Global Business FVC1 Pre-Assessment
caveat emptor
"buyer beware"; involves placing the burden of determining product safety on consumers
caveat venditor
"seller beware"; involves placing on manufacturers or sellers of products the burden of making sure products are safe or at least clearly and explicitly warning consumers about the potential safety risks of said products
Which aspects of economic geography affect international trade?
1. Advantage of location 2. Reduced specialization of products
What are two short term effects of currency movement?
1. Translation risk 2. Transaction risk
attitudes
Feelings or opinions
What is a component of the forward market?
Forward rates
A parent firm provides startup cost, promotional materials, and pricing to its subsidiary firm. Which strategy is this firm using for entering emerging markets?
Franchising
Which source of funds to financing international trade and investment is the international Monetary Fund (IMF) a part of?
Government financing
Bank of International Cooperation (JBIC)
Japanese bank that supports exporters around the world that have at least 30 percent Japanese content
What is one argument against globalization?
Jobs will be lost
Which regional bloc is dedicated to South America?
MERSCOSUR
Which risk occurs with a change in political governance?
Macropolitical
economic and monetary union
a union formed when members of a common market agree to implement common social programs (on education, employee benefits and retraining, health care, etc.) and coordinated macroeconomic policies (such as fiscal and monetary policies) that would lead to the creation of a single regional currency and a regional apex central bank
What is an economic ideology in which the government or state plays a strong role in the economy, may own stakes in certain businesses, but does NOT aspire o be classless?
Socialism
multi-polar world
a world economy in which the engines of growth could comprise several major industrialized and emerging market economies such as the United States, the European Union, China, India, Brazil, Russia, and South Africa rather than the United States alone
mission statement
a written statement of why a company exists and what it plans to accomplish
mark to market accounting
accounting practices that update the value of an asset to its current market levels
integrity
adherence to moral and ethical principles; soundness of moral character; honesty. As a practical matter, a person of integrity knows what is right and has the courage to do it
freight forwarder
agents for companies shipping products overseas who are chiefly involved with physical distribution activities and documentation
countertrade
agreement in which an exporter of goods or services to another country commits to import goods or services of corresponding value from that country
managed trade
agreements, sometimes temporary, between countries (or a group of countries) that aim at achieving certain trade outcomes
supply chain
all activities associated with the flow and transformation of goods and services from the raw material stage to the end user, together with the corresponding flows of monetary funds and information
international business
all commercial transactions, both private and public between nations of the world
trade policy
all government actions that seek to alter the size of merchandise and/or service flows from and to a country
currency swaps
allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements
import quotas
also known as Quantitative Restrictions (QRs are regulations that limit the amount or number of units of products that can be imported to a country
most favored nation (MFN)
an agreement among WTO countries in which any tariff concession granted by one member to any other country will automatically be extended to all other countries of WTO
strategic alliances
an agreement between two or more firms that do not involve the creation of a separate entity with joint ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given period of time
generalized system of preferences (GSP)
an agreement where a large number of developed countries permit duty-free imports of a selected list of products that originate from specific countries
arbitration
an alternative dispute resolution process whereby the parties designate a neutral private person or group of persons to hear and decide the case
free-trade area
an area in which two or more countries agree to eliminate all barriers to trade such as tariffs, quotas, and non-tariff barriers like border restrictions, while at the same time keeping their own external tariffs (within WTO guidelines) against nonmembers
international CAPM (ICAPM)
an asset pricing model that includes both domestic and global market factors to estimate the cost of equity or required rate of return on stocks
socialism
an economic ideology in which the government plays a strong role in the economy and may own stakes in certain businesses
capitalism
an economic ideology where businesses are privately owned, strong individual incentives exist, and the government plays very little role in the economy
communism
an economic ideology whereby the government or state owns and controls all major factors of production and is philosophically an economically classless society
preferential duties
an especially advantageous or low import tariff established by a nation for all or some goods of certain countries and not applied to the same goods of other countries
financial statement analysis
an evaluation of a company's financial statements in order to identify significant trends or relationships among the items
sensitivity analysis
an examination of optimistic, expected, and pessimistic scenarios to give a more complete picture of the risks and returns of investments abroad
specific tariff
an import tax that assigns a fixed dollar amount per physical unit
inflation
an increase in the prices of goods and services caused by the supply of money exceeding the demand for goods and services
International Accounting Standards Board (IASB)
an independent, privately funded accounting standard-setter based in London, U.K., that issues International Financial Reporting Standards
plain vanilla currency swap
an interest rate swap, often combined with a currency swap, if the interest being swapped is in different currencies
call option
an investor's right (but not obligation) to buy an asset (e.g., a currency) at a pre-determined price
put option
an investor's right (but not obligation) to sell an asset (e.g., a currency) at a pre-determined price
divisional structure
an organizational structure in which functions are grouped together to serve the needs of products, markets, or geographical regions
matrix structure
an organizational structure in which people are grouped simultaneously by function and by division
functional structure
an organizational structure that groups people together because they hold similar positions in a company, perform similar tasks, or use the same kinds of skills
empowerment
aspect of customer service that allows employees to take care of customer problems immediately, without having to consult superiors
speculators
attempts in currencies and currency derivatives to earn profits from trading them and help to make prices efficient
term financing
bank and government loans to importers to cover the cost of major purchases
trade finance
bank and government loans used by exporters to finance working capital (i.e., labor, materials, inventory, and accounts receivables)
values
basic beliefs or philosophies that are pervasive in a society
foreign bonds
bonds that are issued by foreign firms in another country in the home currency of that country
eurobonds
bonds that are sold in any country outside the home country, but in the home country's currency
Which of the following best illustrates a function of generally accepted accounting principles?
