Business Chapter 3

postal systems, internet sites, railroads, interstate roads

Examples of a Nation's Infrastructure

1) Selling domestically produced products to buyers in another country 2) Usually the least complicated and least risky to entering global market

Exporting

Buy national regulations

Government rules that give special privileges to domestic manufacturers and retailers.

appreciates

If a country's currency ________, less of that country's currency is needed to buy another country's currency

depreciates

If a country's currency ________, more of that country's currency is needed to buy another country's currency

Physical/cultural (distance and language)

Natural barriers to trade:

multinational corporations

One of the advantages _____ ______ have over other companies is their ability to sidestep regulatory difficulties.

Free-trade zone

few duties or rules restrict trade among the partners, but nations outside the zone must pay the tariffs set by the individual members.

Contract manufacturing

foreign firm manufactures private-label goods under a domestic firm's brand

Preferential tariff

gives trade advantages to certain countries over others (kind of like buy local)

Imports

goods/services brought from other countries

Floating exchange rates

prices of currencies go up and down based upon the demand for and supply of each currency

Outsourcing

sending domestic jobs to another country

1) It may be a charge per unit, such as per barrel of oil or per new car; it may be a percentage of the value of the goods, such as 5 percent of a $500,000 shipment of shoes; or it may be a combination. 2) Any tariff makes imported goods more costly, so they are less able to compete with domestic products.

Tariff barriers to trade:

cultural differences

Spanish customers view toothpaste as a cosmetic while consumers in the Netherlands view it as a necessary part of daily hygiene and use three times as much their Spanish counterparts. This example of _____ shows how important it is for marketers to understand.

1) Shown little progress towards adoption 2) Developing nations are pushing for the reduction of farm subsidies in the United States, Europe, and Japan. 3) On the other hand, the United States and Europe are interested in bringing down trade barriers in services and manufacturing

The Doha Round

exporting

The Northwest Cherry Growers (headquartered in the state of Washington) sells much of its locally grown produce to Taiwan. _____ was the easiest and least expensive way for the growers' association to sell to global markets.

contract manufacturing

The Sara Lee Company sells the Hanes brand of hosiery in the United States. The manufacturer of this hosiery brand in Great Britain sells it under the brand name of Pretty Polly. The Sara Lee Company is using _____ to broaden its global marketing base without investing in overseas plants and equipment.

import

The U.S. has one of the very few areas in the world where kaolin can be mined. Kaolin is a necessary ingredient in many products ranging from stomach medication to paper. The U.S.-produced kaolin is sold all over the world. Kaolin is a(n) _____ for the countries that purchase it.

1) the most ambitious global trade agreement ever negotiated 2) Dramatically lowered trade barriers worldwide Signed by 148 countries (adopted in 1994) 3) reduced tariffs by one-third worldwide, a move that is expected to increase global income by $235 billion annually. 4)For the first time, an agreement covers services, intellectual property rights, and trade-related investment measures such as exchange controls.

The Uruguay Round

offering loans to help to relieve their debt burden

The World Bank's emphasis has recently shifted from helping to build the infrastructure of developing countries to:

international monetary fund

The _____ is an international bank that normally provides short-term loans to countries that are unable to meet their budgetary expenses.

Exchange controls

are laws that require a company earning foreign exchange (foreign currency) from its exports to sell the foreign exchange to a control agency, usually a central bank.

subsidy

beside tariffs, a government can use a number of other tools to restrict trade. ______ of the following is not a tool aimed at restricting trade

Exports

goods/services made in one country and sold to others

Protectionism

in which a nation protects its home industries from outside competition by establishing artificial barriers such as tariffs and quotas.

Licensing

is the legal process whereby a firm agrees to let another firm use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge.

Dumping

is the practice of charging a lower price for a product (perhaps below cost) in foreign markets than in the firm's home market.

Import quota

limits on the quantity of a certain good that can be imported

Protective tariffs

makes imported products less attractive to buyers than domestic products

Global vision

means recognizing and reacting to international business opportunities, being aware of threats from foreign competitors in all markets, and effectively using international distribution networks to obtain raw materials and move finished products to the customer.

false

the Uruguay Round of trade negotiation is an agreement that only affects trade among Latin American countries.

Predatory dumping

the attempt to gain control of a foreign market by destroying competitors with impossibly low prices.

Infrastructure

the basic institutions and public facilities upon which an economy's development depends

Balance of Trade

the difference between the value of a country's exports and the value of its imports during a specific time

Free trade

the policy of permitting the people and businesses of a country to buy and sell where they please without restrictions

exchange rate

the price of one nation's currency in terms of another nation's currency

Nationalism

the sense of national consciousness that boosts the culture and interests of one country over those of all other countries.

