INBS 250 FINAL

Political Risk

"Likelihood that a society will undergo political changes that negatively affect local business activity" Rises if a company cannot estimate that future political environment with a fair degree of accuracy

Steps in Foreign Market Screening Process

1 - Country identification 2 - preliminary screening 3 - in depth screening 4 - final selection 5 - direct experience OR 1. Identify basic appeal 2. Assess the national business environment 3. Measure market or site potential 4. Select the market or site

Industries typically protected for national security reasons

1. Agricultural sectors (France) 2. Imports and Exports that have to do w/ military use (Dual uses- both industrial & military) ex. fuel, oil, land, air, technology, etc.

Components of a country's balance of payment account

1. Balance of payments - national accounting system that records all receipts coming into the nation and all payments to entities in other countries 2. Current account - national account that records transactions involving the export and import of goods and services, income receipt on on assets abroad, and income payments on foreign assets inside the country. 3. Capital account - national account that records transactions involving the purchase of sale assets 4. Merchandise account - exports and imports of tangible goods

Reasons for companies to seek cross-border mergers and acquisitions

1. Get a foothold in a new geographic market 2. Increase a firm's global competitiveness 3. Fill gaps in company's product lines in global industry 4. Reduce costs of research and development, production, distribution, etc.

Sources of Secondary Data

1. International Organizations 2. government agencies 3. industry and trade associations 4. service organizations 5. internet

Political motives behind govt. intervention in trade

1. Protecting jobs 2. Preserving national security - restrict imports & exports, supply of war weapons, ban-defense related goods 3. Responding to unfair trading 4. Gaining influence over other nations (smaller nations)

Strategic factors that influence a company's international entry mode selection.

1. Selecting partners for cooperation 2. Cultural environment 3. Political and legal environments 4. Market size 5. Production shipping costs 6. International experience In depth: the need for trust and valuable inputs makes careful partner selection crucial to success, managers less confident in their abilities in unfamiliar cultures may avoid investment entry modes in favor of exporting or a contractual mode, political differences and instability can cause companies to favor entry modes that limit investment and protect assets, producing locally is desirable when total production cost in a market is lower than at home and when shipping costs are high, companies tend first to go abroad by exporting and to later select entry modes that require deeper involvement.

Instruments that govts. use to promote trade

1. Subsidies - financial assistance to domestic producers in the form of cash payments, low interest loans, tax breaks, product price support, etc. 2. Export Financing - (loan guarantee) - the govt. will repay the loan of a company if the company should default on repayment 3. Foreign Trade Zone - designated geographic region through which merchandise is allowed to pass with lower customs duties (taxes) or procedures 4. Special Govt. Agencies - create contacts, create trade offices, advertise, encourage exports and imports

Forecasting Techniques

1. fundamental analysis - uses statistical models based on fundamental economic indicators to forecast exchange rates. 2. technical analysis - uses charts of past trends in currency prices and other factors to forecast exchange rates.

The international product life cycle theory

A company begins by exporting its product and then it later undertakes foreign direct investment as the product moves through its life cycle

Multinational (multidomestic) Strategy

Adapting products and their marketing strategies in each national market to suit local preferences.

Countervailing Duty

Additional tariff placed on an imported product that nation believes is receiving an unfair subsidy .

Location Advantage

Advantage of locating a particular economic activity in a specific location because characteristics (natural or acquired) of the location.

APEC

Asia Pacific Economic Corporation was formed in 1989. Now has 21 members that account for more than 40 percent of world trade and have a GDP of 32 trillion. Goal is to strengthen the multilateral trading system and expand the global economy by simplifying and liberalizing trade and investment procedures among member nations. They hope to have free trade and investment by 2020

The oldest form of countertrade

Bartering - the exchange of goods or services directly for other goods or services without the use of money.

Eurobonds

Bond issued outside the country in whose currency it is denominated

Foreign Bonds

Bond sold outside the borrower's country and denominated in the currency of the country in which it is sold.

Company debt =

Bonds

Purchasing Power Parity

Can be interpreted as the exchange rate between two nations' currencies that is equal to the ratio of their price levels. PPP is useful in determining at which level an exchange rate should be.