Supplying domestic, publicly traded Company B with guidance in preparing financial statements
Which example is considered a primary source that can be used to learn about foreign countries' cultures?
Talking to employees who have lived or abroad
What is the goal of the International Accounting Standards Board? (IASB)
To achieve globally recognized or harmonized standards of accounting and reporting
Why is intellectual property protection critical in today's global business environment?
To continue encouraging innovation, creativity and investment
What is the goal of corporate social responsibility?
To create a balance between private profits and public goods
What is the primary intention when multinational enterprises (MNEs) invest internationally?
To diversify their workplace
What might government entities use tax revenue generated by foreign direct investment IFDIs) for?
To reduce poverty
Why may companies outsource?
To take advantage of lower wages
What is needed when a U.S. company sends an employee to work in a foreign country for several years?
Training i the foreign language
What helps make globalization sustainable?
Transparency in government policy
Mr. Chavez banned U.S oil company operations in Venezuela. Which cost of foreign direct investment (FDI) is this an example of?
Unfair political interference
Which issues are associated with expatriate compensation?
Variability in taxes between countries
What is NOT an issue for a business considering outsourcing and offshoring?
Wage equality concerns
What should a smart company do regarding customer complaints to improve the company's customer service in the future?
Welcome customer complaint to use as feedback
private corruption
business corruption involving other private businesses, individuals, or groups
long position
buying a currency in a currency futures contract and profiting on an increase in the value of the currency over time
arbitrage
buying goods in a lower priced market and selling them in a higher priced market to make profits
special drawing right (SDR)
a basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund (IMF) for use as a benchmark to value the currencies of different countries
division
a business subunit that consists of a collection of functions or departments that share responsibility for producing a particular product or service
diversification
buying securities in a portfolio with price patterns over time that are different from one another, which reduces the volatility of the portfolio
direct strategy
bypassing channels of distribution by using marketing and sales offices located in foreign countries
big mac index
calculation using the cost of a McDonald's restaurant sandwich to assess the relative values of currencies
guanxi
chinese philosophy denoting friendships among unequals and unlimited exchanges of favors; it is not based on sentiment, emotions, or a group orientation
telecommunication networks
collections of computer hardware and software arranged to transmit information from one place to another
financial account
consists of domestic-country-owned assets abroad, foreign-owned assets in the domestic country, and net financial derivatives
international joint venture
a business that is jointly owned and operated by two or more firms (usually one from the host country and the other from another country) that pool their resources (labor, capital, technology, and management) to penetrate host country markets, generate and split profits, and share commercial risk
distributor
a channel of distribution that purchases products from a company doing business in a foreign market and then resells them to other buyers
agent
a channel of distribution that represents a company in a foreign market and is paid by commission
hybrid structure
a combination of different organizational structures
hollow corporation
a company that only completes product design and outsources all other production process functions
corporate social responsibility (CSR)
a company's obligations to society, including the welfare of people and places affected by company activities
collective bargaining agreement
a contract comprehensively setting forth employee terms and conditions of employment at a given workplace or group of workplaces
product life cycle (PLC)
a depiction of the sales and profits for a new product over its life time
material culture
a direct result of technology; best demonstrated by economic, social, financial, and marketing infrastructures
trademark
a distinctive phrase, name, word, picture, symbol or design, or combination of these, that identifies a given business' service or product and is owned by said business
labor union
a formal organization representing a group or groups of employees
product elimination
a formal, written procedure to determine which of a company's products should be dropped
decoupling
a fundamental global shift in which industrialized country-dependent developing economies begin to grow based on their own underlying economic strengths rather than the ups and downs of the world's richest countries
foreign exchange markets
a global network of international banks and currency traders that trade different countries' currencies
syndicate
a group of banks that collectively make a loan to a firm
export cartel
a group of countries that could effectively control export volume to keep their export prices, revenues, and economic growth stable or high
customs union
a group of free trade member countries that have adopted a common external tariff with nonmember countries
civil law legal system
a legal system based on a comprehensive listing of legal rules in sets of written codes of law
theocratic law legal system
a legal system based on a religious document and religious teachings
common law legal system
a legal system where legislative bodies generally enact less specific legal rules giving judges or courts considerable authority in interpreting these rules based on precedent and other factors
emerging market economies
countries that are implementing more open trade and free-market policies
tax haven countries
countries with little or no tax transparency
What is one factor that distinguishes market intelligence systems from marketing research?