Absolute Advantage

when it can produce and sell a product at a lower cost than any other country or when it is the only country that can provide a product

Embargo

A complete ban against importing or exporting a product

North American Free Trade Agreement

The _____ created the world's largest free-trade zone.

natural barriers, tariff barriers, and nontariff barriers

What are barriers to international trade?

expropriate

take possession of (often for public use and without payment)

bilateral trade agreement

What is the goal for international economic communities?

the maintenance of improved quality of products to protect consumers

Which of the following is NOT an argument for tariffs that protect domestic businesses and workers? the infant-industry argument, the maintenance of improved quality of products to protect consumers, the protection of small businesses, the job-protection argument, the protection of industries and technology vital to defense preparedness

Trade surplus

a country that exports more than its imports

Comparative Advantage

each country should specialize in the products that it can produce most readily and cheaply and trade those products for goods that foreign countries can produce most readily and cheaply.

favorable balance of trade

A country that exports more goods than it imports is said to have a(n):

joint venture

AT&T entered into a _____ with Compagnie General d'Electricite, a French company. The French company brings its patents on digital telephone switches, and AT&T provides the marketing know-how to the relationship.

tap into new technology, shift productions, sidestep regulatory problems, labor savings

Advantages Associated with Multinational Corporations

1) Tariffs discourage free trade (free trade lets the principle of competitive advantage work) 2) Tariffs raise prices (decreases consumers' purchasing power)

Arguments against tariffs:

1) Productivity grows more quickly so living standards can increase faster. 2) Global competition and cheap imports keep prices down, so inflation is less likely to stop economic growth 3) spurs innovation 4) provides poor countries with the chance to develop economically 5) More information is shared between two trading partners that may not have much in common initially

Benefits of Globalization: (engine that creates jobs and wealth)

1) passed in 2005 2) US, Costa Rica, DR, El Salvador, Guatemala, Honduras and Nicaragua 3) US already primary exporter to these countries so hope is to lower tariffs on exporting into these countries 4) CAFTA countries may benefit from the new permanent trade deal if US multinational firms deepen their investment in the region.

Central America Free Trade Agreement:

Multinational corporations

Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located

1) Understanding global cultures , social norms, expectations is vital (both for customers and labor) 2) Language! 3) Each country has its own customs and traditions that determine business practices and influence negotiations with foreign customers.

Cultural differences

1) Active ownership of a foreign company or of overseas manufacturing or marketing facilities 2) Direct investors have either a controlling interest or a large minority interest in the firm. 3) Stand to receive the greatest potential reward but also face the greatest potential risk. 4) A firm may make a direct foreign investment by acquiring an interest in an existing company or by building new facilities.

Direct foreign investment:

nationalism

French language purists on both sides of the Atlantic are on the warpath. Fed up with the growing prevalence of English on the Web, a French state institution founded in the 17th century to maintain the purity of the language unveiled a dictionary of newly-coined French equivalents to English Internet terms in 2000. This is symptomatic of the difficulties in doing business in France because in many situations, the business must be conducted in French. Therefore, it is easy to assume that _____ is extremely important in France.

embargo

In 1914, the United States prohibited the importation of Mexican avocados even though Mexico is the world's largest producer of the fruit. This prohibition remained in effect until 1996. The ban on importing Mexican avocados is an example of a(n):

dumping

In 1997, Russia and Ukraine exported carbon steel plate into the U.S. at a price much lower than the countries were found guilty of charging the identical steel in their home markets. Russia and Ukraine were engaged in:

devaluation

In 2006, the nation of Zimbabwe reduced the value of its currency by 60 percent to bring its value more in line with the relative value of most other world currencies. This reduction of value is called:

confiscation

In West Africa in the 1990's, militaries were overthrowing governments and taking over warehouses, factories and other business assets without giving anything back to the original business. This is an example of

international licensing

In ______ _____, the licensor is the domestic firm that allows the licensee to use its trademark or brand.

1) the domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. 2) Can be quick and inexpensive but risky 3) Help reduce risks by sharing costs and technology 4) Often joint ventures will bring together different strengths from each member.

Joint ventures:

export

Mines in Colombia produce emeralds and sell them to jewelers in the United States. To Colombia miners, emeralds are an ________.

1) created the world's largest free trade zone- 2) Ratified in 1993 between US, Canada, Mexico Primary impact was opening Mexican market to US companies 3) Tariffs between between US and Mexico went away (trade went from 80B to 515B) 4) The pact removed a web of Mexican licensing requirements, quotas, and tariffs that limited transactions in U.S. goods and services.

