International Business Midterm

world GDP

$56 trillion

product

(commodities offered for sale.) a bundle of attributes (ex. auto = power, design, quality, performance, comfort, size, etc) attributes need to be adapted to a greater or lesser extent to satisfy consumer preferences/tastes due to culture, economy, and mandated standards

how does inflation affect exchange rate?

As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.

historic cost

Assets are recorded at their original purchase price. We have source documents to prove what we paid for the assets

Benefits to Home Country for FDI

adverse BOP current account effects reduced by inward flow of foreign earnings, positive employment effect form increased exports of raw materials or assemblies to the overseas subsidary

push strategy

a marketing strategy that uses aggressive personal selling and trade advertising to convince a wholesaler or a retailer to carry and sell particular merchandise. personal selling emphasis. industrial products, complex new products, or new to consumers, or new consumers. short distribution channel. few print or media outlets.

if masculine values prevail

assertiveness, success, competition are important

issues with Heckscher-Ohlin Theory

assumes technology is the same around the world. doesn't account for movement of labor or capital.

culture

a system of values and norms shared by a society.

international business

a transaction between parties located in two countries

confucian dynamism

attitudes toward time, persistence, status in society, face (given image in marketplace), respect for tradition, gifts and favors

sources of economies of scale

bulk discounts on inputs. higher efficiency of high-capacity equipment, spreading fixed costs over more output units (operating at full capacity). more workers generally mean deeper specialization or simple individual tasks (assembly line) *reduces fixed costs by spreading it over a larger volume. ability of large firms to employ increasingly specialized equipment or personnel

administrative policies on international trade

bureaucratic rules designed to make it difficult for imports to enter a country (bulb cutting, opening packages, licenses, etc)

hofstede: masculinity vs femininity

division of roles and values in a society.

hard currency examples

dollar, pound, euro, yen

others-orientation and expatriate success factors

enhance ability to interact effectively with host nationals, relationship development, willingness to communicate

eu principal objective

ensure freedom, security, and justice. establish european citizenship. promote economic and social progress. assert europe's role in the world.

low uncertainty avoidance

entrepreneurship. if business fails, okay to start another one. change and risk okay.

issues with international joint ventures

equity structure, technology transfer arrangements, asset valuation problems, divisions of responsibility, strategic objectives, financial policy, and role of the venture in relation to other activities of both firms. BUT both sides have core competencies that are complementary and each side has something to offer

civil (code) law

everything is doen exactly by specific codes and regulations. (ex: building a new building = have to follow very specific building laws)

examples of implicit culture characteristics

expectations, assumptions, opinions, values, attitudes, beliefs

issues of cost with exporting

exporting from home country may be expensive due to transportation costs/tariffs. terms of sale determine who is taking responsibility of different facets of transaction

external/"arms-length" modes of entry

exporting. turnkey projects. licensing. franchising. alliances.

common market

factors of production can freely move between members (CU+)

strategic significance of the experience curve

firm that moves down the experience curve most rapidly has a cost advantage over its competitors. serving the global market from a single location helps to establish low cost strategy. aim to rapidly build up sales using aggressive marketing strategies to gain first-mover advantages.

wholly owned subsidiaries

firms owned 100% by a company in foreign company

positive of import quotas

forces demand to be filled by domestic production

high uncertainty avoidance

formal, rigid relationships and patterns. people with more nervous energy. risk averse.

reasons for regional integration

free trade, more attractive for FDI, links economies (reduces potential for violent conflict or instability), gives countries more political clout world-wide

economic union

full integration of member economies (common currency, common monetary and fiscal policy, harmonization of taxes) (CM+)

cons of mergers/acquisitions

getting a fair price, making sure corporate cultures are compatible, risky

strategy fit for "geocentric best for job gets it"

global and transnational

country of origin rules of nafta

goods and services must originate in north america to get access to lower tariffs

command economy

goods and services, as well as their prices, are controlled by the government

Fisher Effect

i = r + I Nominal (market) interest rate in a nation = the real rate of interest + expectations about inflation.

common law standards set by

independent boards

national competitive advantage

industry is a function of factor endowments, demand conditions, related and supporting industries, and firm strategy/structure/rivalry

determinants of exchange rate

inflation, interest rate, current-account deficits, public debt, terms of trade, political stability and economic performance

what is "the engine for growth" due to tastes and trends always changing?

innovation

draft or bill of exchange

instructions to bank to pay at a certain time based on certain documentation

reform need in bureaucracy and corruption in india

lack of business and administrative acumen amongst leadership, rti well-received. open records law increases accountability of government by citizens

common law system

law is open to interpretation and flexible to times.

