MGMT 309 Chapter 5

What are import tariffs?

Import tariffs, which are the most common, can be levied to protect domestic companies by increasing the cost of foreign goods.

What is usually the first type of international business in which a firm gets involved?

Importing or exporting (or both) is usually the first type of international business in which a firm gets involved.

What is a strategic alliance?

In a strategic alliance, two or more firms jointly cooperate for mutual gain.

What do less-developed countries tend to offer as packages of incentives?

In addition to lucrative tax breaks, for example, they can also attract investors with duty-fee entry of raw materials and equipment, market protection through limitations on other importers, and the right to take profits out of the country.

Why are maquiladoras useful?

The plants are given special tax breaks by the Mexican government, and the area is populated with workers willing to work for very low wages.

What is the primary challenge presented by developing economies?

The primary challenges presented by the developing economies to those interested in conducting international business there are potential consumers' lack of wealth and an underdeveloped infrastructure

What determines the percentage of ownership in the venture?

The proportion of the investment

How are quotas designed?

The quota amount is typically designed to ensure that domestic competitors will be able to maintain a certain market share. Honda is allowed to import 425,000 autos each year into the United States. This quota applies to cars imported into the United States, but the company can produce as many cars within U.S. borders as it wants because those cars are not considered imports.

What is the North American Free Trade Agreement (NAFTA)?

These countries have also negotiated a variety of agreements to make trade even easier. The most important of these, the North American Free Trade Agreement (NAFTA), eliminates many of the trade barriers—quotas and tariffs, for example—that existed previously.

What are the 5 fundamental differences that can be used to characterize people in different cultures?

These dimensions are social orientation, power orientation, uncertainty orientation, goal orientation, and time orientation.

True or false: The market economies adopted by the Eastern countries are as developed as those in Western Europe.

False: With the collapse of communism, the market economies adopted by the Eastern countries are not as developed as those in Western Europe, for instance.

What is a key question that must be addressed by any manager trying to be effective in an international market?

Finally, the key question that must be addressed by any manager trying to be effective in an international market is whether to focus on globalization or on regionalism.

What is the Caribbean Common Market?

Other important economic communities include the Caribbean Common Market (15 members including the Bahamas, Belize, Jamaica, Antigua, and Barbados, and five associate members).

What is the Latin American Integration Association?

Other important economic communities include the Latin American Integration Association (Bolivia, Brazil, Colombia, Chile, Argentina, and other South American countries)

What are the disadvantages of managing an international business in an industrial market economy?

Perhaps foremost among them is that the markets in these economies are typically quite mature. Many industries, for example, are already dominated by large and successful companies. Thus, competing in these economies poses a major challenge.

True or false: there are very few large domestic businesses left in the world today

True

Relations dictated by quotas, tariffs, and so forth can hurt international trade. There is currently a strong movement around the world to reduce many of these barriers. This movement takes its most obvious form in ____________ ______________ _______________.

international economic communities.

What is the most common form of trade restriction?

Quotas

True or false: U.S. manager have relatively few problems operating in market economies.

True: Many of the basic business "rules of the game" that apply in the United States also apply, for example, in Germany or England. And consumers there often tend to buy the same kinds of products.

What are two advantages of licensing?

Two advantages of licensing are increased profitability and extended profitability.

What is uncertainty orientation?

Uncertainty orientation is the feeling people have about uncertain and ambiguous situations

What are the three different elements of the global economy?

We describe three different elements of the global economy: 1. mature market economies and systems 2. high-potential/high-growth economies 3. other economies.

What are three environmental challenges faced in the global context?

three environmental challenges in particular warrant additional exploration at this point— 1. the economic environment 2. the political-legal environment 3. the cultural environment of international management

What does regionalism involve?

Regionalism, on the other hand, involves managing within each region with less regard for the overall organization.

What is the social orientation?

Social orientation is a person's beliefs about the relative importance of the individual versus the groups to which that person belongs.

What do critics of maquiladoras say?

Some critics argue, however, that the low wages paid by the maquiladoras amount to little more than slave labor.

What is power respect?

Some cultures are characterized by power respect. This means that people tend to accept the power and authority of their superiors simply on the basis of their position in the hierarchy and to respect their right to hold that power.

What are some of the most common forms of incentives for international trade?

Some of the most common include reduced interest rates on loans, construction subsidies, and tax incentives.

