Int. Business & Ocean Shipping

Tax Treaties or Conventions

Treaties between countries that bind the governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions The U.S. has tax treaties with over 50 countries Tax treaty with Chinahttps://www.irs.gov/businesses/international-businesses/china-tax-treaty-documents

Performance of Contracts

United Nations Solution Many countries, including the U.S., have ratified the UN Convention on Contracts for International Sales of Goods (CISG) CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller CISG is automatically applied to all contracts

Intellectual property includes

1 Patents International Convention for the Protection of Industrial Property European Patent Organization (EPO) The World Intellectual Property Organization (WIPO) 2 Trademarks Protection varies by country, 10 to 20 years Madrid Agreement of 1891 General American Convention for Trademark and Commercial Protection Bilateral basis in friendship, commerce, and navigation treaties 3 Trade Names Protected in countries that adhere to the Convention for the Protection of Industrial Property 4 Copyrights Protection provided under the Berne Convention of 1886 adhered to by 164 countries Universal Copyright Convention of 1954 adopted by 92 countries 5 trade secrets

united nations

1. Setting technical standards and norms: The United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) focuses on simplifying international transactions by harmonizing processes, procedures and information flows. 2. Workforce development: The United Nations Educational, Scientific and Cultural Organization (UNESCO) promotes international cooperation in education, the sciences, and culture. 3. The United Nations Environment Programme (UNEP) is responsible for coordinating the UN's environmental activities and assisting developing countries in implementing environmentally sound policies and practices. 4. The United Nations Security Council: Main policy-setting body of the UN with primary responsibility of maintaining international peace and security:composed of 15 members including 5 permanent members. 5. The United Nations Economic and Social Council (ECOSOC) serves as the central forum for discussing international economic and social issues and formulating policy recommendations. 6. International Court of Justice (ICJ): UN body that renders legal decisions involving disputes between governments. 7. The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body dealing with trade, investment, transportation and development issues. The creation of UNCTAD in 1964 was based on concerns of great disparity between developed nations and developing nations. It was established to provide a forum where the developing countries could discuss the problems relating to their economic development. It emerged from the view that existing institutions like GATT (now replaced by the World Trade Organization, WTO), the International Monetary Fund (IMF), and World Bank were not properly organized to handle the particular problems of developing countries. Currently, UNCTAD has 195 member states and is headquartered in Geneva, Switzerland.

Conceptualizing Culture and Negotiation

1. power distance: power distributed in social distribution...high score=listen to higher power low score=no rank•Cultures with stronger power distance will be more likely to have decision-making concentrated at the top. This will have an impact on the negotiation. 2. individualism vs collectivism: "i and me" vs. "We and us"ind. US=90 china=20•Individualism/collectivism orientation influences a broad range of negotiation processes, outcomes, and preferences-Individualistic societies may be more likely to swap negotiators, using whatever short-term criteria seem appropriate-Collectivistic societies focus on relationships and will stay with the same negotiator for years 3. masc-fem:masc: power/position rank fem: nurturing Masculinity achievement of visible and symbolic organizational rewards Femininity emphasize relationships, concern for others, and the overall quality of life, environmental protection 4. uncertainty/avoidance:high structured instructions.....hate confusion•Negotiators from high uncertainty avoidance cultures are less comfortable with ambiguous situations--want more certainty on details, etc. Mike bond 5th. long term (focused on future) vs. short term (value tradition, focused on past)mike mincoff 6th. indulgence (freedom of speech, dont feel powerless) vs. constraint (maintaining national order)

What is Tariff? Use a diagram and explain the impact of introducing a tariff. Compare the post-tariff situation with autarky and free trade.

