GDP, which reflects what this money can buy in the country. This is typically based on the relative costs of a weighted "basket" of goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other items). If it turns out that this measure of cost of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP) are almost identical figures. The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country. Traditionally, the GNP was more prevalent; today the GPD is more commonly used—in practice, the two measures fall within a few percent of each other.)

In general, the nominal per capita GPD is more useful for determining local consumers’ ability to buy imported goods, the cost of which are determined in large measure by the costs in the home market, while the purchase parity adjusted measure is more useful when products are produced, at local costs, in the country of purchase. For example, the ability of Argentinians to purchase micro computer chips, which are produced mostly in the U.S. and Japan, is better predicted by nominal income, while the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed so that these average measures may not be very meaningful. In Brazil, for example, there is a very large underclass making significantly less than the national average, and thus, the national figure is not a good indicator of the purchase power of the mass market. Similarly, great regional differences exist within some countries—income is much higher in northern Germany than it is in the former East Germany, and income in southern Italy is much lower than in northern Italy.

The political situation. The political relations between a firm’s country of headquarters (or other significant operations) and another one may, through no fault of the firm’s, become a major issue. For example, oil companies which invested in Iraq or Libya became victims of these countries’ misconduct that led to bans on trade. Similarly, American firms may be disliked in parts of Latin America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former shah.

Certain issues in the political environment are particularly significant. Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means. Some countries have little tradition of democracy, and thus it may be difficult to implement. For example, even though Russia is supposed to become a democratic country, the history of dictatorships by the communists and the czars has left country of corruption and strong influence of criminal elements.

Laws across borders. When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable. Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application). By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able to claim as a defense that it was forced to do so by the local government; such violations must, however, be compelled—that they are merely legal or accepted in the host country is not sufficient.

The reality of legal systems. Some legal systems, such as that of the U.S., are relatively "transparent"—that is, the law tends to be what its plain meaning would suggest. In some countries, however, there are laws on the books which are not enforced (e.g., although Japan has antitrust laws similar to those of the U.S., collusion is openly tolerated). Further, the amount of discretion left to government officials tends to vary. In Japan, through the doctrine of administrative guidance, great latitude is left to government officials, who effectively make up the laws.

One serious problem in some countries is a limited access to the legal systems as a means to redress grievances against other parties. While the U.S. may rely excessively on lawsuits, the inability to effectively hold contractual partners to their agreement tends to inhibit business deals. In many jurisdictions, pre-trial discovery is limited, making it difficult to make a case against a firm whose internal documents would reveal guilt. This is one reason why personal relationships in some cultures are considered more significant than in the U.S.—since enforcing contracts may be difficult, you must be sure in advance that you can trust the other party.

Legal systems of the World. There are four main approaches to law across the World, with some differences within each:

U.S. laws of particular interest to firms doing business abroad.