what cannot be patented?

laws of nature, physical phenomena, abstract ideas, works of art (copyright), useless/offensive inventions

why are command economies not as widely used today?

lead to slow economic growth

cons of multidomestic hr

limits career mobility, isolates HQ from overseas subsidaries

cons of an international hr strategy

local manager resentment, cultural myopia, immigration barriers costly

adaptation

local responsiveness pressures. adjust balance of marketing mix to market segments with differing needs across countries. buyer behavior (cultural, economic influence, brand perceptions), laws, regulations

advantages of global expansion

location economies, cost economies from experience effects, leveraging core competencies, leveraging subsidiary skills

globalization of product

look elsewhere for best resources. trend by individual firms to disperse parts of productive process to different locations around the globe to take advantage of costs and quality of factors of production.

problem with states in india

lots of segregation bw states, language, religion. lack of national sovereignty/coordination.

costs of ocean freight/why

low because of standardization, better logistics, technology, growing size of ships, and fewer crew members needed

two basic strategies to create value an attain competitive advantage according to Porter

low cost and differentiation strategy

characteristics of group society

loyalty and commitment to company. in-depth knowledge of company. specialist skills. easy to build teams/collaboration. emotional identifications with group or company.

assures

makes sure or certain. exporter in form of payment, importer in form of product.

characteristics of individual society

managerial mobility between companies. economic dynamism/innovation. good general skills. team work difficult, non-collaborative. exposure to different ways of doing business.

major forms of franchising

manufactuer-retailer (car dealerships), manufacturer-wholesaler (soft drinks), service-firm retailer (fast food)

initial steps in the export process

market research, country research, export control research, payment methods, terms of sale (incoterms), and shipping

goal of enterprise

maximization of long-term profit

effect of protectionism on foreign business

meant to punish. protects domestic industries but hard to define what is domestic and foreign. can create foreign relations problems.

expatriate

move away from one's native country and adopt a new residence abroad. sent abroad for work.

strategy fit for "polycentric key overseas positions staffed by local managers"

multidomestic

terms of wto

multilateral trade/dispute resolution, equal treatment, Most Favored Nation status, anti-dumping

examples of explicit culture characteristics

music, architecture, language, food, clothing, transportation (observable)

how do factor endowments effect industry?

nation's position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry.

costs of the euro

national governments lose direct control of monetary policy.

how do demand conditions effect industry?

nature of home demand for the industry's product or service helps your industry

effect of national trade policies on consumers is negative or positive?

negative

effect of national trade policies on foreign producers is negative or positive?

negative

impact of protectionism on consumers

negative. increases prices.

shrinking globe concept

newer/faster methods of travel make transcontinental transportation faster (globe is getting smaller, figuratively)

world patents

no such thing. must go to each individual country you want to protect from.

fixed rates

not freely exchangeable

characteristics of a patentable invention

novel, nonobvious, adequately described or enabled, claimed by the inventor in clear and definite terms

degree of globalization > unit typically responsible > typical title of unit manager

occasional export order > domestic sales department > domestic sales manager increasing volume of foreign sales > form new export sales department > manager/director - export sales major corporate effort to extend reach into foreign markets > form an international division (may involve FDI > vice president global business commitment part of the firm's mission > wholly owned foreign subsidiaries, JVs, or alliances > senior vice president

multipoint pricing

occurs when a pricing strategy in one market may have an impact on a rival's pricing strategy in another market subsidize low pricing in one market from profits in another

incoterms

official international chamber of commerce rules for interpretation of trade terms. created in 1936. no world standard., a set of standard contractual terms adopted by the International Chamber of Commerce. divid costs, risks, responsibilities. provide useful shorthand for doing so. serve as checklist for seller and buyer. reduce potential for misunderstandings.

pre-departure process for an expatriate

on site training depending on experience, length of assignment, similarity of cultures, level of interaction expected

acquisition

one company acquires the other company to become one

fragmented retail system

one in which many retailers supply a market, with no one having a major share

externally convertible

only people coming into country can convert.

place

optimal channel a company chooses to deliver the product.

which is more expensive: option or contract?

option

trompenaars

results found in every national culture, which illustrate the preferred response to different dilemmas concerning each dimension, can therefore be used by business managers to foresee, how different people from different cultures may act and behave in e.g. a business setting.

reform needed because of the expected population dividend but talen shortage

raise basic educational achievement, invest significantly in quality and quantity of universities.

