The world is a colorful mosaic. Each country contributes a tile with a distinct shape and texture to the global picture. The panoply of economic differences between countries creates many opportunities for international business, and global business strategy necessarily recognizes the geographic dimensions of world markets.

Country economies differ substantially in the extent of their industrialization and overall economic development. Economic differences across countries primarily show up as variations in prices and wages. Different standards of living translate into inequalities in health care, longevity, nutrition, housing, child care, and education. Gaps in R&D and scientific knowledge are apparent.

Why do countries differ? This question has been a major subject of public debate for a long time. In 1776, Adam Smith published his famous book that addressed this very question: An Inquiry Into the Nature and Causes of the Wealth of Nations. He found that: “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.” When cities, regions, and even countries specialize in different activities, their individual expertise improves and overall productivity grows.

Smith observed that those countries with the greatest wealth were those that engaged in international trade and took advantage of the division of labor. Countries that traded with other countries were able to specialize in particular types of agriculture, manufacturing, and other productive activities.