Chapter 3

What is the key difference between a joint venture and a strategic alliance?

A joint venture is a partnership between two or more companies whereby they undertake a major project. Joint ventures generally involve: (a) sharing technology and risk; (b) sharing marketing and management expertise; (c) entry into markets where foreign companies are often not allowed unless goods are produced locally. In a strategic alliance partners do not share costs, risks, management, or even profits. The purpose is to gain advantages in building competitive market advantages.

How would a low value of the dollar affect U.S. exports?

A low value of the dollar would make U.S. exports cheaper in foreign markets and may lead to higher demand for U.S. products.

What makes a company a multinational corporation?

A multinational corporation manufactures and markets products in many different countries and has multinational stock ownership and management. Only firms that have manufacturing capacity or other physical presence in other countries can be called multinational.

What does the acronym BRIC stand for?

BRIC stands for Brazil, Russia, India, and China.

What is comparative advantage, and what are some examples of this concept at work in the United States?

Comparative advantage theory was proposed by David Ricardo and simply states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively and efficiently. Examples include the U.S. producing goods and services such as software and engineering services and buying goods, such as coffee and shoes, from other nations.

What is meant by dumping in global trade?

Dumping is the selling of products in foreign countries at lower prices than those charged in the producing country. This tactic is sometimes used to reduce surplus products in foreign markets or gain a foothold in a new market.

What does ethnocentricity mean and how can it affect global success?

Ethnocentricity is an attitude that your nation's culture is superior to other cultures. It can affect global trade because all nations are proud of their cultures and do not aspire to be like other countries. Thus it's easy to offend potential customers by being ethnocentric.

What services are usually provided by an export-trading company?

Export trading companies provide such services as assistance in associating and establishing the desired trading relationships, matching buyers and sellers from different countries, and help dealing with foreign customs offices, documentation, and weights and measures.

What are four major hurdles to successful global trade?

Four major hurdles to successful global trade are: sociocultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces

What key challenges must India and Russia face before becoming global economic leaders?

India must relax its difficult trade laws and inflexible bureaucracy. Russia is plagued by political, currency, corruption, and social problems.

Which three nations comprise NAFTA?

NAFTA is comprised of the United States, Canada and Mexico.

What are two of the main arguments favoring the expansion of U.S. businesses into global markets?

One major argument favoring the expansion of U.S. business is that the sheer size of the global market (6.9 billion people) is too large to ignore. Plus it's difficult for an economy, even one as large as the U.S. economy, to produce all the goods and services its citizens desire.

What does the Foreign Corrupt Practices Act prohibit?

The Foreign Corrupt Practices Act prohibits "questionable" or "dubious" payments to foreign officials to secure business contracts. Other nations do not have to follow this law causing some disadvantages for U.S. businesses.

What is the primary purpose of the WTO?

The World Trade Organization (WTO) was established to mediate trade disputes among nations.

How are a nation's balance of trade and balance of payments determined?

The balance of trade is the difference in the total value of a nation's exports compared to its imports. The balance of payments is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

What are the advantages of using licensing as a method of entry in global markets? What are the disadvantages?

The key advantages of using licensing as a method of entry into global markets are: (a) a firm can often gain revenues in a market it would not have generated in its home market; (b) licensees must purchase start-up supplies and consulting services from the licensing firm; and c) licensors spend little or no money to produce and market their products. Disadvantages to licensing include: (a) if a product is extremely successful in another market, the licensor does not receive the bulk of the revenues and (b) if the foreign licensee learns the company's technology and product secrets, it may break the agreement and begin producing similar products on its own.

What are the two primary concerns about offshore outsourcing?

The key concern about offshore outsourcing is the loss of jobs. Today such loss includes professional services as well as production jobs. Questions also linger about outsourcing sensitive products like airline maintenance and medical devices. Consumers' fears about quality and product safety keep the issue center stage.

What are the major threats to doing business in global markets?

The major threats to doing business in global markets are: terrorism, nuclear proliferation, rogue states, and other issues.

What is the key objective of a common market like the EU?

The purpose of a common market like the EU is to have common external tariffs, no internal tariff, and coordinated laws to facilitate exchange between member nations. This enables smaller nations to compete as a group against large economies like the United States, China, and Japan.

What are the advantages and disadvantages of trade protectionism and of tariffs?

Trade protectionism is the use of government regulations to limit the import of goods and services. It can be a barrier to global trade. Trade protectionism often involves the use of tariffs or taxes on imported goods that makes them more expensive to buy. Protective tariffs can be an advantage to workers in certain industries since it makes the products they produce more cost competitive with imported products. American labor unions have sought certain protective tariffs. Revenue tariffs are designed as a source of revenue for the government. Most economists do not favor the use of tariffs; instead they are in favor of free trade.