Collecting information regularly over time
common market or single market
a market formed when member countries of a customs union remove all barriers to allow the movement of capital and labor within the customs union
beta risk
a measurement of the general market risk of a stock in the Capital Asset Pricing Model (CAPM)
verbal communication
a message's actual contents (i.e. what the message says)
export subsidy
a negative tariff or tax aimed at boosting exports
stateless corporation
a new phase in the evolution of the multinational corporation, where work is sourced wherever it is most efficient and the corporation transcends nationality altogether
voluntary export restraint (VER)
a non-tariff barrier in which an efficient exporting nation agrees to limit exports of a product to another country for a temporary period
macropolitical risk
a political risk that essentially affects all businesses in a given country
micropolitical risk
a political risk that only affects a certain industry or set of firms in a given country
transfer price
a price a company charges its overseas subsidiaries
dumping
a price in a foreign market that undercuts the prices of companies competing there
arms length price
a price that an overseas market is willing to pay
global product
a product that can be sold in most world markets
manufacturing system
a production system in which goods dominate the value of the product
service system
a production system in which services dominate the value of the product
multi-currency
a property of ERP systems to handle multiple currencies
multi-national
a property of ERP systems to handle the accounting standards of multiple countries
multi-language
a property of ERP systems to simultaneously operate in multiple languages
athenian democracy
a pure form of democracy, in which all adult citizens vote directly on matters affecting the community
export-import business
a relatively low-risk business operation that involves penetrating foreign markets (by exporting) or importing merchandise (of all kinds) at competitive prices for domestic consumption
Corruption Perceptions Index (CPI)
a report published each year by Transparency International, providing metrics to the potential corruption risk for 180 countries
International Financial Reporting Standards (IFRS)
a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements
open account
a simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon the receipt
corruption
a situation where businesses are able to illegally alter relevant private and/or public decision making by way of bribes, kickbacks, blackmail, extortion, and related activities
market structure
a special case of the divisional structure where products are grouped into separate divisions according to the needs of different customers
geographical region structure,
a special case of the divisional structure where products are grouped into separate divisions according to the needs of the different geographical regions the company serves
product structure
a special case of the divisional structure where products are grouped into separate divisions according to their similarities or differences
balance of payments (BOP)
a statement of account that shows all transactions between the residents of one country and the rest of the world for a given period of time
capital markets
a stock exchange where longterm financial instruments such as stocks and bonds can be bought and sold
exchange rate sensitivity
a stock value measured with the coefficient obtained by regressing the stock's return on a currency's return over time
transparency
a system of full disclosure and openness that aims to avoid any semblance of corruption and cronyism
accountability
a system of responsibility in which an authority, such as the government, is answerable for its actions
internal controls
a system of rules and procedures designed to ensure the accuracy and reliability of financial and accounting information
accounting information system (AIS)
a system which has two principal objectives: (1) to provide all the financial information needed internally by management for business decision making, known as management accounting, and (2) to provide financial information to various external users concerned with the financial activities of the organization, known as financial accounting
ad valorem tariff
a tax on imports levied as a constant percentage of the monetary value of one unit of the imported good
mercantilism
a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade surplus
organization
a tool that people use to coordinate their actions to obtain something they seek or value
genericized trademark
a trademark that has become so well known or colloquial that it now describes a general class of product or service, as opposed to a specific product or service as intended by the trademark's owner
Ponzi scheme
a type of fraud, also called a pyramid scheme, in which money received from later investors is used to provide returns to earlier investors, thus giving an appearance of a profitable investment
democracy
greek for "rule by the people"; form of government in which all citizens have the right to vote
reference groups
groups that are important to individuals
achievement vs. ascription
how rewards in a society are handed out: performance vs. place in society
transactions risk
how short-term changes in exchange rates can affect operating costs and revenues of firms engaged in international business activities
regional integration
implementation of a multitude of economic and/or political steps by member states to increase their global competitiveness, including preferential trade access
discount
in the forward market, the selling of a currency at a spot rate that is less than the forward rate
premium
in the forward market, the selling of a currency at a spot rate that is more than the forward rate
intermodal transport
international shipments using different modes of transportation
home bias
investing most of retirement and other savings in one's home country, which reduces diversification
litigation
involves bringing a dispute to a publicly or governmentally run court of law for resolution
output controls and measurement
involves establishing specific goals on given metrics and then measuring to what extent these goals are being achieved at certain time intervals
interpersonal controls
involves executives engaging in personal contact with subordinates as a way of managing an organization
organizational change
involves implementation of a different business or cultural path for an organization
offshoring
involves the process of transferring an organizational function to another country whether outsourced or not
terrorism
involves unlawful arts or violence threatening the physical safety of others
balance sheet approach
keeping an employee on the home country's salary structure and also providing additional allowances
explicit knowledge
knowledge that is codifiable and easy to communicate or write down
