International Business Practices
Public Choice Analysis
A branch of economics that analyzes public decision making, the special interest will often dominate the general interest on any given issue for a simple reason: special-interest groups are willing to work harder for the passage of laws favorable to heir interests than the general public is willing to work harder for the defeat of laws unfavorable to its interests.
Voluntary Export Restraint (VER)
A promise by a country to limit its exports of a good to another country to a pre-specified amount or percentage of the affected market. Often this is done to resolve or avoid trade conflicts with an otherwise friendly trade partner.
Franchising
A special form of licensing. Allows the franchisor more control over the franchisee and provides for more support from the franchisor to the franchisee than is the case in the licensor-licensee relationship. It is an agreement that allows an independent entrepreneur or organization (franchisee) to operate a business under the name of another (franchisor), in return for a fee. It offers trademarks, operating systems, and well-known product reputations, as well as continuous support services such as advertising, training, reservation services, and quality assurance programs.
Import Substitution Strategy
A strategy that encourages the growth of domestic manufacturing industries by erecting high barriers to imported goods.
Intellectual Property
An important asset of most MNC's. Intellectual property often forms the basis of a firm's core competency & competitive advantage in the global marketplace!
Uruguay Round Agreement
Cuts tariffs on imported goods.
European Free Trade Association
Iceland, Liechtenstein, Norway, Switzerland
European Economic Area
Iceland, Liechtenstein, Norway, and European Union which promote the free movement of goods, services, labor, and capital among its members.
Joint Ventures (JV)
Created when two or more firms agree to work together and create a jointly owned separate firm to promote their mutual interests.
World Trade Organization (WTO)
Members are required to open their markets to international trade and to follow the WTO's rules. 3 rules: promotes, reduce, and establish.
Country-Based Theories
Mercantilism, Absolute Advantage, Comparative Advantage, and Relative Factor Endowments (Heckscher-Ohlin).
Neomercantilists/Protectionists
Modern supporters of mercantilism.
Strategic Trade Theory
Strategic intervention by governments in certain industries can enhance their odds for international success
Porter's Theory of National
Success in international trade comes from the interaction of four country - and firm-specific elements: factor conditions, demand conditions, related and supporting industries, and firms strategy, structure, and rivalry.
Ad Valorem Tarriff
The most common tariff import: assessed as a percentage of the market value of the imported good.
Industrial Policy
The national government identifies key domestic industries critical to the country's future economic growth and then formulates programs that promote their competitiveness.
Treaty of Rome
The pact that called for the development of a common market among the six member states.
Differentiated Goods
The process of distinguishing a product or service from others, to make it more attractive to a particular target market.
Intra-corporate Transfer
The sale of goods by a firm in one country to an affiliated firm in another.
Brownfield Strategy
acquisition, you buy a company in another country but its still 100% yours
Countervailing Duty (CVD)
an ad valorem tariff on an imported good that is imposed by the importing country to counter the impact of foreign subsidies.
Generalized System of Preferences (GSP)
an agreement where a large number of developed countries permit duty-free imports of a selected list of products that originate from specific countries
Management Contract
an agreement whereby one firm provides managerial assistance, technical expertise, or specialized services to a second firm for some agreed-upon time in return for monetary compensation.
Country Similarity Theory
most trade in manufactured goods should be between countries with similar per capita/person incomes.
Theocratic Law
legal system based on religious teachings
General Agreement on Tariffs and Trade (GATT)
To reduce barriers to international trade.
4 Main Ways of Obtaining a Sustainable Competitive Advantage
1) Owning Intellectual Property Rights 2) Investing in Research & Development 3) Achieving Economics of Scale & Scope 4) Exploiting the Experience Curve.
Turnkey Project
A contract under which a firm agrees to fully design, construct, and equip a facility, then turn the project over to the purchaser when it is ready for operation.
Export Promotion Strategy
A country encourages firms to compete in foreign markets by harnessing some advantage the country possesses, such as low labor costs.
National Defense Argument
A country must be self-sufficient in critical raw materials, machinery, and technology, or else be vulnerable to foreign threats.
Theory of Absolute Advantage
A country should export those goods and services for which it is more productive than other countries are and import those goods and services for which other countries are more productive than it is.
