International business test 1

List 4 reasons why firms are nationalized

(1) to extract more money from the firms, if the government suspects that the firms are concealing profits (2) profitability- the government believes it can run the firms more efficiently & make more money (3) ideology (4) job preservation (5) because the government has pumped money into a firm or an industry, and control usually follows money (6) happenstance

How do free trade advocates respond to claims that domestic jobs must be protected from cheap foreign labor?

(1) wage costs are neither all of the production or labor costs, so the comparison is misleading (2) the productivity per worker may be much greater in richer countries so the labor cost component of the goods being produced could be lower even though the wages are higher

List the 3 main advantages to regional clusters

-advantages associated with pooling of a common labor force so that staffing requirements can be met quickly, even with unexpected fluctuations in demand. -Gains from the development of specialized local suppliers whose operations and skills can be coordinated with the needs of the buyers. -Benefits that result with the geographic regions from the sharing of technological information and corresponding enhancement of the rate of innovation

Give two examples of how going abroad can reduce a firm's costs

1. Globalizing a product can make other economies of scale possible. 2. COGS can be decreased through tax or subsidies for R&D.

Describe compound (Import duty)

A combination of specific and ad valorem duties

Describe specific (Import duty)

A fixed sum levied on a physical unit of an imported good

Explain why businesses proposer more when a government is stable

A stable government provides permanent or gradually changing policies and is not unpredictable or radical.

Describe the resource endowment theory

Abundance of resources

Describe achievement vs. ascription (Trompenaars)

Achievement vs. Ascription In an achievement culture, people are accorded status based on how well they perform their functions. In an ascription culture, status is based on who or what a person is. Does one have to prove himself to receive status or is it given to him? Achievement cultures include the US, Austria, Israel, Switzerland and the UK. Some ascription cultures are Venezuela, Indonesia, and China. When people from an achievement culture do business in an ascription culture it is important to have older, senior members with formal titles and respect should be shown to their counterparts. However, for an ascription culture doing business in an achievement culture, it is important to bring knowledgeable members who can prove to be proficient to other group, and respect should be shown for the knowledge and information of their counterparts

Explain value chain analysis

An assessment of conducted on the chain of interlinked activities of an organization or set of interconnected organizations. Intended to determine where and to what extent value is added to the final product or service.

What is country risk assessment?

An evaluation, conducted by a bank or business, that assesses a country's economic situation and policies and its politics to determine how much risk exists of losing an investment.

Describe ad valorem (Import duty)

An import duty levied as a percentage of the invoice value of imported goods

Define mission statement

Broad statement that defines the purpose for a company's existence. Business objectives and approach for reaching those objectives.

How do subsidies restrict imports?

Cash payments, government participation in ownership, low-cost loans to foreign buyer ad exporters, and preferential tax treatment. High customs duties restrict access to wealthy countries' markets; while subsidized overproduction in developed countries go to a small percentage of recipients, usually large enterprises.

List the major 5 world religions

Christianity Islam Buddhism Hinduism Judaism

Define Explicit knowledge

Codified knowledge and making it accessible to other employees.

List and describe the 4 forces in Porter's Diamond Model

Demand conditions, Factor conditions, Related and supporting industries, Firm strategy, structure, and rivalry.

Explain why historically trade precedes FDI.

Engaging in foreign trade is typically less costly and less risky than making a direct investment into foreign markets. Can expand the business in small increments rather than through the considerably greater amounts of investment and market size that a foreign production facility requires

Explain contingency plans

Explain contingency plans Plans for the best- or worst-case scenarios or for critical events that could have a severe impact on the firm

Explain high- and low-context cultures

High: (HC) culture, much communication is conveyed by the context. HC cultures include Japan, China, many other Asian cultures, and Middle Eastern, Latin American, and African cultures. Here the participants have social ties that are long-standing and close, so they know to a great degree what the communication will be, based on their shared experience and the communication signals they read from the context. Communication tends to be implicit and indirect. Low: (LC) cultures, the words contain most of the communication, and the context is relatively less significant. Anglo and northern cultures such as the UK and former British colonies—Canada, the United States, Australia—Germany, and the Scandinavian cultures are among the LC cultures. Relationships are of shorter duration with minimal shared history, so more of the communication has to be explicit for meaning to be conveyed. To get a feeling for the influence of context, think about your family, which will be relatively higher context than your relationships outside your family. See Figure 3.4 for a view of some of the HC-LC contrasts.

List and describe the five main international strategies

Home Replication Strategy: Companies pursuing a home replication strategy typically centralize product development functions in their home country. Multidomestic Strategy: A multidomestic strategy is effective when pressure to adapt products or services for local markets is strong. Global Strategy: A global strategy works when a company faces strong pressures for reducing costs and limited pressure to adapt products for local markets. Transnational Strategy: A company that confronts simultaneous pressures for cost-effectiveness and local adaptation, and that can gain competitive advantage from responding to both, may adopt a transnational strategy. ?Regional Strategy: Regional focus allows firms to marshal resources to compete effectively in regional markets; increases understanding of market?

