Participating in the New Global Economy
May 22, 2019
by John Mukum Mbaku, Brady Presidential Distinguished professor of economics, Weber State University
For many years, companies or business enterprises in the United States were unwilling to venture abroad because foreign markets were regarded as too complicated and extremely risky. Considering the large size of the U.S. economy, the unwillingness of American firms to actively participate in the global economy did not have a significantly negative impact on firm profitability. Unfortunately, the healthy U.S. market has encouraged the entry of many foreign firms which have brought in products that now compete in both price and quality with those produced domestically. In fact, foreign firms, such as Toyota, Honda, Nissan, and Mazda, are not only heavily engaged in exporting their goods to U.S. markets, but have actually built and are now operating manufacturing plants in various U.S. locations.
In order to survive these competitive pressures and prosper, American companies must begin to view their potential area of operation as the new global economy rather than just the domestic market. Today, the firm located in the United States must learn to compete effectively in the new global economy. For our purposes, we divide that economy into: (1) the new U.S. economy; and (2) the rest of the world. In both markets, the U.S. firm faces a new type of business environment, one that is characterized by multiple cultures, and new ways of conducting business. To be competitive, the firm must develop a sensitivity to this new business environment. The prospective participant in the new global economy must be aware of and take into consideration the political and cultural environment of each country or economy it operates in. It is important to note that the United States is fast becoming a country of many cultures and customs and, as a result, participation in the U.S. economy also requires continued efforts to understand its unique and complex business environment.
For many U.S. firms, the opportunity to enhance firm profitability remains the single most important reason to enter the global economy. Foreign or international markets may allow the firm to achieve certain important corporate objectives. First, the firm can increase the size of its market and thus achieve greater sales growth. In addition, the firm may be able to sell “out of season” products in markets located in geographic areas different from the U.S. market. For example, an American manufacturer of “summer” wear may continue to sell its products in West Africa in December when sales have virtually stopped in the domestic market as a result of changes in weather conditions. (2) The firm will be able to more effectively utilize excess capacity. The company can sell more of its product than is allowed by the size of the domestic market. (3) The firm can extend the life cycle of the product. Dealing with markets that have different technological requirements may allow a firm to extend the life cycle of its products. For example, products that are technologically obsolete in the United States may still be in demand, say, in countries which are technologically less advanced than the United States. (4) Through involvement in international trade, the firm may be able to penetrate trade barriers. The establishment of manufacturing facilities abroad can enhance the ability of the U.S. firm to sell in markets that are closed through trade barriers such as import quotas, tariffs, labelling requirements, etc. (5) Participation in international trade can allow the firm to take advantage of lower production costs overseas. Lower production costs may arise from the availability of lower wage rates for labor, cheaper raw materials, etc. (6) International trade may also allow U.S. firms to benefit from U.S. tax and other economic incentives designed to encourage U.S. firms to invest abroad, especially in developing countries.
Unfortunately, many U.S. business executives are often ill-prepared to deal with the intricacies of doing business in a culture different from theirs. Sources of potential problems for American business executives engaging in global business include language, culture and customs, political environment, social and economic organization, geography, and the collective historical experiences of the society in question. The John B. Goddard School of Business & Economics at Weber State University provides graduates with the skills they need to become effective managers of international business. It is the belief of the Goddard School that unless business executives develop a sensitivity to the global business environment, they are unlikely to operate effectively and competitively in this emerging economy. Thus, an important part of the mission of the Goddard faculty is to provide the school’s graduates and other interested Weber State University students, in addition to other members of the community, the opportunity to develop the necessary sensitivity to the global business environment in order to improve their competitiveness in international business transactions.
2. PROBLEM AREAS FOR BUSINESS EXECUTIVES OPERATING IN THE NEW GLOBAL ECONOMY
While American business executives operating in the international economy face many challenges, the most important of them concerns communication. Communication issues in international business can be divided into the cultural and nonverbal dimensions of language. With respect to the cultural dimension of language, the international business executive must gain proficiency in the official language of the economy in which it is operating. For example, it would be greatly beneficial for an American business executive who wants to do business in France to gain a significant level of competency in the French language.
But, what about an American entrepreneur who wants to enter the Australian or British markets? English is the official language of both Australia and Great Britain. So, would the American entrepreneur have to worry about language issues as he or she prepares to enter the Australian or British markets? The answer is yes! But, why? This is due to what international business experts refer to as “diversity in the use of a given language”—for example, differences between English as it is used in the United Kingdom and the United States, can create significant problems for the American business executive. Take the word “trunk”, for example. In modern British usage, trunk refers to a large vintage suitcase but in the United States, it means the part of the car where luggage is stored. In British usage, that part of the car is referred to as a “boot”. Hence, an American business executive who intends to enter a market where English is the official language must still prepare himself or herself to meet the challenges of diversity in the use of the English language.
