DE Business chapter 3Doing business in global markets

barter

(n.) an exchange in trade; (v.) to exchange goods

parent company

A company that controls or owns another company or companies.

Franchising

A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a business using a name and format developed and supported by the franchisor.

strategic alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages.

Trade Deficit (Unfavorable)

An excess of imports over exports

political economy

Close ties between politics and economics

Examples of Licensing

Coca-Cola, Tokyo Disneyland

High value of the dollar

Dollar is trading for more foreign currency; foreign goods are less expensive.

Exporting goods and services

Exporting provides a great boost to the United States economy. It's estimated every $1 billion in the United States exports generates over 7000 United States jobs

Best countries for living

Germany Canada UK US Sweden Australia Japan France Netherlands Denmark

Measuring Global Trade

In measuring global trade, nations follow 3 key indicators: balance of trade and Trade surplus, favorable and trade deficit unfavorable

What are the two main arguments favoring the expansion of US businesses into global markets

One major argument favoring the expansion of U.S. business is that the sheer size of the global market (6.9 billion people) is too large to ignore. Plus it's difficult for an economy, even one as large as the U.S. economy, to produce all the goods and services its citizens want.

Largest exporters of the world

The United States. India top trading partners. Canada and China , United Kingdom, France, Germany, Italy and Mexico are our largest exporting and trading partners

advantage of subsidiary

The company maintains complete control over any technology or expertise it may possess.

free trade

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

Major shortcoming of subsidiary

The need to commit funds and technology within foreign boundaries. If relationships falter, the firms assets could be expropriated or taken over by the foreign government. Example Nestlé has many foreign subsidiaries.

offshore sourcing advantages

There are less strategic task can be outsourced globally so that companies can focus on the areas they want to excel and grow. Outsourced work allows companies to create efficiencies that affect let them hire more workers. Consumers benefit from the lower prices generated by affective use of global resources and developing nations grow, this contributes to the feeling of global economic growth.

Home countries for some of the world's billionaires

U.S.—565 billionaires China—319 billionaires Russia—95 billionaires Germany—114 billionaires India—101 billionaires U.K.—54 billionaires Hong Kong—67 billionaires

To whom does the United States owe a substantial portion of the public debt to?

UK, (227 billion) Brazil, Saudi Arabia, Japan, China 1.245 billion)

joint venture

an agreement between two or more companies to share a business project

Embargo

an official ban on trade or other commercial activity with a particular country. Since 1962 we have had an embargo against Cuba

what kind of products can be imported and exported?

any kind of product

foreign subsidiary

directly investing in a foreign country by setting up a separate and independent production facility or office

Socio-cultural forces affect trade in a global market

Important in managing employees, must be aware of cultural differences, you need to be aware of the attitude that your culture is not superior to other cultures. Religion also plays an important part in societies culture and can have a significant impact on business operations. For example Islam prohibits eating pork and Hindus do not consume beef. This affects a relationship on what McDonald's might produce.

Cons of outsourcing

Jobs may be lost permanently and wages fall due to low cost competition offshore. After outsourcing may reduce product quality and can therefore cause permanent damage to a company's reputation. Communication among community members with suppliers and with customers becomes much more difficult. So

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

pros of free trade

1) the global market contains over 7 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

Benefits of joint ventures

1. Shared technology and risk 2. Shared marketing and management expertise 3. Entry into markets where foreign companies are often not allowed unless goods are produced locally

world population by continent

Asia 60.2% Africa 14.9% N.America 7.4% South America 6.3% Australia .5%

counter trading

A complex form of bartering in which several countries trade goods or services for other goods or services. Example of a developing country such as Jamaica wants to buy vehicles from Ford and exchange for buck side, Ford does not need box side but it needs compressors. In a countertrade Ford may trade vehicles to Jamaica which traits box out with another country like India which exchanges compressors with Ford.

Licensing

A global strategy in which a firm allows a foreign company to produce its product in exchange for a fee.

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico. And attempt to boost job growth, fight poverty, improve environmental controls and close the wage gap between Mexico and the United States, have failed. Illegal immigration remains a major problem between the two nations.

European Union members

Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK. (28 members)

BRICS

Brazil, Russia, India, China, South Africa Trade

What is comparative advantage, and what are some examples of this concept at work in the United States?

Comparative advantage theory was proposed by David Ricardo and simply states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively and efficiently. Happy Examples include the U.S. producing goods and services such as software and engineering services and buying goods, such as coffee and shoes, from other nations.

trade with other nations

Countries with abundant natural resources (like Venezuela or Iraq) need technological resources from other countries (like Japan). Global trade allows countries to produce what they make best and buy what they need from others. Free trade—The movement of goods and services among nations without political or economic barriers.

Examples of contract manufacturing

Dell, Apple, IBM, iPhone, Xbox.

Low value of the dollar

Dollar is trading for less foreign currency; foreign goods are more expensive

What terms are important in understanding world trade?

Exporting is selling products to other countries. Importing is buying products from other countries. The balance of trade is the relationship of exports to imports. The balance of payments is the balance of trade plus other money flows such as tourism and foreign aid. Dumping is selling products for less in a foreign country than in your own country. Absolute advantage

Strategies for reaching global markets

Licensing, Exporting, Franchising, Contract manufacturing, Joint venture, Strategic alliances, Foreign direct investment.

