Chapter 3: Doing Business in Global Market + Review Questions

a commen market ( also called a trading bloc)

is a regional group of countries with a common external tariff, no internal tariffs, and coordinated laws to facilitate exchange among members -an example is the European Union

importing

is buying products from another country

stagey for reaching global markets provides for lowest risk?

licensing

effects of trade protectionism

limitation of imported goods and services , preserving local jobs, and domestic producers will have a better opportunity to survive.

the major shortcoming of subsidiary is the

need to commit funds and technology within foreign boundaries. -should relationships with a host country falter, the firms assets could be expropriated ( taken over by the foreign government)

many view china as a free tader's dream, whee global investment and entrnueruship will lead to wealth. -however concerns remain about china's

one party political system , human rights abuses, currency issues, and increasing urban population growth. -china's underground economy also generate significant product piracy and counterfeiting, although the country has been more responsible to these problems since its admission to the WTO. -with the global economy continuing to grow, China will be a key driver of the world economy with the U.S., the EU, and JAPan.

nestle is a multinational coperation

one that manufactures and markets products in many different countries and has multinational stock ownership and mangament. -multinational corporations are typically extremely large corporations like nestle, but not all large global businesses are multinationals. Only firms that have mufacotring capacity or some other physical presence in different nations can truly be called multinational

an embargo is a complete ban on the import

or export of a certain product, or the stopping of all trade with a particular country.

countries need to trade with other countries because:

other countries can produce some products more cheaply and efficiently and no nation can produce all the product its people want and need.

contract manufacturing falls under the broad category of

outsourcing

the definition of ______ states: the process whereby one firm contracts with other companies, often in different countries, to do some or all of its functions.

outsourcing

contract manufacturing falls under the broad category of

outsourcing because business functions are transferred to a third part company

entering global business requires selecting an entry strategy that best fits your business goals -the different strategies reflect different levels of

ownership, financial commitment, and risk

a foreign subsidiary is a company owned in a foreign country by another company called the:

parent company

the outcome of FDI ( foreign direct investment) is a foreign subsidiary, a company located in a foreign country that is owned by another company, called the

parent company

global trade enables annotation to

produce what is most capable of producing and buy what it needs from others in a mutually beneficial exchange relationship -this happens through the process called free trade

2 kinds of tariffs

protection and revenue

the foreign corrupt practices act of 1978 prohibits _________ payments to foreign officials to secure business contracts

questionable

the definition of import quotas states

a limit on the number of products in certain categories that a nation can import

the definition of strategic alliance states

a long term partnership between 2 or more companies established to help each company build competitive market advantages

the definition of joint venture states

a partnership in which two or more companies, often from different countries, kin to undertake a major project

when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries is to said a

absolute advantage.

an embargo

bans all trade with a particular country and bans all trade of a certain product.

countertrading is considered to be a complex form of

bartering

when franchising internationally, deciding not to adapt a product or service to local conditions can lead to:

business failure

foreign direct investment ( FDI)

buying of permanent property and business in foreign nations.

a trade surplus occurs when a country is :

exports are greater than imports

selling products in a foreign country at a lower price then what is charged in the producing country is called

dumping

globalization is real and therefore the

economic competition promises to intensify .

_____ is selling products to another country

exporting

the possibility of having all foreign assets expropriated is the major shortcoming of what strategy?

foreign direct investment

the most commrn form of FDI is a

foreign subsidiary

____ trade is the movement of goods and services among nations without political or economic barriers

free trade

______ tariffs are designed to raise money for the government

revenue

the direction of tariff

s a tax on imports

importing is buying products from another country while exporting is

selling products to another country.

offshore outsourcing

shift to primarily low-wage global markets -remains a major issue in the U.S.

the central american free trade agreement ( CAFRA) was

signed into law creating a free trade zone with costa rica, the dominican republic, el salvador, guatemala, honduras, and nicaragua.

the szie of SWFs

($7 trillion globally) and government ownership made some fear they might be used for achieving geopolitical objectives by gaining control of strategic natural resources or obtained sensitive technologies. -thus this has not been a problem. in fact, during the great recession, SWFs injected billions of dollars into struggling U.S. companies. -today many economists argue that foreign investment through SWFs is a vote of confidence in the U.S. economy and a way to create thousands of U.S. jobs.