Theory of Competitive Advantage
A country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive than it is.
National Treatment
A country treats foreign firms the same way it treats domestic firms.
Leontief Paradox
A country with a higher capital per worker has a lower capital/labor ratio in exports than in imports.
Eurasian Economic Union (EAEU)
A customs union with russia, belarus, and kazakhstan to promote trade among themselves.
Screwdriver Plant
A factory in which little transformation of a product is undertaken.
Maquilador
A factory located in an FTZ in Mexico: most are situated near the U.S. boarder.
International Trading Company
A firm directly engaged in importing and exporting a wide variety of goods for its own account.
Ownersip Advantage Theory
A firm owning a valuable asset that creates a competitive advantage domestically can use that advantage to penetrate foreign markets through FDI.
Liscensing
A firm, called the licensor, leases the right to use its intellectual property - technology, work methods, patents, copyrights, brand names, or trademarks - to another firm, called the licensee, in return for a fee.
Dumping
A form of international price discrimination that can occur when a firm sells its goods in a foreign market at a price below what it charges in its home market. Also, can be when the firm sells its goods below cost in the foreign market, in which case the dumping is a form of predatory pricing.
Foreign Trade Zone (FTZ)
A geographic area in which imported or exported goods receive preferential tariff treatment.An FTZ may be as small as a warehouse or a factory sit or as large as the entire city of Shenzhen, China.
Subsidies
A grant or contribution of money, especially one made by a government in support of an undertaking or the upkeep of a thing.
Webb-Pomerene Association
A group of U.S. firms that operate within the same industry and that are allowed by law to coordinate their export activities without fear of violating U.S. antitrust laws.
Quota
A numerical limit on the quantity of a good that may be imported into a country during some time period, such as a year.
Trade deflection
A problem which nonmembers re-rout (or deflect) their exports to the member nation with the lowest external trade barriers.
Civil Law
A system that encourages shorter and less specific contracts (since the country's civil code already covers many key issues). (contracts ,succession/wills, family law, relicts/torts, property law)
Tariff
A tax placed on a good that is traded internationally
Common Market
A third step along the path to total economic integration. Members of a common market eliminate internal trade barriers among themselves and adopt a common external trade policy toward nonmembers. They eliminate barriers that inhibit the movement of factors of production; labor, capital, and technology; among its members. Workers move from their homeland and practice their profession or trade in any of the other member nations.
Most Governments (Including US)
Accept Expropriation of private property with compensation of the foreign owners. Do not accept confiscation of private property without compensation of the foreign owners.
Foreign Direct Investment (FDI)
Acquisition of foreign assets for the purpose of controlling them.
Manufacturer's Export Agent
Act as a foreign sales department for domestic mission basis.
Political Risks
Any changes in the political environment that may adversely affect the value of a firm's business activities. 3 categories: ownership risk, operating risk, and transfer risk.
Non-tariff Barrier
Any government regulation, policy, or procedure other than a tariff that has the effect of impeding international trade. Examples: product and testing standards, restricted access to distribution networks, public-sector procurement policies, and local-purchase requirements.
Specific Tariff
Assessed as a specific dollar amount per unit of weight or other standard measure.
Benelux Nations
Belgium, Netherlands, Luxembourg
National Competitive Advantage =
Country Comparative Advantage + Corporate Competitive Advantage.
Pluralism (liberal democracy)
Canada, USA, European Union Countries, Australia, Japan.
Royalty
Compensation under a licensing agreement.
3 Specialized Entry Modes into Foreign Markets
Contract manufacturing, management contract, and the turnkey project. Plus FDI - the most complex entry mode.
Ethical Challenges Can Be Managed By...
Corporate Social Responsibility, Sustainability in all value chain activities, and ethics.
Free Trade Area
Encourages trade among its members by eliminating trade barriers (tariffs, quotas, and other NTB's) among them.
ASEAN Free Trade Area (AFTA)
Established in 1992 to reduce tariffs (5%) on trade between member countries of the Association of Southeast Asian Nations (ASEAN).
Export Management Company (EMC
Firm that acts as its clients' export department.
The 5 forms of Regional Economic Integration...
Free trade are, customs union, common market, economic union, and political union.
