MAR 4156 - Midterm Review
market conditions
Floating exchange rates are determined by _______ __________ alone.
Selective Attention Selective Exposure Selective Distortion Selective Retention Selective Concept
1. Selective _________ - refers to processing information when we have a need (we look at watch ads when we need to buy a watch for father's day). 2. Selective __________ - refers to only looking and or listening to information we agree with (such as only watching our favorite political analyst). 3. Selective __________ - refers to one's tendency to reverse informational inconsistent with one's prior beliefs (we believe Lebron has more championships than Jordan). 4. Selective _________ - means we forget things we do not like, such as, we forgot we made a lot of money off of someone else's idea. 5. Selective _________ - we buy things to help us feel better about ourselves, such as, buying a new car and new shoes even though our old shoes are in good shape and our old car runs very well.
joint venture
A ________ _________ is different from strategic alliances or collaborative relationships in that a it is a partnership of two or more participating companies that have joined forces to create a separate legal entity
sovereign
A _________ state is independent and free from all external control; enjoys full legal equality with other states; and governs its own territory
-exporting -contractual agreements -strategic alliances -direct foreign investments (internet is a new form of entry)
A company has 4 different modes of foreign market entry from which to select:
licensing
A means of establishing a foothold in foreign markets without large capital outlays is licensing of patent rights, trademark rights, and the rights to use technological
current account
A record of all merchandise exports, imports, and services plus unilateral transfers of funds
Advising bank
Advising or Confirmation bank?: Take reasonable care to verify L/C authenticity.
Advising bank
Advising or Confirmation bank?: Does not assume financial risk
Confirming bank
Advising or Confirmation bank?: must pay even before it has received funds from the issuing bank.
Confirmation bank
Advising or Confirmation bank?: obligates the bank to pay immediately upon the receipt of the conforming documents from the supplier/exporter.
Advising bank
Advising or Confirmation bank?: only pays after they have been paid
Bonded Warehouse
Allows goods to be warehoused without the assessment of duties.
Assignment of proceedings
Allows the middlemen to transact the transaction without proceeds and without the supplier and the buyer having knowledge of each other. The supplier is paid when the middleman instructs the advising bank to pay the supplier after the required documents have been provided.
Documents against Acceptance (D/A)
An acceptance of a "time draft" by the buyer requires a payment at a later date. The goods are released after acceptance of the time draft. (i.e. not payment)
Letter of Credit
An agreement between two banks (the importer's bank and the exporters bank) that specify the terms of sale. When documentation proves terms have been met, funds are transferred between banks.
SIAs
An example of ____ in the airlines industry is that of the oneworld alliance partners made up of American Airlines, Cathay Pacific, British Airways, Canadian Airlines, Aer Lingus, and Qantas
Self-Reference Criterion (SRC)
An unconscious reference to one's own cultural values, experiences, and knowledge as a basis for decisions
-bilateral treaties guaranteeing fair treatment -patent and trademark protection
Areas of cooperation among nations for international law includes:
1. increase of business size, maintain employment and reduce unemployment. 2.retaliation and bargaining . 3.protection of the home market. 4.need to keep money at home. 5.encouragement of capital accumulation. 6.maintenance of the standard of living and real wages . 7.conservation of natural resources . 8.protection of an infant industry 9.industrialization of a low-wage nation 10.national defense
Arguments for Protectionism include:
Foreign Trade Zones
Avoids duties, accelerates exportation, accelerates excise tax rebates, and accelerates drawbacks. Treated as a foreign country for customs purposes; privately owned, but customs regulated.
SRC and ethnocentrism
Both __ and __ impede the ability to assess a foreign market in its true light.
direct foreign investment
Companies may manufacture locally to capitalize on low-cost labor, to avoid high import taxes, to reduce the high costs of transportation to market, to gain access to raw materials, or as a means of gaining market entry through __________ __________ ____________.
foreign competition and imports
Countries use protectionist measures to shield a country's markets from intrusion by _____ ______ and _______.
stagnation
Countries with hostile climates are associated with economic __________. Countries that suffer the most from major calamities are among the poorest in the world, which influences the ability to buy.