Describe universalism vs. Particularism (Trompenaars)

Individualism vs. Communitarianism Individualism refers to people regarding themselves as individuals, while communitarianism refers to people regarding themselves as part of a group. Trompenaars research yielded some interesting results and suggested that cultures may change more quickly that many people realize. It may not be surprising to see a country like the United States with high individualism, but Mexico and the former communist countries of Czechoslovakia and the Soviet Union were also found to be individualistic in Trompenaars research. In Mexico, the shift from a previously communitarian culture could be explained with its membership in NAFTA and involvement in the global economy. This contrasts with Hofstede's earlier research, which found these countries to be collectivist, and shows the dynamic and complex nature of culture. Countries with high communitarianism include Germany, China, France, Japan, and Singapore.

Describe Individualism-collectivism (Hofstede)

Individualism-Collectivism This index explores the "degree to which people in a society are integrated into groups." Individualistic societies have loose ties that often only relates an individual to his/her immediate family. They emphasize the "I" versus the "we." Its counterpart, collectivism, describes a society in which tightly-integrated relationships tie extended families and others into in-groups. These in-groups are laced with undoubted loyalty and support each other when a conflict arises with another in-group.[6][7]

Foreign direct investment

Investors participate in the management of the firm in addition to receiving a return on their money

Describe masculinity-femininity (Hofstede)

Masculinity vs. femininity (MAS): In this dimension, masculinity is defined as "a preference in society for achievement, heroism, assertiveness and material rewards for success." Its counterpart represents "a preference for cooperation, modesty, caring for the weak and quality of life." Women in the respective societies tend to display different values. In feminine societies, they share modest and caring views equally with men. In more masculine societies, women are more emphatic and competitive, but notably less emphatic than the men. In other words, they still recognize a gap between male and female values. This dimension is frequently viewed as taboo in highly masculine societies.

Define scenarios

Multiple, plausible stories about the future

Explain the following reasons for trade restrictions: 1. National defense 2. Protecting infant industries 3. Retaliation

National defense- suggests that certain industries need protection from imports because they are vital to security and must be kept operating even though they are not competitive with foreign suppliers. Protecting infant industries- in the long run the infant or dying industry will have comparative advantage but that firms need protection from imports until the required investment capital is obtained, the labor force is trained, production techniques are mastered, and economies of scale are achieved. Otherwise more mature foreign competitors will threaten the life of the infant industry because the foreign competitor may have lower-cost imports. Retaliation- Representatives of an industry whose exports have had import restrictions placed on them by another country may ask their government to retaliate with similar restrictions.

Explain comparative advantage with an example

Nations specialize in the production of a few products and trade with others to supply the rest of their needs

Describe Neutral vs. Affective (Trompenaars)

Neutral vs. Emotional A neutral culture is a culture in which emotions are held in check whereas an emotional culture is a culture in which emotions are expressed openly and naturally. Neutral cultures that come rapidly to mind are those of the Japanese and British. Some examples of high emotional cultures are the Netherlands, Mexico, Italy, Israel and Spain. In emotional cultures, people often smile, talk loudly when excited, and greet each other with enthusiasm. So, when people from neutral culture are doing business in an emotional culture they should be ready for a potentially animated and boisterous meeting and should try to respond warmly. As for those from an emotional culture doing business in a neutral culture, they should not be put off by a lack of emotion

List and describe the 3 kinds of advantages of the eclectic theory.

Ownership Specific—extent to which a firm has an advantage through ownership of tangible and intangible that are not availabe to other firms and can be transferred abroad. Location Specific—must have specific characteristics or an economic, social, or political nature that will permit the firm to profitably exploit its advantages by locating to that marked rather than serving the market through exports. Internalization—receiving resources or funds from an internal source.

International strategy

Plan that guides the way firms make fundamental choices about developing and deploying scarce resources internationally.

List the five drivers of globalization

Political-the progressive reduction of barriers to trade and foreign investment by most governments and privatization of much of the industry in formerly communist nations Technological- vast advancements Market- become global customers Cost- globalize product lines to reduce development, production, and inventory costs Competitive- more competition

Describe power distance (Hofstede)

Power Distance The power distance index is defined as "the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally." In this dimension, inequality and power is perceived from the followers, or the lower level. A higher degree of the Index indicates that hierarchy is clearly established and executed in society, without doubt or reason. A lower degree of the Index signifies that people question authority and attempt to distribute power.