tacit knowledge
knowledge that is informal in nature and difficult to communicate
inwa
korean philosophy stressing harmony among unequals, loyalty to parents and authority figures, and superiors being responsible for the well-being of subordinates
money center banks
large global banks
criminal law
law that establishes which violations of a nation's laws are crimes punishable by possible incarceration
antitrust laws
laws to promote "fair competition" among businesses
hard currencies
leading world currencies of developed industrialized countries, including the U.S. dollar, European euro, Japanese yen, and British pound sterling
culture
learned behavior; a way of life for one group of people living in a single, related, and independent community
antitrust laws
national laws aimed at maintaining competition in all sectors of the economy and preventing monopolistic behavior of firms
multi-employer bargaining
negotiations in which a number of employers jointly bargain with a given labor union
subsidiaries
new facilities built and operated overseas that require large investment of capital because these new establishments are tailored to the exact needs of the home country firm
tactical plans
one to three year plans formulated for implementing strategic goals
intellectual property
property that is the product of intellectual rather than physical activity
training
providing employees with skills specific to the job they are going to be doing
acquisition
purchase of established firms abroad with the goal of using the existing production, marketing, and distribution networks and of having instant access to foreign markets that fit the purchasing firm's global strategy
statistical discrepancy
reconciles any imbalance between the current account and financial account to ensure that all debit and credit entries in the balance of payments statement sum to zero
domestic content provisions
regulations requiring that a certain percentage of the value of import be sourced domestically
short position
selling a currency in a currency futures contract and profiting on a decrease in the value of the currency over time
containerization
shipping products to overseas markets in trailer-sized containers
monopoly
situation where there is only a single seller of a product in an industry and there are very high barriers to enter this industry
margin
small commitment fee needed to purchase a futures contract
enterprise resource planning (ERP) systems
software packages designed to integrate the majority of a firm's business processes, execute all transactions related to the firm's business processes being integrated, store each piece of data only once in an enterprise-wide database, allow access to data and information in real time, and operate in a client-server environment, traditional or web-based
currency futures contracts
standardized agreements to buy or sell a specified amount of currency at a date in the future at a pre-determined price
statement of cash flows
statement showing the company's inflows and outflows of cash
balance sheet
statement that lists the balances of the asset, liability, and owners' equity accounts of a business on a specific date
statement of retained earnings
statement that shows the beginning balance for retained earnings, additions and reductions to retained earnings, and the ending balance of retained earnings
income statement
statement that summarizes the revenues earned and the expenses incurred by a business over a period of time
current account
the activities of consumers and businesses in the economy with respect to the trade balance, services balance, income balance, and net transfers
risk premium
the added return required by investors for risk associated with a security or asset
bandwidth
the amount of data and other information that can be transferred in a second via the Internet
tax law
the body of law dealing with governmental levying of taxes on individuals and corporations
contract law
the body of law governing legally enforceable agreements between parties to engage in economic exchange
ethics
the branch of philosophy that addresses the values pertaining to human behavior, with regard to the "rightness" and "wrongness" of actions and to the "goodness" and "badness" of the intent and results of such actions
financial accounting
the component of the accounting information system that provides financial information needed by external users such as investors and lenders
management accounting
the component of the accounting information system that provides the financial information needed internally by business managers for efficient (timely) and effective (correct) decision-making
outsourcing
the corporate practice of acquiring or producing quality goods or services abroad at a lower cost thereby eliminating domestic production
specific vs. diffuse
the degree to which a society compartmentalizes roles
bid-ask spread
the difference between bid and ask prices of a currency; the transaction fee earned by the bank
net present value
the difference between present value of futures profits on an investment project minus the initial investment cost
copyright
the exclusive legal right that authors, playwrights, publishers, artists, and composers have to publish and disseminate their work as they see fit
time orientation
the extent to which a society emphasizes short-run or long-run time horizons
neutral vs. emotional
the extent to which a society expresses itself emotionally
masculine vs. feminine
the extent to which a society minimizes gender inequality
social stratification
the extent to which groups at the top of the social pyramid exert control over others at lower levels of the pyramid
uncertainty avoidance
the extent to which societies tolerate risk or are risk averse
organizational structure
the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals
exchange rate risk
the impact of random change in the value of one currency with respect to other currencies
universalism vs. particularism
the importance of rules versus relationships
consolidated accounting statements
the income statements and balance sheets of multinational corporations and of all subsidiaries abroad due to home country tax requirements
commercialization
the last step in the new-product development process in which the new product is manufactured, the marketing mix is finalized, and the product is introduced to the foreign market
dispute settlement law
the law governing how disputes arising in the conduct of global business are settled
product safety law
the law which establishes the standards of product safety to which the manufacturers and sellers of products are to be held
power distance
the level of egalitarianism (equality) in a society
internetworking
the linking of separate networks into an interconnected network, where each network retains its own identity
supply-chain management