-Stand-alone attractiveness of country/region -Strategic importance of country/region -Synergy with other businesses in country/region
Country market selection analyzes:
withdrawn; 5; 2; bonded warehouse; importer.
Duty rate owned is duty rate in effect when goods are ____________ from the warehouse. Goods may remain in the warehouse for ____ years from the date of import. Bond is usually ___x the normal duties and fees. Cost is determined by negotiations between the __________ and the _________.
Islamic law
Emphasis placed on the ethical, moral, social, and religious dimensions to enhance equality and fairness for the good of society
Islamic law
Encompasses religious duties and obligations and patterns of social and economic behavior for all individuals; includes includes issues such as property rights, economic decision making, and types of economic freedom.
Differential Exchange Rates
Encourages the importation of goods the government deems desirable and discourages importation of goods the government does not want by adjusting the exchange rate. The exchange rate for importation of a desirable product is favorable and vice-versa
The practice of marketers and consumers associating brands with countries and making buying decisions made on the country of origin of the product.
Explain the Country of Origin Effect (COE).
Common Market
Factors of production mobility is emphasized. A common external tariff is adopted.
-Competencies -Short and long-term -- local, regional, global product/market objectives -Internationalization experience -Financial and marketing resources -Product/market characteristics
Firm Specific Factors Influencing Entry Strategies:
direct foreign investment
Firms may either invest in or buy local companies or establish new operations facilities as a means of foreign market development and entry through ____________ __________ _______________.
social institutions
Geography, which includes climate, topography, flora, fauna, and microbiology, influences our _______ __________.
Free trade area
Goods and services are freely trades among all members. Each country maintains its own trade barriers vis-à-vis nonmembers.
Import restricted items, dutiable goods, or goods requiring a license
Goods in FTZ must be either...
latitude
Historical research correlate _________ (climate) and the per capita GDP of countries.
-call to buy our own country's products -restrictions on imports, restrictive tariffs, and other barriers to trade
How are feelings of nationalism manifested?
164
How many members does the WTO have?
exchange permit
In countries where there is severe shortage of foreign exchange, an _________ __________ to import foreign goods is required from the government.
industrial inefficiency; uncompetitive
In general, protectionism contributes to __________ __________ and makes a nation ____________.
Franchising
In licensing the franchisor provides a standard package of products, systems, and management services, and the franchisee provides market knowledge, capital, and personal involvement in management
prior use; registration
In the United States, a common-law country, ownership of intellectual property rights is established by _______ ______. In many code-law countries, ownership is established by ___________.
prior use; registration
In the United States, a common-law country, ownership of intellectual property rights is established by ________ ______. In many code-law countries, ownership is established by __________.
climatic similarities
Innovations spread faster east-to-west than north-to-south due to __________ ___________.
Economic Union
Integration and harmonization of economic and monetary policies is achieved leading to political union.
Conciliation or arbitration
International disputes can be resolved by...
SRC
Interpretive knowledge is prone to misrepresentation if one's ______ is used.
insight; past experiences
Interpretive knowledge requires a degree of ________ and is dependent on ____ _________ for interpretation.
1. on the basis of jurisdiction clauses included in contracts 2. on the basis of where a contract was entered into 3. on the basis of where the provisions of the contract were performed
Jurisdiction is generally determined in one of 3 ways:
1. between governments 2. between a company and a government 3. between two companies
Legal disputes can arise in 3 situations:
-joint ventures -expanding the investment base -licensing -planned domestication -political payoffs
MNC's can use the following strategies to minimize political vulnerability and risk:
government-managed demand and supply.
Managed float is determined by...
-Market segment potential - current and latent -Competitive environment - market concentration, market power, and competitors' strategies -Host country entry regulations- tariff and nontariff barriers -Environmental risk - economic, political, financial, and business risk -Marketing infrastructure—communication and transportation -Uncertainty
Market Factors Influencing Entry Strategies:
Customs union
Members establish a common trade policy with respect to nonmembers.