There are further complications in the use of a given language for communication, such as English, that the business executive must keep in mind. Some of these include, but are not limited to slang, euphemisms, and proverbs. Consider this conversation between two students at a typical U.S. college or university—one is an international student (IS) from Nigeria, where English is widely spoken and the other is a domestic student (DS): IS: How was Saturday’s football game? DS: Wait a minute. You mean you did not come to the game? IS: No, I did not attend the game. You know, I really do not understand American football. My thing is soccer! DS: You guys from Nigeria, you do not know what you are missing. Football, that is the real man’s game! I just love it. IS: Well, how did the game go? Did we win? DS: We massacred them! We crushed them! Before DS could complete his answer, IS interrupted: Why would our team commit murder?
Translation (e.g., English to French or English to Swahili) is a major challenge to international business transactions. Some translation blunders are hilarious and hence, laughable. Others, however, can offend local sensibilities and create major problems for the foreign business. This is a problem that even highly established businesses continue to suffer from. Consider, for example, this headline from the May 15, 2019 edition of NairobiNews, a newspaper in Kenya: “Netflix trolled for utterly horrendous Swahili subtitles.” Netflix, the global leader in the provision of Internet entertainment services, and which has as many as “148 million paid memberships in more than 190 countries, enjoying TV series, documentaries and feature films across a wide variety of genres and languages,” recently introduced subtitles to its TV and film services in Kenya. Unfortunately, Netflix’s translators had an extremely “poor grasp of [the] Swahili [language].”
The next area of concern for the international business executive are the nonverbal dimensions of communication. These include body language, hand gestures, facial expressions, touching, and how people use personal space (“proxemics”). Take eye contact, for example. While in Western cultures (which include the United States), making direct eye contact is considered a sign of truthfulness, many non-Western cultures consider direct eye contact a form of aggression, as well as a show of disrespect. In fact, in some cultures, direct eye contact between men and women is forbidden. The successful international business executive is one who is fully aware and well-informed of these issues.
Culture, customs and traditions also significantly affect international business transactions. Individualism and self-interest are the foundations of most Western economies. Hence, seeking to maximize one’s interests, especially if this is undertaken through legal means, is not frowned upon in the United States and other Western economies. Nevertheless, in many non-Western cultures, individuals are expected to maximize family (or group) and not individual interests. For example, in Nigeria’s extended family system, the individual worker is expected to support, not just members of his or her immediate family, but also those of his extended family, which in some instances, may include a whole village. Such a view of individual responsibility can have a significant impact on, not just how a worker approaches his or her job, but also on the firm’s ability to maximize profit.
In the United States and other Western countries, virtually all workers know that “time is money”! And, hence, all workers are expected to come to work on time and leave only after the work-day has officially ended. Thus, a worker who is required to start work at 8:00 a.m. is expected to be at the workplace and ready to proceed at 08h00 and not 08h05! Nevertheless, in many non-Western cultures, an appointment at 08h00 simply means that the person can arrive at any time after 8:00 a.m. Hence, an individual who arrives, say, at 14h30 is not considered late. Thus, understanding how different cultures view time is very important for international business executives.
Another issue that the international business executive must consider is the status of women and how they are treated generally and in business. For example, what should the business executive do if he or she is operating in an economy in which local culture and traditions prohibit women to give orders to men? Can a woman still be promoted to the rank of manager of an operation? What about cultures that prohibit women to work closely with men? The answer to these questions require that the American business executive planning to enter the global economy consult the business college of his or her local university for assistance. At the Goddard School, for example, there are many highly skilled professors who can prepare the business executive well enough to function effectively in such a challenging international business environment, and do so in ways that maximize profit or share-holder value but do not violate the rights of the firm’s global workers or offend U.S. laws and regulations.
3. THE FOREIGN CORRUPT PRACTICE ACT
A U.S. firm operating in the global economy must obey the laws of the various countries in which it operates. In addition to that, such a firm must fully comply with the provisions of the Foreign Corrupt Practices Act (FCPA) and other U.S. laws. The FCPA was enacted by the Congress of the United States and signed into law by President Carter on December 19, 1977. The main function of the FCPA is “to criminalize the bribery of foreign public officials by persons subject to US jurisdiction.” The FCPA functions through two important provisions: (1) “the anti-bribery provisions . . . prohibit individuals and businesses from bribing foreign government officials in order to obtain or retain business[;]” and (2) “the accounting provisions . . . impose certain record keeping and international control requirements on issuers, and prohibit individuals and companies from knowingly falsifying an issuer’s books and records or circumventing or failing to implement an issuer’s system of internal controls.”
The FCPA prohibits the bribery of foreign public officials in international business transactions involving U.S. legal and natural persons, as well as certain foreign issuers of securities. Since the FCPA was amended in 1998, “foreign firms and persons who take any act in furtherance of such corrupt payment while in the United States” have been brought under the jurisdiction of the FCPA.
The U.S. Government, through the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), can hold violators of the provisions of the FCPA civilly and criminally liable. The U.S. Government can also impose additional punishment on persons convicted of violating the provisions of the FCPA. The Government can, for example, prohibit a convicted person from doing business with the government or any of its agencies.