What are the two ways that government stability can be viewed?

Stability can be viewed in two ways—as the ability of a given government to stay in power against opposing factions in the country and as the permanence of government policies toward business.

What is GATT?

The General Agreement on Tariffs and Trade, or GATT, was first negotiated following World War II in an effort to avoid trade wars that would benefit rich nations and harm poorer ones. Essentially, the GATT is a trade agreement intended to promote international trade by reducing trade barriers and making it easier for all nations to compete in international markets. The GATT was a major stimulus to international trade after it was first ratified in 1948 by 23 countries.

What makes doing business in many parts of the Middle East both very risky and very difficult?

Political instability (as evidenced by the Persian Gulf War in 1991, the U.S.-led war in Iraq starting in 2003, and the political turmoil that swept the region in 2011 and continued into 2015) and tremendous cultural differences, for example, combine to make doing business in many parts of the Middle East both very risky and very difficult.

Who collects tariffs?

Tariffs can be collected by the exporting country, countries through which goods pass, and the importing country.

What is buy national legislation?

"Buy national" legislation gives preference to domestic producers through content or price restrictions. Several countries have this type of legislation. Several countries have this type of legislation. Brazil requires that Brazilian companies purchase only Brazilian-made computers.

What are the disadvantages of licensing?

1. A primary disadvantage of licensing is inflexibility. 2. A second disadvantage is that licensees can take the knowledge and skill to which they have been given access for a foreign market and exploit them in the licensing firm's home market.

What are the four general levels of international activity that differentiate organizations?

1. Domestic business 2. International business 3. Multinational business 4. Global business

What are some of the disadvantages of importing/exporting?

1. For example, imports and exports are subject to taxes, tariffs, and higher transportation expenses. 2. Furthermore, because the products are not adapted to local conditions, they may miss the needs of a large segment of the market. 3. Finally, some products may be restricted and thus can be neither imported nor exported.

What are the three aspects of the economic environment in particular that can help managers anticipate the kinds of economic challenges they are likely to face in working abroad?

1. The Economic System 2. Natural Resources 3. Infrastructure

What is a tariff?

A tariff is a tax collected on goods shipped across national boundaries.

What is importing?

Importing is bringing a good, service, or capital into a firm's home country from abroad.

In return, what does a licensee pay?

In return, the licensee pays a royalty, usually based on sales.

What is a maquiladoras?

Maquiladoras are light assembly plants built in northern Mexico close to the U.S. border.

What are market systems?

Market systems are clusters of countries that engage in high levels of trade with one another.

What is infrastructure in terms of the economic environment?

A country's infrastructure consists of its schools, hospitals, power plants, railroads, highways, shipping ports, communication systems, airfields, commercial distribution systems, and so forth.

What is a domestic business?

A domestic business acquires essentially all of its resources and sells all of its products or services within a single country.

What is an international business?

An international business is one that is based primarily in a single country but acquires some meaningful share of its resources or revenues (or both) from other countries.

Most countries today are moving toward a what economy?

As we described earlier, most countries today are moving toward a market economy.

What do the critics of WTO say?

At the same time, it has also become a lightning rod for protesters and other activists who argue that the WTO focuses too narrowly on globalization issues to the detriment of human rights and the environment.

What is a direct investment?

Direct investment occurs when a firm headquartered in one country builds or purchases operating facilities or subsidiaries in a foreign country

What is an export restraint agreement?

Export restraint agreements are designed to persuade other governments to voluntarily limit the volume or value of goods exported to or imported from a particular country. They are, in effect, export quotas.

What is exporting?

Exporting, or making the product in the firm's domestic marketplace and selling it in another country, can involve both merchandise and services.

What is nationalization for businesses?

In some countries, foreign businesses may be nationalized (taken over by the government) with little or no warning. For example, the government of Peru once nationalized Perulac, a domestic milk producer owned by Nestlé at the time, because of a local milk shortage.

In a private ownership, who owns and operates the companies that conduct business?

In systems with private ownership, individuals and organizations—not the government—own and operate the companies that conduct business.

In systems with public ownership, who owns and operates the companies that conduct business?

In systems with public ownership, the government directly owns the companies that manufacture and sell products.

What does the Byrd Amendment stipulate?