The maquiladoras
Plants in Mexico that make goods and parts or process food for export back to the US (started in the 1950s but became a major business opportunity when NAFTA was initiated).
Sub-Zone (Foreign Trade Zone)
Privately owned for use by one company for special activities requiring special equipment and facilities; can be granted in any FTZ
Islamic law
Prohibits investment in activities that violate the Shari'ah, e.g., business dealing with alcohol, gambling, and casinos
trade barriers
Protectionism is implemented through the imposition of ______ _______.
BP
Records all financial transactions between a country's firms, and residents, and the rest of the world usually over a year
-improves the BP by increasing exports or reducing imports through import substitution -uses locally produced resources -transfer capital, technology, and/or skills -creates jobs -makes tax contributions
Relations between governments and MNCs are generally positive if the investment:
SRC
Relying on one's _____ could produce an unsuccessful marketing program.
World Trade Organization (WTO)
Sets rules governing trade between countries
weaken
Tariff barriers tend to ___________ balance-of-payments positions
restrict
Tariff barriers tend to ___________ choices available to consumers
restrict
Tariff barriers tend to ___________ competition
increase
Tariff barriers tend to ___________ government control and political considerations in economic matters.
increase
Tariff barriers tend to ___________ inflationary pressures.
weaken
Tariff barriers tend to ___________ international relations (they can start trade wars)
restrict
Tariff barriers tend to ___________ manufacturers' supply sources
increase
Tariff barriers tend to ___________ special interests' privileges
weaken
Tariff barriers tend to ___________ supply-and-demand patterns
increase
Tariff barriers tend to ___________ the number of tariffs they beget via reciprocity
1. current account 2. capital account 3. official reserves account
The BP includes 3 accounts:
double-entry
The BP is maintained on a ____________ bookkeeping system.
World Court; arbitration
The _____ ______ can adjudicate disputes between governments, but disputes involving a company must be handled in the courts of the country of one of the parties involved or through ___________.
Arbitration
The _________ procedure calls for the parties involved to select a disinterested and informed party or parties as referee to determine the merits of the case and make a judgment that both parties agree to honor
North American Free Trade Agreement (NAFTA)
The ______________ created the world's largest free market.
World Court at The Hauge and the International Court of Justice
The ________________ and the ______________________ resolve international disputes between sovereign nations of the world rather than between private citizens.
1. Common law: derived from English courts; used by England, US, Canada, etc. 2. Civil or code law: derived from Roman law; used by Germany, Japan, France, Brazil, Mexico, Venezuela, etc. (most prevalent in the world) 3. Islamic law: derived from Koran interpretation; used in Pakistan, Iran, Saudi Arabia, and other Islamic states
The bases for the majority of the legal systems of the world include:
common law
The basis for ________ law is tradition, past practices, and legal precedents set by the courts through interpretations of statutes, legal legislation, and past rulings
Documents against Payments (D/P)
The buyer must pay before the collecting bank will release the title documents (AKA "sight draft" or "cash against documents"
-market characteristics -company capabilities and characteristics (can we do it? are we compatible?) -commitment that management is prepared to make
The choice of entry strategy depends on:
Documentary Collection
The exporter's bank collects payment due against delivery of documents. The exporter's bank, acting as an agent for the seller (exporter), presents documents to the buyer's (importer) bank. Neither bank is obligated to automatically pay under these transaction terms. The payment is made if the buyer is willing and able. However, _________ ___________ offers more security than an open account.
Expropriation
The government seizes an investment, but some reimbursement for the assets is made; often expropriated investment is nationalized to become a government run entitiy.
TT
The letter of credit is being used less and less as international banking improves and is being replaced by the lower cost ___ form of payment.
Cost of labor
The most important component of economic distance is __________ ______.
Confiscation
The most severe political risk; the seizing of a company's assets without payment.
Ethnocentrisim
The notion that one's own culture or company knows best how to do things
social justice
The overriding objective of the Islamic system is ____ ________.