Describe how the following non-tariff barriers restrict trade: 1. Quotas 2. Voluntary export restraints 3. Customs & other administrative procedures 4. Standards

Quotas: Numerical limits placed on specific classes of imports. Voluntary export restraints: Export quotas imposed by the exporting nation. Customs & other administrative procedures: these barriers cover a large variety of government policies and procedures that either discriminate against imports or favor exports. Standards: Governmental and private standards to protect the health and safety of a nation's citizens are both certainly desirable, but exporting firms are plagued by many standards that are complex and discriminatory.

Describe dumping

Selling a product abroad for less than (1) the average cost of production in the exporting nation, (2) the market price in the exporting nation, or (3) the price to third countries. A manufacturer may dump products to sell excess production w/out disrupting prices in its domestic market. (Predatory dumping- a manufacturer may also lower its export price to force the importing nation's domestic producers out of business, expecting to raise prices once objective is accomplished.)

Describe Specific vs. Diffuse (Trompenaars)

Specific vs. Diffuse A specific culture is one in which individuals have a large public space they readily share with others and small private space guard closely and share with only close friends and associates. A diffuse culture is one in which public space and private space are similar in size and individuals guard their public space carefully, because entry into public space affords entry into private space as well. It looks at how separate a culture keeps their personal and public lives. Fred Luthans and Jonathan Doh give the following example which explains this:

List two arguments supporting globalization and two against it

Support: 1. Free trade enhances socioeconomic development. Theoretically compelling and demonstrated in practice. 2. Free trade promotes more and better jobs. Companies may go out of business when a country opens to trade, but trade creates new jobs that tend to be better than the old ones. Against: 1. Globalization has produces uneven results across nations and people. Most of Latin America has failed to replicate Asias success. 2. Globalization has deleterious effects on labor and labor standards. The impact of globalization on labor standards has become oft-mentioned concerned workers in the US and other nations. Companies have an easier time divesting their interests in one country and moving to another.

Explain absolute advantage with an example

The ability to produce goods most efficiently by having either a natural or acquired advantage, Corn from Nebraska and Oil from Saudi Arabia

Define mercantilism

The accumulation of precious metals as an activity essential to a nation's welfare

Define ethnocentricity

The belief that your own culture is superior to other cultures

List 4 advantages for a firm to first export to its country's major trading partners

The business climate in the importing nation is relatively favorable Export and import regulations are not insurmountable There should be not strong cultural objections to buying that nation's good. Satisfactory transportation facilities have already been established

Explain the difference between controllable and uncontrollable forces

The external forces are commonly called uncontrollable forces. Management has no direct control over them. External forces consist of the following: Competitive, Distributive, Economic, Socioeconomic, Financial, Legal, Physical, Political, Sociocultural, Labor, And Technological Controllable Forces-management does have some control are the internal forces-such as the factors of production (capital, raw materials, and people) and the activities of the organization (personnel, finance, production, and marketing)

Portfolio investment

The purchase of stocks and bonds solely for the purpose of obtaining a return on the funds invested

Define competitive advantage

The purpose of having an international strategy is to enable a company to achieve and maintain a unique and valuable competitive position. And generate higher rates of profit than its competitors.

Define economic globalization

The tendency toward an international integration of goods, technology, information, labor, and capital, or the process of making this integration happen

Define exchange rate

To convert from foreign to domestic currency

List one advantage and one disadvantage of each of the following: 1. Top-down planning 2. Bottom-up planning

Top-down planning is a planning process that begins at the highest level in the organization and continues downward. In top-down planning, corporate headquarters develops and provides guidelines that include the definition of the business, the mission and vision statements, company objectives, financial assumptions, the content of the plan, and special issues Bottom-Up Planning Bottom-up planning operates in the opposite manner, since it is a planning process that begins at the lowest level in the organization and continues upward. The lowest operating levels inform top management about what they expect to do, and the total of these expectations becomes the firm's goals. The advantage of bottom-up planning is that the people responsible for attaining the goals are formulating them. Who knows better than the subsidiaries' directors what and how much fthe subsidiaries can sell in their respective geographic regions? Because the directors set the goals with no coercion from top management, they feel obligated to make their word good. Their hands-on perspective may allow them to recognize potentially innovative opportunities to create and leverage value within their local markets, thus serving as a basis for improved performance or even strategic experimentation. However, bottom-up planning has a disadvantage: because each affiliate is free to some extent to pursue the goals it wishes to pursue, there is no guarantee that the sum total of all the affiliates' goals will coincide with those of headquarters. When discrepancies occur, top management must take extra steps to eliminate them.