culture can include

language, religion, and values and attitudes.

a foreign country's production of private-label goods to which a domestic company then attaches its brand name or trade mark is called:

contract manufacturing

general agreement tariffs and trade ( GATT(

global forum for reducing trade restrictions on goods, services, ideas, and cultural programs. -in 1986 the Uruguay Round of the GATT convened to renegotiate trade agreements. -124 nations voted to lower tariffs an average of 38% worldwide and to expand new trade routes such has agriculture, services, and the protection of patents.

which of the following are ways Darla business ( in US) could engage in the global market?

import materials from Germany, export bicycles to retailers in australia, and create an online sales site that ships globally.

a limit on the quantity of products in a certain category that a nation can impot is called

import quota

buying goods and services from other countries is referred to as:

importing

The united states is the largest

importing nation in the world

in any economy, the conduct and the direction of business are firmly tied to the legal and regulatory business.

in global markets, no central government of laws exists, so different systems of laws and regulations may apply in different places. -this makes conducting global business difficult as business people navigate a sea of laws and regulation that are often inconsistent. -antitrust rules , labor relatives, patents, copyrights, trade practices, taxes product liability, child labor, prison labor and other issues are governed DIFFERENTLY country by country.

understanding sociocultural differences are also important in managing employees

in some latin american countries, workers believe mangers are in positions of authority to make decisions concerning the well being of the workers under their control -A U.S. manger working in Peru who was unaware of this cultural characteristic and believed workers should participate in managerial functions. He was convinced he could motivate his workers to higher levels of productivity by instituting a more democratic decision making style. Workers instead began quitting in droves. All stated they wanted to find a new jobs, since this company was doomed due to its incompetent management

today we have moved beyond the outsourcing of manufactured goods to what economists called the "second wave" of offshore outsourcing, shifting form strict product assembly to design and architecture.

increasing numbers of skilled, educated, middle-income workers in service-sector jobs that require specific training such as accounting, law, finance risk management , health care, and information technology are seeing their jobs outsourced offshore.

business, economics, and politics have always been closely linked. -economics was once referred to as political economy

indicating the close ties between politics ( government) and economics.

physical and environmental forces certainty affect a companies ability to conduct global business. -technological differences also

influence the features and feasibility of exportable products -ex/ residential electrical systems in most developing countries do not match those of U.S. homes, in kind or capacity. -ex/ computer and internet use in many developing countries remains limited due to consumers' inability to afford even low-priced laptops. Facts like these make for a tough environment for business in general and for a e-commerce in particular.

the global market has also fueled the growth of strategic alliances -what is a strategic alliance

is a long term partnership between 2 or more companies established to help each company build competitive market advantages.

a disadvantage of an international joint venture

is one partner can learn the other's technology and practices, then use what is learned to its own advantages

exporting

is selling products to another country -competition among exporting nations is intense

the world trade organization

is the organization that replaced the general agreement on tariffs and trade ( GATT) and was assigned the duty to mediate trade disputes among nations

balence of trade

is the total value of a nation's exports compared to its imports measures over a particular period

the exchange rate

is the value of ones nation's currency relative to the currencies of other countries

a high value of the dollar means

is trading for more foreign currency than previously -foreign products become cheaper because it takes fewer dollars to buy them. -but the U.S. produced goods become more expensive because of the dollar's high value.

the united states has had a trade deficit since 1975 because:

it brought more goods from other nations than it has sold

benefits of contract manufacturing

it can be used ti temporarily meet an unexpected increase in orders, labor costs in foreign mark may be lower than the labor costs in the firm's host country , and it enables a producer or business to experiment in a new market without incurring heavy startup costs.

benefits of contract manufacturing

it enables a producer or business to experiment in a new market without incurring heavy start-up costs, labor costs in foreign market may be lower than the labor costs in the firm's host country and it can be used to temporarily meet an unexpected increase in orders.

shared technology and risk, marketing and management expertise, and entry into markets where foreign companies are often not allowed unless goods are produced locally are all benefits of:

joint ventures

problems arising from differences in antitrust rules, labor relations, patents, copyrights, taxes, and other issues are all considered examples of

laws and regulatory forces within a global market

the WTO has not solved all global trade problems.