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea). Is the firm's decision to build the new plant in Alabama consistent with dunning's Eclectic Theory? (c)
HYUNDAI benefits from an: 1) Internalization Advantage 2) When transaction costs are too high to hire an independent firm's in a foreign country to produce &/or market the product, the firm will internalize these operations. 3) Which is the best option? Internalization via FDI or Externalization using external partners (i.e. manufacturers, licensees, distributors, or suppliers)? 4) HYUNDAI finds it cheaper & more secure to internalize.
Compound Tariff
Has both ad valorem and specific component.
Free Trade
Implies that the national government exerts minimal influence on the exporting and importing decisions of firms and individuals
Tariff Rate Quota (TRQ)
Imposes a low tariff rate on a limited amount of imports of a specific good; above that threshold, a TRQ imposes a prohibitively high tariff rate on the good.
Asia-Pacific Economic Cooperation (APEC)
Includes 21 countries from both sides of the Pacific Ocean and founded in response to the growing interdependence of the Asia-Pacific economies. Led to declaration committing members to achieve free trade in good services and investment among members.
Extraterritoriality
Involves applying home-country laws to other countries.
Political Union
Is the complete political as well as economic integration of two or more countries, thereby effectively making them one country.
Infant Industry Argument
New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.
Direct Exporting
Occurs through sales to customers - either distributors or end-users -- located outside the firm's home country.
Indirect Exporting
Occurs when a firm sells its product to a domestic customer, which in turn exports the product, in either its original form or a modified form.
Macropolitical Risk
Political risk that affects all firms operating within a country.
Micropolitical Risk
Political risk that affects only specific firms or a specific industry operating within a country.
Dual-Use Products
Products that may be used for both civilian and military purposes.
Export-Import Bank of the United States (EXIM Bank)
Provides financing for U.S. exports through direct loans and loan guarantees.
Overseas Private Investment Corporation (OPIC)
Provides political-risk insurance. If a foreign country confiscates an insured firm's goods or assets, OPIC will compensate the firm for it's losses.
Foreign Sovereign Immunities Act of 1976
Provides that the actions of foreign governments against US firms are generally beyond the jurisdiction of US courts
Freight Forwarders
Specialize in the physical transportation of goods, arranging customs documentation, and obtaining transportation services for their clients.
Foreign Portfolio Investment (FPI)
Represent passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities' issuer by the investor.
Economic Union
Represents full integration of the economies of two or more countries.
Sanctions
Restraints against commerce with a country. Types of sanctions: restricting access to high-technology goods, withdrawing preferential tariff treatment, boycotting the country's goods, and denying new loans.
manufacturer agents
Solicit domestic orders for foreign manufacturers, usually on a commission basis.
Fair Trade/Managed Trade
Suggests that the national government should actively intervene to ensure that domestic firms' exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries.
Managed Trade
Suggests that the national government should actively intervene to ensure that domestic firms' exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries. Some fair traders also argue that the government should ensure a "level playing field" on which foreign and domestic firms can compete on equal terms.
Factors Influencing FDI
Supply, demand, political
Export Tariff
Tariffs levied on goods as they leave the country
Transit Tariff
Tariffs levied on goods as they pass through one country bound for another
Import Tariff
Tariffs on goods that are collected on imported goods.
B-O-T project
The firm builds a facility, operates it, and later transfers ownership of the project to some other party.
Internalization Advantage
The firm must benefit more from controlling the foreign business activity than from hiring an independent local company to provide the service. Control of the local company is expensive, when the local company may misappropriate proprietary technology, or when the firm's reputation and brand name could be jeopardized by poor behavior by the local company.
Ownership Advantage
The firm must own some unique competitive advantage that overcomes the disadvantages of competing with foreign firms on their home markets(turfs). This advantage may be a brand name, ownership of proprietary technology, the benefits of economies of scale, and so on.
Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER)
To eliminate tariffs and NTB's between the two countries. It strengthened and fostered links and cooperation in fields as diverse as investment, marketing, movement of people, tourism, and transport.
Caribbbean Basin Initiative (CI)
To facilitate the economic development of the countries of Central America and the Caribbean Sea.
Association of Southeast Asian Nations (ASEAN)
To promote regional political and economic cooperation.
Location Advantage
Undertaking the business activity must be more profitable in a foreign location than undertaking it in a domestic location.