bill of lading

receipt, contract, and document of title

Home Country Government FDI encouragement policies

risk reduction policies (financing, insurance, tax incentives)

example of private actions that violate property rights

stealing from someone, squatter messing up a house

privatization

takes governmental functions and hires private industry to perform those functions.

international strategy

taking products first produced for their domestic market and selling them internationally with only minimal local customization. create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies. centralize product development functions at home. establish manufacturing and marketing functions in local countries but head office excises tight control over it. limit customization of product offering marketing strategy. strategy effective if firm faces weak pressures for local responsive and cost reductions.

which trade policy is easiest to quantify and determine?

tariff!!!

tariff

tax imposed on imports

price discrimination

the business practice of selling the same good at different prices to different customers.

merger

the combination of two or more commercial companies

exporting

the commercial activity of selling and shipping goods to a foreign country. selling "domestically" produced products abroad through local independent agents or directly to customers, capitalize on scale economies. for small/medium=size firms: cheap/flexible way to develop foreign markets and learn about customer needs.

how does firm strategy, structure, and rivalry effect industry?

the conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.

Just In Time benefits

reduce holding and warehousing costs, better manage transportation costs as demand can be used inform shipment locations and levels. reduce depreciation of products with short life cycles.

deregulation

reduces governments role or oversight of an industry

economies of scale

refers to reduction in unit cost by producing a larger volume of a product, as a company produces larger numbers of a particular product, the cost of each unit of the product goes down

benefits of joining the eu

reinvigorate the overall economy, efficiency in currency, fewer international borders, safety, political clout, larger market and larger talent pool

high context cultures

relationships are important, non-verbal behavior noted, shared "code" = communication fast, spoken agreements (THINK JAPAN)

theocratic law

religious texts give power to law

free trade area

removes trade barriers among members, but members retain own trade policies toward others

Benefits to Host Country for FDI

resource-transfer, employment, BOP (import substitution, source of exports potentially increased)

relative factor endowments: heckscher-ohlin

resources vary among countries (oil/labor...). goods vary in the amount of resources needed to produce them. a country will specialize in production of goods that align with its relative factor endowments of land, labor, or capital.

property rights

resources, including land, buildings, in intellectual property, are protected. use of a resources and us made of income from resource protected

issues with Just In Time

rests on management of uncertainty

leontief paradox

the country with the world's highest capital-per worker has a lower capital/labor ratio in exports than in imports

location economies

the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that may be found, at a cost advantage to the firm. realized by performing a value creation activity in an optimal location anywhere around the globe. often arise due to difference in factor costs and endowments. can lower costs of value creation to enable low cost strategy and/or help differentiation of products from competitors.

demand elasticity

the extent to which a change in price causes a change in the quantity demanded

main commercial documents in exporting

transport document (B/L, OBL, AWB, some negotiable), commercial invoice, packing list, insurance policy or certificate, optional certificates

import quotas

way of fixing by unit a certain quantity of imports a certain country can send in (ex: only 100,00 indian sweaters in england where wool is a big business).

mercantilism

wealth is power. country will gain wealth when exports exceed imports.

short channel

when the producer sells directly to the consumer - common with concentrated systems. direct marketing

long channel

when the producer sells through an import agent, a wholesaler, and a retailer - common with fragmented retail systems

exporters must know:

whether license is needed, what is being exported, to where the items will go, who receives them, and what the item will be used for

issues of trust with exporting

why payments and documentation are so important can also be an issue with agents and distributors.

thomas friedman: the world is flat

world is not round, it is an even playing field

flaw of mercantilism

zero-sum game = always a winner and a loser

Current captures/records three categories of trade:

• import/export of physical goods • import/export of services • income receipts (refer to income from foreign investments and payments that have to be made to foreigners)

concentrated retail system

a few retailers supply most of the market

lag strategy

- Delay payments due in foreign currency when home currency is expected to appreciate (foreign currency expected to depreciate) - Try to delay incoming foreign receipts when that currency is expected to appreciate (home currency expected to depreciate)

DaimlerChrysler Merger issue

- Merger in 1998 - Chrysler was most profitable producer in world, with efficient production and strong marketing success - Daimler-Benz only had 1% of American luxury market and wanted economies of scale as it typically took twice as many of its workers as Toyota used per unit on its Lexus division. - Years of mounting losses, often at both divisions. Cultures never seemed to mesh. - In May 2007, Daimler sold 80.1 percent of its stake in Chrsyler to Cerebrus Capital Management for $7.4 billion. Note: Daimler paid $37 billion for Chrysler in 1998. - Now Fiat and Chrysler. Chrysler has received $13.8 billion in aid and loans from the U.S. government. Fiat's stake is 25% but it effectively controls Group Chrysler. (Fiat CEO is concurrently also CEO of Chrysler Group). Plan is to infuse designs, concepts and licenses to produce its vehicles at Chrysler plants.

lead strategy

- Pay bills due in foreign currency sooner when home currency is expected to depreciate (foreign currency expected to appreciate) - Encourage payment on foreign currency receivables sooner when the foreign currency is expected to depreciate (home currency expected to appreciate)

licensor grants rights to licensee for...