Vehicle Currency

Currency used as an intermediary to convert funds between two other currencies

Trade Diversion

Diversion of trade away from nations not belonging to a trading bloc and toward member nations

Customs Union

Economic integration whereby countries remove all barriers to trade among themselves and set a common trade policy against non members

Common Market

Economic integration whereby countries remove all barriers to trade and to the movement of labor and capital among themselves and set a common trade policy against non members

Economic Union

Economic integration whereby countries remove barriers to trade and movement of labor and capital among members, set a common trade policy against non members, and coordinate their economic policies

Free Trade Area

Economic integration whereby countries seek to remove all barriers to trade among themselves but where each country determines its own barriers against non members

Letter of Credit

Export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document

Dumping

Exporting a product at a price that is lower than the price that the product usually commands in the domestic market OR lower than the cost of production.

The Andean Community

Formed in 1969, it includes four South American countries located in the Andes Mountain Range-Bolivia, Colombia, Ecuador, and Peru. Main objective is tariff reduction for trade among member nations, a common external tariff, and common policies in both transportation and certain industries. GDP 220 billion, 97 million consumers.

The most common methods of buying and selling goods internationally

Importing and Exporting

International Advantage

Internalizing a business activity instead of leaving it to a relatively inefficient market.

Portfolio Investment

Investment that does not involve obtaining a degree of control in another company.

Fiscal Policy

Involves using taxes and government spending to influence the money supply indirectly.

Benefits of Multinational (multidomestic) Strategy

It allows companies to monitor buyer preferences closely in each local market and to respond quickly and effectively to emerging buyer preferences. Companies hope that customers will perceive a tailored product as delivering greater value than do competitor's products. This strategy should allow a company to charge higher prices and/or gain market share.

The impact of an expanded money supply

It reduces the cost of borrowing. If supply increases, its price (in the form of interest rates) falls. Excess supply creates a borrower's market, forcing down interest rates and the cost of borrowing.

Eurocurrency Market

Market consisting of all the world's currencies (Referred to as "Eurocurrency") that are banked outside their countries.

Foreign Exchange Market

Market in which currencies are bought and sold and their prices are determined

NAFTA (Jan 1994)

North American Free Trade Agreement has eliminated all tariffs and nontariff trade barriers on goods originating within North America. Encourages free trade among US, Mexico, and Canada but distributors must abide by local content requirements and rules of origin. GDP 17 trillion, 450 million consumers. Effects of NAFTA: Growing trade among the three participating nations, effects on employment and wages is not as easy to determine, claims of environmental damage, environmental protection efforts, delays in NAFTA expansion.

Global Strategy

Offering the same products using the same marketing strategy in all national markets.

Direct Exporting

Practice by which a company sells its products directly to buyers in a target market.

Indirect Exporting

Practice by which a company sells its products to intermediaries who then resell to buyers in a target market.

Value-Chain Analysis

Process of dividing a company's activities into primary and support activities and identifying those that create value for customers

Foreign Direct Investment

Purchase of physical assets or a significant amount of ownership (stock) of a company in a another country to gain a measure of management control.

To cool off an inflationary economy a govt. might

Raise interest rates

Exchange Rate

Rate at which one currency is exchanged for another

Monetary Policy

Refers to activities that directly affect a nation's interest rates or money supply

Sight Draft

Required the importer to pay when goods are delivered

Export-Import Bank

Special agencies dedicated to helping their domestic companies obtain export financing such as a very well-known institution. It finances export activities of companies in the US and offers insurance on foreign accounts receivable

Differentiation Strategy

Strategy in which a company designs its products to be perceived as unique by buyers throughout its industry

Low Cost Leadership Strategy

Strategy in which a company exploits economies of scale to have the lowest costs structure of any competitor in its industry

The main purpose of European parliament in the EU

The Parliament fulfills its role of adopting EU law by debating and amending legislation proposed by the European Commission. It exercises political supervision over all EU institutions-giving it the power to supervise commissioner appointments and to censure the commission. Also has veto power over some laws (including the annual budget of the EU).

Purpose of requiring companies from other nations to use local resources in production process in a foreign host country

They help protect the price advantage of companies based in other low wage countries. (Today to boost industrialization) "Laws stipulating that producers in the domestic market must supply a specified amount of good service"

Cultural motive behind govt. intervention in trade

To protect national identity. Unwanted cultural influence can cause distress and cause govt. to block imports they believe are harmful

Capital Market

system that allocates financial resources in the form of debt and equity according to their most efficient uses