In the United States, the Byrd Amendment (named after West Virginia Senator Robert Byrd) stipulates that, if a domestic firm successfully demonstrates that a foreign company is dumping (selling for less than fair-market value) its products in the U.S. market, those products will be hit with a tariff and the proceeds given to the domestic company filing the complaint

What is individualism?

Individualism is the cultural belief that the person comes first.

What is licensing?

Licensing is an arrangement whereby a firm allows another company to use its brand name, trademark, technology, patent, copyright, or other assets.

What kind of business is Lowe's?

Lowe's, the home improvement retailer, fits this description of an international business. The firm has more than 1,800 stores in the United States plus another 40 in Canada and Mexico. Lowe's earns around 90 percent of its revenues from its U.S. operations and has no current plans to expand outside of North America. At the same time, however, many of the products it sells, such as tools and appliances, are made abroad.

What are most small businesses categorized as in the scope of international business?

Most small businesses are essentially domestic in nature; this category includes local retailers and restaurants, agricultural enterprises, and small service firms such as dry cleaners and hair salons.

Are the approaches to internationalization mutually exclusive?

Of course, we should also note that these approaches to internationalization are not mutually exclusive. Indeed, most large firms use all of them simultaneously.

What is the WTO?

The World Trade Organization, or WTO, came into existence on January 1, 1995. The WTO replaced the GATT and absorbed its mission. The WTO is headquartered in Geneva, Switzerland, and currently includes 161 member nations. Members are required to open their markets to international trade and follow WTO rules.

What is the first and in many ways still the most important of the economic communites?

The first and in many ways still the most important of these economic communities is the European Union (EU), discussed earlier.

What is the north American economic community?

The passage of NAFTA, as also noted earlier, represents perhaps the first step toward the formation of a North American economic community.

What are the two types of property ownership?

complete private ownership and complete public ownership

True or false: many countries have pure systems of private ownership or pure systems of public ownership

false: Most countries tend toward one extreme or the other, but usually a mix of public and private ownership exists.

In a mature market economy, what is the key element for managers?

freedom of choice Consumers are free to make decisions about which products they prefer to purchase, and firms are free to decide what products and services to provide. As long as both the consumer and the firm are free to decide to be in the market, then supply and demand determine which firms and which products will be available.

Why have in recent years some overseas production been moved back to the U.S?

in recent years some overseas production has been moved back to the United States because labor costs in both Mexico and China have increased to the point that when travel and shipping costs are factored in, it is almost as cheap to produce in the United States.

What are the two extremes of social orientation?

individualism and collectivism.

What is a related characteristic to economic systems of market economies that is relevant to managers?

nature of property ownership

What are some of the advantages of strategic alliances?

1. For example, they can allow quick entry into a market by taking advantage of the existing strengths of participants. 2. Strategic alliances are also an effective way to gain access to technology or raw materials. 3. And they allow the firms to share the risk and cost of the new venture.

What are some of the advantages of direct investment?

1. Managerial control is more complete, and profits do not have to be shared as they do in joint ventures. 2. Purchasing an existing organization provides additional benefits in that the human resources and organizational infrastructure (administrative facilities, plants, warehouses, and so forth) are already in place. 3. Acquisition is also a way to purchase the brand-name identification of a product. This could be particularly important if the cost of introducing a new brand is high.

What are the disadvantages of strategic alliances?

1. One major disadvantage lies with the shared ownership of joint ventures. Although it reduces the risk for each participant, it also limits the control and return that each firm can enjoy. 2. Another is political interference or intrusion in countries where the government plays an active role in international joint ventures. 3. Blending disparate corporate cultures can also be a challenge.

What are the two distinct yet related sets of challenges that managers should recognize in the global context?

1. One set of challenges must be confronted when an organization chooses to change its level of international involvement. 2. The other set of challenges occurs when the organization has achieved its desired level of international involvement and must then function effectively within that environment

What are the three basic rules of WTO?

1. To promote trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies 2. To reduce remaining trade barriers through multilateral negotiations 3. To establish impartial procedures for resolving trade disputes among its members

What are four especially important aspects of the political-legal environment of international management?

1. government stability 2. Incentives for multinational trade 3. Controls on international trade 4. The influence of economic communities on international trade

Why is having a government stability that can be viewed in both as the ability of a given government to stay in power against opposing factions in the country and as the permanence of government policies toward business preferable?