Advantages of Licensing/Franchising

Lower costs (vs. FDI) Less transportation costs Share resources from licensee/franchisee Lower production costs (vs. export)

Economic and Financial Forces

Managers must carefully analyze a nation's economic policies before selecting it as a new market or site for operations. The poor fiscal and monetary policies of a nation's central bank can cause high rates of inflation, increasing budget deficits, a depreciating currency, falling productivity levels, and flagging innovation. Such consequences typ- ically lower investor confidence and force international companies to scale back or cancel proposed investments. Currency and liquidity problems pose special challenges for international companies. Volatile currency values make it difficult for firms to predict future earnings accurately in terms of the home-country currency. Wildly fluctuating currency values also make it difficult to calcu- late how much capital a company needs for a planned investment. Unpredictable changes in currency values can also make liquidating assets more difficult because the greater uncertainty will likely reduce liquidity in capital markets—especially in countries with relatively small capital markets, such as Bangladesh and Slovakia. managers can obtain information about economic and financial conditions from institutions such as the World Bank, the International Monetary Fund, and the Asian Development Bank. Other sources of information include all types of business and economic publications and the many sources of free information on the Internet

Future of Global Trade

Opportunities grow more interesting and more challenging each day. Overall there are seven.4 billion potential customers. China has transformed the world economic map. China is the worlds largest exporter and the second largest economy. China has been the largest motor vehicle market in the United States since 2009. Many new China as a free traders dream, where global investment and entrepreneurship will lead to wealth. However there are concerns that remain about China's one party political system, human rights abuses, currency issues and urban population growth. India Russia and Brazil are also potential trading partners

What is offshore outsourcing sourcing? Why is it a major concern for the future?

Outsourcing is the purchase of goods and services from outside affirm rather than providing them from inside the company. Today more businesses are outsourcing manufacturing services offshore. Many fair that growing numbers of jobs in the United States will be lost due to offshore outsourcing and the quality products produced could be inferior. So

Business in the Global Market

Over 90% of companies doing business globally believe it is important for employees to have international experience. U.S. organizations are also expanding abroad. Importing — Buying products from another country. Exporting — Selling products to another country. The United States is the largest importing and the third-largest exporting nation in the

What are some of the forces that can discourage participation in global business?

Potential stumbling blocks to global trade include sociocultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces.

Protective tariffs

Raise the retail price of imported products so that the domestic goods are more competitively priced. Meant to save jobs for domestic workers and keep industries from closing down because of foreign competition

Dumping

Selling goods in another country below market prices Dumping is prohibited. China and Brazil have been penalized for dumping steel in the United States

Importing goods and services

Students attending schools brought tendinitis products that they're used to are unavailable in their new country. working with producers and native countries, some importers become while still in school

How are a nations balance of trade in balance of payments determined?

The balance of trade is the difference in the total value of a nation's exports compared to its imports. The balance of payments is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

What is the theory of comparative advantage?

The theory of comparative advantage contends that a country should make and then sell those products it produces most efficiently but buy those it cannot produce as efficiently.

balance of trade

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

comparitive advantage

Theory that shows that even if a country or entity has no absolute advantage in producing any good, it can still benefit by exporting the products by which it has the lowest opportunity cost of production.

multinational corporation

When the manufacturers in markets products in many different countries and has multinational stock ownership and management. Usually are extremely large corporations like Nestlé, but not all or large global businesses are multi nationals. For example a corporation could export everything it produces.

foreign subsidiary

a company owned in a foreign country by another company, called the parent company

common market (trading bloc)

a group of countries that acts as a single market, without trade barriers between member countries Examples are the European Union,

import quota

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

World Trade Organization (WTO)

a permanent global institution to promote international trade and to settle international trade disputes

Floating exchange rates

a system in which prices of different currencies move up and down based on the demand for and the supply of each currency

Importing

buying products from another country

Physical and environmental forces

can impact a company's ability to conduct business in global markets--technological constraints may make it difficult or perhaps impossible to build a large global market--technological differences affect the nature of exportable products (ex: houses in most developing countries dont have electrical systems that match the ones in the US)--computer and internet usage in many developing countries is thin or nonexistent (make e-commerce difficult or impossible)

Making Ethical Decisions

identify the problem, review relevant codes and laws, seek consultation, brainstorm, list consequences, decide and document reasons for your actions.

Legal and regulatory forces

laws that protect consumers and competition and government regulations that affect marketing

Devaluation

lowering the value of a nation's currency relative to other currencies

Why should nations trade with other nations?

no country is self-sufficient, other countries need products that propersous countries can provide, natural resources and technological skills are not distributed evenly around the world

nontariff barriers

nontax methods of increasing the cost or reducing the volume of imported goods For example Indian poses a number of restrictive standards like imported licensing, burdensome product testing requirements and lengthy customs procedures that inhibit the sale of imported product. China admits many American made products from its government catalogs that specify what products may be purchased by its huge government sector.

indirect exporting

practice by which a company sells its products to intermediaries who then resell to buyers in a target market Work with specialist called export trading companies that Assist and negotiating in establishing trade relationships.

contract manufacturing

private label manufacturing by a foreign company. The foreign company produces a certain volume of products to specification, with the domestic firm's brand name on the goods.

Revenue tariffs are designed to

raise money for the government

World Population Growth

rate of natural increase

Exporting

selling products to another country

best countries for doing business

sweden, new zealand, hong kong, ireland, United kingdom, denmark, netherlands, finland, norway, canada

absolute advantage

the ability to produce a specific product/good using fewer inputs than another producer today there are very few instances of this

Ethnocentricity

the belief in the inherent superiority of one's own group and culture

Foreign Direct Investment (FDI)

the buying of permanent property and businesses in foreign nations The most common form of FBI is a foreign subsidiary

trade protectionism

the use of government regulations to limit the import of goods and services Advocates of protection as I believe it allows domestic producers to survive and grow, producing more jobs.

Central American Free Trade Agreement (CAFTA)

trade agreement designed to reduce tariff barriers between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States

Trade Surplus (Favorable)

when a country exports more than it imports