A tariff could be described as a tax on imported goods in order to raise their price to reduce the competition for local producers or stimulate more local production. Currently, the United States is imposing a 25% tariff on approximately $250 billion of imports from China. China has retailed tariffs from 5% to 25% on more than $110 billion of US products. Below is a diagram describing the demand and supply of a product. The demand curve is downward sloping which causes a higher price of a product and a lower quantity demand because a typical consumer has a limited budget, so if the price of a product rises the consumer reacts by reducing the quantity purchased. The "DD'' in the diagram is the domestic demand for a certain product. The "SD" is the domestic supply of the product. It has an upward slope because the higher price is of product, the greater the quantity supplied. This is due to the revenue earned by the producer or seller, the high price is good news for sellers because the seller will earn greater revenue and will earn higher profits. Autarky is the situation where there is complete absence of trade; whatever is produced within your geographically boundary will be consumed within your geographical boundary. This is where no trade is produced. When 'DD' in blue and 'SD' in red interact that point is the equilibrium situation for the product (price PD, q) which is neither excess demand or excess supply. Free trade is where the rest of the world can sell the product in the one country (no tariff imposition) to other countries that are better suited for that product selection and have an abundant supply of cheap labor. The moment of an open door for free trade price of the product in the US drops down significantly because the foriegn producers are now able to sell the product in the country at a much lower price compared to autokary. The "PW" is the world price of the product. A consumer buys a product at a much lower price (PW, SD) drop in prices at which coffee is selling within the US. This US producer is at a disadvantage because they are dealing with a high cost of labor, environmental regulations, and machinery to result in the country's producer to have a reduced production of products and new production amount equals A. When 'PW' touches 'DD', the US consumer is now buying lots of the product equal to D which is when the amount consuming more than producing within geographical boundaries the balance must be coming from imported coffee, in order for the volume of imports is D-A (distance AD) because of free trade a lot of the product that is imported by the country their producer is at a disadvantage and their consumer is thrilled because now they have access to good coffee at a lower price. It helps certain individuals in the economy, but hurts other people. In free trade, the US consumer benefits, the foriegn producer benefits, but the US producers are now at disadvantage. The US producers of the coffree appeal to the government to provide tariff protection and american policy maker and pays attention to American coffee growers and decides to impose tariffs on the foriegn products coming in. Post tariff situation is the increased price of the product due to tariff (PT) coffee being sold at world price and the tariff amount for both foriegn countries and the US. This helps american producers considerably. The point (PT, DD) is the high price causing problems for american consumer impacted by the new tariff that has been implemented. Consuming D amount of coffee, the American producer benefits and American consumer is at a disadvantage due to the reduction in consumption. The foriegn producer is at a disadvantage because of the tariff they will sell less coffee in the American market. The American government is another winner because they now have tariff revenue due to its decision. The rectangle equals the tariff amount multiplied by the new imported amount BC. The tariff revenue of American government is the rectangle in the diagram. QUOTA:shifting supply curve to right by the amount of the quota (28:00)more coffee coming and domestic coffee plus the quta amount of coffee from rest of world and price will drop now drop to PD (new supply curve interects the demand curve) and the quantity the toal amount produced is domestically remains at B but total amount consumed is C essentially this means C-B amount being imported the imposition of a quota allows a certain amount of imports into the country but you are closely controlling how much is being imported and quota amount does reduce Autrky bound but higher than free trade amount and does allow certain amount coming iinto country.....diffference between tarriff and quota the the volume of imports is fixed in a quota and is equal to the volume of post tarriff imports .....difference is no revenue is made b by US government from quota all it is doing it is restricting the imports coming into the country

Extraterritoriality

A country's attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside its borders Not done through force, but by traditional legal means US citizen working in France may still be required to pay taxes to the US government. US companies operating abroad must comply with local as well as US laws. Trader joes v. Hallet -Oct 2011 staff members noticed Mike Hallot purchasing large quanties of trader joes projects (located in Bellingham) drove acrossed canadian product -sold trader joes products at inflated prices -refused to stop selling products -trader joes sued hallet hallet mislead consumers pirate joes was affiliated with trader joes hallet utulized similiar atire for his pirate joes store displayed trader joes trademarks in connection with the sale of products at pirate joes resold products without authorization Land-Ham act reversed trader joe lawsuit

International Company

A global or multi-domestic company

Explain the concept of absolute advantage according to Adam Smith and Comparative advantage according to David Ricardo. dont use same numbers

Adam Smith believed that market forces should determine the volume of international trade. He believed that a nation with an absolute advantage when they produce a larger amount compared to another country. Also if the nation can produce the same amount of a good or service using fewer inputs than another country, the nation has an absolute advantage. Smith says that not all nations have the same input as other nations due to other reasons such as weather, labor skills, or land. An example of absolute advantage is suppose there are two nations (USA and SPAIN). USA Spain Labor 1lb of Fish 2 hrs 4 hrs Labor 1lb of Fruit 6 hrs 4 hrs In short, this is fairly simple to understand. USA would have the absolute advantage for the labor of fish because it can produce 1lb of fish two hours quicker than Spain. Spain has the absolute advantage in producing fruit because every 1lb of fruit, it takes Spain two hours quicker to produce than the USA. This would give a reason for the two nations to exchange goods with one another. If the US was more effective in both fruit and fish, they would have the absolute advantage in both areas meaning that there is no reason to trade with Spain. David Ricardo believed that a nation having both absolute disadvantages in production compared to another nation will have a comparative/relative advantage in production witch its absolute disadvantage is less. USA Spain Labor 1lb of Fish 2 hrs 4 hrs Labor 1lb of Fruit 3 hrs 5 hrs To produce 1lb of fish in the US you need 1 extra labor to give up to produce 1lb fruit (.66). To produce 1lb of fish in Brazil you need 1 extra hour of labor to give up to produce 1lb of fruit (.8). This means that the opportunity cost of fruit is lower in Spain than the USA. The opportunity cost of fruit in Spain (1.25) is less than USA(1.5). Ricardo believed that calculating the comparative advantage would help benefit both nations in trade rather than absolute advantage.