-intangible property use: patents, inventions, formulas, processes, designs, copyrights, trademarks -specified period of time -specified compensation

why japanese multi-national corporations fail with expatriates

-manager cannot cope with broader responsibility overseas -manager cannot adjust culturally -manager lack personal and emotional maturity -lack of technical competence -spouse cannot adjust culturally

goals of European community created in 1997

-remove frontiers bw countries -create product standards -reduce cost of products -reduce cost of haulage and maritime -reduce cost of financial services -remove the restriction of foreign exchange

self-orientation and expatriate success factors

-self-esteem, self-confidence, mental well-being -adaptability to food, music, sport, outside interests -superior technical competency, and managerial and administrative skills

why us multi-national corporations fail with expatriates

-spouse cannot adjust culturally -manager cannot adjust culturally -other family adjustment problems -manager's lack of personal or emotional maturity -manager cannot cope with broader responsibility overseas

what are the steps in pre-entry "homework"?

1) identify basic appeal (GDP, market restrictions, access to labor/materials/etc) 2) asses national business environment (culture issues, govt reg, stability, fiscal policy) 3) measure market or site potential (current sales of similar products, demand, cost/benefit of different research types, customer data for mergers, acquisitions, and joint ventures, SWOT analysis) 4) select market, entry strategy, specific sites. conduct field trips, send advance teams

5 criteria for adopting the euro

1) price stability (rate of inflation may not exceed the average rates of inflation of the three member states with the lowest inflation by more than 1.5%), 2) inflation (long-term interest rates may not vary by more than 2% in relation to the average interest rates of the three member states with the lowest inflation) 3) deficits (national budget deficits must be below 3% of GDP) 4) public debt (may not exceed 60% of gdp) 5) exchange rate stability (exchange rates must have remained within the authorized margin of fluctuation for the previous two years)

economic factors influencing currency value

1. Balance of Payments 2. Interest Rates 3. Inflation 4. Monetary and Fiscal Policy 5. International Competitiveness 6. Monetary Reserves 7. Government Controls and Incentives 8. Importance of Currency in World

expectation factors influencing currency value

1. Expectations 2. Forward Exchange Market Prices

political factors influencing currency value

1. Political Party and Leader Philosophies 2. Proximity of Elections or Change in leadership

swaraj, swadesh

1947-1985 focus of india. self rule (control own destiny) and self sufficiency (produce for yourself)

when did india join wto?

1995

US's portion (%) of world GDP

25%

air freight transport

34% in terms of value of product shipped internationally, highly predictable

greenfield

A company builds its own factory, hires its own workers, and builds up its entire production process from scratch

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. franchiser grants franchisee use of intangibles under the condition that franchisee follow strict rules of operating the business; similarities to licensing. can ease burden of financing international expansion

how does a current-account deficit affect exchange rate?

A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit. In other words, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate until domestic goods and services are cheap enough for foreigners, and foreign assets are too expensive to generate sales for domestic interests.

international accounting standards board

A private body located in London, England, dedicated to developing a single set of high-quality, global accounting standards. formed march 2001. replaced international accounting standards committee formed in 1973.

turnkey projects

A project in which a firm agrees to set up a foreign client and hand over the "key" when the plant is fully operational; most common in the chemical, pharmaceutical, petroleum refining, and metal refining industries, all of which use complex, expensive production technologies. minimal risk, but also minimal potential for future related profits.

how do terms of trade affect exchange rates?