the management of all activities in the supply chain, in order to minimize the total cost of the supply chain, and to maximize the value of the product to the end user
operations management
the management of the direct resources that are involved in the production system of a business organization
glocalization
the marketing strategy which involves pursuing a standardization strategy in foreign markets when possible and an adaptation one when necessary
services balance
the net of exports of services and imports of services
income balance
the net of investment income from abroad and investment payments to foreigners
balance of transfers
the net of transfer payments going overseas and inflows from abroad
over-the-counter (OTC) market
derivatives market run by large banks
governance
describes how countries exercise authority and how efficiently they deliver basic infrastructure services like water, sanitation, roads, electricity, security, and the like for public as well as private firms
location decision
determining if products made in-house will be produced in one or more facilities, and if these facilities should be located in one or more countries
make-or-buy decision
determining which components and raw materials should be produced in-house and which components and raw materials should be acquired from suppliers; also called the sourcing decision
reverse strategy
development of a new product first for emerging markets then selling it to developed markets
sustainable development
economic development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs, whether environmentally, socially, or economically
economic reforms
economic policy changes that promote private sector development, competitive markets, market-pricing, freer trade, and deregulation
soft currencies
emerging market countries' currencies that are less stable in value than hard currencies and are sometimes pegged to hard currency values
co-determination
employee representation on corporate boards of directors
third country nationals
employees from a new parent or host country who are being employed in a given foreign country
parent country nationals
employees from the home countries who are sent to work for their companies overseas
expatriates
employees who are working in countries other than their native countries
foreign direct investment (FDI)
encompasses purchases of fixed assets (such as factories and equipment) abroad used in the manufacture and sales of goods and services
factors of production
endowments used to produce goods and services: land (quantity, quality, and mineral resources beneath it), labor (quantity and skills), capital (cost), and technology (quality)
forward market
exchange that enables purchases and sales of currencies in the future with prices (or the forward rate) established at a previous time
spot market
exchange that trades currencies on a real-time basis for immediate delivery
product life cycle theory
explains what happens to a product's revenue and profits at the different stages-introduction, growth, maturity, and decline—before the product is discontinued
Workers from Poland are free to work in the United Kingdom to fill shortages there. What is this scenario an example of?
factor price equalization theory
International Monetary Fund (IMF)
financial authority established under the Bretton Woods Agreement in 1944 to help ensure the stability of the international monetary and financial system
multinational enterprises (MNEs)
firms that are headquartered in one country, but own and control manufacturing, services, R&D (research and development) facilities, or other business entities on foreign soil
representative democracy
form of government in which citizens vote to elect given individuals to serve as their representatives for a certain period of time
currency forward contracts
futures contracts available in currencies of emerging-market countries by large banks in the OTC market
marked-to-market
futures contracts in which gains (losses) are earned (paid) in cash at the end of each trading day
components
goods and services that integrate a product
adaptive institutions
government organizations that create strong incentives for private investment and operate under a system of checks and balances
digital divide
the perceived economic gap between countries or people with easy access to digital and information technology (and its benefits) and those with very limited access, or none at all
sales potential
the percentage of a market potential that a specific company expects to sell in a specific international market
share of wallet
the percentage of purchases in a category a buyer gives to one vendor
digital era
the period of transformation that adjusts lifestyles to make the Internet and wireless technologies a part of everyday life
organizational culture
the personality of a given organization, its shared norms, and values
risk profile
the potential financial loss that entrepreneurs are willing to take in a business
licensing
the practice in which a company or individual provides the foreign partner with the technology (patented technology, copyright, process, trademark, etc.) to manufacture and sell products or services in a target country for an annual license fee
franchising
the practice in which the parent firm is obligated to provide specialized equipment and/or service (e.g., product specification and adaptation, pricing, promotion, and distribution strategies), and sometimes to fund some startup costs, to franchisees in return for an annual fee
public corruption
the practice of making illegal payments to government officials or engaging in blackmail, extortion or other related activities to obtain government contracts or governmental approval for business activities
dollarization
the practice of using the dollar or some other foreign currency together with, or instead of, a domestic currency in a country
forward rate
the price at an earlier time of a currency in terms of another currency established for future delivery in the forward market
exchange rate
the price at which one currency can be converted to another currency
premium
the price paid by the buyer to the seller for an option contract
generally accepted accounting principles (GAAP)
the principles by which financial statements are prepared
outsourcing
the process of a company subcontracting a certain production function to a third party
spatial transformations
the process of allowing efficient geographic distribution of business activities within and among countries
performance appraisal
the process of assessing employee performance
indirect quotes
the reciprocal of the direct quote, or the prices of a dollar (for example) in foreign currency terms
accounting
the recording, summarizing, and reporting of the economic activities and events of an organization
financial ratio
the relationship of a number on the financial statements to another number
cost of equity
the required rate of return by stockholders in a firm and is estimated by means of the Capital Asset Pricing Model (CAPM)