Countervailing duties (trade restriction

Additional import taxes levied on imports that have benefited from export subsidies

Sociocultural Components

Aesthetics Attitudes and beliefs Religion Material Culture Language Societal organization Legal characteristics Political structures In the business context, culture plays a significant role in communication, attitude and business etiquette.

Importance of International Institutions

Almost every country exports and imports products to benefit from international trade. Nations need to follow a common set of rules, regulations and standards related to trade. These common rules and regulations are set by various international economic institutions. These institutions aim to provide a level playing field for all the countries and develop economic cooperation. They also attempt to resolve disputes among trading nations.

Capitalism

An economic system in which the means of production and distribution are for the most part privately owned and operated for private profit Government restricted to functions that the private sector cannot perform National defense Police, fire, and other public services

Country Risk Assessment (CRA)

An evaluation that assesses the country's economic situation and policies and its politics to determine how much risk exists of losing an asset or not being paid. Risks may be: Political Wars, revolutions, coups Economic Financial BOP deficits Labor Low productivity, militant unions Legal Laws may be changed Terrorism

Antitrust Laws

Antitrust laws Laws to prevent price fixing, market sharing, and business monopolies Competition policy The European Union equivalent of antitrust laws The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially Japan's Fair Trade Commission the "toothless tiger" Japanese companies are incorporating antitrust thinking into strategy

C6****Trade Restrictions

Arguments for restrictions: National Defense Sanctions to Punish Offending Nations Protect Infant (or Dying) Industry Protect Domestic Jobs from Cheap Foreign Labor Scientific Tariff or Fair Competition

Attitudes and beliefs

Attitude towards time vary across cultures: Monochronic Vs Polychronic cultures People from monochronic cultures always try to be on time. Showing up late is considered to be disrespectful. It is interpreted as a sign of disinterest in the activity at hand. Japan, Germany and USA have monochronic cultures. Polychronic cultures tend to take time a little lightly. They appreciate punctuality but may not always reciprocate. Polychronic cultures also tend be relationship oriented and not as much dictated by formalities. India, Mexico, Greece, Italy and many middle eastern countries fall in this category.

C7****Tax Types

Capital gains tax -anything you own (stocks, bonds, investments) -difference between basis and sale is the capital gain or loss -only assessed on profit -the surplus of the capital gain is tax worthy -short term is less than 1 year and income tax is used -long term is more than 1 year and has a different tax percentages Income tax -Common in industrialized countries -impose on income from businesses and individuals -must file and pay income tax -revenue for government -fund public services -progressive tax system is when rich get taxed more than low income group -IRS enforces tax laws in US -state level income and local income tax Value-added tax -Tax based on the value of goods and services Used in Europe -hasn't been introduced in US -consumption tax based on product in each stage of supply chain -based on between sales and purchases in the stages in the supply chain -as value is added then a tax is added -imposed when values change on the product Unitary tax -governments treat multinational corporations as one entity and not different branches -ex. nike in mayalasia and nike in US -makes sure corporations pay tax for wealth created locally in different countries ⁃prevents companies from using loopholes and paying a low tax -where is the workforce based? Where is an even share of tax/

Globalization

Coined by Theodore Levitt "as if the entire world (or major regions of it) were a single entity; [such an organization] sells the same things in the same way everywhere" (1983, HBR) Economic Globalization International integration of goods, technology, information, labor, and capital Process of making this integration happen

Common Law and Civil Law

Common Law Jurisdiction has more power to expand rules to fit particular cases ( writ-issue orders when justice needed to be done; only specific to particulate situation; costs of equity were established to hear complaints and proved equitable justice...how common law developed) Civil Law (traced by to code of laws from justinian, judeges are descrubed as investigators--lawyers have less power than common law countries--judges take case in lead of proceedings, discover facts---the tasks include advising clients on points of law and filing for the court)(the importance of in court presentitions are deminished in civil law systems rather than a common system...CHINA, JAPAN, GERMANY FRANCE< SPAIN Jurisdiction is bound by the words in the code Much more predictable

External Forces

Competitive Kind, number, location Distributive For distributing goods and services Economic GNP, unit labor cost, personal consumption expenditure Socioeconomic Characteristics of human population Financial Interest rates, inflation rates, taxation Legal Laws governing how international firms must operate Physical Topography, climate, and natural resources Political Forms of government, and international organizations Sociocultural Attitudes, beliefs, and opinions Labor Skills, attitudes of labor Technological Equipment and skills that affect how resources are converted to products