legal and regulatory differences often impede trade expansion -also a wide gap persists between developing nations ( 80 percent of the WTO membership) and industrialized nations like the U.S.) -the WTO meetings DOha, Qatar, begun in 2001 to address dismantling protection of manufactured goods, eliminating subsidies on agricultural products, and overturning temporary protectionist measures, unfortunately did not result in any significant agreements

what is the global strategy in which a firm allows a foreign company to produce its product in exchange for a few?

licensing

which statement should a business use when it wants to experiment with a new market without incurring heavy start-up costs?

licensing, empoting, and contract manufacturing

a business can legally compete in global markets by using which of the following strategies

licensing, exporting, and franchising

businesses is different strategies in global markets. -the key strategies include

licensing, exporting, franchising, contract manufacturing , international joint ventures, and strategic alliance, and foreign direct investments -each provides different economic opportunities, along with specific communities and risks

how does globalization impact U.S. businesses?

loss of jobs in manufacturing and increased competition.

the definition of devaluation states

lowering the value of a nation's currency relative to other currencies

devaluation

lowers the value of a nation's currency relate to others -ex/ venezuela devalued its currency in 2014 to try to alleviate mounting economic problems.

the pirmary advantage of subsidary is that the company

maintains complete control over any technology or expertise it may possess.

free trade allows labor to be outsourced to other markets where it may be less expensive. This negative consequence of free trade most commonly created a loss of domestic:

manufacturing jobs

you can sell just about any good or service used in the U.S. to other countries and sometimes is not nearly so intense as it as home.

many economists feel EXPORTING also provides a terrific boost to the U.S. economy. -C. Fred Bergsten, states that the U.S. economy was $ 1 trillion a year richer because of its integration with the world economy. He also estimates that ever $1 billion in additional U.S. exports generates over 7,000 jobs at home. -but selling in global markets and adapting products to global customers are by no means easy tasks.

unlike joint ventures, strategic alliances share:

markets and expertise.

the main purpose of the world trade organization

mediate trade disputes among nations

no internal tariffs is a benefit enjoyed by

members of common markets, or "trading blocs"

an _________ corporation is an organization that manufactures and markets products in many different countries and has managers and stockholders from many countrie s

multinational

the many U.S> companies still fail to think globally, not understanding that something like the color used in the packaging can have a different meaning in a different culture -what is a quote to go by

never assume what works in one country works in anothe r

an import quota limits the

number of products in certain categories a nation can import. -the U.S. has import quotas on a number of products to protect U.S. companies and preserve jobs.

getting starting globally is often a matter of

observing, being determined, and taking risks

comparative advantage theory states that a country should export goods it produces most efficiently and import those it doesn't. -absolute advantage

occurs when a country is able to produce a specific product more efficiently than any other country.

the exchange rate is the value

of one's nation's currency relative to the currencies of other countries. -changes in a nation's exchange rates have effects in global markets

a major issue in the united states has been the shift to primarily low-wage global markets. This is called?

offshore outsourcing

primitive transportation and storage systems that make local distribution ineffective if not impossible, the lack of clean water, and the lack of effective sewer systems are all examples of what type of barrier?

physical and environmental

some developing countries have primitive transportation and storage systems. in addition to unclean water and poor sewer system. That is why is it important to analyze the

physical and environmental forces before entering the market

a weak transportation infrastructure results in a

physical barrier to global businesses

outsroucing

process whereby one firm contracts with other companies, often in other countries, to do some or all of its functions .

revenue tariffs are a from of protection designed to

raise money for the government and protect home industries. -examples of trade protection are tariffs, quitas, and embargos.

protective tariffs

raise the retail price of imported products so that domestic goods are more competitively priced

the function of protective tariffs on imports is to

raise the retail price of imported products so that domestic goods are more competitively priced.

protective tariffs ( import taxes)

raise the retail price of imported products so that domestic goods are more competitively priced. -these tariffs are meant to save jobs for domestic workers and keep industries -especially infant industries that have companies in the early stages of grow - from closing down because of foreign competitive.