A ratio comparing export prices to import prices, the terms of trade is related to current accounts and the balance of payments. If the price of a country's exports rises by a greater rate than that of its imports, its terms of trade have favorably improved. Increasing terms of trade shows greater demand for the country's exports. This, in turn, results in rising revenues from exports, which provides increased demand for the country's currency (and an increase in the currency's value).

nafta

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

regional economic integration

Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other

transnational strategy

Attempting to simultaneously achieve low costs through location economies, economies of scale, and learning effects while also differentiating product offerings across geographic markets to account for local differences and fostering multidirectional flows of skills between different subsidiaries in the firm's global network of operations to meet competition firms aim to reduce costs, transfer core competencies while paying attention to pressures for local responsiveness. global learning: valuable skills can develop in any of the firm's world wide operations, transfer of knowledge from foreign subsidiary to home country to other foreign subsidiaries. transnational strategy difficult task due to contradictory demands placed on the organization. can be quite expensive and hard to pull off.

Costs to Host Country for FDI

BOP (capital inflow followed by capital outflow + profits). threat to national sovereignty and autonomy (loss of economic independence)

Costs to Home Country for FDI

BOP trade position negatively affected, loss of employment to overseas market

how does an interest rate affect exchange rate?

By manipulating interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise.

promotion

Communication by marketers that informs, persuades, and reminds potential buyers of a product in order to influence an opinion or elicit a response.

tax havens

Country or territory where certain taxes levied at a low rate or not at all.

malcolm mclean

Developer of containers for ships. containerization/specialization. intermodal idea took off.

market segmentation

Dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors, and who might require separate products or marketing programs. based on demography, geography, social-cultural factors, psychological factors allows firms to adjust marketing mix to meet the needs of separate market segments

Horizontal FDI

FDI int he same industry as the firm operates at home

International Fisher Effect

For any two countries, the spot exchange rate and future exchange rate should change in an equal amount, but in the opposite direction, to the difference in nominal interest rates between the two countries.

how does political stability affect exchange rates?

Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Political turmoil, for example, can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries.

gatt

General Agreement on Tariffs and Trade; international trade organization that encourages free trade by lowering tariffs and other trade restrictions

law of one price

In an efficient market, all identical goods must have only one price. The value of identical products should be the same, when denominated in the same currency

localization strategy

Increasing profitability by customizing the firm's goods and services so that they provide a good match to tastes and preferences in different national markets aim is strong local responsiveness. customize product offering, market strategy including production and R7D according to national conditions. generally unable to realize value from experience curve effects and location economies. possess high cost structure.

International Court of Arbitration

Institution for resolution of international commerce disputes

international joint venture

It is an investment-based agreement in which two or more companies pool their resources in order execute a well-defined mission. Resources commitments, responsibilities, and earnings are contractually shared. They are useful when companies in a single industry or in complementary industries want to share the risk of a large venture. firms owned jointly by two or more otherwise independent firms; most international joint ventures exist between only two firms. one (or more) parent firms are non-resident in the host market.

Radical View of government on FDI

Multinational corporations are an instrument of imperialist domination, exploit host to the advantage of home country, extract profits from the host country and give nothing back.

Home Country Government FDI restriction policies

National Security

Paris Convention for the Protection of Industrial Property

Paris, France. March 20, 1883. one of the first intellectual property treaties. established a union for protection of property.

cultural myopia

Percieving ones own culture as superior and having a very narrow or shortsighted view of cultures other than your own

pull strategy

Promotional strategy in which heavy advertising and sales promotion efforts are directed toward consumers so that they'll request the products from retailers. consumer goods, long distribution channels, marketing message may be carried via print/electronic media

foreign currencies option

Provide the right, but not the obligation, to buy or sell a specific amount of a currency at a specified price at any time prior to a specific date - Purchaser is charged a premium

global standardization strategy

Pursuing a low-cost strategy on a global scale and increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. focus on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies. production, marketing, and R&D concentrated in few favorable functions. market standardized product to keep costs low. effective where strong pressures for cost reductions and low demand for local responsiveness.

off balance sheet

Recourse to only negotiated assets, such as the film itself or character rights (not the corporate parent)

skimming pricing

Setting a high price when introducing a product that has little competition and will appeal to customers who like to be the first to have the latest products. appeal to global elites.

wto

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT.

current cost

The cost of purchasing the same goods at the present time from the usual suppliers in the usual quantities. replacing inventory

what caused the asian financial crisis in 1997?