Tax Laws and Regulations

Complexity of national tax systems differs Many consider tax laws and regulations of the U.S. the most complex Compliance with tax laws and their enforcement vary widely Germany and U.S. strict, Italy and Spain relatively lax Other differences include Tax incentives, exemptions, costs, depreciation allowances, foreign tax credits, timing, and double corporate taxation

Communism

The belief that the government should own all the major factors of production Production in these countries is at state-owned factories and farms (some exceptions) Conceived by Karl Marx to foster a "classless society"

WTO Challenges

Trade-related intellectual property rights (TRIPS) WTO agreement that protects copyrights, trademarks, trade secrets, and other intellectual property matters isds cases

Why is international business differ from domestic

Domestic Environment All the uncontrollable forces in the home country that surround and influence the firm's life and development (there is still level of understanding and familiarity) Foreign Environment All the uncontrollable forces originating outside the home country that surround and influence the firm -different values -difficult to assess (brings complexity in the decision making process compared to running operations domestically)

Retaliation (trade restriction)

Dumping: selling a product abroad for less than the cost of production, the price in the home market, or the price to third countries (drive away competition and become monopoly) Social dumping Environmental dumping Financial services dumping Cultural dumping Tax dumping

Internal Environmental Forces

Factors of Production Capital, raw materials, and people Activities of the organization Personnel, finance, production, and marketing

Incoterms

EXW - Ex Works (insert place of delivery)(the responisbility of the seller ends with exports packaging, warehouse servies and export packaging is done by the seller and the price he quotes essentially at that point....byond that loading at the factory/providing inland freight and more are taken care buy the buyer .... as the products leaves the products packaged thats where the sellers responsibility ends) FCA - Free Carrier (Insert named place of delivery) (sller takes care of export packaging, loads it at the point of origin, pays for inland freight- transportation charges, pays for the port recieivng charges and pays for the frieght fowarder fees) (buyer takes over- the price that the seller quotes includes all of the items just mentioned and the buyer pays for ocean freight/airfreight/charges in the foriegn port of destination/ custom clearence and clearence/and all delivery charges to final destination CPT - Carriage Paid to (insert place of destination) ( the seler pays for production/warehouse services/esxport packaging/loading at point of origin/transportation up to the port/port recieving charges/freight fowarder fees/ocean freight/air freight) (free carrier the seller responsibility stops at freight forwarder fees)(the buyer takes over from forign port/custom clearence & duties/delivery charges to final destinatoin/buyers warehouse retail outlet.... CIP - Carriage and Insurance Paid To (insert place of destination) (the seller pays ocean air freight and covering insurance element of the product during the entire voyage....similair to CPT insurance charges are on sellers quota price) DAP - Delivered at Place (insert named place of destination)(the buyer and the seller need to decide what the delivery point is and the seller covers the entire process until the agreed upon delivery point...) DPU - Delivered at Place Unloaded (insert place of destination) (seller takes care of everything and unloading charges) DDP - Delivered Duty Paid (Insert place of destination). (seller covers everything for warehouse services, export packing, loading at point of origin, domestic freight until port, port recieving charges/ fowarding fees/ charges for ocean and air freight/ custom clearence in foriegn airport, delivery charges to final destination)

Economic Integration Agreements

Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. Examples include ASEAN, NAFTA, and the European Union. The framework of the theory of economic integration was laid out by Jacob Viner (1950). He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration.

difference in the legal system in US, UK, and Europe

Europe Legislation is rarely amended and regulations are rarely revised Courts are not as often asked to give their interpretations If they are, the decisions are rarely appealed United States Laws and regulations are constantly being amended or revised by legislatures and the agencies England has a split legal profession with barristers and solicitors England has no jury for civil court actions Contingency fees less common in England Award of costs to the winner in civil litigation standard in England Pretrial discovery differs

Incoterms (water transport)

FAS - Free Alongside Ship (insert name of port of loading) (seller responsibile for transporting product from factory to the port along side the ship where the buyers agent will take over. whatvere price the seller is quoting will include the transportation cost up until the point where the seller drops the product within the port area) FOB - Free on Board (insert named port of loading) (the responibility of the buyer starts after the product is placed on the vessel and not along side ship) CFR - Cost and Freight (insert named port of destination) (cost of transporting product/ freight included) CIF - Cost Insurance and Freight (insert named port of destination) (all included, seller responsible up till port final destination) DAF - Delivered at frontier (used with named place pf import, seller deliveres when goods are placed at disposal of buyer at the arrival means of transport, cleared for export but not cleared for import until customed)

U.S. Laws That Affect U.S. Firms' International Business

Federal Employment Laws Title VII of the CRA of 1964 ADEA and ADA Foreign Corrupt Practices Act (FCPA) U.S. law prohibits making payments to foreign government officials for special treatment Congress passed FCPA outlawing bribery, but not "grease" payments