International Marketing
The performance of business activities designed to plan, price, promote, and direct the flow of a company's goods and services to consumers or users in more than one nation for a profit
-Market potential -Accessibility -Customer response -Competitive situation -Political, financial, and economic risk
The stand-alone attractiveness of country/region analyzes:
-Home market of global competitors -Major source of industry innovation -Home of demanding customers
The strategic importance of country/region analyzes:
-Sharing activities with other company businesses -Using upstream capacity--e.g., raw material production -Using downstream capacity--e.g., final assembly or distribution -Having proximity to other markets
The synergy with other businesses in country/region analyzes:
Balance of payments (BP)
The system of accounts that records a nation's international financial transactions
Factual and Interpretive
There are two categories of cultural knowledge, that is, ___________ and __________, both of which are necessary if you wish to implement effective marketing strategies and tactics.
-True -True -False; they are very different and complex -True
True or False?: -No single, uniform international commercial law governing foreign business transactions exists. -International marketers must comply with the laws of each country within which it operate. -The legal systems of different countries are so similar and simple. -Best to get expert legal advice when doing business in another country
True
True or False?: All countries have laws regulating marketing activities. For example, in Austria, premium offers, free gifts, or coupons are considered as cash discounts and are prohibited. Premium offers in Finland are allowed as long as the word "free" is not used.
False; relatively new, but its laws are vauge and do not include complete protection yet.
True or False?: Cyber-law is relatively new, but all its laws are specific and detailed.
True; just pay the rent
True or False?: Goods can stay in a FTZ forever.
True
True or False?: Islamic doctrine advocates risk sharing, individuals' rights and duties, property rights, and the sanctity of contract.
True
True or False?: Joint ventures are different from minority holdings by an MNC in a local firm.
False; it does not
True or False?: Leaving the boundaries of a home country exempts a business from home-country laws
True
True or False?: There is an association between geographic location of an area and its economic growth.
False; no enforceable body of international law exists.
True or False?: There is only one enforceable body of international law.
1. Foreign Corrupt Practices Act (FCPA) 2. National Security Laws 3. Antitrust Laws
US Laws that apply in host countries include:
1. blocked currency 2. differential exchange rates 3. government approval (exchange permit)
What are 3 types of monetary barriers?
-Prior import deposit subsidies -Administrative fees -Special supplementary duties -Import credit discrimination -Variable levies -Border taxes
What are charges on imports (non-tariff barriers)?
-natural hedging -currency forwards -options
What are the 3 methods of protecting against exchange rate losses?
1.JVs are established, separate, legal entities; 2.they acknowledge intent by the partners to share in the management of the JV; 3.they are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals; 4.equity positions are held by each of the partners
What are the 4 factors associated with joint ventures?
-transaction exposure -translation exposure -tax exposure -economic exposure
What are the 4 types of exchange risks?
1. Specific limitations on trade 2. Customs and administrative entry procedures 3. Standards 4. Government Participation in Trade 5. Charges on imports 6. Voluntary export restraints & orderly marketing agreements
What are the 6 types of non-tariff barriers?
-simple -inexpensive -faster receipt of payment than an open account -seller retains title -merchandise is not picked-up until payment/acceptance is made.
What are the advantages of documentary collection?
-Valuation systems -Antidumping practices -Tariff classifications -Documentation requirements -Fees
What are the customs and administrative entry procedures?
Class 1-5: Storage of Goods Class 6: IRS Taxable (ex. vodka) Class 7: Smelting of Ores Class 8: Repacking Class 9: Duty Free
What are the different classes in a bonded warehouse?
-buyer can refuse for any reason. if so, the seller can 1) find another buyer, 2) pay for return transportation, or 3) abandon the merchandise.
What are the disadvantages of documentary collection?
availability of specialized equipment, technology and infrastructure (tend to be more expensive in poorer countries)
What are the other factors influencing economic distance?
-Voluntary export restraints -Orderly marketing agreements
What are the other types of non-tariff barriers?
