Chapter 3: Business in a Borderless World

Exporting

The sale of goods and services to foreign markets

Strategic Alliance

A contract formed to create competitive advantage on a worldwide basis

Multinational Corporation

A corporation that operates on a worldwide scale, without significant ties to any one nation or region

Why can dumping result in the imposition of tariffs and quotas?

A country or firm that practices dumping harms local businesses by offering a product at a much cheaper price. In order to limit the access to its market by the dumping firm or country, the local government might decide to constrain the imports of the product considered. Thus, the government is likely to impose tariffs and quotas

How might a country use import tariffs and quotas to control its balance of trade and payments?

A country, such as the United States, could set higher import tariffs on another country's products sold in the United States, thus forcing the United States consumers buying imported goods to pay a higher price. A quota may be set on the number of units that can be sold in the United States. For example, import tariffs on Japanese televisions might mean that Japanese televisions might cost more. If quotas were established for Japanese televisions, only a certain number could be imported into the United States. Either situation tends to protect domestic manufacturers. By selling more domestic products, the balance of trade and payments would be more favorable for the United States.

At what levels might a firm get involved in international business? What level requires the least commitment of resources? What level of requires the most involvement?

A firm can get involved in a variety of ways. Probably the smallest commitment is through exporting. Many companies first get involved in global business by exporting. A small company may market its products overseas directly, or it may deal with a middleman, commonly called an export agent. The highest level of international business involvement is the multinational corporation. In between are trading companies, licensing and contract manufacturing arrangements, direct investment, and joint ventures

Trading Company

A firm that buys goods in one country and sells them to buyers of another country. Handles all trade activities; similar to export agents but their role is broader.

Franchising

A form of licensing in which a company agrees to provide their name, logo, methods of operation, advertising, products and other elements associated with the franchiser's business, in return for a financial commitment and the agreement to conduct business in accord with the franchiser's standard of operation

Cartel

A group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets

Absolute Advantage

A monopoly that exists when a company is the only source of an item, the only producer of an item, or the most efficient producer of an item

Joint Venture

The shared ownership of a business between a foreign company and a local partner. Used in countries forbidding direct investment from foreign companies or when the company lacks resources or expertise

Distinguish between an absolute advantage and a comparative advantage.

A nation with an absolute advantage is the only or most efficient producer of an item. A nation with a comparative advantage specializes in products that it can supply more efficiently; however, it is not the sole producer of those products.

Trade Deficit

A nation's negative balance of trade, which exists when that country imports more products than it exports

Multinational Strategy

A plan used by international companies that involves customizing products, promotion and distribution according to cultural technological, regional and national differences

Embargo

A prohibition on the trade for a particular product

Global Strategy

A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity

Import Tariff

A tax levied by a nation on goods imported into the country

Licensing

A trade agreement in which on company allows another company to use its company name, products, patents, brand, trademarks, raw materials and/or production processes in exchange for a fee or royalty. An attractive alternative to direct investment when political stability is in doubt.

General Agreement on Tariffs and Trade

A trade agreement, originally signed by 23 nations in 1947, that provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved

Association of Southeast Asian Nations

A trade alliance that promotes trade and economic integration among member nations; has a GDP of $2 trillion

European Union

A union of nations established in 1958 to promote trade among its members; one of the Largest single markets today; has a GDP of $17 trillion+

North American Free Trade Agreement

Agreement that eliminates most tariffs and trade restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S., and Mexico.

Asia-Pacific Economic Cooperation

An international trade alliance that promotes open trade and economic and technical cooperation among member nations. Holds 55% of world GDP.

World Bank

An organization established by the industrialized nations in 1946 to loan money to underdeveloped and developing countries

Countertrade Agreements

Foreign trade agreements that involve bartering products for other products instead of for currency

World Trade Organization

International organization dealing with the rules of trade between nations, evolved from GATT

Compare and contrast licensing, franchising, contract manufacturing, and outsourcing

Licensing is a trade arrangement in which a licensor allows a licensee to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty. Franchising is a form of licensing in which the franchiser has a tighter control over the activities of the franchisee. The franchisee is provided with more support from the franchiser than the licensee. This support includes a name, logo, methods of operation, advertising, products, etc. In exchange for this support, the franchiser not only receives a financial commitment, but also can control the way in which the business is conducted. Licensing and franchising lower the costs of businesses' development by involving third parties in the opening and management of new facilities. Contract manufacturing is an arrangement in which a foreign company produces a specified volume of a firm's product to specifications and uses the domestic firm's name on the final products. Contract manufacturing enables a company to benefit from the lower production costs offered in a foreign country without investing in that country. Outsourcing involves transferring a specific set of tasks such as production or data entry to countries where labor or supplies are less expensive.

International Monetary Fund

Organization established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation

Outsourcing

The transferring of manufacturing or other tasks - such as data processing - to countries where labor and supplies are less expensive.

Exchange Controls

Regulations that restrict the amount of currency that can be bought or sold

Quota

Restriction on the number of units of a particular product that can be imported into a country

Cite an example of a country that has an absolute advantage and one with a comparative advantage

South Africa has an absolute advantage in gem‐quality diamond production, while the United States has a comparative advantage in agricultural products. The United States specializes in agricultural products such as wheat and cotton, but it is not the only producer of those products.

Dumping

The act of a country or business selling products at less than what it costs to produce them

Comparative Advantage

The basis of the most international trade, when a company specializes in products that it can supply more efficiently or at a lower cost than it can produce other items

International Business

The buying, selling, and trading of goods and services across national boundaries

Balance of Payments

The difference between the flow of money into and out of a country

Balance of Trade

The difference in value between a nation's exports and its imports

Contract Manufacturing

The hiring of a foreign company to produce a specific volume of the initiating company's product to specification; the final product carries the domestic firm's name. For example, Reebok uses contract manufacturers to produce many of its shoes

Direct Investment

The ownership of overseas facilities. For companies who want more control and are willing to invest considerable resources. May involve new facilities or the purchase of an existing operation

Infrastructure

The physical facilities supporting a country's economic activities, such as railroads, highways, ports, airfields, utilities and power plants, schools, hospitals, communication systems and commercial distribution systems

Importing

The purchase of goods and services from foreign markets

Exchange Rate

The ratio at which one nation's currency can be exchanged for another nation's currency; vary daily and affect import/export costs

Offshoring

The relocation of business processes by a company, or subsidiary, to another country. Different from outsourcing: the company retains control by not sub contracting to another company