International Business Exam #3
Euro
The currency that is currently used in 19 EU countries.
Cultural distance
The difference between two cultures along identifiable dimensions such as individualism.
FTA - Free Trade Area
A group of countries that remove trade barriers among themselves.
Monetary union
A group of countries that use a common currency.
What is a letter of credit? What purpose(s) does it serve? Why is it important for international business transactions?
A letter of credit, also known as a documentary credit or bankers commercial credit, or letter of undertaking, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods/A financial contract that states that the importer's bank will pay a specific sum of money to the exporter upon delivery of the merchandise. The purpose that a letter of credit serves is that it ensures the US exporter that the importer has good creditworthiness and sufficient funds for the transaction. It is important for international business transactions because the US exporter can then release the merchandise and then the exporter can collect the payment from the Chinese importer. Instead of having unknown exporters and importers deal with each other, transactions are facilitated by banks on both sides that have known each other quite well because of numerous such dealings. In other words, the L/C reduces transaction costs by lowering the transaction risks.
Joint venture
A new corporate entity jointly created and owned by two or more parent companies.
BOT - Build-operate-transfer
A non equity mode of entry used to build a longer-term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm.
NFTs: Non-Fungible Tokens
A non-fungible token is a unit of data stored on a digital ledger that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items such as photos, videos, audio and other types of digital files. Type of ownership. Nyan cat was used as an example in class, someone paid $600,000 to "own" the original copy of this meme.
Schengen
A passport-free travel zone within the EU. 22 or 27 EU members are part of this.
Non-discrimination
A principle that a country cannot discriminate among its trading partners.
Satan Nikes and trademark protection
A private company redesigned a pair of Nike shoes with designs from Lil Nas X's new music video, and many of the designs related to satanism. Nike spoke up and is now suing that company that redesigned their shoes because Nike says "they don't want to be associated with anything to do with satanism."
Turnkey project
A project in which clients pay contractors to design and construct new facilities and train personnel.
Wholly owned subsidiary (WOS)
A subsidiary located in a foreign country that is entirely owned by the parent multinational.
Non-equity: Exporting: Indirect exporting
A way for SMEs to reach overseas customers by exporting through domestically based export intermediaries.
Contractual alliance (non-equity)
An association between firms that is based on a contract and does not involve the sharing of ownership.
Green-field operation
Building factories and offices from scratch (on a proverbial piece of "green field" formerly used for agricultural purposes).
Cons to the Auto industry (NAFTA's Policy)
Cars that did not meet the 62.5% standard, or were made overseas, were slapped with a 2.5% tariff. Almost a third of all jobs have been lost since 1994, when NAFTA was signed in the US. Can also be contributed to the integration of Automated machines
Innovation-seeking motives...match to...
Firms target countries and regions renowned for generating world-class innovations. I.T. in Silicon Valley and Bangalore; telecom in Dallas; perfumes in Paris
Agglomeration
Clustering of economic activities in certain locations.
Common market
Combining everything as a customs union has, a common market additionally permits the free movement of goods and people.
Why is entrepreneurship important for the economic growth and development of a country?
Direct exports: Entrepreneurs sell products made in their home country to customers in other countries
What different types of foreign market entry modes does Thai Union use? What are their advantages and disadvantages?
First the Thai Union started with exports to the US. and Japan (Non-Equity).Soon came a joint venture ( Equity mode) with a local Japan trading partner.
How can entrepreneurship be supported and enhanced by institutions?
Formal institutions Informal institutions
Co-marketing
Efforts among a number of firms to jointly market their products and services.
Global economic integration
Efforts to reduce trade and investment barriers around the globe.
Regional economic integration
Efforts to reduce trade and investment barriers around the globe.
How can the performance of an alliance be judged?
Equity: Greater equity stake may mean a firm is more committed, resulting in a higher performance. Learning and Experience: Firm successfully learns from its partners and the experience is often used as a proxy Nationality: Difference in national cultures can strain alliances. Relational Capabilities: Firm-specific capabilities can make or break alliances.
EU
European Union- has 27 member countries, 446 million citizens, $18 trillion in GDP, has the largest economy in the world, contributes 26% of the world's GDP, largest exporter and importer of goods and services, no trade barriers, Croatia admitted in 2013.
China's One Child Policy
Ever since China brought back the two child policy, China's fertility level is still below what is required to keep the population at its current size. This is because the one child policy messed things up essentially. People do not want to have more than one kid because one child is enough work, and two kids might put restrictions on their parents' careers.
Fintech
Financial technology is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance.
Market-seeking motives...match to...
Firms go to countries which have a high demand for their products and services. Automakers and plane makers in China
Natural resource-seeking motives...match to...
Firms go to specific locations where they find specific resources. Oil in the Middle East, Russia, and Venezuela
Efficiency-seeking motives...match to...
Firms single out the most efficient locations featuring a combination of scale economies and low-cost factors. Manufacturing in China
Economic union
Having all the features of a common market, members also coordinate and harmonize economic policies (in areas such as monetary, fiscal, and taxation) to blend their economies into a single economic entity.
Entrepreneurship
Identification and exploitation of previously unexplored opportunities.
Why do firms make acquisitions and what performance problems can arise?
Increase of market power Overcoming entry barriers Increased diversification Avoiding excessive competition
How do institutions and firm resources affect the liability of foreignness?