an issue not resolved by the GATT or the WTO is whether common markets create

regional alliances at the expense of global expansion.

sociocultural forces that affect global trade

religion, social structures, and values.

dumping

selling products in a foreign country at lower prices than those charged in the producing country. -this predatory pricing tactic is sometimes used to reduce surplus products in foreign markets or to gain foothold in a new market -some governments may even offer financial incentives to certain industries to sell goods in global markets for less than they sell at home. ex/ china and brazil have been penalized for dumping steel in U.S.

culture refers to the

set of values, beliefs, rules, and institutions held by a specific group of people -culture can include social structures, religion, manners and customs, values and attitudes, language and personal communication.

global market potential does not belong only to large. multinational corporations

small and medium-sized businesses have a world of opportunity in front of them. -these firms are often better prepared to leap into global markets and react quickly to opportunities than are large businesses.

the hurdles to success are higher and more complex and more complex in global markets than in domestic markets. -such hurdles include

sociocultural forces, economic and financial forces, ( political ) legal and regulatory forces, and physical and environmental forces.

on the negative side of NAFTA

some U.S. manufacturing jobs have been lost as a direct result of enacting NATA ( studies present conflicting statistics on the exact number of job losses) -supporters of NAFTA counter that we have lost more than 5 million jobs due to outsourcing to China and technological advancements that increased the use of automation. -in the end NAFTA seems to have created greater economic gains for Mexico than the United States, but both countries are only slightly better off.

investment fund controlled by governments holding large stakes in foreign companies are called

sovereign wealth funds

U.S. alws against dumping are

specific and require foreign firms to price their products to include 10% overhead costs plus an 8% profit margin

a foreign subsidiary operates like a normal domestic firm, with production distribution, promotion, pricing, and other business functions under the control of the

subsidiary's management

the hurdles to success are higher and more complex in global markets than in domestic markets

such hurdles include dealing with differences in social cultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces.

the philosophy of mercantilism led to government to implement

tariffs taxes on imports, making imported goods more expensive to buy.

global trade opportunities grow more interesting and more challenging each day. As over 7.4 billion potential customers are attractive. -however

terrorism , nuclear proliferation, rogue states, income inequality, and other issues cast a dark shadow on global markets.

comparative advantage theory states

that a country should sell to other countries those products it produces most efficiently and import those it doesn't.

the definition of foreign direct investment states

the buying of permanent property and businesses in foreign nations

as technical talent grows around the globe, offshore outsrocuing will likely increase.

to stay competitive, education and training will be critical for U.S. workers to preserve the skill premium they possess today and to stay ahead in the future

the U.S. is the largest important nation in the world and is the 3 largest exporting nation behind

china and germany

benefits associated with offshore outsourcing

-companies can focus on business areas where they can expand and grow -companies can create efficiencies

cons of free trade

-domestic workers ( paricalry in manufacturing based jobs) can lose their jobs due to increased imports or production shifts to low-wage global marek's -workers may be forced to accept pay cuts from employees, who can threaten to move their jobs to lower-cost global markets -moving operations oversees because of intense competitive pressure often means the loss of service jobs and growing numbers of white-collar jobs -domestic companies can lose their comparative advantage when competitors build advanced production operations in low-wage countries

religion is an important part of any society's culture and can have a significant impact on business operations -in order to be successful, its imperative global companies are aware of religious implications in making business decisions

-ex/ Islam prohibits eating pork and Hindus do not consume beef. Such religious restrictions are very important for companies like Mcdonalds and pizza hut to follow in countries such as Saudi Araba nad India.

some nontariff barriers are not as specific or formal as tariffs, import quotas, and embargos but can be as detrimental to free trade.

-ex/ india imposes a number of restrictive standards like import licensing, burdensome product testing requirements and leneghtly customs procedures that inhibit the sale of imported products. -other trade barriers detail exactly how a product must be sold in a country or many insist on local content requirements that require that some part of a product be produced domestically

currency values can cause many problems globally.