-Selective attention - need, anticipate, big deviation -Selective exposure - select what we want -Selective distortion - reversing inconsistencies -Selective retention - support personal feelings -Self concept - buy to enhance self concept
What are the psychological factors influencing buying decisions?
-Quotas -Import licensing requirements -Proportion restrictions of foreign to domestic goods (local content requirements) -Minimum import price limits -Embargoes
What are the specific limitations on trade?
-Standard disparities -Intergovernmental acceptances of testing methods and standards -packaging, labeling, and marking
What are the standards (non-tariff barriers)?
-current skill set -specialized skill employee availability -training costs -training program availability
What factors come into play when examining economic distance in terms of employees?
Taking ideas and practices from another culture, ethnic group, or religion (ex.: Miami "borrowing" cuban and latin american culture)
What is Cultural Borrowing?
-COGS imported -spending by local tourists overseas -new overseas investments -cost of foreign military and economic aid
What is categorized as a BP payment?
-Merchandise export sales -Money spent by foreign tourists -Transportation -payments of dividends and interest from FDI abroad. -new foreign investments in the local country
What is categorized as a BP receipt?
-Government procurement policies -Export subsidies -Countervailing duties -Domestic assistance programs
What is government in participation in trade (non-tariff barriers)?
Manufacturing
What operation is allowed in an FTZ but not a Bonded Warehouse?
entry strategy
When a company makes the commitment to go international, it must choose an _______ ________.
When a country's expenditures consistently exceed its income (as a result, the exchange rate of its currency declines against foreign monies).
When does a country's standard of living fall?
local products; exports
When foreign currencies can be traded for more local currency, ________ _________ are less expensive for foreign customers and __________ increase.
foreign products; decreases
When foreign currencies can be traded for more local currency, ________ __________ are more expensive for local buyers and the demand for imported goods __________.
FTZ rents
Which are higher? FTZ rent or Bonded Warehouse rent?
Premium pricing
Which pricing strategy?: Individual Brands & the Corporate Brand with premium product quality and a premium price
Image pricing
Which pricing strategy?: Individual Brands & the Corporate Brand with standard product quality and a high price
Standard pricing
Which pricing strategy?: Individual Brands & the Corporate Brand with standard product quality and a standard price
Price signaling
Which pricing strategy?: Individual Brands, but the Corporate Brand is hidden with standard product quality and a high price
Transferable L/C
Which type of L/C?: Allows the L/C to be transferred to another party. (e.g., middleman to manufacturer/ wholesaler. The transferable L/C permits changes in amounts and dates.
Irrevocable L/C
Which type of L/C?: Payment or terms cannot be changed/canceled without the consent of all parties.
Confirmed L/C
Which type of L/C?: The buyer's bank has been reviewed and is acceptable to the seller's bank. The money's availability has been confirmed by both banks. The payment will be made immediately upon the receipt of the appropriate documents (e.g., Bill of Lading or Inspection Certificate).
Revocable L/C
Which type of L/C?: The terms of sale allow for changes to the L/C or the cancellation of the L/C.
Back to Back L/C
Which type of L/C?: Two letters of credit are used in conjunction (i.e., an L/C between the seller, the middleman and the buyer is used that is known as the "Master L/C," and an L/C between the supplier and the middleman is used that is known as the "Backing L/C"). The supplier must conform to both L/Cs in order to be paid. The middleman must conform to the master L/C in order to be paid.
Standard ads
Which type of ad?: -high budget -made for a major market -transferable, but not designed for transference -Can be used in other markets with narration language changes or other minor changes.
Local Ad
Which type of ad?: -lower budget made for a medium sized, smaller sized market -not transferable due to specific appeals
Global Ads
Which type of ad?: -little to no language from actors or narrator -often music background -no single culture represented or a diversity of cultures
The buyer
Who normally assumes the majority of the Letter of Credit (L/C) costs? The buyer or the seller?