Contract Manufacturing
Used by firms, both large and small, that outsource most or all their manufacturing needs to other companies. This strategy reduces the financial and human resources firms need to devote to the physical production of their products.
Agglomeration Economies
When a firm's costs of production decline as the number of firms in that industry increase within a given area. Such growth attracts additional input suppliers tot the areas, which then increases price competition and innovation among those suppliers.
Political Risk Assessment
a systematic analysis of the political risks they face in foreign countries
Export and Import Brokers
bring together international buyers and sellers of such standardized commodities as coffee, cocoa, and grains.
Eclectic Theory
combines ownership advantage, location advantage, and internalization advantage to form a unified theory of FDI. This theory recognizes that FDI reflects both international business activity and business activity internal to the firm.
Customs Union
combines the elimination of internal trade barriers among its members with the adoption of common external trade policies toward nonmembers
Harmonized Tariff Schedule (HTS)
classification scheme used by many nations to determine tariffs on imported goods
Repatriate
to return to one's country of origin
Expropriation
when the host government compensates the private owners for their losses
Patent:
(Refers/relates to investors): A right granted by a government exclusively to the inventor of a product, process or useful improvement.
Product Piracy
(counterfeiting) refers to the illegal imitating, copying, or counterfeiting of registered products. 67% of the counterfeit products are manufactured in china.
Facilitation Payments
(grease payments) legal payments to speed up or ensure performance of normal and legitimate commercial transactions and government duties.
laws directed against foreign firms
- Nationalization (Industry based) - Expropriation (Firm based) - Confiscation (Firm based) - Privatization
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea) Q: What factors do you think HYUNDAI considered in selecting Alabama as the site for the factory?
1) Generally: US FDI by HYUNDAI (demand factors) To more fully understand US CONSUMERS & what they will buy by locating in the US market, and to avoid US Tariff Barriers on imported cars (thus benefit from the free trade benefits of NAFTA). 2) Specifically: Alabama FDI by HYUNDAI - Alabama offered: a package of tax refunds & other incentives, a good infrastructure, and skilled workforce at a lower cost than most US states.
Dispute Resolution Methods
1) Negotiation 2) Litigation 3) Arbitration 4) Mediation/Conciliation
What stimulated Privatization in the 1980's/90's?
1) Political Ideology: The right-wing, pro-free market conservatives (British Airways,BritishBritish Telecom, British Airport Authority, and British Petroleum) 2) Large government deficits & inadequate funds required to upgrade & expand state-owned telecommunications systems necessitated privatization in many countries including Argentina, Mexico (telefonos de Mexico), Chile, and Brazil.
What two questions must be asked when resolving disputes in International business?
1) Which country's law applies? 2) Which country's courts should hear the case?
Exceptions of the MFN Rule:
3) Countries can raise barriers against other WTO member countries if they feel they the other country is trading unfairly. Exceptions can be made in times of war or international tension.
Nationalization
A law directed against foreign firms. It is when governments choose to transfer ownership of resources of an entire industry from the private to the public sector i.e. a government takes possession of assets belonging to many foreign firms in the same industry.
Power Distance
A measurement of employee preferences of interaction between superiors and subordinates. Evidence suggests that people perform better when these interactions fit their preferences, thus companies should consider aligning relationship styles effectively.
Mercantilism
A national economic policy that is designed to maximize the exports, and minimize the imports, of a nation. These policies aim to reduce a possible current account deficit or reach a current account surplus. Mercantilism includes a national economic policy aimed at accumulating monetary reserves through a positive balance of trade, especially of finished goods. Historically, such policies frequently led to war and also motivated colonial expansion.
Polycentrism
A polycentric organization believes it should act abroad like companies there.
Common Law
A system that encourages precise, and detailed contracts with all possible contingencies included, (Effect: Longer & more costly to draft). The judges are bound by previous court decisions of upper or equal rank courts when deciding a case on a similar issue.
Investments in Human Capital & Infrastructure
Allow countries to change & shape their technological environment. Such as high ways and communication systems.
Market Economy
An economic system whereby individuals, rather than the government, make most decisions. It is anchored in the doctrine of capitalism.