Subsidies (trade restriction)

Financial contributions, provided directly or indirectly by a government, which confer a benefit; include grants, preferential tax treatment, and government assumption of normal business expenses

Globalization Forces

Political forces Reduction of barriers to trade and foreign investment by governments Privatization of former communist nations Technological forces Advances in computers and communications technology Internet and network computing Market forces Globalizing companies become global customers Cost forces Goal for economies of scale to reduce unit costs Competitive forces Increase in intensity due to explosive growth in international business

High and Low Context Cultures

High cc: establish social trust, value personal relationships, agreement by trust, negotiations are slowex. China, Korea, Japan -Relationships depend on trust, build up slowly, are stable. Business deals get done based on relationships with. One's identity is rooted in groups (family, culture, work). High use of nonverbal elements; voice tone, facial expression, gestures. Disagreement is personalized - very sensitive to conflict. Rank or position in organization is important. Negotiations are slow and ritualistic. Change is slow. Relationship, long term connection and verbal commitment are significant. low cc: get down to business, value expertise and performance, agreement by specific/ legal contract, negotiations fast and efficientex. North america, germany, switzerland Low Context: Efficiency is important. Relationships begin and end quickly. Things get done by following procedures and paying attention to the goal. Verbal message is direct; one spells things out exactly. Ability is more important than rank. Negotiations are quick and contractual. Space is compartmentalized and privacy is important, Things are meticulously scheduled.

Importance of Culture in International Business

In a globalised economy, cultural sensitivity is essential. As the global marketplace becomes more accessible for businesses, multinational and cross-cultural teams are becoming more common. This means that it is crucial, now more than ever, for businesses to understand the culture of their foreign market if they wish to succeed internationally. Recognizing how culture can affect international business is something that should be understood in order to avoid misunderstandings between colleagues and clients, and also to make sure that businesses are presenting themselves to their new market optimally.

International Business Terminology

International Business A business whose activities are carried out across national boarders Multi-domestic Company An organization with multi-country affiliates. Each formulates its own business strategy according to local conditions. -A great example of a multi-domestic company is Nestlé. Nestlé uses a unique marketing and sales approach for each of the markets in which it operates. Furthermore, it adapts its products to local tastes by offering different products in different markets. A multinational corporation (MNC) is a corporate organization that owns or controls production of goods or services in at least one country other than its home country. A multinational corporation can also be referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), or a transnational corporation (TNC)

Government Protection

Irrespective of ideaology, an important function of the government is to provide protection for its economic activities against all acts of disruption. Terrorism Unlawful acts of violence committed for a wide variety of reasons, including for ransom, to overthrow a government, to gain release of imprisoned individuals, to exact revenge for real or imagined wrongs, to punish nonbelievers of the terrorists' religion etc.

Standardizing Laws

Many attempts have been made to standardize laws among various countries International business flows much better with a uniform set of rules Attempts include Tax conventions and treaties Antitrust cooperation International Center for Settlement of Investment Disputes UN Convention on International Sale of Goods International Organization for Standardization (ISO) International Electrotechnical Commission (IEC)

Culture Affects All Business Functions

Marketing Variation in attitudes and values requires firms to use different marketing mixes. Some learn the hard way: P&G Japanese Camay commercials Human Resource Management Evaluation of managers Production and Finance Attitudes toward authority Attitudes toward change Preferred Leadership Styles

C2: Mercantilism -what caused the end of mercantilism -critism -decline -presence

Mercantilism was the dominant school of economic thought in Europe throughout the late Renaissance and early modern period between the 15th and 18th centuries. Around that time, people in search of new markets, the ruling philosophy was based on two beliefs. First, a nation's wealth depended on gold, treasures, or silver. This was a sign that showed the nation's wealth. In order for a nation to be classified as a dominant economic area, it would need to capture as much gold as possible. International trading was one of the main sources to capture more gold. Second, in order to increase wealth, government policies should encourage exports and demote imports. The goal was for each nation to try to sell as much as possible (exports) and buy little from other nations. In other words buy close to nothing, but also try to sell as much as you can to other surrounding areas which would help the selling nation accumulate gold. This leads to betting yourself, but also leading to impoverishing the nation you are trading with. David Hume was one of the people that disagreed with concepts of mercantilism. In 1752, Hume states that the constant balance of trade was not sustainable. Although the nation could be getting an influx of gold, this will eventually lead to the value of the gold itself to diminish. It would create inflation making prices of goods and services to increase. This would lead to the nation no longer being cost effective to export goods to another nation. No nation would want to buy overpriced goods. This process is called specie-flow mechanism. The argument was that an increase in money supply means that everyone gets richer in that nation.