SIAs
_____ offer opportunities for rapid expansion into new markets, access to new technology, more efficient production and marketing costs
WTO
_____ provides a panel of experts to hear and rule on trade disputes between members and issues binding decisions.
SIAs (Strategic International Alliances)
______ are sought as a way to shore up weaknesses and increase competitive strengths
common
______ law seeks "interpretation through the past decisions of higher courts which interpret the same statutes or apply established and customary principles of law to a similar set of facts"
Direct; Indirect
_______ exporting: the company sells to a customer in another country. _______ exporting: the company sells to importers or distributors in the home country who in turn exports the product.
Islamic law
_______ law prohibits the payment of interest.
Consortia
________ are developed to pool financial and managerial resources and to lessen risks.
Strategic alliances
__________ _________ have grown in importance over the last few decades as a competitive strategy in global marketing management
geography
__________ influences everything from history to present-day cultural values
Blockage (blocked currency)
__________ is accomplished by refusing to allow importers to exchange its national currency for the sellers' currency.
Antitrust
__________ law enforcement protects American consumers from actions that restricts competition
Antitrust
___________ legislation also protects American export and investment opportunities against any privately imposed restrictions to compete on merit.
Strategic International Alliance (SIA)
a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective
Conciliation
a nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences (aka mediation); sessions are private and all conferences are confidential.
capital account
a record of direct investment, portfolio investment, and short-term capital movements to and from countries
official reserves account
a record of exports and imports of gold, increases or decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks
embargo
an official ban on trade or other commercial activity with a particular country.
Natural hedging
buying and selling the same currency
Antidumping laws
contained within many legal systems; laws which prohibit below-cost sales of imported goods in local markets.
Currency forwards
contracts guaranteeing an exchange rate
Tax exposure
exchange risk when changing exchange rates result in a different tax liability
Transaction exposure
exchange risk when converting currencies at a later date
Translation exposure
exchange risk when exchange rates upon consolidation, differ from those at the time of transaction
Economic exposure
exchange risk when long-term exposure and its affect on present value of future cash flow
nationalism
feelings of national pride and unity
Masculinity/Femininity Index (MAS)
focuses on assertiveness and achievement.
Power Distance Index (PDI)
focuses on authority orientation
Uncertainty Avoidance Index (UAI)
focuses on risk orientation
Individualism/Collective Index (IDV)
focuses on self-orientation
Contractual agreements
long-term, non-equity associations between a company and another in a foreign market; generally involve the transfer of technology, processes, trademarks, or human skills
Foreign Corrupt Practices Act (FCPA)
makes it illegal for companies to pay bribes to foreign officials, candidates or political parties; stiff penalties can be assessed against company officials found guilty of paying a bribe
Domestication
occurs when the government mandates local ownership and greater national involvement in foreign company's management.
International joint ventures (IJVs)
provide a less risky way to enter markets that pose legal and cultural barriers than would be the case in an acquisition of an existing company
International law
recognizes the sovereign right of a nation to allow or deny foreign firms to conduct business.
culture
refers to "the human-made part of human environment—the sum total of knowledge, beliefs, art, morals, laws, customs, and any other capabilities and habits acquired by humans as members of society"
Sovereignty
refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members
Consortia
similar to joint ventures, except they typically involve a large number of participants, and they frequently operate in a country or market in which none of the participants is currently active.
Interpretive knowledge
the ability of understand and appreciate the nuances of different cultural traits and patterns, e.g., the meaning of time, and attitudes toward people
Interpretive cultural knowledge
the ability to understand in depth as well as appreciate different cultural traits.
exchange rate
the price of one currency in terms of another
Options
the rights of a contract without the obligation to fulfill it
International joint ventures (IJVs)
used as a means of lessening political and economic risks by the amount of the partner's contribution to the venture
factual knowledge
usually obvious, but it still must be learned, e.g., different meanings of colors, and different tastes; it deals with facts about a culture
National Security Laws
•U.S. firms, their foreign subsidiaries, or foreign firms that are licensees of U.S. technology cannot sell a product to a country which could affect national security of the U.S. •The control of the sale of goods that have a strategic and military value was prohibited to communist countries that were viewed as major threats to U.S. security