-ex/ labor costs for multinational corporations like unilever, general electric, estle, and nike can vary considerably as currency values shift, causing them to jiggle protection from one country to another.

a licensing agreement can benefit a firm in several ways

-firms can gain revenues it would not otherwise have generated in its home market. Also, foreign licenses often must purchase start-up supplies, materials, and consulting services from the licensing firm. -licensors spend little or no money to produce and market their products. These costs come from the licenses pocket. Therefore, licensees generally work hard to succeed

joint ventures are developed for many different reasons

-global footprint and future growth joint ventures can also be really unique by making bioelectronic machines -joint ventures can even lead to 2 companies joining forces

attempts to boost job growth, fight poverty, improve environmental controls, and close the wage gap between mexico and the United states have largely failed.

-illegal immigration also remains a major problem between the two nations. -expectation are that NAFTA may undergo some renegotiation among the 3 countries. The united states however remains committed to free-trade agreements

cons of outsourcing

-jobs may be lost permanently and wages fall due to low ost competitive offshore -offshore outsourcing may reduce product quality and can theofrie cause permanet damage to a company's reputation -communication among company members ,with supplies, and with customers becomes much more difficult

pros of outsourcing

-less strategic tasks can be outsourced globally so that companies can focus on areas in which they can excel and grow -outsourced work allows companies to create efficiencies that in fact let them hire more workers -consumers benefit from lower prices generated by effective use of global resources and developing nations grow, thus fueling global economic growth

however , licensors may also experience problems

-often a firm must grant licensing rights to its product for an extended period, 20 years or longer -if a product experiences remarkable growing in the foreign market, the bulk of the revenues belong to the licensee. -the licensing firm is actually selling its expertise. If a foreign licence lends the company's technology or product secrets, it may break the agreement and began to produce a simular product on its own. -if a legal remedies are not available, the licensing firm may lose its trade secrets, not to mention promised royalties

the drawbacks of joint ventures

-one partner can learn the other's technology and business practices and then use what it has learned to its own advanced' -a shared technology may become obsolete, or the joint venture may become too large to be as flexible as needed -sometimes partners may choose to break ties for various reasons

the benefits of international joint ventures are

-shared technology and risk shared marketing and management expertise, and entry into markets where foreign companies are often not allowed unless goods are produced locally

physical and environmental forces certainty affect a companies ability to conduct global business.

-some developing countries have such primitive transportation and storage systems that internal distribution is ineffective, if not impossible, especially for perishable food. Add unclean water, the lack of effective sewer systems and unacceptable air pollution levels showed the intensity of the problem.

pros of free trade

-the global market contains over 7 billion potential customers for goods and services -productivity grows when countries produce goods and services in which they have a comparative advantage -global competition and les costly imports keep prices down, so inflation does not crucial economic growth -free trade inspires innovation for new products and keeps firms competitively challenges -uninterrupted flow of capital gives countries access to foreign investments, which help keep interest rates low

rank the strategies for reaching global market according to the level of risk and commitment. -place the strategy with the lowest level of risk and commitment on top.

1- licensing, 2- exporting, 3- franchising, 4- contract manufacturing, 5- joint ventures and strategic alliance,s and 6- foreign direct investment

to meet increasing global competition, the U.S. Department of commerce created export assistance centers ( EACs)

EAC's provide hands on exporting assistance and trade finance support or small and medium sized business that wish to directly export goods and services.

a firm ( the licensor ) may decide to compete in a global market by

LICENSING the right to manufacture its product or use its trademark for a foreign company ( the license) for a fee ( a royalty.)

although many countries produce software, the United States produces it more efficiently. U.S. production of software is an example of

comparative advantage

negative effects associated with the establishment of NAFTA

U.S. manufacturing jobs were lost and safety concerns for workers in mexico continued to be poor

among the benefits of exporting are:

a boost to the U.S. economy

a regional group of countries with a common external tariff, no internal tariffs, and coordinated laws to facilitate exchange among members is the definition of:

a common market

foreign subsidiary

a company owned in a foreign country by another company called the parent company. -the subsidiary operates as a domestic firm, with production, distribution, promotion, pricing and other business functions under the control of the subsidiary's management

benefits associated with strategic alliances is that they provide broad access is

capital, technical expertise, and markets

counter trading

a complex form of bartering in which several countries each trade goods or services for other goods or services. -all 3 parties benefit and avoid some of financial problems and currency constraints in global markets. Estimates are that countertrading accounts for over 20% of all global markets, especially with developing countries.