cost of capital
the required rate of return demanded by stock and bond investors and is used in net present value capital budgeting analyses as the discount rate
patent
the right granted to the inventor of a product or process that excludes others from selling, making, or using the invention for a certain period of time
economic risks
the risks that economic problems or mismanagement in a given country will have a meaningful negative impact upon the conduct of business in that country
political risks
the risks that political forces or problems in a given country will have a meaningful negative impact upon the conduct of business in that country
institutions
the rules, enforcement mechanisms, and organizations that support market transactions
payment in advance
the safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods
exchange risk beta
the sensitivity of a stock to market risk affected by currency movements
translation risk
the short-term effects of currency movements on the consolidated accounting statements of a firm
production facility
the site where production takes place
globalization
the socio-economic reform process of eliminating trade, investment, cultural, information technology, and political barriers across countries, which in turn can lead to increased economic growth and geo-political integration and interdependence among nations of the world
business analysis
the step in the new product development process in which projections of potential revenues and profits for a potential new product are made
market testing
the step in the new-product development process in which a company will develop the marketing mix for a new product
concept testing
the step in the new-product development process in which the new product idea is presented to a small sample of the international market to gauge its reaction
economic geography
the study of principles that govern the efficient spatial allocation of economic resources and the resulting consequences
weighted average cost of capital
the sum of the costs of equity and debt weighted by the amount of financing from these two capital sources
international monetary system
the system of exchange rates and international payments that enables countries and their citizens to purchase goods and services from one other
production system
the system that businesses use to produce products
market potential
the total number of units of a product that could possibly be sold by all companies doing business in a specific international market
organized exchanges
the trading of futures contracts in major currencies and offering price transparency and efficiency in addition to elimination of counterparty risk due to guaranteed payments on contacts
trade
the two-way flow of exports and imports of goods (merchandise trade) and services (service trade)
country risk
the uncertainty in predicting how a variety of different factors will affect an investment in a country, including political risk, economic risk, inflation risk, tax risk, etc
political union
the union created when member countries of an economic and monetary union work closely with one another to arrive at common defense and foreign policies and behave as a single country
indirect strategy
the use of channels of distribution to market products and services to international markets
manners and customs
the way a society does things
social institutions
the way people in a society relate to one another within group settings
economic risk
the ways in which long-term exchange rate movements affect firms
cost of debt
the weighted average of different interest rates paid on long-term borrowings
the web
the world wide web, abbreviated as "www" and commonly known as the web; a system of interlinked documents contained and accessed via the Internet
individualism vs. collectivism
the worth of an individual versus the worth of a group
purchasing power parity (PPP)
theory stating that a basket of goods should have approximately the same prices across different countries
interest rate parity (IRP)
theory stating that interest rates on bonds in different countries should be the same, as investors would buy and sell these bonds to make arbitrage profits until this condition holds
maximizing shareholder wealth
to maximize the net present value of future cash flows of foreign investment adjusted for exchange rate movements or to maximize profits so that shareholders could receive larger dividends and see their share prices rise over time
non-verbal communication
tone of voice, gestures, eye contact, body positions, facial grimaces, and other body language that accompanies verbal communication
embargoes
trade sanctions which are imposed upon a nation to restrict trade with that country
backward translation
translating a message from English into a foreign language, then translating it back into English to check for accuracy
gray marketing
unauthorized importers reselling a manufacturer's product in the manufacturer's domestic market at a price less than what the manufacturer charges in that domestic market
hedging
using currency derivatives to reduce potential transaction, translation, and economic risks of currency movements that could lead to losses for a firm or investor
operational plans
very short-term (less than one year) plans formulated for implementing strategic goals
aesthetics
what is perceived as taste and beauty in a society
banker's acceptance
when a bank sells a LC into the financial marketplace as a money market instrument
offshoring
when a firm and the supplier are located in different countries
global procurement
when a firm buys components and raw materials globally
global production
when a firm globally produces goods and services
outsourcing
when a firm has been making goods and services in-house, and then decides to buy these goods and services from suppliers
expatriate failure
when an expatriate does not complete his or her full expatriate assignment
dual sourcing
when components and raw materials are produced in-house and purchased from suppliers
trade deficit
when merchandise imports exceed merchandise exports for a country
contagion
when stock markets in many countries move down in concert with one another and thereby reduce international diversification benefits
global outsourcing
when the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in different countries; also called offshoring
domestic outsourcing
when the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in the same country
insourcing
when the firm has been buying goods and services from suppliers, and then decides to make these goods and services in-house
trade surplus
when the value of exports exceeds the value of imports; the opposite of a trade deficit
value factor
whether a firm has growth or value and how this firm characteristic provides an estimate of the cost of equity
size factor
whether a firm is small or large and how this size provides an estimate of the cost of equity
host country nationals