North American Free Trade Agreement NAFTA

NAFTA Established January 1, 1994 agreement creating a free trade area among Canada, Mexico, and the United States Passage of NAFTA resulted in the elimination or reduction of barriers to trade. The effects of the agreement regarding issues such as employment, the environment, and economic growth have been the subject of political disputes. In September 2018, the United States, Mexico, and Canada reached an agreement to replace NAFTA with the United States-Mexico-Canada Agreement (USMCA), The USMCA took effect on July 1, 2020, replacing NAFTA.

Trade Restrictions: Arguments For

National Defense: Sanctions to Punish Offending Nations Protect Infant (or Dying) Industry Protect Domestic Jobs from Cheap Foreign Labor Scientific Tariff or Fair Competition

Tax Jurisdiction

National Tax Jurisdiction A tax system for expatriate citizens of a country whereby the country taxes them on the basis of nationality even though they live and work abroad Territorial Tax Jurisdiction Expatriates are exempt from their country's taxes

Taxation Differences

Nonrevenue tax purposes To redistribute income, discourage consumption of products such as tobacco and alcohol, and encourage purchase of domestic rather than imported products Tax Levels Range from relatively high in some Western European countries to zero in tax havens Some countries have capital gains taxes, and some do not Capital gain is realized when an asset is sold for an amount greater than its cost

NTB and quotas

Nontariff barriers (NTBs) All forms of discrimination against imports other than import duties Quantitative Quotas: numerical limits placed on specific classes of imports Voluntary export restraints (VERs): Export quotas imposed by exporting nation Nontariff barriers (NTBs) All forms of discrimination against imports other than import duties Non-quantitative Nontariff Barriers Direct government participation in trade Customs and other administrative procedures Standards

Aesthetics

The aesthetics or 'the perception of sense' of a culture can have profound implications for international business. An organization should be sensitive to local preferences in the design of its plant, product, or packaging.

Arbitration

Private Solution: Arbitration Instead of going to court in any country, companies may opt for arbitration. A process, agreed to by parties to a dispute in lieu of going to court, by which a neutral person or body makes a binding decision. Generally faster More informal Confidential Less expensive

Torts

Product Liability Standard that holds a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage Strict Liability Standard that holds the designer or manufacturer liable for damages caused by a product without the need for a plaintiff to prove negligence in the product's design or manufacture

Trade Restrictions

Retaliation: dealing w/ nations flooding markets with cheaper products---spiraling tariff (trade war escalates) example is China and US use of hormone beef ...Europe closed market due to health hazards 5:30 Dumping: selling a product abroad for less than the cost of production, the price in the home market, or the price to third countries Social dumping: Unfair competition caused by firms usually from devolping nations which have extremely low labor costs (slave driving labors making lower cost of production) sell to developed nation with much higher wages and protections; selling a product abroad in a foriegn market for less than a price at which you sell in your home market (price based dumping) sell at price less than cost of production (cost price based dumping) in order to capture forign market and goal is to eliminate foriegn competition also known as Predatory dumping) earn significant profit later on Environmental dumping: certain corners in world there are hardly any rules or regulations, but there strict EPA standards have to meet in US, produce product at much cheaper cost but pollute environment and bring product here; unfair competition caused by no/little strict environmental standards-which reduces nation's cost of production significantly..it is discouraged Financial services dumping: unfair competition caused by a nation's low requirements for bank capital asset ratios, certain parts of world the requirements are low and get alot of financial breaks and utilize that and sell product at very low price where financial requirements are much more stingent Cultural dumping: fancy phrases that are being used wherever there is a whif of international trade or unfair competition; unfair competition caused by cultural barriers that help local firms; if a local firm is in tuned with culture then they will be able to produce just the kind of product that suits the tastes which another firm from another country may not have prior information or a sense about Tax dumping: unfair competition caused by differences in corporate tax rates in different parts of the world; ex. if nation has extremely low local tax rates means cost of production is low and able ot sell product at a much lower price and nation with higher tax brackets would be at a disadvantage

Piracy

Robbery or illegal violence at sea. Because piracy has been regarded as an offense against the law of nations, the public vessels of any state have been permitted to seize a pirate ship, to bring it into port, to try the crew (regardless of their nationality or domicile), and, if they are found guilty, to punish them and to confiscate the ship. The unauthorized reproduction or use of a copyrighted book, recording, television program, patented invention, trademarked product, etc.:

U.S. Laws That Affect U.S. Firms' International Business

Sarbanes-Oxley Act (SOX) of 2002 Also known as the "Public Company Accounting Reform and Investor Protection Act Brings major changes to the regulation of corporate governance and financial practice New reporting requirements Officer and director responsibilities Auditor independence Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934

Government Stability

Stable Government Maintains itself in power and whose fiscal, monetary and political policies are predictable and not subject to sudden, radical changes Unstable Government Cannot maintain itself in power or makes sudden, unpredictable, or radical policy changes

Some Newer Explanations For The Direction Of Trade

Technology Life Cycle Production technology application of IPLC Economies of Scale and Experience Curve As a plant gets larger and output increase, the average cost of producing each unit of output decreases As firms produce more products, they learn ways to improve production efficiency

Association of Southeast Asian NationsASEAN

The Association of Southeast Asian Nations, or ASEAN, was established on August 1967 in Bangkok, Thailand, by the founding fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Currently, it has 10 member states. It promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration among its members and other countries in Asia.

