Intro to Business (3)

The definition of ________ ________ _______ states: The buying of permanent properties or business in foreign nations

Foreign Direct Investment

The possibility of having all foreign assets expropriated is the major shortcoming of what strategy?

Foreign Direct Investment

A company in another country that is owned by a US company would be an example of a:

Foreign Subsidiary

The two indicators nations rely on to measure global trade are balance of ________ and balance of ________.

Trade, payments

Which of the following are negative effects associated with the establishment of NAFTA?

US manufacturing jobs were lost, safety conditions for workers in mexico continue to be poor

What kinds of products can be imported and exported?

any product can be imported or exported

Global trade is measured using two key indicators known as the:

balance of payments, balance of trade

Advantages of doing business globally include:

bringing ides for businesses in other countries to new markets, finding financing for a new business in other countries

Importing

buying products from another country

Advantage of offshore outsourcing for companies

company focuses on core areas

A foreign country's production of private-label goods to which a domestic company then attaches its brand name or trade mark is called

contract manufacturing

The United States has had a trade _______ since 1975 when it first started importing more products than it exported

deficit

U.S. laws against ___ are specific. To keep domestic products to include 10 percent for overhead costs and 8 percent for profit

dumping

What was the primary benefit of the European Union of adopting the euro in 1999?

eliminating currency conversions

The balance of trade is the total value of a nation's ________ compared to its _________ over a particular period of time

exports, imports

A subsidiary must observe the legal requirements of both the country where the parent firm is located, called the _______ country, and the foreign country where the subsidiary is located, called the ______ country.

home, host

Benefits of International Joint Ventures are:

shared technology and risk, shared marketing and management expertise, entry into markets where foreign companies are often not allowed unless goods are produced locally.

Disadvantage of offshore outsourcing for employees

some jobs are permanently lost and wages fall

Investment funds controlled by government holding large stakes in foreign companies are called:

sovereign wealth funds

A foreign subsidiary operates like a normal domestic firm, with production, distribution, promotion, pricing, and other business functions under the control of the:

subsidiary's management

Absolute Advantage

the advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Balance of Payments

the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment

Free Trade

the movement of goods and services among nations without political or economic barriers

Trade Protectionism

the use of government regulations to limit the import of goods and services

Which of the following are changes induced by NAFTA?

the value of US exports to NAFTA partners has increased, the trade volume among the United States, Canada, and Mexico more than tripled.

Licensing

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (royalty)

Common Market

A regional group of countries that have a common external tariff, not internal tariffs, and a coordination of laws to facilitate exchange, also called a trading bloc. An example is the European Union

The benefits associated with strategic alliances is that they provide broad access to: a. technical expertise b. markets c. shared managerial expertise d. capital

A, B, D

Which of the following are considered benefits of contract manufacturing? a. labor costs in foreign market may be lower than the labor costs in the firm's host country b. it enables a producer or business to experiment in a new market without incurring heavy start-up costs c. shared risks and profits between the firm and the manufacturer d. it can be used to temporarily meet an unexpected increase in orders

A, B, D

Which of the following are common markets? a. EU b. ASEAN C. FTAA D. WTO E. Mercosur

A, B, E

Which of the following are disadvantages of international joint ventures? a. the joint venture may become too large and inflexible b. shared marketing expertise c. shared technology may become obsolete d. access to markets where goods and services must be produced locally

A, C

Which of the following are functions of export trading (or export management companies) that assist companies engaged in indirect exporting? a. assistance is establishing trading relationships b. provide manufacturing support c. match buyers and sellers d. help with foreign customs offices

A, C, D

The_____________ Economic Community was established in 1967 in Thailand to create economic cooperation among its five original members (Indonesia, Malaysia, Phillipines, Singapore, and Thailand.

ASEAN

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico

Trade Deficit

An unfavorable balance of trade; occurs when the value of a country's imports exceeds that of its exports

Which of the following situations where working with an export-trading company, or export-management company would be helpful? a. when exports exceed imports b. when the culture and governmental policies of the foreign markets are unfamiliar c. when a business requires trade finance support from the government d. when a business is involved in a country with a similar language and culture

B

A common market, also called a trading bloc, is a regional group of countries with: a. no laws to facilitate trade b. no internal tariffs c. a common external tariff d. a restriction of trade among member

B, C

Culture can include which of the following: a. financial status b. religion c. values and attitudes d. language

B, C, D

Which country does the United States have the highest trade deficit with?

China

Disadvantages of offshore outsourcing for companies

Communication becomes difficult

Which countries are members of the Central American Free Trade Agreement?

Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua

The use of outsourcing is primarily designed to reduce _________ for the business that is implementing this strategy.

Costs

Contract manufacturing falls under the broad category of:

Outsourcing

A foreign subsidiary is a foreign company owned in a foreign country by a _________ company.

Parent

Advantages of offshore outsourcing for employees

realized efficiencies allow for new hiring

When Electra decided to product its "pedal-assist" motor bike it had to adhere to speed regulations. The company found out that safety regulations differ greatly among various countries and it opted to use the US standard which calls for a lower speed motor. This is an example of how _____ forces can affect global trade.

regulatory

Dumping

selling products in a foreign country at lower prices than those charged in the producing country

Exporting

selling products to another country

Countertrading

A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services

Why should nations trade with other nations?

1) No country is self-sufficient 2) Other countries need products that prosperous countries produce 3) Natural resources and technological skills are not distributed evenly around the world

Cons of Free Trade

1) domestic workers (particularly in manufacturing based jobs) can lose their jobs due to increased imports or productions shifts to low-wage global markets 2) workers may be forced to accept pay cuts from employers, who can threaten to move their jobs to lower-cost global markets 3) moving operations overseas because of intense competitive pressure often means the loss of service jobs and growing numbers of white-collar jobs 4) domestic companies can lose their comparative advantage when competitors build advanced production operations in low-wage countries

NAFTA Key Objectives

1) eliminate trade barriers and facilitate cross border movement of goods and services 2) promote conditions of fair competition 3) increase investment opportunities 4) provide effective protection and enforcement of intellectual property rights 5) establish a framework for further regional trade cooperation 6) improve working conditions in North America, particularly in Mexico

Pros of Free Trade

1) the global market contains over 6 billion potential customers for goods and services 2) productivity grows when countries produce goods and services in which they have a comparative advantage 3) global competition and less-costly imports keep prices down, so inflation does not curtail economic growth 3) free trade inspires innovation for new products and keeps firms competitively challenged 4) uninterrupted flow of capital gives countries access to foreign investments, which help keep interest rates low

Which of the following are likely benefits to suppliers of exporting?

Increased number of potential customers, increased sales and revenues

One drawback of an international _______________ is that one partner can learn the other's technology and business practices and then use what it has learned to its own advantage.

Joint Venture

The definition of ________ _________ states: a partnership in which two or more companies, often from different countries, join to undertake a major project.

Joint Venture

A _________ __________ shares profits and losses, while a ________ _________ is a long term partnership that does not.

Joint Venture, Strategic Alliance

What is the global strategy in which a firm allows a foreign company to produce its product in exchange for a fee?

Licensing

Least to Most Amount of Commitment, Control, Risk and Profit Potential

Licensing, Exporting, Franchising, Contract Manufacturing, International Joint Ventures and Strategic Alliances, Foreign Direct Investment

A widely debated issue of the early 1990s was the ratification of the _____ ______ ______ ______ Agreement, which created a free-trade area among the United States, Mexico, and Canada.

North American Free Trade

Export Assistance Centers provide hands-on exporting assistance and trade-finance support for _______ and _______ sized businesses

Small, medium

World Trade Organization

The international organization that replaced the General Agreement on Tariffs and Trade and was assigned the duty to mediate trade disputes among nation

Balance of Trade

The total value of a nations exports compared to its imports over a particular period

How is it possible for the United States to exhibit a trade deficit while being one of the largest exporting nations in the world?

The value of the goods the United States imports is higher than the value of the goods it exports

This organization was created to provide more trade agreements between countries and solve trade disputes if/when they arise.

WTO

General Agreement on Tariffs and Trade (GATT)

a 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions

Embargo

a complete ban on the import or export of a certain product or the stopping of all trade with a particular country

Trade Surplus

a favorable balance of trade;occurs when the value of a country's exports exceeds that of its imports

Import Quota

a limit on the number of products in certain categories that a nation can import

Tariff

a tax imposed on imports

Which of the following are considered licensors' benefits of licensing? a. The foreign licensee purchases items (start-up and/or supplies) from the licensor b. Gaining new revenues c. Licensors must grant licensing rights for extended periods of time d. Licensors spend little or no money to produce products

a,b,d

Advantages of offshore outsourcing for customers

lower prices

The outcome of FDI is a foreign subsidiary, a company located in a foreign country that is owned by another company, called the

parent company

For a firm to be considered a multinational corporation it must have a

physical presence in several different nations

Disadvantages of offshore outsourcing for customers

poor quality

Comparative Advantage Theory

theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently

By buying more than it has sold, making the value of its exports less than its imports, the United States faces a

trade deficit