a low value of the dollar means

a dollar is traded for less foreign currency - foreign goods become more expensive because it takes more dollars to buy them, but U.S. goods become more cheaper to foreign buyers because it takes less foreign currency to buy them.

contract manufacturing

a foreign company produces private-label goods to which a domestic company than attaches its own brand name or trademark. ex/ contract manufacturers make circuit boards and components used in computers, printers, smartphones, medical products, airplanes, and consumer electronics for companies such as Deli, Apple, and IBM. -the pharmaceutical industry also makes use of contract manufacturing and is expected to grow to an $84 billin market by 2020. -worldwide contract manufacturing is estimated to be an over $300 billion industry

a widely debated issue of the early 1990s was the ratification of the North American free trade agreement which created

a free-trade area among the united states, mexico, and canada.

the organization for economic cooperation and development (OECD) and transparency international have led

a global effect to fight corruption and bribery in global business, with limited success. -the cooperation and sponsorship of local businesspeople in a foreign market can help a company penetrate the market and deal with laws, regulations, and bureaucratic barriers in their country.

joint venture

a partnership in which 2 or more companies ( often from different countries) join to undertake a major project. -joint ventures are often mandated by governments such as China as a condition of doing business in their countries

the benefits of creating a joint venture when doing business internally include:

access to restricted local markets, shared technology, and shared marketing expertise.

today brazil is the largest economy in South America and the 7th largest economy in the world, with well-devleoped agriculture, mining, manufacturing, and service sectors.

along with russia, brazil was expected to dominate the global market as a supplier or raw materials. -china and india were predicted to be leading global suppliers of ,manufactured goods and services -unfortunately the past few years have been rough times for brazil's economy , with widespread political corruption, inflaton, and slow growth.

while the U.S. is a multicultural nation, U.S business people are often accused of ethnocentricity:

an attitude that your own culture is superior to other countries

U.S. business people are often accused of ethnocentricity

an attitude that your own culture is superior to other cultures.

nations also prohibit the export of specific products

anti terrorism laws and the U.S. export administration act of 1979 prohibit exporting goods such as high tech weapons that could endanger national security.

Revenue tariffs are designed to

are designed to raise moneyan

in measuring global trade, nations rely on 2 key indicators

balance of trade and balance of payments

advantages of doing business globally include

bringing ideas for businesses in other countries to new markets and finding financing for a new business in other countries

whether you aspire to be an entrurpeemnuer, a manager, or some other type of business leader, think globally in planning your career.

by studying foreign languages, learning about foreign cultures, amd taking business courses, you can develop a global perspective on your future. -globalization is real and economic competition is rising

students attending college/ universities abroad often notice that some products widely available in their countries are unavailable or more expensive elsewhere.

by working with producers in their native countries, finding some start-up financing, and putting in long hours of hard work, many have become major importers while still in school

a country has an absolute advantage if it

can produce a specific product more efficiently than all other countries. -but it does not last forever; global competition causes absolute advantages to fade. Today there are only a few instances.

small and medium sized firms are are often better prepared to leap into global markets because they:

can react quickly to opportunities

franchising is a

contractual agreement whereby someone with a good idea for a business sells others the rights to use the business name and sell a product or service in a given territory in a specified manner. -franchising is popular domestically and globally. Foreign franchises have also experienced success in U.S. market. Franchisors have to be careful to adopt their product or service to the countries they serve

the development of a common market changes the way goods and services are traded within that market. Examples of such changes:

coordinated laws to facilitate exchange among members, common external tariff, and no internal tariffs.

unlike joint ventures, strategic alliances don't share

costs, risks, management, or even profits. -such alliances provide broad access to markets, capital , and technical expertise. -thanks to their flexibility strategic alliances can effectively link firms from different countries and firms of vastly different sizes

currency valuation problems can be especially harsh on

developing enemies. -at times a nation's government will intervene and read just the value of its currency, often to increase the export potential of its products.

export assistance centers work with small and medium-sized businesses who are hesitant to do:

direct exporting

advocates of protectionism bleie it allows

domestic producers to survive and grow, producing more jobs.