A country that is stable in both respects is preferable because managers have a higher probability of successfully predicting how government will affect their businesses

What does a country's culture include?

A country's culture includes all the values, symbols, beliefs, and language that guide behavior.

How is inflexibility a disadvantage of licensing?

A firm can tie up control of its product or expertise for a long period of time. And, if the licensee does not develop the market effectively, the licensing firm can lose profits.

What is a global business?

A global business is one that transcends national boundaries and is not committed to a single home country.

What is a joint venture?

A joint venture is a special type of strategic alliance in which the partners actually share ownership of a new enterprise.

What is a market economy?

A market economy is based on the private ownership of business, and it allows market factors such as supply and demand to determine business strategy.

What is a multinational business?

A multinational business has a worldwide marketplace from which it buys raw materials, borrows money, where it manufactures its products, and to which it subsequently sells its products.

What is power orientation?

A second important dimension is power orientation, the beliefs that people in a culture hold about the appropriateness of power and authority differences in hierarchies such as business organizations.

What are some of the advantages of importing/exporting?

An import/export operation has several advantages. For example, it is the easiest way of entering a market with a small outlay of capital. Because the products are usually sold "as is," there is no need to adapt the product to the local conditions, and little risk is involved.

What is an international economic community?

An international economic community is a set of countries that agree to markedly reduce or eliminate trade barriers among member nations.

What is collectivism?

Collectivism, the opposite of individualism, is the belief that the group comes first.

When do cultural factors cause problems?

Cultural factors do not necessarily cause problems for managers when the cultures of two countries are similar. Difficulties can arise, however, when there is little overlap between the home culture of a manager and the culture of the country in which business is to be conducted.

What are some factors that may to lead to licensing?

Factors that may lead to this decision include 1. excessive transportation costs 2. government regulations 3. home production costs.

What is one of the biggest mistakes that a manager can make?

Failure to take a global perspective is one of the biggest mistakes managers can make.

What is the type of unwanted attention is recent years as companies sought to relocate their corporate headquarters to other countries?

In both cases, though, it became clear that the motivation for moving would be to escape high U.S. business taxes, and the companies eventually succumbed to public and government pressures to maintain their U.S. headquarters.

What is power tolerance?

In contrast, people in cultures with a power tolerance orientation attach much less significance to a person's position in the hierarchy. These people are more willing to question a decision or mandate from someone at a higher level or perhaps even refuse to accept it.

In reality how do most larger MNC's manage their activities?

In reality, most larger MNCs manage some activities globally (for example, finance and manufacturing are commonly addressed globally) and others locally (human resource management and advertising are frequently handled this way).

What is one of the key components of the GATT?

One key component of the GATT was the identification of the so-called most favored nation (MFN) principle. This provision stipulates that if a country extends preferential treatment to any other nation that has signed the agreement, the same preferential treatment must be extended to all signatories of the agreement. Members can extend such treatment to nonsignatories as well, but are not required to do so.

What is the first economic system that defies classification as either mature markets or high-potential/high growth economies?

One major area that falls outside of these categories is the oil-exporting region generally called the Middle East. The oil-exporting countries present mixed models of resource allocation, property ownership, and infrastructure development.

What is one of the major reasons many firms make direct investments?

One major reason many firms make direct investments is to capitalize on lower labor costs. In other words, the goal is often to transfer production to locations where labor is cheap.

What is a quota?

Quotas are the most common form of trade restriction. A quota is a limit on the number or value of goods that can be traded.

What is a high-potential/high-growth economy?

These economies have been relatively underdeveloped and immature and, until recently, were characterized by weak industry, weak currency, and relatively poor consumers.Footnote The governments in these countries, however, have been actively working to strengthen their economies by opening their doors to foreign investment and by promoting international trade.

How does licensing increase profitability and extend profitability?

This strategy is often used for entry into less-developed countries where older technology is still acceptable and, in fact, may be state of the art. For instance, in countries with little or no wireless Internet access, dial-up modems are still the norm.

What industry has been most pronounced in the trend of overseas production being moved back to U.S?

This trend has been most pronounced in the garment industry

What must international firms entering into developing economies invest heavily in?

Thus international firms entering these markets often have to invest heavily in distribution systems, in training consumers how to use their products, and even in providing living facilities for their workers.

What is a specific company that is a global business?

Trick question: Although no business has truly achieved this level of internationalization, a few are edging closer and closer.