North America Free Trade Agreement (NAFTA):

Tariff

a tax imposed by a nation on imported goods

1) Founded in 1945 to promote trade through financial cooperation and eliminate trade barriers in the process. 2) The IMF makes short-term leans to member nations that are unable to meet their budgetary expenses. 3) It operates as a lender of last resort for troubled nations. 4) In exchange for these emergency loans, IMF lenders frequently extract significant commitments from the borrowing nations to address the problems that led to the crises. These steps may include curtailing imports or even devaluing the currency.

The international monetary fund:

1) Millions of Americans have lost jobs due to imports or production shifting abroad. Most find new jobs, but often those jobs pay less. 2)Millions of others fear losing their jobs, especially at those companies operating under competitive pressure. 3) Employers often threaten to export jobs if workers do not accept pay cuts. 4) Service and white-collar jobs are increasingly vulnerable to operations moving offshore.

The negatives of global trade are as follows:

Central American Free Trade agreements

The newest free trade agreement is the _______ Participants in this agreement are the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Nicaragua, and Honduras.

True

The signing of the Central America Free Trade Agreement by the United States will more than likely not result in a major increase of U.S. exports.

1) Offers low-interest loans to developing nations. 2) Originally, the purpose of the loans was to help these nations build infrastructures such as roads, power plants, schools, drainage projects, and hospitals. 3) Now the World Bank offers loans to help developing nations relieve their debt burdens 4) To receive the loans, countries must pledge to lower trade barriers and air private enterprise.

The world bank:

1) replaces the old General Agreement on Tariffs and Trade (GATT), which was created in 1948 2) Today, all WTO members must fully comply with all agreements under the Uruguay Round. The WTO also has an effective dispute settlement procedure with strict time limits to resolve disputes. 3) The WTO has emerged as the world's most powerful institution for reducing trade barriers and opening markets. 4) Countries that don't belong must negotiate trade agreements individually with all their trading partners. Only a few countries, such as North Korea, Turkmenistan, and Eritrea, are not members of the WTO.

The world trade organization (WTO)

licensing

U.S. plane manufacturer McDonnell-Douglas has authorized Mitsubishi Heavy Industries, a Japanese company, to use its trademarks, patents, and other proprietary knowledge to manufacture F-15 fighter planes. Mitsubishi Heavy Industries pays McDonnell-Douglas. This is an example of:

economic

Understanding a foreign markets potential starts with three key areas. The political climate, the culture, and the _____ environment

1) They can often overcome trade problems. 2) They can sidestep regulatory problems. 3) They can shift production from one plant to another as market conditions change. 4) They can also tap new technology from around the world. 5) They can often save a lot in labor costs

What are multinational corporation advantages?

1) Tariffs protect infant industries. A tariff can give a struggling new domestic industry time to become an effective global competitor. 2) Tariffs protect US jobs. Unions and others say tariffs keep foreign labor from taking away U.S. jobs. 3) Tariffs aid in military preparedness. Tariffs should protect industries and technology during peacetime that are vital to the military in the event of war

What are the arguments for tariffs?

It can foster exports, reduce its dependence on imports, decrease its military presence abroad, or reduce foreign investment.

What can a nation do to reduce an unfavorable balance of payments?

Improves relationships between countries and allies, helps ease tensions, bolsters economies, raises standard of living, provides jobs, improves quality of life

What good does trade between nations do?

1) Trade-dependent jobs have grown at a rate three times the growth of U.S.-dependent jobs. 2) Every U.S. state has realized a growth of jobs attributable to trade. 3) Trade has an effect on both service and manufacturing jobs

What is the impact of international business on the US economy?

direct foreign investment

When Grand Metropolitan, a British company, purchased U.S.-based Pillsbury Co. in order to expand its product line and the market for its existing consumer products, it was an example of a(n):

preferential tariff

When South Korea reduces the tariff that Japan (but only Japan) has to pay when it imports cameras into South Korea, it is called a:

1) Earn additional profits 2) management may have exclusive market information about foreign customers, marketplaces, or market situations 3) Saturated domestic markets, 4) Excess capacity, 5) potential for cost savings can also be motivators to expand into international markets.

Why "go global"?

Multinational corporations

_____ move resources, goods, services, and skills across national boundaries without regard to the country in which they are headquartered.

Trade deficit

a country that imports more than it exports

confiscation

a government's taking of a privately owned business or personal property without a proper public purpose or an award of just compensation

Franchising

a method of distributing products or services involving someone who establishes the brand's trademark or trade name and a business system, and someone, who pays a royalty and often an initial fee for the right to do business under the 1st someone's name and system.

Devaluation

a nation lowers the value of its currency relative to other countries

Balance of Payments

a summary of a country's international financial transactions showing the difference between the country's total payments to and its total receipts from other countries.