CH. 3 BUSN FOUNDATIONS

world trade organization

a permanent global institution to promote international trade and to settle international trade disputes

trade surplus

exports greater than imports

joint ventures

involve two or more companies joining forces sharing resources, risks, and profits but not merging companies

foreign licensing

involves a domestic firm granting a foreign firm the rights to produce and market its product or to use its trademark rights in a defined geographical area

world bank

is an international cooperative of 187 members countries working together to reduce poverty in the developing world

balance of trade

is the basic measure of the difference between a nations export and import, incorporates trade with all foreign nations

economic differences

key factors to consider include: population per capita income economic growth rate currency exchange rate stage of economic development ** some of todays biggest opportunities are in countries with low per capita income **

political and legal differences categories:

laws and regulations political climate international trade restrictions

quotas

limitations on the amount of specific products that may be imported from certain countries during a given time period

voluntary export restraints

limitations on the amount of specific products that one at nation will export to another nation

comparative advantage

meaning that they tend to turn out those good that have the lowest opportunity cost compared to other countries

importing

means buying products from overseas that have already been produced, rather the contracting with overseas manufactures to produce special orders

foreign outsourcing

means contracting with foreign suppliers to produce products, usually at a fraction of the cost that they are produced domestically, key benefit is dramatically lower wages = lower cost of production

balance of payment

measure of the total flow of money into or out of a country, includes foreign borrowing and lending, foreign aid payments and receipts and foreign investments

exchange rates

measure the value of one nations currency relative to the currency of other nations

balance of payments surplus

more money coming in than going out

balance of payment deficit

more money going out rather than coming

exporting

most basic level of international market development. it simply means producing products domestically and selling them abroad

protectionism

national policies designed to restrict inter national trade, usually with the goal of protecting domestic businesses

what is the most costly form of direct investment

offshoring or new facilities from scratch

a formal long term agreement

partnership

tariffs

taxes levied against imports, use to shelter fledgling industries that couldn't compete without help or to shelf industries that are crucial to the domestic economy

market development options

the higher the risk the more control you have over your company, exporting(lower risk and less control), licensing, franchising, direct investment (higher risk, more control)

political and legal differences: laws and regulations

the key benefit of an effective legal system is that it reduces risk for both domestic and foreign businesses

opportunity cost

the opportunity of giving up the second best choice when making a decision

bribery

the payment of money for favorable treatment

corruption

the solicitation of money for favorable treatment is illegal and a major issue around the world

north american free trade agreement

the treaty that created the free- trading zone among the US mexico and canada

free trade

the unrestricted movement of goods and services across international borders

european union

the world's largest common market composed of 27 european nations GOAL: to bolster Europes trade position and to increase its international political and economic power most economically significant move: introduction of euro

significant risks of outsourcing

quality control requires very detailed specifications and social responsibility

foreign franchising

specialized type of licensing. a firm that expands through foreign franchising, called a franchisor, offers other business, or franchises

political climate

stability is crucial, poor enforcement of intellectual property rights across internationals borders in another tough issue for business

less formal, less encompassing agreement

strategic alliance

reasons to create trade restrictions

* protect domestic industry * protect domestic * protect national security interests * retaliate against countries who have engaged in unfair trade practices * pressure other countries to chage their policies and practices

reasons to eliminate trade restrictions

* reduce prices and increase choices for consumers by encouraging compeition * increase domestic jobs in industries with comparative advantages * increase job from foreign companies * build exporting opportunities through better relationships with other countries * use resources more efficiently on a worldwide basis

IMF does what

* supports stable exchange rates * facilitates a smooth system of international payments *encourages member nations to adopt sound economic policies * promotes international trade * lends money to member nations to address economic problems *** this is a lender of last resort to nations in financial trouble ***

nontariff barriers

*requiring red tape intensive import licenses for certain categories *establishing nonstandard packaging requirements for certain *offering less-favorable exchange rates to certain importers *establishing standards on how certain products are produced or grown *promoting a buy national consumer attitude

countertrade

25% of international commerce, involves the barter of products for products rather than for currency, try to meet the needs of customers that don't have access to hard currency of credit * usually developing countries *

embargo

a total ban on the international trade of a certain item, or a total halt in trade with particular nation

why would you consider starting a business off shore?

about 95% of potential customers for us firms are outside the us

Key reasons for international trade

access to factors of production reduced risk ( reduces dependence on one economy ) inflow of innovation ( an invaluable source of ideas )

international monetary fund

an international organization accountable to the government of its 187 member nations, * promote international economic cooperation and stable growth, US contributes 2 times what other countries do

general agreement of tariffs and trade

an international trade accord designed to encourage worldwide trade among its members

infrastructure

another KEY economic consideration when entering a foreign market * transportation * communication * energy * finance

how do you jump over sociocultural differences?

conduct thorough consumer research, cultivate first hand knowledge, and practice extreme sensitivity

common market

goes even further than a trading bloc by attempting to harmonize all trading rules

trading blocs

groups of countries that have reduced or even eliminated al tariffs, allowing the free flow of goods among the member nations

trade deficit

imports greater than exports, can show wealth of a country but can hurt economy over period of time

barriers to international trade: sociocultural differences

include differences among countries in language, attitudes, and values specific examples include: nonverbal communication, forms of address, attitudes towards punctuality, religious celebrations and customs, business practices and expectations regarding gifts and meals

direct investment

when firms either acquire foreign firms or develop new facilities from the ground up in foreign countries. the cost is high but companies with direct investments have more control over how their business operates in given country

absolute advantage

when it can produce more of a good than other nations, using the same amount of resources