Chapt - 03 Doing Business in Global Markets

the U.S has how many billionaires?

565

Outsourcing

A decision by a corporation to turn over much of the responsibility for production to independent suppliers.

Licensing

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

what is the key difference between a joint venture and a strategic alliance?

A joint venture is a partnership between two or more companies whereby they undertake a major project. Joint ventures generally involve: (a) sharing technology and risk; (b) sharing marketing and management expertise; (c) entry into markets where foreign companies are often not allowed unless goods are produced locally. In a strategic alliance partners do not share costs, risks, management, or even profits. The purpose is to gain advantages in building competitive market advantages.

strategic alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages.

what makes a company a multinational corporation?

A multinational corporation manufactures and markets products in many different countries and has multinational stock ownership and management. Only firms that have manufacturing capacity or other physical presence in other countries can be called multinational.

Protective Tariff

A tax on imported goods that raises the price of imports so people will buy domestic goods

contract manufacturing can be used to

Allow a company to experiment in a new market without incurring heavy start up costs such as building a manufacturing plant. Temporarily meet an unexpected increase in orders.

trade deficit

An excess of imports over exports

multinational corporation

An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management

CAFTA

Central American Free Trade Agreement

examples of common market

EU, ASEAN, COMESA

How can licensing benefit a firm?

Gaining revenues it wouldn't have otherwise generated. Spending little or no money to produce or market their products.

GATT

General Agreement on Tariffs and Trade

Foreign Direct Investment

Investment made by a foreign company in the economy of another country.

NAFTA

North American Free Trade Agreement

Dumping

Selling goods in another country below market prices

Benefits of joint ventures

Shared technology and risk. Shared marketing and management expertise. Entry into markets where foreign companies are often not allowed unless goods are produced locally.

Tariffs

Taxes on imported goods

WTO

World Trade Organization

foreign subsidiary

a company owned in a foreign country by another company, called the parent company

frachising

a contractual agreement whereby someone with a good idea for a business sells other rights to use the name and sell a product or service in a given territory in a specified manner

aboslute advantage

a country has a monopoly on producing specific product or is able to produce it more efficiently than all other countries

Common Market

a group of countries that acts as a single market, without trade barriers between member countries

import quota

a limit on the number of products in certain categories that a nation can import

what are the advantages of using licensing as a method of entry in global markets? what are the disadvantages?

a) a firm can often gain revenues in a market it would not have generated in its home market; (b) licensees must purchase start-up supplies and consulting services from the licensing firm; and c) licensors spend little or no money to produce and market their products. Disadvantages to licensing include: (a) if a product is extremely successful in another market, the licensor does not receive the bulk of the revenues, and (b) if the foreign licensee learns the company's technology and product secrets, it may break the agreement and begin producing similar products on its own.

joint venture

an agreement between two or more companies to share a business project

Embargo

an official ban on trade or other commercial activity with a particular country.

importing

buying products from another country

what is comparative advantage, and what are some examples of this concept at work in the United States?

comparative advantage simply states that a county should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as efficiently. Examples in the U.S are services such as software and engineering services.

physical and environmental forces affecting global markets

developing countries have transportation and storage systems that make international distribution difficult or impossible. Often, technological capabilities are far from those in the U.S which makes for a tough business environment.

what is meant by the term dumping in global trade?

dumping is the selling of products in foreign countries at lower prices than those charged in the producing country. this tactic is sometimes used to reduce surplus products in foreign markets or gain a foothold in a new market.

Benefits of Strategic Alliances

ease of market entry shared risk shared knowledge and expertise synergy and competitive advantage

what are the objectives of NAFTA

eliminate trade barriers and facilitate cross-border movement of goods and services. Promote conditions of fair competition. Increase investment opportunities. Provide effective protection and enforcement of intellectual property rights. Establish a framework for further regional trade cooperation. Improve working conditions in North America

economic and financial forces affecting global markets

exchange rate - the value of one nation's currency relative to the currencies of other countries. - high value of the dollar - dollar is trading for more foreign currency; foreign products become cheaper. - low value of the dollar - dollar is trading for less foreign currency; foreign goods become more expensive - floating exchange rates - currencies float in value depending on the supply and demand for them in the global market Devaluation - lowering the value of a nation's currency relative to other currencies Countertrading - a complex for of bartering in which several countries may be involved, each trading goods for goods or services for services.

what is the best country for living?

germany

Why trade with other nations?

global trade allows countries to produce what they make best and buy what they need from others

free trade

international trade free of government interference

sovereign wealth funds

investment funds controlled by governments holding large stakes in foreign companies

what is the term for a global strategy in which a firm allows a foreign company to produce its product in exchange for a fee?

licensing

what is the goal of the balance of payments?

more money flowing into a country that is flowing out - this is called a favorable balance

trade or surplus

occurs when the value of a country's exports exceeds that of its imports

contract manufacturing

private label manufacturing by a foreign company

what services are usually provided by an export-trading company ?

provide services such as assistance in associating and establishing the desired trading relationships, matching buyers and sellers from different countries, and help dealing with foreign customs offices, documentation, and weights and measures.

Exporting

selling products to another country

sociocultural forces affecting global markets

social structures, religion, manners and customs, values and attitudes, language, person communication

what are the forces that affect global markets?

sociocultural, economic and financial, legal and regulatory, physical and environmental

what is the best country for doing business?

sweden

what are examples of trade protectionism ?

tariffs - protective tariffs - revenue tariffs Import quota Embargo

revenue tariff

tax on imports used primarily to raise government revenue without restricting imports

comparitive advantage

the ability to produce a good at a lower opportunity cost than another producer

how are a nation's balance of trade and balance of payments determined?

the balance of trade is the difference in the total value of a nation's exports compared to its imports. The balance of payments is the difference between money coming into a country and money leaving the country plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment

balance of trade

the difference between a country's total exports and total imports

balance of payments

the difference between the flow of money into and out of a country

what are two of the main arguments favoring the expansion of U.S businesses into global markets?

the sheer size of the global market is too large to ignore, plus it's difficult for an economy, even one as large as the u.s economy, to produce all the goods and services its citizens desire

trade protectionism

the use of government regulations to limit the import of goods and services

legal and regulatory forces affecting global markets

there's no global system of laws, laws may be inconsistent, U.S businesses must follow U.S laws while conducting global business.

what is an unfavorable balance?

when morem money is flowing out than in