Despite criticisms, the DOJ has scored several successes in prosecuting businesses and executives that have violated provisions of the FCPA. For example, in 2016, Och-Ziff Capital Management Group LLC (Och-Ziff) and its wholly-owned subsidiary, OZ Africa Management GP LLC, admitted to its role in “a widespread scheme involving the bribery of officials in the Democratic Republic of Congo (DRC) and Libya.” Och-Ziff agreed to pay a fine of $213 million. Hence, an American business executive operating in the international economy must be aware of its obligations under the FCPA. Such an executive must consult a lawyer specializing in FCPA issues.
4. LABOR REQUIREMENTS FOR THE NEW GLOBAL ECONOMY
The new emerging economy requires workers who (1) are well educated (must at least be able to read and write); (2) are skilled in math and science; and (3) have significant computer, and data/information-processing skills.
Available data show, however, that a significant number of prospective U.S. workers, most of whom will be needed to fill positions in industry in the next decade, are not receiving the training that will prepare them to function effectively in the new and primarily literate and technically-skilled global economy. Hence, it is incumbent upon business executives and their local colleges to make certain that graduates acquire the skills and competencies that they need to function effectively in the new global economy. Fortunately for U.S. firms, business colleges, such as the Goddard School, are already providing cutting-edge training to students and producing graduates that are quite prepared to function competitively as leaders in the new global economy.
5. TRAVELING IN OTHER CULTURES: NOTES FOR THE AMERICAN EXECUTIVE
One of the most difficult things about traveling is how to meet and react to people from other cultures. If you travel out of the United States, either for business or for pleasure, you are always concerned about your behavior in a culture that is virtually alien to you. How, for example, are you going to greet your host? Should you shake hands? Bow? Smile? Or should you say hello? Hi? What’s happening? Should you look directly into the eyes of your host when you meet? Exactly how should you behave?
Why the worry? Well, behavior that is considered normal in the United States may become abnormal or even illegal and/or taboo in other cultures. Symbolic gestures (e.g., hand gestures) that are used and understood in the United States for communication between individuals may carry different meanings abroad. In fact, some hand signals may carry opposite or even obscene meanings abroad. Thus, the individual traveling abroad must become aware of the fact that U.S. culture is significantly different from that in other countries.
While it is important to understand that differences exist between culture in the United States and that in other countries, it is perhaps more important to recognize that U.S. culture is not the standard or norm used to judge other cultures. In other words, as an international business traveler, do not assume that other cultures are deviations that should be corrected. Such an approach can put the traveler in a very difficult and perhaps life-threatening situation. Travelers who believe that their own culture is superior often attempt, while abroad, to change the behaviors of the people they come across on their travels. This approach to travel can pose significant threats to the individual traveler. The Goddard School can provide the business executive or any other interested person with information to help him or her better prepare to travel abroad, as well as, to meet and deal effectively with foreigners visiting that person in the United States.
6. TAKE-AWAYS FOR THE AMERICAN BUSINESS EXECUTIVE
The most important advice to any American executive engaged in international business transactions is: when in doubt, ask. Recognize differences in customs and cultures, political and economic systems, and religious beliefs.
ABOUT THE AUTHOR
John Mukum Mbaku is a Brady Presidential Distinguished professor of economics and John S. Hinckley Fellow at Weber State University. He is also a nonresident senior fellow at The Brookings Institution in Washington, D.C., and an attorney and counselor at law, licensed to practice in the Supreme Court of the State of Utah and the U.S. District Court for the District of Utah.
He received his PhD in economics from the University of Georgia and his JD in law and graduate certificate in natural resources and environmental law from the S. J. Quinney College of Law at the University of Utah. He is a resource person for the Kenya-based African Economic Research Consortium.
His research interests are in public choice, constitutional political economy, sustainable development, law and development, international human rights, intellectual property, rights of indigenous groups, trade integration and institutional reforms in Africa.
Mbaku is the author of Corruption in Africa: Causes, Consequences, and Cleanups (Lexington Books, 2010) and (with Mwangi S. Kimenyi) of Governing the Nile River Basin: The Search for a New Legal Regime (The Brookings Institution Press, 2015) and Protecting Minority Rights in African Countries: A Constitutional Political Economy Approach (Edward Elgar, 2018).
On May 22, 2017, John Mukum Mbaku, was admitted and qualified as an Attorney and Counsellor of the Supreme Court of the United States.
At Weber State University, John Mukum Mbaku teaches courses in principles of economics, intermediate microeconomics, international trade, business calculus, and economic development. He also works with international students and helps them adjust to college life in the United States. Professor Mbaku also engages with community groups and helps them understand issues such as globalization, outsourcing, and immigration and how they affect economic activities in the United States. Professor Mbaku also visits local schools to talk to students about the U.S. constitution, constitutionalism and the rule of law in the United States and other countries. He is a consultant to several domestic and international news organizations, as well as multilateral organizations (e.g., the African Development Bank), on governance issues in Africa and has appeared on several domestic and international news programs to discuss elections, corruption, and other governance-related issues in Africa.