The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.[1]

economic exposure of foreign exchange

The extent to which a firm's future international earning power (or costs) affected by changes in exchange rates.

transaction of foreign exchange

The extent to which income from individual transactions is affected by fluctuations in foreign exchange.

translation of foreign exchange

The extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

licensing

The legal process whereby a licensor allows another firm to use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge. benefits include limited capital and financial requirments. typically gives licensor quality assurance rights and strategic brand control if licensee sells to consumers using the licensor's brand name. limited capital and financial requirements.

consolidation

The practice of combining separate companies into one

describe curve in stages of adjustment

U (W)

1994 Mexico and US (Goal)

US is Mexico/Canada's largest trading partner. Mexico-Canada trade not as significant, but growing. Goal: NAFTA calls for the elimination of tariff and non-tariff barriers, harmonization of trade rules, liberalization of restrictions on services and foreign investments

trompenaars seven dimensions

Universalism vs. particularism (What is most important - rules or relationships?) Individualism vs. collectivism (Do we function in a group or as individuals?) Neutral vs. emotional (Do we display our emotions, or do we hide them?) Specific vs. diffuse (Do we handle our relationships in specific and predetermined ways, or do we see our relationships as changing and related to contextual settings?) Achievement vs. ascription (Do we have to prove ourselves to receive status, or is status given to us?) Sequential vs. synchronic (Do we do things one at a time or several things at once?) Internal vs. external control (Do we believe that we can control our environment, or do we believe that the environment controls us?)

global web

When different stages of a value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized.

us gaap

a collection of rules and procedures and conventions that define accepted accounting practice

experience curve pricing

a method of pricing based on the learning effect, which holds that the unit cost of many products and services declines by 10 percent to 30 each time a firm's experience at producing and selling them doubles, resulting in possible rapid price reductions. use aggressive pricing to build volume and move firm down experience curve (low marginal costs)

generalize

a principle, statement, or idea having general application

core competence

ability within a firm that competitors cannot easily match or imitate. earn greater returns by transferring these abilities and/or unique product offerings to foreign markets which lack them.

values

abstract ideas about good, the right, the desirable

standardization

adjust balance of marketing mix to market segment with similar needs across countries. efficiencies through integrated R&D, production, marketing. media and new communication means have made consumers worldwide more aware of their mutual preferences, have contributed to creation of world brands and have caused market segments to emerge across markets

transfer pricing

adjusting price of good & cost of goods sold form one subsidiary/country to the next. Minimizes taxes & moves currency in undetectable fashion. maximizes profit and minimizes taxes by changing costs. can create a need for two sets of books due to distorted transfer prices

subsidies

aim to lower cost of production for domestic producers

pros of multidomestic hr

alleviates cultural myopia, inexpensive to implement

Vertical Forward FDI

an industry abroad sells the outputs of the firm's domestic production processes

arrival documents in exporting

arrival notice, customs entry

spread

ask - bid

letters of credit

bank guarantee of payment to exporter "bought" by the corresponding importer

pegged rate

based off change of another country

ad valorem tariff

based on individual value of items rather than simply units/amounts (swatch vs walmart watch)

Nafta's origin

based upon canadian-us free trade agreement of 1988.

foreign subsidiaries pay who's taxes?

become legal entities in host nation and pay host nation taxes, not home.

benefits of understanding culture

better understanding of yourself/your nation and society. cultural smarts can help you find third ways of accomplishing goals and can help you become more efficient and productive as your ability to adapt grows. avoid misunderstandings and conflict. richer, more meaningful interactions and relationships. profit (fewer costly mistakes)

monitoring and enforcement of standards in code law by

between government and companies

low context cultures

blunt communication, short relationships, written and binding agreements, faster cultural change (THINK US)

reason of single european act in 1987

born out of frustration that barriers to free trade still existed

long-term effects on exchange rates of BOP deficit

borrow every year and not repaying. value of currency will fall as cost to loan increases.

civilization

both common objective elements such as language, history, religion, customs, institutions, and by the subjective self-indentificaiton of people

pros of mergers/acquisitions

buying something that already works, potential for synergies, gaining of valuable know-how and cost reductions

carry forward/carry back excess credit

can be carried forward (five years) or carried back (two years)

freely convertible

can be converted into and out of home currency.

foreign tax credit limitation on excess credit

cannot be used to reduce taxes on domestic income

problem with saving money in india

cash based economy = most indians save in cash or gold = money doesn't circulate in banks = interest rates up (less credit)

fair trade

certification offers producers a guaranteed price for the produce above market price. attempts to ensure worker rights are not violated by suppliers.

india balance of payments crisis

chronic current account deficit. external debt = $70 million. india's credit rating downgraded.