Mexicans shop with pesos, Chinese with yan ( also known as the renminbi) , south Koreans with won, Japanese with yen, and the U.S> customers with dollars -among currencies, globally the U.S. dollar is considered a

dominant and stable currency. -however it doesn't always retain the same market value.. in a global transaction today, a dollar may be exchanged for 8 pesos, tomorrow you may get 7

exchange rates and labor costs both affect trading in global markets. What category of forces affecting global trade do they fall under?

economic and financial

Supporters predicted NAFTA would open a vast new market for U.S. exports and create jobs and market opportunities in the long run. -NAFTA's key objectives were to

eliminate trade barriers and facilitate cross-border movement of goods and services, promote conditions of fair competition, increase investment opportunities, provide effective protection and enforcement of intellectual property rights ( patents and copyrights), establish a framework for further regional trade cooperation, and improve working conditions in North America, particularly in Mexico.

service based companies are also active in licensing

ex/ Disney is the largest licensor of consumer products globally, with over $ 50 billion of licensed products

no nation, not even a technologically advanced one like the U.S., cant produce all the products its people want or need. -even if a country becomes self-sufficient , other nations would seek to trade with it to meet the needs of their own people

ex/ japan and switzerland have sophisticated technology but dew natural resources.

economic differences can muddy the water in global markets

ex/ you might expect with over 1.2 billion potential customers, India would be a dream market for coca-cola. -unfortunately, Indians consume only 12 eight-ounce bottles of coke per person a year due to low per capita income

an unfavorable balance of payments

exists when more money is flowing out a country than coming in

countries prefer to _____ more than _____

export more than import

today U.S. runs its highest trade deficit with China. nonetheless the U.S. remains one of the world largest

exporting nations even though it imports a much lower percentage of its products than other countries, such as china, germany, amd japan.

a trade deficit occurs when a country's :

exports are less than imports

but many foreign companies are very good at adapting to U.S> culture

german, japanese, and koregin carmakers adopted to U.S> drivers' wants and needs

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 -the goal is to have more money flowing into the country than out - a FAVORABLE balance of payments.

the definition of : balance of payments

the difference between money coming into a country ( from exports) and oney leaving the country ( from 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 examples of common markets

the european union ( EU) , Mercosur, the Association of Southeast Asian Nations ( ASEAN), economic community, and the common market for eastern and southern africa ( COMESA ) are common markets

sometimes due to a nation's weak currency, th only way to trade is bartering

the exchange of merchandise for merchandise, or service to service with no money traded.

mercantilism

the idea was for a nation to sell more goods to other nations than it bought from them; that is to have a favorable balance of trade. -according to mercantilists, this resulted in a low of money to the country that sold the most globally,

the subsidary also must observe

the legal requirements of both the country where the parent firm is located ( caled home country) and the foreign country, where the subsidiary is located ( called the host country)

licensing: a company with internet in licensing generally sends company representatives to the foreign company to help set up operations.

the licensor may assist or work with a license in such areas such as distribution, promotion, and consulting.

free trade

the movement of goods and services among nations without political or economic barriers

the definition of trade protectionism

the use of government regulations to limit the import of goods and services

trade protectionism

the use of government regulations to limit the import of goods and services.

a growing form of foreign direct investment is

the use of sovereign wealth funds ( SWFs), investment funds controlled by governments holding vestment stakes in foreign companies

modeling trade disputes among nations and overseeing cross-border trade issues and global business practices are functions of:

the world trade organization ( WTO)

comparative advantage

theory 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 products it cannot produce as efficiently or efficiently. -this creates mutually beneficial exchanges

important reasons to do business globally

there are more people and countries in the world markets and there are many potential customers in other countries

countries exchange more than goods and services.

they can also exchange art, sports, cultural events, medical advances, space exploration, and albor

U.S. businesses must follow U.S. laws and regulations in conducting business globally although legislation such as the foreign corrupt practices act of 1978 can create competitive disadvantages.

this law prohibits "questionable" or "dubious" payments to foreign officials to secure business contracts -that runs contrary to practices in some countries ( generally developing countries) , where corporate or government bribery is not merely acceptable but perhaps the only way to secure a lucrative contract.

in supporting free trade, the U.S. like other nation wants to make certain global trade is conducted fairly.

to ensure fairness, countries prohibit unfair trade practices, such as dumping

contract manufacturing enables a company

to experiment in a new market without incurring heavy start up costs such as building a manufacturing plant -if the brand name becomes a success, the company has penetrated a new market with relatively low risk -a firm can also use contract manufacturing temporary to meet an unexpected increase in orders and labor costs are often very low.