Explain how leaders use sales forecasts and budgets to manage firms

Two prominent features of the strategic plan are sales forecasts and budgets. The sales forecast, which is a prediction of future sales performance, not only provides managers with an estimate of the revenue to be received and the units to be sold but also serves as the basis for planning in the other functional areas. Without this information, managers cannot formulate the production, financial, and procurement plans.Budgets are an itemized projection of revenues and expenses for a future time period. As is the case for sales forecasts, budgets are both a planning and a control technique. During planning, they coordinate all the functions within the firm and provide managers with a detailed statement of future operating results and the resources required to achieve those outcomes. FACILITATION TOOLS FOR IMPLEMENTING STRATEGIC PLANS Once the plan has been prepared, it must be implemented. Two of the most important facilitation tools for implementing plans are policies and procedures. Policies Policies are broad guidelines issued by upper management for the purpose of assisting lower-level managers in handling recurring problems. Because policies are broad, they permit discretionary action and interpretation. A policy is intended to economize managerial time and promote consistency among the various operating units. For example, if a company's distribution policy states that sales will be made through wholesalers, marketing managers throughout the world know they should normally use wholesalers and avoid selling directly to retailers. Similarly, publicity regarding the widespread occurrence of bribery in various international markets has prompted numerous companies to issue policy statements condemning this practice. Managers have thus been put on notice that as a policy they are not to offer bribes. Page 247 Procedures Procedures are guides that specify the way certain tasks or activities will be carried out, thereby ensuring uniform action on the part of all corporate members. For instance, most international corporate headquarters issue procedures for their subsidiaries to follow in preparing annual reports and budgets. This assures corporate management that whether the budgets originate in Thailand, the United States, or Brazil, they will be prepared using the same format, which facilitates comparison. PERFORMANCE MEASURES A key part of strategic planning is measuring performance in order to assess whether the strategy and its implementation are proceeding successfully or whether modifications need to be made. Companies consider at least three types of measures when assessing strategic performance: (1) measures of the company's success in obtaining and applying the required resources, such as financial, technological, and human resources; (2) measures of the effectiveness of the company's employees, within and across the firm's international network of operations, in performing their assigned jobs; and (3) measures of the company's progress toward achieving its mission, vision, and objectives and doing so in a manner consistent with the company's stated values.16 A range of concepts and tools, including the balanced scorecard and triple-bottom-line accounting, have been promoted as alternatives for helping to measure strategic performance. For example, the balanced scorecard approach is based on an integration of strategic planning with a company's budgeting processes, and short-term results from the balanced scorecard can serve as a means of monitoring progress in achieving strategic objectives across four dimensions: financial, customer, internal, and learning and growth.

Describe uncertainty avoidance (Hofstede)

Uncertainty avoidance index (UAI): The uncertainty avoidance index is defined as "a society's tolerance for ambiguity," in which people embrace or avert an event of something unexpected, unknown, or away from the status quo. Societies that score a high degree in this index opt for stiff codes of behavior, guidelines, laws, and generally rely on absolute Truth, or the belief that one lone Truth dictates everything and people know what it is. A lower degree in this index shows more acceptance of differing thoughts/ideas. Society tends to impose fewer regulations, ambiguity is more accustomed to, and the environment is more free-flowing.

Define self-reference criterion

Unconscious reference to the manager's own cultural values, when judging others in a new and different environment

Define nationalization and privatization

When governments nationalize private firms, taking them from private to public ownership, some of the reasons are to extract more money from the firms, if the government suspects they are concealing profits; to increase profitability, if the government believes it can run the firms more efficiently and make more money; to follow an economic or political ideology; to save jobs by propping up dying industries; to control an earlier investment in a firm; and to enact political goals. Political goals were the motivation behind the Allies' nationalization of German-owned firms in Europe following World War II. Governments sometimes privatize or sell their businesses, usually in order to see them run more efficiently, to reduce the government's size or the extent of its bureaucracy, or to raise money. Britain's prime minister Margaret Thatcher was a leader of Britain's most recent privatization movement. During her years in office (1979-1990), she decreased state-owned companies from a 10 percent share of Britain's GNP to 3.9 percent and sold more than 30 companies, raising some $65 billion.

Define values statement

a description of the company's desired future position, of what it hopes to accomplish if it can acquire the necessary competencies and successfully implement its strategy.

Define culture

as the sum total of the beliefs, rules, techniques, institutions, and artifacts that characterize human populations.1 Culture also can be understood from the individual level as the "individual worldviews, social rules, and interpersonal dynamics characterizing a group of people set in a particular time and place."2 We encourage you to think of culture in the way that seems the most useful to you, given a particular situation.

Define vision statement

is a description of the company's desired future position, of what it hopes to accomplish if it can acquire the necessary competencies and successfully implement its strategy.

Define foreign direct investment (FDI)

is when a firm invests directly in foreign facilities- they then become a multinational enterprise

Define tacit knowledge

known well by the individual but difficult to express verbally or document in text or figures.

Explain tactical plans

tactical (also called operational) plans are a requisite for spelling out in detail how the objectives will be reached. In other words, very specific, short-term means for achieving the goals are the objective of tactical planning.