Pros of FDI

circumvents future trade barriers/transportation costs, keep up with competition, be closer to customers, more control, potential profits

huntington argument for clash of civilizations

civilization identity will be increasingly important in the future and the world will be shaped by interactions among major civilizations: western, confucian, japanese, islamic, hindi, slavic-orthodox, latin america, and possibly african

mixed economy

combination of market and command. government takes control if need

synergy

combined force

customs union

common trade policy towards others (FTA+)

process of imposing anti-dumping duties

company has to file a complaint and then it is investigated

vernon product life cycle theory

concerns the role of innovation as an advantage in trade patterns. early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.

fast track trade legislation

congress agrees not to mark up bill and only to hear it/vote yes or no. happens when you feel deal making is not too politicized.

issues with licensing

control and security, especially for licensed technology; can be harder to coordinate strategic moves across countries.

issues with franchising

control: possible use of master franchiser in markets where that could work well. alternatively, dilute ownership, with franchiser retaining ownership in a certain number or percentage of foreign units. benefits to franchisee: proven model, available support, training and systems

globalization of markets

converging tastes. markets no longer isolated by trade barriers or distance/time/culture

incoterms does NOT

convey title: sales contract must stipulate this. eliminate all problems in international trade.

international strategic alliances

cooperative agreements between competitors from different countries. mobile phone operating systems (ex)

political union

coordinated integration of economic, social, and foreign policy (EU+)

learning effects

cost savings that come from learning by doing. arises due to increased worker productivity and management efficiency. significant in cases of technologically complex tasks (lots to be learned). experienced during start up phase. decline comes from economies of scale.

exporting issues

cost, trust, strategy, require volumes of specialized paperwork and knowledge

issues of exporting

cost: exporting from home country may be expensive due to transport costs or due to tariffs your overseas customers will have to pay. trust: why payments and documentation are so important.

cons of global and transnational strategy

costly immigration barriers

issues of greenfield

costs, risks, and length of time needed (and what your competitors are doing in that time)

how did gulf war affect india

couldn't supply own energy because relied on importing fuel. oil prices went up = new crisis. remittances are down. loss of middle-east markets for indian exports.

barriers to international communication

cultural barriers, source effects, noise levels

rail transport

currently not ideal for international trade. public and private ownership/investment issues, different gauges, slow

new trade theory: 1970's

deals with returns on specialization where substantial economies of scale are present. specialization increases output, ability to enhance economies of scale increase. typically, requires industries with high, fixed costs. world demand will support few competitors. competitors may emerge because they got their first. experts can develop.

hofstede: uncertainty avoidance

degree of need to avoid uncertainty about the future. degree of preference for structured vs unstructured situations.

hofstede: power distance

degree of social inequality considered normal by people.

hofstede: individualism vs collectivism

degree to which people in a country prefer to act as individuals rather than in groups.

floating rates

determined by markets

pros of greenfield

develop from the ground up = done your way

code law standards set by

government bodies

who funds subsidies

government by taxing individuals

crawling rate

government determines. step appearance.

since so much of importing/exporting is so technical, how do countries help?

government information sources, export management companies, freight forwarders, customs brokers, banks

dirty float

government occasionally intervenes when needed

indirect subsidy

govt covers cost of insurance, will pay interest, give loans/tax breaks. etc

"buy local" legislation

govt purchases or influences others to give preference to domestically made goods/services. (legislative preference for us flight carriers. tax payers fund fed govt. govt gives school grant. prof pays higher price for flight. tax payers fund flight)

notable stops in globalization

great depression, world wars, now? (if us is 25%, world hurts when we hurt)

problem with local content requirements

hard to determine exactly what (ex) 50% of a motorcycle means

effect of tariff on consumers

have to pay for tariff

what do high and low mean in hofstede?

high = directive style leadership and social strata. low = informal leadership and social mobility

india bail out package, december 1991

imf: $500 million structural adjustment loan. required to address BOP crisis and open up the market more.

who pays the tariff

importer

current account deficit

imports of goods and services are greater than exports

US Foreign Correupt Practices ACT

in US courts, we can prosecute countries/firms with property in the US

Chicken and Egg Scenario of Privatization

in order to have effective privatization, you need some of the foundations of market-based systems: regulated financial markets and institutions and a public that understands private ownership, has some financial literacy, and a faith in the new institutions

reform needed to alleviate rural poverty in india

increase agricultural productivity (more public investment, infrastructure improvements). poor infrastructure limits export potential income lost due to spoilage. provide more and better rural credit options. work to control inflation.

what do passports do for globalization

increase mobility of workers.

why harmonize accounting standards?

increases regional integration, lowers investment barriers, reduces lack of comparability, increases accountability

Free Market View of government on FDI

international production should be distributed according to comparative advantage, multinational corporation increases the world economy efficiency because it brings to bear unique ownership advantages on the local economy's comparative advantages.

strategy fit for "ethnocentric key overseas positions staffed by home managers"

international strategy

globalization II: 1800-2000

interrupted by Great Depression and World Wars. multinational corporations drove gloabl integration. technological innovation in harware enabled pursuit of new markets - steamships, railroads, telephones, computers. breakdown of soviet system symbolized the end of this period of globalization. driven by primarily europeans and americans.

patent

inventor's exclusive rights to manufacture, use, and sell an invention

foreign direct investment

investment in foreign country w/ intent to control for a long period of time.

foreign portfolio investment

investment in foreign country w/ intent to control for a short period of time.

