Management Chapter 5

Five major cultural dimensions...

1. Individualism/Collectivism 2. Power Distance 3. Masculinity/Femininity 4. Uncertainty Avoidance 5. Long-Term Orientation

Legal Environment

A firm that decides to enter the international marketplace must contend with the laws of its own nation, international laws, and the laws of the nation with which it will be trading.

Fixed VS Valorem Tariff

A fixed tariff is a specific amount of money levied on each unit of a product brought into the country, while an ad valorem tariff is based on the value of the item.

Cartel

A group of firms or nations that agree to act as a monopoly and not compete with each other

Global Business (globalization)

A strategy in which organizations treat the entire world or major regions of it as the domain for conducting business.

Licensing

A trade arrangement in which one company—the licensor—allows another company—the licensee—to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee, or royalty Licensing is a way for a company to enter the international marketplace without spending large sums of money abroad and hiring or transferring personnel to handle overseas affairs. It also minimizes problems associated with shipping costs, tariffs, and trade restrictions.

U.K. Bribery Act

All organizations with business operations in the United Kingdom can be held liable for bribery, even if the bribery did not occur within the UK FCPA is limited to bribing foreign officials, the UK Act covers any type of bribery

Webb-Pomerene Export Trade Act

Allows selected American firms desiring international trade to form monopolies in order to compete with foreign cartels These firms are not allowed to limit free trade and competition within the US or to use unfair methods of competition in international trade

European Union (EU)

An economic and political union of 28 member nations that are located primarily in Europe. oldest regional alliances promotes the movement of resources and products among member nations

Organization of Economic Cooperation and Development

An international economic organization comprised of 30 countries that accept the basic principles of free-market economies and representative democracy; recommends and promotes policies to improve the well-being of consumers and societies across the world. conducts considerable global economic and social development analyses

Association of Southeast Asian Nations (ASEAN)

Comprised of ten Southeast Asian countries with the goal to promote economic growth and overall progress in the area via trade and security.

Sociocultural Environment

Differences in body language and personal space Blueprint of acceptable behavior in a society that is passed from one generation to the next Perceptions of time Different customs regarding respect for authority

Outsourcing

Involves transferring manufacturing or other functions (such as data processing) to countries where labor and supplies are less expensive

Political Environment

Managers engaged in international trade must consider the relative stability of the countries in which they wish to do business Civil war, terrorism, and frequent changes of government make it difficult for managers to plan for the future and may even expose a firm's employees to danger Political concerns may lead a group of nations to form a cartel to generate a competitive advantage in world markets.

Contract Manufacturing

Occurs when a company hires a foreign company to produce a specified volume of the firm's product to specification; the final product carries the domestic firm's name.

Foreign Corrupt Practices Act (FCPA)

Outlaws direct payoffs to and bribes to foreign governments or business officials by American companies Specifies penalties for both the company and the individuals involved

Exchange Controls

Restrictions on the amount of a particular currency that may be bought or sold

Trade Restrictions

Some countries control their foreign trade by forcing businesspeople to buy and sell foreign products through a central bank. When foreign currency is in short supply, as it is in many Third World and Eastern European countries, the government uses foreign currency to purchase necessities and capital goods and produces other products locally, thus limit-ing its need for foreign imports.

Tariffs

Tariffs also help when, because of low labor costs and other advantages, foreign competitors can afford to sell their products at prices lower than those charged by domestic companies.

Gross Domestic Product

The market value of a nation's total output of goods and services for a given period

Country's Infrastructure

The physical facilities that support its economic activities, such as railroads, highways, ports, airfields, utilities and power plants, schools, hospitals, communication systems, and commercial distribution systems

Exchange Rates

The ratio at which one nation's currency can be exchanged for another nation's currency or for gold

The North American Free Trade Agreement

Went into effect on January 1, 1994 and effectively merged Canada, the United States, and Mexico into one market of about 400 million consumers by eliminating most tariffs and trade restrictions on agricultural and manufactured products among the three countries. liberalizes U.S. investment in Mexico and Canada, providing for intellectual property rights expands trade and services by requiring equal treatment of U.S. firms in both countries; and simplifies country-of-origin rules labor and environmental concerns

Strategic Alliance

a partnership formed to create competitive advantage on a worldwide basis

Import Tariff

a tax levied by a nation on goods bought outside its borders and imported into the country.

Trading Companies

acquires goods in one country and sells them to buyers in another country Trading companies handle all activities required to move products from one country to another, including purchasing the products outright They offer consulting, marketing research, advertising, insurance, product research and design, warehousing, and foreign exchange services to companies interested in selling their products in foreign markets

Countertrade Agreements

bartering products for other products instead of for currency

International Monetary Fund

basic mission is to oversee the international monetary system and help ensure stable currencies and exchange rates throughout the world

World Bank

formally known as the International Bank for Reconstruction and Development, it was established and supported by the industrialized nations in 1946 to loan money to underdeveloped and developing countries also makes loans to poorer countries for infrastructure and social services purposes, with a strong emphasis in recent years on trying to reduce the prevalence of communicable diseases in many less wealthy/developed parts of the world

World Trade Organization

global association of member countries that promotes free trade covers topics as diverse as agriculture, services, and intellectual property essentially establishes the rules of the game for trade among these numerous nations helps to resolve disputes, such as dumping conflicts between two countries more than 150 countries are members of the WTO and they account, on an aggregate basis, for more than 97 percent of global trade in goods and services

Franchising

is a form of licensing in which a company—the franchiser—agrees to provide a franchisee a name, logo, methods of operation, advertising, products, and other elements associated with the franchiser's business, in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations.

Quota

maximum number of units of a particular product that may be imported into a country may be established by voluntary agreement or by government decree

Dumping

occurs when a country or business sells products at less than what it costs to produce them permits quick entry into a market; it sometimes occurs when the domestic market for a firm's product is too small to support an efficient level of production difficult to prove

Southern Common Market (Mercosur)

represents a political and economic agreement among the countries of Bolivia, Argentina, Brazil, Venezuela, Uruguay, and Paraguay.

Embargo

suspension of trade in a particular product by the government may be established for political, health, or religious reasons

International Business

the buying, selling, and trading of goods and services across national boundaries.

Importing

the purchase of goods and services from a foreign source

Direct Investment

the purchase of overseas production and marketing facilities; a company may control the facilities outright, or it may be the majority stockholder in the company that controls the facilities

Exporting

the sale of goods and services to foreign markets enables organizations of all sizes to participate in global business A company may export its wares overseas directly or import goods directly from their manufacturer, or it may deal with an intermediary, commonly called an export agent Export agents either purchase products out-right or take them on consignment. If they purchase them outright, they generally mark up the price they pay and at-tempt to sell the product in the international marketplace. They are also responsible for storage and transportation An advantage of exporting through an agent is that the company does not have to deal with foreign currencies or the red tape (paying tariffs and handling paperwork) of international business. A major disadvantage is that because the export agent must make a profit, either the price of the product must be increased or the domestic company must provide a larger discount than it would in a domestic transaction

Joint Venture

when a company that wants to do business in another country finds a local partner (occasionally, the host nation itself) to share the costs and operation of the business less-developed ones, do not permit direct investment by foreign companies or individuals Or, a company may lack sufficient resources or expertise to operate in a particular country