U.S. laws against dumping are specifc

to keep domestic produce prices competitive, U.S. law requires foreign firms to price their products to include 10 percent for overhead costs and 8 percent for profit

the Uruguay round also established the world trade organization ( WTO) to mediate trade disputes among nations.

to mediate trade disputes among nations. -trade disputes are presented by member nations, with decisions made within a year, rather than languishing for years as in the past; member nations can appeal a decision

U.S. is a market over 325 million people, there are over .4 billion potential customers in the 196 countries that make up the global market.

today U.S. customers buy hundreds of billions of dollars' worth of goods from China. -United parcel service ( UPS) has experienced solid market growth in its global operations and Walmart and Starbucks have opened stores in South Africa.

the balance of trade is the

total value of a nation's exports compared to its imports over a particular period of time

by buying more than it has sold, making the value of its imports less than its imports the United States faces a

trade deficit

sociocultural, economic and financial, legal and regulatory, and physical and environmental forces are all changes to global change. -what is often a much greater barrier to global trade is

trade protectionism

functions of export assistance centers ( EACs)

trade-finance support and hands- on exporting assistance

common markets are also referred to as

trading blocs

U.S. firms that are still hesitant can engage in indirect exporting through specialists called export-

trading companies ( or export -management companies) that assist in negotiating and establishing trading relationships

an export

trading company not only matches buyers and sellers from different countries but also deals with foreign custom offices, documentation, and even weights and measures conversion to ease the process of entering global markets. -it can also assist exporters with warehousing, billing, and insuring.

along with China and India, Russia and Brazil were projected to be wealthy global economies of 2025.

unfatley russian economy slowed when world oil prices declined and the government admitted that growth prospects for its its economy were not strong for the next 2 decades. -russia was plagued by political, currency, and social programs and is considered by transparency international as the world's MOST corrupt major economy.

on postive sie NAFTA, trade

volume in goods and services among the 3 partner nations expanded from $289 billion in 1994 to over $1.2 trillion today.

comparative advantage by economist David Ricardo-

was the guiding principle that supported the idea of free economic exchange.

other countrie use protectionist measures because they're

way of foreign competition in general.

a favorable balance of trade or trade surplus occurs

when the value of a country's export exceeds that of its imports

an unfavorable balance of trade or trade deficit occurs

when the value of a country's exports is less than its imports.

North American Free Trade Agreement ( NAFTA)

which created a free-trade area among the United States, Canada, and Mexico. -NAFTA countries have a combined population of over 475 million and a gross domestic product ( GDP) of over $ 22 trillion.

global financial markets operate under a system called floating exchange rates -what is floating exchange rates

which means that currencies "float" in value according to the supply and demand for them in the global market for currency. -this supply and demand are created by global currency traders who develop a market for a nation's currency based on the country's perceived trade and investment potential.

common markets and free trade zones areas will be debated far into the future

while some economists resouly praise such efforts, others are considered the world is divided into major trading blocs ( EU, NAFTA, ect.) that wi;; exclude poor and developing nations. -there is a fear that protectionist policies are growing

while china attracts most of the attention in Aisa., India's population of over 1.3 billion presents a tremendous opportunity.

with nearly 50 percent of its population under the age of 25, India's working-age population will continue to grow while the United States, China, and the EU face a declining population in the 2020s. -India is expected to surpass china as the world's most populated country in 2021. -still india is burdened with difficult trade laws and an inflexible bureaucracy, problems that are slowly being addressed by prime minister narendra modi. -Many economists see better times ahead for india

the organization in 1988 by the uruguay Round of the GATT, whose purpose is to mediate trade disputes among nations is called

world trade organization