European UnionEU

The European Union (EU) is a political and economic union of 27 member states that are located primarily in Europe. The EU has developed an internal single market through a standardized system of laws that apply in all member states in those matters, where members have agreed to act as one. EU policies aim to ensure the free movement of people, goods, services and capital within the internal market. On 31 January 2020, the United Kingdom became the first member state to leave the EU (Brexit).

International Product Life Cycle (IPLC)

The International Product Life Cycle Theory was authored by Raymond Vernon in the 1960s describing how a product matures and declines as a result of internationalization. It explains why a product that begins as export eventually becomes an import for a nation. production line> able to sell, take difference and sell to the rest of the world phase 1: US producing product and generating surplus, selling to rest of world phase 2: foriegn competitors want to start producing in their own country phase 3: significant global competition in global market, export margin shrinks for US phase 4: starting production of same product, doing it for much less cost of production American consumers losing stability of selling of their product; shows how a nation begins by selling a product but by the end is importing it

Organisation for Economic Co-operation and Development

The Organisation for Economic Co-operation and Development (OECD) was founded in 1961 as an intergovernmental economic organisation with 37 member countries. Generally, OECD members are high-income economies and are regarded as developed countries. As of 2017, the OECD member countries collectively comprised 62.2% of global nominal GDP (US$49.6 trillion). The most recent member is Colombia since April 2020. On 15 May 2020, the OECD decided to extend a formal invitation for Costa Rica to join.

Public and private international law

The Rule of law allows businesses to know that their interests will be protected. This attracts foreign businesses. Public International Law Legal relations between governments Private International Law Laws governing transactions of individuals and companies that cross international borders

Enforcement of Foreign Arbitration Awards

The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards The U.S. and most UN member-countries of have ratified this convention Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards

Major International Institutions

The United Nations -International organization of 193 member-nations dedicated to the promotion of peace and global stability; has many functions related to business -General Assembly Deliberative body of the UN made up of all member-nations, each with one vote regardless of size, wealth, or power

Exchange Rate and International Trade

The exchange rate is price of one currency stated in terms of the other. The current USD-Euro exchange rate is 1USD = 0.85 Euro, 1 USD = 6.83 Chinese Yuan (9/7/2020). The exchange rate has a significant effect on international trade. A weaker domestic currency stimulates exports and makes imports more expensive. Conversely, a strong domestic currency hampers exports and makes imports cheaper.

UNCTAD

The main objectives of UNCTAD are as follows: a. Eliminating trade barriers that act as constraints for developing countries b. Promoting international trade for speeding up the economic development c. Formulating principles and policies related to international trade d. Negotiating the multinational trade agreements e. Providing technical assistance to developing countries specially low developed countries

What is Culture?

The sum total of beliefs, rules, techniques, institutions, and artifacts that characterize human populations Learned Interrelated Shared through social interactions Defines the boundaries of different groups Cultural sensitivity and awareness have become critical components of success in international business. One must acknowledge cultural differences and make adjustments for adaptation. Ethnocentricity or Ethnocentrism Belief in the superiority of one's own ethnic group and culture

Privatization

The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases Britain's Margaret Thatcher, was a leader of privatization movement.Airports, garbage disposal, postal services are frequent examples. There is private sector involvement in the public education system in the US such as charter schools, Educational Management Organizations (EMOs),

International Monetary Institutions

There are two global monetary institutions, The International Monetary Fund(IMF) and the World Bank, both establishes in 1944 at the Bretton Woods (NH) Conference called by the UN. IMF: IMF is governed by and accountable to the 189 member countries and works to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries to transact with each other. The IMF provides loans to member countries experiencing balance of payments problems, stabilize their currencies, and restore conditions for strong economic growth, while correcting underlying problems. The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. The initial aim was to help rebuild European countries devastated by World War II. Its first loan was to France in 1947 for post-war reconstruction. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA). The World Bank has been criticized during the present crisis for the slow response of its Pandemic Emergency Financing Facility (PEF), a fund which was created to provide money to help manage pandemic outbreaks.