Protection of Intellectual Property Rights
An important determinant of a (host) country's technological environment and the willingness of foreign firms to transfer technology to the country is the degree of protection that (the host country's) laws offer to intellectual property rights.
Corporate Competitive Advantage
An individual firm has a competitive advantage when it possesses 1 or more sources of distinctive competence relative to others, allowing it to perform better (& make more profits) than its competitors.
Embargo
An official comprehensive sanction that forbids all trade (i.e. exports & imports) and commerce with a specific country or group of countries. It may be imposed by countries acting in unison or alone.
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea). Q: Who benefits & who loses from the new plant in Alabama? (Winners only)
Answer - Alabama (& US) gets Assembly & parts supplier jobs. Alabama (& communities) gets tax revenues, HYUNDAI gets benefits & subsidies negotiated with the state and gets easier access to the U.S. market, US consumers get more choice of cars at a lower price
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea) Q: Why did HYUNDAI decide to build the plant from the ground up in Alabama rather than to buy an existing plant (e.g. Detroit)?
Answer: 1) Existing facilities would NOT have provided the cutting-edge environment to install its latest car-manufacturing technology, organizational design, and human resources management. 2) Economic factors offered by Alabama include low wages, a rural setting with a strong work ethic, and the financial subsidies from the state.
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea). Is the firm's decision to build the new plant in Alabama consistent with dunning's Eclectic Theory?
Answer: HYUNDAI benefits from a: Location advantage, the foreign (US) location must be superior to a domestic (South Korean) location, refer to the comparative advantages that may exist in the US.
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea). Q: Is the firm's decision to build the new plant in Alabama consistent with Dunning's Eclectic Theory?
Answer: Yes: This decision is consistent with Dunning's Eclectic Theory that suggests FDI will occur when HYUNDAI benefits from an OWNERSHIP ADVANTAGE that can be utilized to generate monopolistic profits in the foreign (US) market. HYUNDAI has developed proprietary engineering capabilities on a dozen + uniquely designed vehicles.
Theory of Relative Factor Endowments
Answers a common economic question: What determines the products for which a country will have a comparative advantage?. Answer/definition: a country will have a comparative advantage in producing products that intensively use resources (factors of production) it has in abundance. Theory stating that a country will have a comparative advantage in producing goods that intensively use factors of production it has in abundance; also called Hecksher-Ohlin theory. Two basic observations: Factor endowments vary among countries, and goods differ according to the types of factors that are used to produce them.
What companies & industry associations do to fight back against counterfeit goods?
Anti-copying technology, criminalization of software piracy, government sanction, pressure on international bodies(World Trade Organization), and Political & Legal Action.
HYUNDAI decided (to do FDI &) build a new automobile assembly plant in Alabama (rather than S. Korea). Q: Who benefits & who loses from the new plant in Alabama? (Losers only)
Assembly & parts supplier jobs lost in South Korea or other countries or US states where HYUNDAI might have guilt the plant, Alabama taxpayers to cover subsidies, costs, or infrastructure, etc, Competitor Vehicle Manufacturers, Suppliers & Workers.
5 Legal Traditions/Systems
Common Law, Civil Law, Religious (i.e. Theocratic) Law, Bureaucratic Law, and Mixed Law.
Public Law (3 types)
Constitutional law: The highest law of the land that includes the fundamental rules & procedures according to which the country is governed. Criminal Law: Deals with conduct considered so harmful to society that it is prohibited by statue. It is prosecuted & punished by the government. Commercial Laws: Deals with private rights & remedies. It governs disputes between individuals & firms.
Effects of Civil and Common Law traditions
Contracts and breach.
Trademark
Distinctive words, names or symbols that identify a firm, its product & services (e.g. Coca-cola). Trade mark protection lasts indefinitely, provided that the word or symbol continues to be distinctive.
Collectivism
Encourages the government to intervene to improve the welfare of the group of the expense of the individual.
Gross National Product (GNP)
Estimates economic performance in terms of the location of ownership, including production done locally as well as when the country's capital or labor produces value outside of its borders. It counts the production by citizens and companies of a nation-even if this production occurs in another country.
Relativism
Ethical truths are "not absolute but differ from group to group". They depend on the "values of a particular society" i.e. there are significant differences of ethical values from country to country.