workers already living in the foreign or host country where the parent company is opening operation
fixed exchange rate system
system in which the country pegs its currency at a fixed rate to a major currency or basket of currencies, while the exchange rate fluctuates within a narrow margin around a central rate
totalitarian government
system of government in which individuals govern without the support or consent of the citizenry; for example, a military dictatorship
managed floating exchange rate system
system that determines the value of some currencies partly by demand and supply in the foreign exchange market, and partly by active government intervention in the foreign exchange market
independent floating exchange rate system
system that sets the values of major currencies based on their demand and supply in world currency markets
bureaucratic controls
systems of rules and regulations promulgated within a global business
export taxes
taxes meant to raise export cost and divert production for home consumption
custom duties
taxes on imports that are collected by a designated government agency responsible for regulating imports
tariffs
taxes on imports; also known as custom duties in some countries
infant industry argument
temporary provision of protection to nascent industries that have good prospects of becoming globally competitive in the medium term
Bretton Woods Agreement
the 1944 decision to establish a global currency system with the U.S. dollar pegged at a fixed rate of exchange to gold, and the currencies of 43 other countries fixed to the dollar
Smithsonian Agreement
the 1971 decision allowing the United States to devalue the dollar against other countries' currencies, thereby beginning the breakdown of the 1944 Bretton Woods Agreement
Jamaica Agreement
the 1976 international monetary order that allowed countries to adopt different exchange rate systems including floating their currencies in world markets
acculturation
the ability of a firm to adjust to a culture different from its own
comparative advantage
the ability of one country that has an absolute advantage in the production of two or more goods (or services) to produce one of them relatively more efficiently than the other
absolute advantage
the ability of one country to produce a good or service more efficiently than another
absorptive capacity
the ability of organizations to recognize, assimilate, and apply new knowledge
clean float currency
monetary system with minimal government intervention; largely market determined
What do countries with politicians that sustain transparency in global competition tend to have?
A competitive market structure
Which issue was discussed as a concern during the establishment of North American Free Trade Agreement (NAFTA)
A fear that companies would move American manufacturing jobs to Mexico
MAtch physical distribution channel method descriptions with their appropriate one. Answer option may be used more than once or not at all A. Shipments placed in trailer-sized containers which can be moved from one type of transportation to another without unloading and reloading______________ B. Moves large quantities of products to international buyers at low per unit costs________ C. Moving from one transportation to another_____ D. Agents who ship products to international consumer________
A-CONTAINERIZATION B-PHYSICAL DISTRIBUTION C-INTERMODEL TRANSPORT D-FREIGHT FOWARDER
What can internal controls protect honest employees from?
Accidentally making errors
Which arrangement best outlines Miles and Snow;s four basic types of longer-term strategy implementation?
Analyzers, prospectors, defenders, and reactors
How are standardizations strategies defined?
Approaches in which marketing strategies used in international operations will be the same as those being used domestically
Which of the following should take place in an effort to successfully conduct business in China?
Attending to relationships between subordinates and superiors (Guanx)
What statement of account summarizes all transactions between one country and the rest of the world for a given period of time?
Balance of payments
How do knowledge management and systems overcome impediments to strategic implementation of global business?
By allowing for wider dissemination of tacit and explicit knowledge.
How do major international institutions facilitate globalization?
By creating an international monetary system
How does foreign direct (FDI) create jobs and enhance skills of workers?
By creating inflows of capital from abroad
How has technology bridged the global digital divide?
By decreasing communication cost
How do options contract exchange rate risk?
By giving an investor the right to buy or sell a specified amount of currency at a future date at a predetermined price
How do interpersonal control system help manage global business?
By having executives engage in personal contact with subordinates
How does the government of a country with a good investment climate attract foreign direct investment(FDI)?
By implementing transparent governance structures
Economist have argued that national policies should be implemented to help retrain and educate workers. How might these efforts affect the displaced workers?
By increasing productivity
What do property rights enable buyers and sellers to do?
Conduct transactions with the high degree of trust
Which issue can result from creating international divisions in global business?
Conflict between domestic and international operations
A successful shoe manufacturer has long been subcontracting production of their shoes to countries such as Vietnam. Which of the following concepts was likely considered when selecting production in this country?
Contract law
What are stateless corporations?
Corporations that source work wherever it is most efficient and transcend international boundaries
Which of the following is a characteristic of globalization?
Culture
What is NOT a tax issue that multinational corporations (MNC's) face?
Culture tax
What is the result if a large online retailer does NOT secure customer's financial information?
Decrease in public trust
How does regional integration affect countries?
Enhance social welfare
What are international pricing objectives that keep competitors out of a foreign market with low prices?
Gray Marketing
What must countries do to create regional economic integration?
Have spatial transformation
Which appropriate set of steps should companies follow when developing new products for overseas markets?
Identification of sources of new product ideas, evaluation of new product ideas, concept testing, business analysis, development, market testing and commercialization
What is the name for an organizational structure in which people are grouped simultaneously by function and by division?
Matrix
What is not a rationale for managing trade?
Mercantilism
What do companies use as a blueprint in their strategy, formulation and control functions?
