Intro to Business (3)
The definition of ________ ________ _______ states: The buying of permanent properties or business in foreign nations
Foreign Direct Investment
The possibility of having all foreign assets expropriated is the major shortcoming of what strategy?
Foreign Direct Investment
A company in another country that is owned by a US company would be an example of a:
Foreign Subsidiary
The two indicators nations rely on to measure global trade are balance of ________ and balance of ________.
Trade, payments
Which of the following are negative effects associated with the establishment of NAFTA?
US manufacturing jobs were lost, safety conditions for workers in mexico continue to be poor
What kinds of products can be imported and exported?
any product can be imported or exported
Global trade is measured using two key indicators known as the:
balance of payments, balance of trade
Advantages of doing business globally include:
bringing ides for businesses in other countries to new markets, finding financing for a new business in other countries
Importing
buying products from another country
Advantage of offshore outsourcing for companies
company focuses on core areas
A foreign country's production of private-label goods to which a domestic company then attaches its brand name or trade mark is called
contract manufacturing
The United States has had a trade _______ since 1975 when it first started importing more products than it exported
deficit
U.S. laws against ___ are specific. To keep domestic products to include 10 percent for overhead costs and 8 percent for profit
dumping
What was the primary benefit of the European Union of adopting the euro in 1999?
eliminating currency conversions
The balance of trade is the total value of a nation's ________ compared to its _________ over a particular period of time
exports, imports
A subsidiary must observe the legal requirements of both the country where the parent firm is located, called the _______ country, and the foreign country where the subsidiary is located, called the ______ country.
home, host
Benefits of International Joint Ventures are:
shared technology and risk, shared marketing and management expertise, entry into markets where foreign companies are often not allowed unless goods are produced locally.
Disadvantage of offshore outsourcing for employees
some jobs are permanently lost and wages fall
Investment funds controlled by government holding large stakes in foreign companies are called:
sovereign wealth funds
A foreign subsidiary operates like a normal domestic firm, with production, distribution, promotion, pricing, and other business functions under the control of the:
subsidiary's management
Absolute Advantage
the advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
Balance of Payments
the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment
Free Trade
the movement of goods and services among nations without political or economic barriers
Trade Protectionism
the use of government regulations to limit the import of goods and services
Which of the following are changes induced by NAFTA?
the value of US exports to NAFTA partners has increased, the trade volume among the United States, Canada, and Mexico more than tripled.
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 (royalty)
Common Market
A regional group of countries that have a common external tariff, not internal tariffs, and a coordination of laws to facilitate exchange, also called a trading bloc. An example is the European Union
The benefits associated with strategic alliances is that they provide broad access to: a. technical expertise b. markets c. shared managerial expertise d. capital
A, B, D
Which of the following are considered benefits of contract manufacturing? a. labor costs in foreign market may be lower than the labor costs in the firm's host country b. it enables a producer or business to experiment in a new market without incurring heavy start-up costs c. shared risks and profits between the firm and the manufacturer d. it can be used to temporarily meet an unexpected increase in orders
A, B, D
Which of the following are common markets? a. EU b. ASEAN C. FTAA D. WTO E. Mercosur
A, B, E
Which of the following are disadvantages of international joint ventures? a. the joint venture may become too large and inflexible b. shared marketing expertise c. shared technology may become obsolete d. access to markets where goods and services must be produced locally
A, C
Which of the following are functions of export trading (or export management companies) that assist companies engaged in indirect exporting? a. assistance is establishing trading relationships b. provide manufacturing support c. match buyers and sellers d. help with foreign customs offices
A, C, D
The_____________ Economic Community was established in 1967 in Thailand to create economic cooperation among its five original members (Indonesia, Malaysia, Phillipines, Singapore, and Thailand.
ASEAN
North American Free Trade Agreement (NAFTA)
Agreement that created a free-trade area among the United States, Canada, and Mexico
Trade Deficit
An unfavorable balance of trade; occurs when the value of a country's imports exceeds that of its exports
Which of the following situations where working with an export-trading company, or export-management company would be helpful? a. when exports exceed imports b. when the culture and governmental policies of the foreign markets are unfamiliar c. when a business requires trade finance support from the government d. when a business is involved in a country with a similar language and culture
B
A common market, also called a trading bloc, is a regional group of countries with: a. no laws to facilitate trade b. no internal tariffs c. a common external tariff d. a restriction of trade among member
B, C
Culture can include which of the following: a. financial status b. religion c. values and attitudes d. language
B, C, D
Which country does the United States have the highest trade deficit with?
China
Disadvantages of offshore outsourcing for companies
Communication becomes difficult
Which countries are members of the Central American Free Trade Agreement?
Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua
The use of outsourcing is primarily designed to reduce _________ for the business that is implementing this strategy.
Costs
Contract manufacturing falls under the broad category of:
Outsourcing
A foreign subsidiary is a foreign company owned in a foreign country by a _________ company.
Parent
Advantages of offshore outsourcing for employees
realized efficiencies allow for new hiring
When Electra decided to product its "pedal-assist" motor bike it had to adhere to speed regulations. The company found out that safety regulations differ greatly among various countries and it opted to use the US standard which calls for a lower speed motor. This is an example of how _____ forces can affect global trade.
regulatory
Dumping
selling products in a foreign country at lower prices than those charged in the producing country
Exporting
selling products to another country
Countertrading
A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services
Why should nations trade with other nations?
1) No country is self-sufficient 2) Other countries need products that prosperous countries produce 3) Natural resources and technological skills are not distributed evenly around the world
Cons of Free Trade
1) domestic workers (particularly in manufacturing based jobs) can lose their jobs due to increased imports or productions shifts to low-wage global markets 2) workers may be forced to accept pay cuts from employers, who can threaten to move their jobs to lower-cost global markets 3) moving operations overseas because of intense competitive pressure often means the loss of service jobs and growing numbers of white-collar jobs 4) domestic companies can lose their comparative advantage when competitors build advanced production operations in low-wage countries
NAFTA Key Objectives
1) eliminate trade barriers and facilitate cross border movement of goods and services 2) promote conditions of fair competition 3) increase investment opportunities 4) provide effective protection and enforcement of intellectual property rights 5) establish a framework for further regional trade cooperation 6) improve working conditions in North America, particularly in Mexico
Pros of Free Trade
1) the global market contains over 6 billion potential customers for goods and services 2) productivity grows when countries produce goods and services in which they have a comparative advantage 3) global competition and less-costly imports keep prices down, so inflation does not curtail economic growth 3) free trade inspires innovation for new products and keeps firms competitively challenged 4) uninterrupted flow of capital gives countries access to foreign investments, which help keep interest rates low
Which of the following are likely benefits to suppliers of exporting?
Increased number of potential customers, increased sales and revenues
One drawback of an international _______________ is that one partner can learn the other's technology and business practices and then use what it has learned to its own advantage.
Joint Venture
The definition of ________ _________ states: a partnership in which two or more companies, often from different countries, join to undertake a major project.
Joint Venture
A _________ __________ shares profits and losses, while a ________ _________ is a long term partnership that does not.
Joint Venture, Strategic Alliance
What is the global strategy in which a firm allows a foreign company to produce its product in exchange for a fee?
Licensing
Least to Most Amount of Commitment, Control, Risk and Profit Potential
Licensing, Exporting, Franchising, Contract Manufacturing, International Joint Ventures and Strategic Alliances, Foreign Direct Investment
A widely debated issue of the early 1990s was the ratification of the _____ ______ ______ ______ Agreement, which created a free-trade area among the United States, Mexico, and Canada.
North American Free Trade
Export Assistance Centers provide hands-on exporting assistance and trade-finance support for _______ and _______ sized businesses
Small, medium
World Trade Organization
The international organization that replaced the General Agreement on Tariffs and Trade and was assigned the duty to mediate trade disputes among nation
Balance of Trade
The total value of a nations exports compared to its imports over a particular period
How is it possible for the United States to exhibit a trade deficit while being one of the largest exporting nations in the world?
The value of the goods the United States imports is higher than the value of the goods it exports
This organization was created to provide more trade agreements between countries and solve trade disputes if/when they arise.
WTO
General Agreement on Tariffs and Trade (GATT)
a 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions
Embargo
a complete ban on the import or export of a certain product or the stopping of all trade with a particular country
Trade Surplus
a favorable balance of trade;occurs when the value of a country's exports exceeds that of its imports
Import Quota
a limit on the number of products in certain categories that a nation can import
Tariff
a tax imposed on imports
Which of the following are considered licensors' benefits of licensing? a. The foreign licensee purchases items (start-up and/or supplies) from the licensor b. Gaining new revenues c. Licensors must grant licensing rights for extended periods of time d. Licensors spend little or no money to produce products
a,b,d
Advantages of offshore outsourcing for customers
lower prices
The outcome of FDI is a foreign subsidiary, a company located in a foreign country that is owned by another company, called the
parent company
For a firm to be considered a multinational corporation it must have a
physical presence in several different nations
Disadvantages of offshore outsourcing for customers
poor quality
Comparative Advantage Theory
theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently
By buying more than it has sold, making the value of its exports less than its imports, the United States faces a
trade deficit