World Trade Organization (WTO)

This is a multinational body of 164 members that deals with rules of trade between nations. The WTO officially commenced on 1 January 1995 under the, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The WTO deals with regulation of trade in goods, services and intellectual property between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process. The operation of the WTO dispute settlement process involves case-specific panels. The priority is to settle disputes, preferably through a mutually agreed solution.

Discuss the conclusions of Heckscher all in model? Explain Leontief Paradox? Discuss two theories that try to provide an explanation for leontief paradox?

To give some more background the Heckscher Theory of Factor Endowment was created by two economists Eli Filip Heckscher and Bertil Ohlin. The concepts originated from David Ricardo's theory of comparative advantage which predicted patterns of trade based on the factor endowments of a specific region. The model states that countries export based upon their abundant supply of cheap labor production and important from countries with limited products. The labor abundant country will produce and export labor intensive products and import capital intensive products. The factors of production are land, labor, capital, and entrepreneurial activity. In the Heckscher model, the focus is only on two factors: capital and labor. Countries import products that use scarce products and countries export products with their abundance of cheap production. For example, a capital abundant country like the US will produce capital intensive products like computers, cars, machinery and export capital intensive products to the rest of the world and import labor intensive products from the rest of the world. India should focus on labor intensive products and export labor intensive products to the US. It is dependent on factor endowments such as the amount of labor and capital. The results were shown from the 2x2x2 model (2 countries, 2 commodities, and 2 factors of resources: labor and capital). Wassily Leontief pointed out that the US most capital abundant countries were exporting relatively labor intensive products in exchange for relatively capital intensive products. The US was importing capital intensive products such as cars, machinery from Japan and other European countries and exporting products such as wheat. It leads to the question of how an abundant capital country was importing labor intensive products and exporting capital intensive products which contrasted the Heckscher Model. Leontief conducted a long study and calculated that US imports were 30% more capital intensive than US exports, which emphasized the difference between capital and labor intensive products. The two theories lead to Home Market effect and Linder Hypothesis. The Home Market Effect states that products with large economies of scale (products produced in large abundance) and higher transport costs will be produced in and exported by countries with a large domestic demand. In large economies of scale, the per unit cost of production decreases and profit margins increase. The countries then would export their surplus of products to other countries in the world. It explained why the US exports a lot of labor intensive products. A good example is how India has more resources such as multilingual and IT specialist skills that attracts big companies. Stephan Linder wanted to explain the pattern of international trade based on the demand structure. Lindor theory explained that overlapping demand suggests that international trade in manufactured goods will be stronger between counties with similar per capita income levels. An example is although the US is a capital abundant country, it still imports a lot of foriegn equipment, cars, and machinery because of the preference similarity which was the demand of the consumers. Lindor states that it does not matter if you are a capital abundant country or labor abundant country, the final decision will be determined by the quality of the product. If they are willing to pay the highest bid, they will get the best of the best product.

WTO principles

Trade will be without discrimination Trade should be freer, with trade barriers negotiated downward Trade should be predictable Trade should be more competitive Trade should be more beneficial for less developed countries, encouraging development and economic reform

Kidnapping for Ransom

Victims held for large ransoms Columbia and Peru are considered dangerous places for American executives Countermeasures by Industry KRE (kidnap, ransom, and extortion) Insurance to cover ransom payments, antiterrorist schools Cassidy and Davis The world's largest kidnapping and extortion underwriting firm is located in London

Government Ownership of Business

Why Firms are Nationalized To extract more money from the firms To increase the firm's profitability For ideological reasons To preserve jobs To follow previous government support (control follows money) Happenstance(Post World War II nationalization of German owned firms in Europe.)

Global Company

an organization that attempts to standardize and integrate operations worldwide in most functional areas. Coca Cola, Apple are some examples in this category.

Michael Porter's Diamond Model

explaining why certain industries within a particular nation are competitive internationally, whereas others are not. National Competitiveness: a nation's relative ability to design, produce, distribute, or service products while earning increasing returns on resources Factor conditions: Include land, labor, capital, entrepreneurship, and also advanced factors of production. These factors could include: infrastructure, transport system, university research. This will go along in determining a comparative advantage for a nation. These advanced resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages. Related and supporting industries: The automobile cluster is an example as well as California has a range of computerized industries. Boston is another example of being a biotechnology cluster. The existence nourishes the cluster in the diamond model. This can produce inputs that are important for innovation and internationalization. These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate. Demand conditions: Michael Porter points out that consumer demand is a volatile element and the demand will drive the quality of output that firms will produce. Firm strategy, structure, and rivalry: If the country is highly competitive, each firm will try to outperform each other and constantly try to be innovative. This rivalry will improve technology, efficiency and innovativeness of firms in that cluster. An example is the automotive industry. Car makers like Honda and Toyota are two examples of companies that have innovated products and made success in all parts of the world.