BUS CH 3

Sociocultural forces

influences and trends originating in a country's, a society's, or a culture's human relationships and values that may affect an organization - critical to be aware of the cultural differences between nations -Global companies must be aware of religious implications in making business decisions

Sovereign wealth funds

investment funds controlled by governments holding investment stakes in foreign companies - a growing form of foreign direct investments

Import quota

limits the number of products in certain categories a nation can import

Devaluation

lowers the value of a nation's currency relative to others -At times a nation's government will intervene and readjust the value of its currency, often to increase the export potential of its products

World trade organization

mediates trade disputes among nations

Free Trade

movement of goods and services among nations without political or economic barriers

nontarrif barriers

nontax methods of increasing the cost or reducing the volume of imported goods ex. import licensing, burdensome porduct testing requirements

Outsourcing

one firm contracts with other companies, often in other countries, to do some or all of its functions

multinational corporation

one that manufactures and markets products in many different countries and has multinational stock ownership and management -only firms that have manufacturing capacity or some other physical presence in different nations can truly be called multinational

Exporting

selling products to another country

Absolute Advantage

the ability to produce a good using fewer inputs than another producer/ country. Country produces goods more efficiently. - with global competition, absolute advantage doesn't last long

Foreign Direct Investment

the buying of permanent property and businesses in foreign nations

Global trade

the exchange of goods or services between individuals, organizations, or governments of different nations - allows a nation to produce what it is most capable of producing and buy what it needs from others in a mutually beneficial exchange relationship

balance of trade

the total value of a nations exports to its imports measured over a particular period. - key indicator in measuring global trade

Trade Protectionism

the use of government regulations to limit the import of good and services. -Advocates of protectionism believe it allows domestic producers to survive and grow, producing more jobs -The idea was for a nation to sell more goods to other nations than it bought from them; that is, to have a favorable balance of trade.

trade surplus/favorable balance of trade

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

Exchange rate

the value of one nations currency to the currencies of other countries - A high value of dollar means a dollar is trading for more foreign currency than previously. Foreign products become cheaper - low value in dollar means foreign goods become more expensive

Countertrading

type of bartering(the exchange of merchandise for merchandise or service with no money traded.)

Floating exchange rates

global market use the system. Currencies float in value according to the supply and demand for them in the global market for currency. -. This supply and demand is created by global currency traders who develop a market for a nation's currency based on the country's perceived trade and investment potential.

Cons of outsourcing

• Jobs may be lost permanently and wages fall due to low-cost competition offshore. • Offshore outsourcing may reduce product quality and can therefore cause permanent damage to a company's reputation. • Communication among company members, with suppliers, and with customers becomes much more difficult

Physical and Environmental forces

- poor countries might have primitive transportation, ineffective storage systems for international distribution, - technological differences also influence the features and feasibility of exportable products.. Computer and Internet use in many developing countries remains limited due to consumers' inability to afford even low-priced laptops

offshore outsourcing

- the shift to primarily low wage global markets The practice of contracting with an organization to perform some or all business functions in a country other than the country in which the product or service will be sold

Cons 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 cost 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

Pros 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

Franchising

A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area. -Subway, KFC, Holiday Inn. having global units operated by foreign franchisees - franchisors have to be careful to adapt their product or service to the countries they serve

Contracting Manufacturing

A foreign company produces private-label goods to which a domestic company then attaches its own brand name or trademark ex. Companies making circuit boards for companies like apple, dell to use. -Contract manufacturing enables a company to experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant. -. A firm can also use contract manufacturing temporarily to meet an unexpected increase in orders, and, of course, labor costs are often very low

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). - company with an interest in licensing generally send company representatives to the foreign company to help set up operations -helps firm gain revenue it wouldn't have gotten in home market -advantage: licensing is that licensors spend little or no money to produce and market their products. These costs come from the licensee's pocket

Joint Venture

A partnership in which two or more companies (often from different countries) join to undertake a major project. benefit: - Shared technology and risk - Shared marketing and management expertise - Entry into markets where foreign companies are often not allowed unless goods are produced locally Possible consequence: -One partner can learn the other's technology and business practices and then use what it has learned to its own advantage

Common market

A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. An example is the European Union.

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico. objectives: - eliminate trade barriers and facilitate cross-border movement of goods and services - promote conditions of fair competition - increase investment opportunities - provide efficient protection and enforcement of intellectual property rights - establish a framework for further regional trade cooperation - improve working conditions in north america

Export Trading Companies

Assist in negotiating and establishing trading relationships. -An export-trading company not only matches buyers and sellers from different countries but also deals with foreign customs offices, documentation, and even weights and measures conversions to ease the process of entering global markets

importing

Buying products from another country

Pros of Outsourcing

Less-strategic tasks can be outsourced globally so that companies can focus on areas in which they can excel and grow. • Outsourced work allows companies to create efficiencies that in fact let them hire more workers. • Consumers benefit from lower prices generated by effective use of global resources and developing nations grow, thus fueling global economic growth

Economic and Financial forces

Managers must carefully analyze a nation's economic policies before selecting it as a new market or site for operations. The poor fiscal and monetary policies of a nation's central bank can cause high rates of inflation, increasing budget deficits, a depreciating currency, falling productivity levels, and flagging innovation. - some economically depressed countries can not buy many products because they have few income

revenue tarrifs

Raise money for governments

Protective tarrifs

Raise the retail price of imports so domestic goods are competitively priced. - saves jobs for domestic workers and keep industries from closing down because of foreign competition

Dumping

Selling products in a foreign country at lower prices than those charged in the producing country. - prohibited tactic used to reduce surplus products in foreign market or to gain a foothold in a new market

Tarrifs

Taxes on imported goods, make imported taxes more expensive

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. - Goal is to have more money flowing into the country than out( favorable balance of payments)

Strategic Alliance

a long-term partnership between two or more companies established to help each company build competitive market advantages. - Strategic alliances don't share costs, risks, management or profits. -provide broad access to markets, capital, and technical expertise

Trade Deficit (Unfavorable)

When the value of a country's exports is less than that of its imports.

General Agreement on Tariffs and Trade (GATT)

a 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions

foreign subsidiary

a company owned in a foreign country by another company, called the parent company - form of foreign direct investment - operates like a domestic firm, with production, distribution, promotion, pricing and other business functions under subsidiaries management -observes legal requirements of both countries. Parent firm in home country and foreign country where subsidiary is host country -The primary advantage of a subsidiary is that the company maintains complete control over any technology or expertise it may possess. -The major shortcoming is the need to commit funds and technology within foreign boundaries

Embargo

a complete ban on the import or export of a certain product, or the stopping of all trade with a particular country

comparative advantage

a country should sell to other countries those products it produces effectively or efficiently and buy from other countries those products it cant produce as effectively or efficiently.