Chapter 2: Doing Business in Global Markets

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

A joint venture is a partnership in which two or more companies (usually from different countries) join to undertake a major project. While a strategic alliance is 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.

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

A nations balance of trade is determined by comparing a nations total amount of exports to its imports over a particular period. The balance of payments are the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures and foreign investment.

What are the advantages and disadvantages of trade protectionism and tariffs?

An advantage is that they allow domestic producers to survive and grow, producing more jobs. A disadvantage is that it generally makes goods more expensive for the consumer.

What key challenges must China face before becoming the major global economic leader?

China's one-party political system, human rights abuses, currency issues, and increasing urban population growth. China's underground economy also generates significant product piracy and counterfeiting.

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

Comparative advantage is when a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively or efficiently. (Examples in the US, exporting software development and engineering services while importing shoes and coffee)

What are four major hurdles to successful global trade?

Dealing with differences in sociocultural forces Economic and financial forces Legal and regulatory forces Physical and environmental forces

What is meant by the term dumping in global trade?

Dumping is when products are sold in a foreign country at lower prices than available in the country that they are being produced in.

What are two of the main arguments favoring the expansion of US businesses into global markets?

Exporting provides a terrific boost to the US economy while also creating thousands of jobs.

What does ethnocentricity mean, and how can it affect global success?

It is an attitude that your own culture is superior to other cultures. This can hinder in global success as it shows ones ignorance and may offend others.

What does the Foreign Corrupt Practices Act prohibit?

Questionable or dubious payments to foreign officials to secure business contracts (bribes).

What are the two primary concerns associated with offshore outsourcing?

Reduction in product quality (could harm company's reputation). Jobs may be lost and wages fall due to low-cost competition offshore.

What are the major threats to doing business in global markets?

Terroism, nuclear proliferation, rogue states, income inequality

What is the primary purpose of the WTO?

The World Trade Organization (WTO) was established to mediate trade disputes among nations.

What are the advantages to a firm of using licensing as a method of entry in global markets? What are the disadvantages?

The firm can gain revenues it would not otherwise have generated in its home market. Licensors spend little or no money to produce and market their products. Licensors may experience problems such as granting licensing rates for a long period of time (meaning if the value of the license/product has increased since the original purchase, the licensor would be missing out on money). Licensees have to work harder to succeed as they sometimes must pay for start-up supplies, materials and consulting services from the licensing firm along with the license.

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

They assist in negotiating and establishing trading relationships. (They also deal with customs offices, documentation, and even weight and measure conversions).

What is the key objective of a common market like the European Union?

To promote trade within the countries involved by placing tariffs on external countries (countries not involved in the common market).

How would a low value of the dollar affect U.S. exports?

U.S goods would become cheaper to foreign buyers because it takes less foreign currency to buy them.