Mission Statement
bond ratings
Moody's and Standard and Poor's rating services which are important in assuring foreign investors of the credit quality of bond issues
Smalltown Times newspaper has a norm of "highest quality in journalism." In this context, the newspaper's reporters require close supervision to do a great journalistic work.
Organizational culture
What will an organization structure which inhibits people from clearly knowing if they have decision making authority most likely do?
Prohibit employee breaks
Which marketing method uses contests and sweepstakes as the most widely-used promotional technique in foreign markets?
Sales promotion
What is most likely to happen if a computer company decided to own and operate its own fleet of trucks instead of using shipping companies to deliver its computers?
The computer company would be increasing the complexity of its process
Which of the following may lead to an increase in the standard of living, according to free-trade theory?
The right to import and export goods freely
What does trade policy have a direct impact on?
The value of volume of a country's imports and exports
Which entry strategy generally requires a large capital investment and is associated with a high degree of risk?
Wholly-owned foreign subsidiary
Which scandal included improperly adjusting accounting reserves to meet earning?
WorldCom
Foreign Corrupt Practices Act
a U.S. federal law that consists of two parts: an anti-bribery provision and a requirement to maintain an adequate internal control system over financial books and records
Overseas Private Investment Corporation (OPIC)
a U.S. government agency that sells political risk insurance to U.S. businesses operating in countries with which the United States has a bilateral investment treaty
Export-Import (Ex-Im) Bank
a U.S. government export finance agency that supports U.S. firms competing against exports of other countries that are government supported
Terrorism Risk Insurance Act of 2002
a United States law that after a certain deductible provides U.S. businesses government insurance coverage for the risk of terrorism
Foreign Corrupt Practices Act (FCPA)
a United States law that prohibits U.S. companies from bribing or otherwise corrupting foreign government officials to win foreign government contracts or obtain other foreign government assistance for their businesses
Special Drawing Right (SDR)
a basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund (IMF)
domestic bonds
debt contracts sold by firms domiciled in a country in the home currency
foreign direct investment
inflows of capital from abroad for investing in domestic plant and equipment for the production of goods and/or services as well as for buying domestic companies
marketing research
information collected at one particular time
marketing intelligence system (MIS)
information collected regularly over time
hedge
insurance that reduces future risk
dirty float currency
monetary system with varying degrees of government intervention to maintain a range of acceptable values against other currencies
margin call
losses that are incurred and that cause the participant's balance to fall below the maintenance margin at the end of the trading day
liberalization of the trading system
lowering and/or removing trade barriers such as tariffs, quotas, and subsidies
horizontal publication
magazine that target a specific job in various industries
vertical publication
magazine that target specific industries
adaptation
marketing strategies used in international markets by a company that are different from those used in its domestic market
standardization
marketing strategies used in international markets by a company that are the same as those used in its domestic market
raw materials
materials used to produce components
gold standard
monetary system that pegs currency values to the market value of gold
CHIPS (Clearing House Interbank Payments System)
organization in New York City that provides large, wholesale dollar payments services for businesses, banks, and governments
SWIFT (Society of Worldwide Interbank Financial Telecommunications)
organization that provides secure communications for contracts, invoices, and other trade documents that normally accompany cash payments
prospectors
organizations that have basic strategic implementations involving extending their success through global expansions, and finding new market opportunities
reactors
organizations that have strategic implementation processes that respond arbitrarily to strategic actions initiated by competitors
defenders
organizations that implement basic market strategies of concentrating upon existing operations and defending their home turfs
analyzers
organizations that take a middle ground between being prospectors and defenders
Statements of Financial Accounting Standards (SFAS)
part of the highest level of generally accepted accounting principles (GAAP), issued by the Financial Accounting Standards Board (FASB)
commercial letter of credit (LC)
payment protection to both exporters and importers, as the importer's bank writes a guarantee of payment
reliability
performance of various aspects of customer service that meets customer expectations
collusion
practice of companies acting in a manner which secretly thwarts competition amongst themselves
development
preparing employees for new future assignments or higher level positions
direct quotes
prices of a foreign currency in dollars, or the number of dollars per one unit of foreign currency)
uncovered interest rate parity
principle implying that expected future spot exchange rates and spot exchange rates set interest rates on bonds in different countries equal to one another
covered interest rate parity
principle implying that forward exchange rates and spot exchange rates set interest rates on bonds in different countries equal to one another
law of one price
principle stating that identical goods should sell for the same price in different countries according to local currencies
repatriation
process that takes place when the expatriate employee returns home
production stages
steps in the production process
physical distribution
storage and transportation operations that are used in moving products to a foreign market
stakeholder model of strategy formulation
strategy formulation model that believes businesses exist to benefit not just their shareholders, but also all the various groups such as employees and customers that have a meaningful stake in their operations
shareholder model of strategy formulation
strategy formulation model that operates from the premise that the key strategic purpose of a business is to maximize financial returns for its owners/shareholders
