Final Exam - Chapters 10 - 17 INTERNATIONAL BUSINESS

joint venture

A cooperative undertaking between two or more firms

Freely Convertible Currency

A country's currency is freely convertible when the government of that country allows both residents and nonresidents to purchase unlimited amounts of foreign currency with the domestic currency.

Nonconvertible Currency

A currency is not convertible when both residents and nonresidents are prohibited from converting their holdings of that currency into another currency.

Exclusive Distribution Channel

A distribution channel that outsiders find difficult to access.

Bill of Lading

A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title.

Pegged Exchange Rate

Currency value is fixed relative to a reference currency

Just‐in‐time (JIT) inventory

Inventory logistics system designed to deliver parts to a production process as they are needed, not before.

currency speculation

Involves short-term movement of funds from one currency to another in hopes of profiting from shifts in exchange rates.

Bill of Exchange

Is the instrument normally used in international commerce to effect payment

MITI

Japan's Ministry of International Trade and Industry

Sogo Shosha

Japanese trading companies; a key part of the keiretsu, the large Japanese industrial groups

Flexible Manufacturing Technology

Manufacturing technologies designed to improve job scheduling, reduce setup time, and improve quality control.

make or buy decision

the strategic decision concerning whether to produce an item in-house ("make") or purchase it from an outside supplier ("buy")

Organization Architecture

the totality of a firm's organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people

Countertrade

the trade of goods and services for other goods and services

Organizational Culture

the values, beliefs, and attitudes shared by organizational members

Operations

the various value creation activities a firm undertakes

Predatory Pricing

Reducing prices below fair market value as a competitive weapon to drive weaker competitors out of the market ("fair" being cost plus some reasonable profit margin).

Global Supply Chain Coordination

Refers to shared decision-making opportunities and operational collaboration of key global supply chain activities.

Multipoint Pricing

Refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market

Transportation

Refers to the movement of raw material, component parts, and finished goods throughout the global supply chain.

Switch Trading

Refers to the use of a specialized third-party trading house in a countertrade arrangement

Human Resource Management

The activities an organization carries out to utilize its human resources effectively

Exporting

sale of products produced in one country to residents of another country

Global Distribution Center

A facility that positions and allows customization of products for delivery to worldwide wholesalers or retailers, or directly to consumers anywhere in the world; also called a global distribution warehouse.

Server Factory

A factory linked into the global supply chain for a global firm to supply specific country or regional markets around the globe

Outpost Factory

A factory that can be viewed as an intelligence-gathering unit

Offshore Factory

A factory that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market.

Source Factory

A factory whose primary purpose is also to drive down costs in the global supply chain.

Foreign Exchange Market

A market for converting the currency of one country into that of another country

Efficient Market

A market where prices reflect all available information.

Pull Strategy

A marketing strategy emphasizing mass media advertising as opposed to personal selling.

Push Strategy

A marketing strategy emphasizing personal selling rather than mass media advertising in the promotional mix.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Expatriate Manager

A national of one country appointed to a management position in another country.

Turnkey Project

A project in which a firm agrees to set up an operating plant for a foreign client and hand over the "key" when the plant is fully operational.

Time Draft

A promise to pay by the accepting party at some future date

Concentrated Retail System

A retail system in which a few retailers supply most of the market

intermarket segmentation

A segment that spans multiple countries, transcending national borders.

Elastic

A small change in price produces a large change in demand

Franchising

A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business

Ethnocentric Staffing Policy

A staffing approach within the MNE in which all key management positions are filled by parent-country nationals.

Polycentric Staffing Policy

A staffing policy in an MNE in which host-country nationals are recruited to manage subsidiaries in their own country, while parent-country nationals occupy key positions at corporate headquarters.

Geocentric Staffing Policy

A staffing policy where the best people are sought for key jobs throughout an MNE, regardless of nationality

Country of Origin Effects

A subset of source effects, or the extent to which the place of manufacturing influences product evaluations

Wholly Owned Subsidiary

A subsidiary in which the firm owns 100 percent of the stock

Dirty Float System

A system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

Floating Exchange Rate

A system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand.