Rule Of Law
Everyone is subject to all the state's laws & the jurisdiction of the court system. i.e. no special laws, no special courts. No one is above the law.
Technology Transfer
From one country to another changes a host country's technological environment. MNC's bring new technologies with them when they start operations in countries where they were not present before. A Chinese tool implementing this policy: foreign firm entering chinas market must do it through a JOINT VENTURE with a local chines firm (the controlling shareholder) to which the technology is transferred.
Competitive Advantage
In business, a competitive advantage is the attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skilled labor, geographic location, high entry barriers, and access to new technology.
What is normally counterfeited?
Industrial products, car & aircraft parts, medical devices, and pharmaceutical products.
Undifferentiated Goods
Intrinsically identical products (such as gasoline, milk, packaged ice) that can be easily substituted by products from other suppliers. Such products complete only on the basis of price and availability, and require highlighted perceived differences to achieve differentiation.
Geocentrism
It is between the extremes of polycentrism and ethnocentrism. It integrates home-and host- country practices as well as introducing some entirely new ones.
Gross National Income (GNI)
It measures the value of all production in the domestic economy together with the income that the country receives from other countries (in the forms of profits, interest and dividends), less the same sorts of payments that it has made to other countries. It is the broadest measure of a country's economic performance. It has four components: personal consumption, business investments, government spending, and net exports of goods and services.
What alternative financing arrangement have financial institutions created to finance loans?
Leasing assets, Up-front fees or administrative fees, taking equity position, and self-financing of family-owned firms.
Purchasing Power Parity (PPP)
Measured the actual output as opposed to fluctuations in exchange rates. It refers to the relative ability of 2 countries' currencies to buy the same "basket" of goods & services in those 2 countries.
National Competitive Advantage
National competitive advantage is an assessment of a nation's ability to participate competitively in international markets. Some nations have more advantages than others, for a variety of reasons. To promote economic growth, governments can identify their strengths and weaknesses and play upon them to increase their national competitive advantage. One of the most popular assessment frameworks for this purpose was developed by economist MICHAEL PORTER. This is factor conditions, demand conditions, related/supporting industries, company structure, strategy, rivalry.
Totalitarianism
Nazi Germany, Fascist Italy, Communist USSR, China,North Korea, and Cuba.
Normativism
Normativism in sophisticated firms "try to "correct unethical practices that arise in their .... business dealings around the world
Agglomeration economies
Occur when a firm's costs of production decline as the number of firms in that industry increase within a given area
National Treatment (of goods) Rule
Once goods are imported into a country, these imports must be given a similar treatment in the domestic market (i.e. have the same market access) as domestically-produced goods.
Anarchism
Only individuals and private groups can preserve personal liberties.
Command Economy
Owns and controls the factors of production (namely, land, labor, capital, and entrepreneurship).
Intellectual Property Rights may be granted by:
Patents, Copyrights, and trademarks.
Protectionist Measures
Policies that governments use to protect their own businesses against foreign competition. For example tariffs &/or domestic subsidies
The Technological Environment - Foundation & Determinants of a Country's Technological Environment
Resource Base, Investments in Human Capital & Infrastructure, Technology Transfer, and Protection of Intellectual Property Rights.
Laws Directly Affecting International Business Transaction
Sanction, Embargo, and extraterritoriality.
Authoritarianism (autocracy dictatorship)
Saudi Arabia, Kuwait, Iran, Iraq, Libya, Syria, and Pakistan.
Linder's Theory(Element 1)
Similar Consumer Preferences: Firms initially manufacture goods to serve the firms' DOMESTIC market. But: as the firms begin to export, they discover that the most promising foreign markets are countries at the same stage of economic development where consumer preferences resemble those of their own domestic market.
Linder's Theory(Element 2)
Similar Per Capita Incomes: Country Similarity Theory suggests that most trade should be between countries with similar per capita/person incomes.
Theory of Comparative Advantage
States that a country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive than it is.
International Product Life Cycle
That a product goes through 3 stages of evolution: New Product stage, Maturing Product stage, and Standardized Product stage.
Rule Of Man
The absence of rule of law. It is a society in which 1 person or group rules arbitrarily. Not bound by any law.
Resource Base
The availability or unavailability of natural resources affects what products are produced in a particular country.