Institutions Based View:Firms need to take actions deemed legitimate by the various formal and informal institutions. Resource Based View: Foriegn firms need to increase resources to balance the liability and maintain a competitive edge
How will USMCA affect the industry
It requires cars to be made of 75% of parts made in Mexico, Canada, and the US. 40-45% of those parts must be made by employees that make at least $16 an hour. This could however increase the prices of cars anywhere between $470-$2,200. This could also lower the amount of cars sold in the US substantially. Over 60,000-120,000 cars going less. Apparently it will help US farmers gain access to Canadian dairy markets
Equity alliances
Joint ventures (example given in class between Toyota and DCM in India)
Lithium and demand for electric cars
Lithium prices are surging, sparking concerns about limited supplies of the battery metal that is crucial to the electric-vehicle boom. A wave of investment in new mines until 2018—driven by over exuberant expectations of demand for electric cars—created a glut of the metal that depressed prices. Lithium carbonate, a compound of the silvery metal used in the batteries that power most of China's electric-car fleet, has jumped 68% since the start of the year to $11,250 a metric ton Supply comes mostly from miners in Australia digging up a mineral called spodumene, which contains lithium, and companies extracting it from salt lakes in Chile and Argentina
GATT - General Agreement on Tariffs and Trade
Multilateral agreement governing the international trade of goods.
Explain what should be done to make a firm's entry into a foreign market successful.
Must show a strategic commitment to certain markets. Assure local customers and suppliers for the long run Deter potential entrants to increase your chance at a large part of the market share
Non-equity vs. Equity entry modes
Non-equity entry modes are modes of entering foreign markets through exports and/or contractual agreements that tend to reflect relatively smaller commitments to overseas markets. Equity entry modes are modes of entering foreign markets through joint ventures and/or wholly owned subsidiaries that indicate a relatively larger, harder-to-reverse commitment.
WTO - World Trade Organization
Official title of the multilateral trading system and the organization underpinning this system since 1995.
Customs union
One step beyond a free trade area, a customs union imposes common external policies on nonparticipating countries.
Research and Development contracts
Outsourcing agreement in R&D between firms.
First Mover: benefit that accrues to firms that enter the market first and that later entrants do not enjoy
Preemption of scarce resources Avoidance of clash with dominant firms at home Relationships with key stakeholders such as governments
Make the case for regional economic integration (include possible downsides, as well)
Promotes peace Increases the political weight of a region Free trade and investment raise incomes and stimulates economic growth Allows for disputes to be handled constructively Consistent rules will promote antidiscrimination within the region Leads to preferential treatment for firms within the region, meaning outside firms get discriminated A loss of sovereignty for each nation within a region
Understand the benefits of global economic integration
Promotion of peace Constructive dispute settlement Streamlined trade policies Consistent rules makes discrimination almost impossible Raising worldwide incomes through job creation and economic growth
Late-Mover: Benefits that accrue to firms that enter the market that early entrants do not enjoy.
Resolution of technological and market uncertainties First mover's difficulty to adapt to market changes
Merger
The combination of operations and management of two firms to establish a new legal entity.
Pros for the Auto industry (NAFTA's Policy)
Thanks to NAFTA the price of cars worldwide has only risen 7% since 1994. Other items have risen over 82%, besides food and energy. It kept the cost of car parts down because these items were able to be traded freely between Mexico, Canada, and the US. With the implication that 62.5% of that car was from North America it would be tariff free. All three of these countries are not producing more cars than ever before. Jobs have risen in Mexico, due to cheaper labor.
Euro Zone
The 19 EU countries that currently use the euro as the official currency. These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
What are the accomplishments, benefits, and costs of the European Union?
The EU has become the world's largest economy. They have gathered 27 surrounding countries and have over 446 million citizens. They are the largest exporter and importer of goods and services. SOme of the challenges the EU faces are growth and expansion (bringing in more countries could bring on more debt as well as make integration hard considering political ties), training new labor and immagration (regulation of immagrationnis a huge challege to tackle across 27 countries, these new countries have to have jobs for their people which includes the creation of jobs, the training of new labor forces, and the integration of a new culture.), financial crises and recessions ( The EU has already bailed out 8 countries which will take economic tolls on everyone.)
Location-specific advantages
The benefit a firm reaps from the features specific to a place.
Institutional distance
The extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries.
Multilateral trading system
The global system that governs international trade among countries--otherwise known as the GATT/WTO system.
Political union
The integration of political and economic affairs of a region.
Country of Origin Effect
The positive or negative perception of firms and products from a certain country.
Non-equity: Exporting: Direct exporting
The sale of products made by firms in their home country to customers in other countries.
Acquisition
The transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter.
What are some of the unique resources and capabilities of Thai Union?
They are the biggest seafood processors. Has subsidiaries in many foreign countries. They have expanded to other facets of the food industry. They have acquired French, American, and European food and distributors.
What were some of the motives behind the Brexit vote (the vote taken in the U.K. to leave the EU)?
They did not appreciate the Membership fee, which most likely was to cover possible bailouts as well as the increase in resources and possible economic growth. Britain wanted their own sovereignty. They were not happy with the amount of immigration that the EU brought onto them.
Why does Thai Union use more acquisitions lately?
They want more of the market share. They also want to eliminate any competition. Acquiring these companies will also give them more resources and connections to continue to export to more foreign companies.
Understand the concerns that surrounded NAFTA and the benefits of NAFTA (now renegotiated to become the USMCA)
Trade between Canada and US grew twice as fast than before NAFTA US exports to Mexico tripled to $161 billion Mexico exports to US tripled Real wages in Mexico have stagnated Many firms shifted multinational work to China 300,000 US jobs lost
Strategic alliances
Voluntary agreement of cooperation between firms.