Export-Import Bank

Agency of the US government whose mission is to provide aid in financing and facilitate exports and imports.

Experience Curve Pricing

Aggressive pricing designed to increase volume and help the firm realize experience curve economies.

Cross Licensing Agreements

An arrangement in which a company licenses valuable intangible property to a foreign partner and receives a license for the partner's valuable knowledge; reduces risk of licensing.

Moral Hazard

Arises when people behave recklessly because they know they will be saved if things go wrong

ISO 9000

Certification process that requires certain quality standards must be met

Marketing Mix

Choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets.

Lead Strategy

Collecting foreign currency receivables early when a foreign currency is expected to depreciate, and paying foreign currency payables before they are due when a currency is expected to appreciate.

Pioneering Costs

Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner.

Lag Strategy

Delaying the collection of foreign currency receivables if that currency is expected to appreciate, and delaying payables if that currency is expected to depreciate.

Fundamental Analysis

Draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

European Monetary System (EMS)

EU system designed to create a zone of monetary stability in Europe, control inflation, and coordinate exchange rate policies of EU countries.

Source Effects

Effects that occur when the receiver of the message (i.e., a potential consumer) evaluates the message on the basis of status or image of the sender.

Flexible Machine Cells

Flexible manufacturing technology in which a grouping of various machine types, a common materials handler, and a centralized cell controller produce a family of products.

International Fisher Effect

For any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between countries

Fisher Effect

Nominal interest rates (i) in each country equal the required real rate of interest (r) and the expected rate of inflation over the period of time for which the funds are to be lent (I). That is, i = r + I.

Currency Crisis

Occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate.

Foreign Debt Crisis

Situation in which a country cannot service its foreign debt obligations, whether private-sector or government debt

Value Creation

Ss measured by the difference between the V(price that the firm can charge for the product given competitive pressures) and C(the cost of producing that product)

Strategic Pricing

The concept containing the three aspects: predatory pricing, multi point pricing, and experience curve pricing

Packaging

The container that holds the product itself. It can be divided into primary, secondary, and transit packaging.

Global Inventory Management

The decision-making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation.

Incentives

The devices used to reward appropriate managerial behavior.

Barter

The direct exchange of goods or services between two parties without a cash transaction.

People

The employees of the organization, the strategy used to recruit, compensate, and retain those individuals, and the type of people that they are in terms of their skills value and orientation.

Forward Exchange Rate

The exchange rates governing forward exchange transactions

Channel Quality

The expertise, competences, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses.

Economic Exposure

The extent to which a firm's future international earning power is affected by changes in exchange rates

Translation Exposure

The extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

Global Learning

The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary

Supply Chain Management

The integration and coordination of logistics, purchasing, operations, and market channels activities from raw material to the end-customer.

Channel Length

The number of intermediaries that a product has to go through before it reaches the final consumer.

Noise

The number of other messages competing for a potential consumers attention.

Corporate Culture

The organization's norms and value systems

Purchasing

The part of the supply chain that includes the worldwide buying of raw material, component parts, and products used in manufacturing of the company's products and services

Upstream Supply Chain

The portion of the supply chain from raw materials to the production facility

Gold Standard

The practice of pegging currencies to gold and guaranteeing convertibility.

Expatriate Failure

The premature return of an expatriate manager to the home country.

Reverse Logistics

The process of sending returned products back up the supply chain for value recovery or disposal

exchange rate

The rate at which one currency is converted into another.

Staffing Policy

The selection of employees who have the skills required to perform a particular job

International Market Research

The systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company

organizational structure

The totality of a firm's organization including formal organization structure, control systems and incentives, organizational culture, processes and people.

Technical Analysis

Uses price and volume data to determine past trends, which are expected to continue into the future

Hedging Currency Risk

When a firm insures itself against foreign exchange risk.