Privitization
The conversion of state-owned property to privately owned property. It is the opposite of nationalization & creates opportunities for international business.
Transaction Costs
The costs of entering into a transaction, that is, those connected to negotiating, monitoring, and enforcing a contract.
Litigation
The most adversarial approach. This occurs when one party files a lawsuit against another. Most common approach in many jurisdictions (ex. US). Litigation costs are high & results uncertain.
intellectual property rights
The ownership right to these intangible assets "i.e. right to control& derive the benefits & income from writing copy right", inventions (patents) processed (trade secrets) & identifiers (trademarks).
Arbitration
The process by which both parties to a conflict agree to submit their case/s to a neutral private individual or body whose decision they agree to honor.
Product Life Cycle
The stages through which goods and services move from the time they are introduced on the market until they are taken off the market. Introduction, Growth, Maturity, Decline.
Corporate Governance
The system of procedures and processes by which corporations are managed, directed, and controlled.
Gross Domestic Product (GDP)
The total market value of all output produced whithin a nation's borders, no matter whether it is generated by a domestic or foreign-owned enterprise, over a fixed period of time. It estimates the output from a sample of businesses in every part of a nation's economy, from agriculture to social media.
Opportunity Cost
The value of what is given up to obtain the good.
US Foreign Corrupt Practices Act (1977)
This law makes it illegal for a US firm (or its employees or agents) to offer bribes to foreign government officials, political parties or candidates for the purpose of securing or retaining business.
Forum Shopping
To have the case heard in the court system most favorable to it. It puts U.S. & European Union manufacturers at a disadvantage in international markets.
Intra-industry Trade
Trade between two countries of goods produced by the same industry.
Mixed Law
Two or more legal systems operating together. It emerges when 2 or more legal systems are used within a single country.
Confiscation
When there is the forced transfer of assets from a firm to the government without compensation.
Public Law
Where a government/state is party to the action.
Private Law
Where individuals &/or firms are parties to the action.
Illegal Child Labor (ILO)
Work that deprives children of their childhood, their potential and their dignity (interferes with their ability to attend regular school, and that is mentally, physically, socially or morally dangerous and harmful). This includes slavery, debt bondage, child trafficking, prostitution, production of pornography, forced recruitment of children in armed conflict, illicit activities, and danger to the health, safety and morals of a child.
New Trade Theory
a collection of economic models in international trade which focuses on the role of increasing returns to scale and network effects, which were developed in the late 1970s and early 1980s.
1st WTO Principle/Rule of NON-Discrimination (respecting firms) In terms of its 2 associated rules
a) Most Favored Nation Status (MFN) b) National Treatment (of Goods) Rule
BRICS
emerging economies (Brazil, Russia, India, China, South Africa)
Greenfield Strategy
involves starting a new operation from scratch (the word greenfield arises from the image of starting with a virgin green site and then building on it). The firm buys or leases land, constructs new facilities, hires or transfers in managers and employees, and then launches the new operation.
Acquisition Strategy
is a comprehensive plan that identifies and describes the acquisition approach that Program Management will follow to manage program risks and meet program objectives. The Acquisition Strategy guides program execution across the entire program life cycle and is updated at every major milestone and review.
Economies of scale
occur if a firm's average costs of producing a good decrease as its output of that good increases.
General Product Life-Cycle Theory
states that the best location for the development, production & marketing of certain goods & services shifts over time.. as these goods pass through the stages of market Introduction, Growth, Maturity & Decline.
Internalization Theory
suggests that FDI (federal direct income) is more likely to occur - that is, international production will be internalized within the firm - when the costs of negotiating, monitoring, and enforcing a contract with a second firm are high.
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Bureaucratic Law
the legal system followed by communist countries and dictatorships. It is whatever the country's bureaucrats say the law is, regardless of the formal law of the land. Bureaucratic Law is frequently inconsistent, unpredictable and lacking in appeal procedures.
Inter-industry Trade
trade between countries in goods from different industries
Country Comparative Advantage
when a country produces a good or service for a lower opportunity cost than other countries.
Firm-Based Trade Theories
●Country Similarity Theory ●Product Life-Cycle Theory ●New Trade Theory/Global Strategic Rivalry Theory ●Porter's National Competitive Advantage