GEB 6365 #1

benefits of international trade

- availability of variety of goods - outlet for surpluses. Opportunities to create sales and profit - reduction in market fluctuations; international markets helps to mitigate potential wild fluctuations on domestic sales - lower costs from producing overseas and greater competition - production efficiency - promotion of innovation - promotion of more investment - promotion of job growth - promotion of peace and harmony - promotes technology transfer - provides opportunities to gain global market share - affords opportunities to exploit synergy

how is the world changing?

- barriers to trade and investment are tumbling

what are the negative sides of multinational corporations (MNCs)?

- foreign business, usually much larger, can crush locals - exploitation of workers, regulations, and environment - market power of MNCs may lead to price increases and barriers to entry - MNCs may move out in the face of new regulations - MNCs may exert undue influence on host government - negative BOP effects of profit repatriation and imports of inputs

what are the components of globalization?

- globalization of markets - globalization of production - globalization of services

ethical issues of MNCs

- individual beliefs about right or wrong - host country practices may conflict with home country standards

what are the forces stimulating international trade?

- industry related market factors: common consumer needs, global or regional consumers, transferable marketing - industry related cost factors: global economies of scale and scope, global sourcing efficiencies, superior logistics, differential country costs, and high product development costs - industry-related competitive factors - political economy factors... role of government

what are the forms of international business?

- merchandise exports and imports - service exports and imports - portfolio investment and foreign direct investment - strategic alliance - licensing and franchising agreements

what are the positive sides of multinational coorporations (MNCs)?

- promotes economic growth - permits lower-priced, higher quality, goods and services - brings in factors of production - transfer of technology - associated with higher wages - promotes domestic/global comp.

what are the factors in international business growth?

- technological innovations - liberalization of restrictions on cross-boarder movements - development of enabling institutional environment - increase in global competition - the rise in the market for corporate control - greater understanding of national cultures - changing world output and world trade

what are the primary reasons for over seas expansion?

- theory of absolute advantage: a country has an absolute advantage in the production of a good relative to another country if it can produce the good at lower cost or with higher productivity. Absolute advantage compares industry productivities across countries - theory of comparative advantage: argues that each country should specialize in the production and export of those goods it can produce with relative efficiency. A country has a comparative advantage in the production of a good or service if it can produce it at a lower opportunity cost than its trading partners. Comparative advantage compares inter- and intra-industry trade

why does the competitive environment vary among firms, industries, and countries?

- variations in rate of production innovation - size of the market - level of literacy in the general population - local vs international competitors - rate of technological changes

transnational company

a company owned and managed by nationals of different countries

multinational corporation

a company that takes a global approach to markets, production, and financing - global companies - integrated companies - multi domestic companies

internationalization

a corporate strategy that involves making products and services as adaptable as possible so they can easily enter different national markets

autarky

a situation in which a country does no trade

eclectic theory

argues that "location specific" advantages favor a host country while "ownership specific" advantages favor the investing firm. These two advantages couples with a preference for FDI are necessary for international expansion.

what must companies do to win in the modern game?

companies must figure out what the market wants ahead of time before fore the market does (companies use be prescient)

imperfect market theory

countries differ with respect to their resource endowments - arises from international markets where there is no perfect competition

why are exports beneficial?

exports create jobs and boost economic growth. Research shows that exporters are more productive than companies that focus solely on domestic trade. - U.S. exports about 1/5 of its industrial production and 1/3 of its agricultural production

oligopoly model

firms expand overseas to exploit their quasi-monopoly advantages - eg. access to capital, possession of differentiated products, technology, and superior management. Thus, horizontal investments are made to expand a firm's operation or to reduce the number of competitors and vertical investments are made to raise barriers to entry for new competitors and to protect oligopoly investments. - strategic motives: foreign expansion can be motivated by a host of strategic considerations - behavioral considerations: personal preference for particular foreign expansion - synthesis: motives for overseas expansion are not mutually exclusive

what are the necessary conditions for success for managers in the global marketplace?

global literacy and global competitiveness

appropriability

implies that an organization possessing a unique body of know-how will attempt to avoid the dissipation of such know-how to third parties (ex: coca-cola preventing the formula from becoming known)

why are imports beneficial?

imports promote domestic competition, reduce prices for consumers, and offer shoppers a wider variety of goods and services

what are the external influences on international business?

physical and societal factors: geography, politics, economy, laws, and culture

product cycle theory

suggests that foreign direct investment is a natural stage in the life cycle (evolution) of a new product from its inception to its maturity and possible eventual decline

internalization

the extension of ownership by a firm to cover new markets, new sources of material, and new stages of the production process - covers vertical and horizontal integration, purchase of (specialized labor), capital, and technology - ex: control through self-handling of operations within firm's hierarchy, rather than through contracts with other companies - entails the acquisition of control, through vertical integration

globalization of markets

the merging/linking of historically distinct and separate national markets into one global marketplace

globalization

the radical shift towards an integrated and interdependent world economy

globalization of production

the sourcing of goods and services from locations around the globe to take advantage of national differences in the supply, cost, quality, and efficiency of use of factors of production

portfolio theory (risk diversification)

when securities in the portfolio have negative correlations, the risk of the portfolio is less than the sum of the risks of the individual components