Inelastic

When a large change in price produces only a small change in demand

Global Web

When different stages of value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized

Forward Exchange

When two parties agree to exchange currency and execute a deal at some specific date in the future.

Total Quality Management (TQM)

a comprehensive approach - led by top management and supported throughout the organization - dedicated to continuous quality improvement, training, and customer satisfaction

Sight Draft

a draft payable on presentation to the drawee

Lead Factory

a factory that is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world

Contributor Factory

a factory that serves a specific country or world region

Carry Trade

a kind of speculation that involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high

Banking Crisis

a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits

Counterpurchase

a reciprocal buying agreement

Fragmented Retail System

a retail system in which there are many retailers, none of which has a major share of the market

Six Sigma

a rigorous statistical analysis process that reduces defects in manufacturing and service-related processes

Fixed Exchange Rate

a system under which the exchange rate for converting one currency into another is fixed

Production

activities involved in creating a product

first-mover advantage

advantages accruing to the first to enter a market

Offset

agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from any firm in the country

Lean Production

an approach to production that emphasizes the elimination of waste in all aspects of production processes

Draft

an order written by an exporter telling an importer what and when to pay

Location Economies

are economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be

Licensing Agreement

arrangement in which a licensor grants the rights to intangible property to the licensee for a specified period and receives a royalty fee in return

Transnational Strategy

attempt to simultaneously achieve low costs through location economies, economies of scale, and learning effects while also differentiating product offerings across geographic markets to account for local differences and fostering multi directional flows of skills between different subsidiaries in the firm's global network of operations.

Currency Board

commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate

Capital Flight

converting domestic currency into a foreign currency

Economies of Scale

cost advantages to manufacturers that accrue from high-volume production, since the average cost of production falls with increasing output

Timing of Entry

entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves

Universal Needs

exist when the tastes and preferences of consumers in different nations are similar if not identical

Global Standardization Strategy

focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies

Localization Strategy

focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets

Market Segmentation

identifying groups of consumers whose purchasing behavior differs from others in important ways

Law of One Price

in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency

International Monetary System

institutional arrangements countries adopt to govern exchange rates

Profit Growth

is measured by the percentage increase in net profits over time

Externally Convertible Currency

limitations on the ability of residents to convert domestic currency, though nonresidents can convert their holdings of domestic currency into foreign currency

Bandwagon Effect

movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions

Buyback

occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract.

Export Management Company (EMC)

offers services to companies that have not previously exported products

Inefficient Market

one in which prices do not reflect all available information

balance-of-trade equilibrium

reached when the income a nation's residents earn from exports equals money paid for imports

Strategic Alliances

refer to cooperative agreements between potential or actual competitors

Learning Effects

refer to cost savings that come from learning by doing

Core Competence

refers to skills within the firm that competitors cannot easily match or imitate

Experience Curve

refers to the systematic reductions in production costs that occur over the life of a product

Currency Swap

simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

Letter of Credit

states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents

managed float system

system under which some currencies are allowed to float freely, but the majority are either managed by government intervention or pegged to another currency

International Strategy

taking products first produced for their domestic market and selling them internationally with only minimal local customization.

strategy

the actions that managers take to attain the goals of the firm

Foreign Exchange Risk

the adverse consequences of unpredictable changes in exchange rates

Gold Par Value

the amount of currency needed to purchase one ounce of gold

Spot Exchange Rate

the exchange rate at which a foreign exchange dealer will convert one currency into another that particular day

Transaction Exposure

the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values

Minimum Efficient Scale

the level of output at which all economies of scale are exhausted

Processes

the manner in which decisions are made and work is performed within any organization

Controls

the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.

Logistics

the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing

Mass Customization

the production of a variety of end products at a unit cost that could once be achieved only through mass production of a standardized output

Arbitrage

the purchase of securities in one market for immediate resale in another to profit from a price discrepancy

profitability

the rate of return the firm makes on its invested capital