Host Country Government FDI encouragement policies

investment incentives, job creation incentives

internal modes of entry

involve FDI. wholly owned subsidiaries. international joint ventures.

hindu rate of growth

is a controversial and derogatory expression used to refer to the low annual growth rate of the economy of India before 1991. The slow India growth rate is better attributable to India's socialist policies rather than to a specific religion or to the attitude of the adherents of a particular religion.

ocean freight prior to 1950's

labor intensive. ships often spent weeks in port.

Host Country Government FDI restriction policies

ownership extent restrictions (national security, local nationals can safeguard host country's interests)

reasons against regional integration

painful adjustments in certain segments of economy, threats to national sovereignty

intellectual property protection

patent, copyright, trademark

positive transactions on current counts result from...

payment from foreigners (merchandise exports, transportation and travel receipt, income received from investments abroad, gifts received from foreign residents, aid received from foreign governments)

negative transactions on current account result from...

payments to foreigners. (merchandise imports, transportation and travel expenditures, income paid on investments of foreigners, gifts to foreign residents, aid give by home government, overseas investments by home country residents)

first mover disadvantages

pioneering costs: - time spent to learn the do's and don'ts may benefit competitors who can learn from first mover -first mover who starts a new industry builds infrastructure -first mover "trains" customers for followers -breaks through host country's adjustment to "foreignness" issues

effect of national trade policies on local government is negative or positive?

positive

effect of national trade policies on local producers is negative or positive?

positive

exporters must check:

potential exports against several lists: denied persons, unverified, entity, specially designed national lists, debarred list, nonproliferation sanctions

first mover advantages

preempt rivals: establish strong brand name; capture demand build sales volume: ride down experience curve ahead of competitors, cost advantage create switching costs: tie customer to first mover's products establish social ties ahead of following foreign competitors

bid price of exchange

price bank offers to buy at (I will buy 1 USD for 1.37 EU)

ask price of exchange

price bank offers to sell at (I will give you 1 USD for 1.37 EU)

consumer surplus

price charged by a firm on a good or service is less than value placed on it by a customer. firm creates profit by increasing value or lowering cost.

united states housing bubble

prices peaked in 2006 and are now declining and may have not yet even hit bottom (similar to asia)

strategic pricing

pricing aimed at giving a company a competitive advantage over its rivals -predatory, multipoint, or experience curve

monitoring and enforcement of standards in common law by

private litigation, government involvement also takes place

pre-shipment documents in exporting

pro forma invoice or purchase order

issues of strategy with exporting

proactive/reactive strategy. buy in strategy.

what can be patented?

process, machine, article of manufacture, composition of matter, or improvement to these categories

problems of global expansion

profitability is constrained by product customization and the "imperative of localization" complications arise due to transportation costs, trade barriers, political and economic risks

pros of an international hr strategy

puts qualified managers in place, creates global culture, transfer of core competences

if feminine values prevail

quality of life, maintenance of warm personal relationships, service, care for the weak, solidarity

copyright

same for authors, composers, artists, and publishers. unregistered protection (just assumed). can re-interpret without violation

benefits of the euro

savings from eliminating the exchange of currency. easy to compare prices. long-run gains in economic efficiency of companies. strengthen capital markets. increase investment

expatriate success predictors

self-orientation, others-orientation, perceptual ability, cultural toughness, language ability, family situation

dumping

selling goods into a foreign market below production costs (below fair market value). used to unload excess productions.

effect of tariff on government

source of revenue

local content requirements

specific fraction of good must be produced domestically. either refers to actual parts or value.

absolute advantage

the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources.

repatriation

the act of returning to the country of origin, reintegrating employees into their home-country operations following an international assignment.

profit determined by:

the amount of value customers place on firm's goods or services and firm's cost of production

local content rules of nafta

the percentage of value that must be from north america for the product to be considered "north american" for the country of origin qualification (50% for most products)

predatory pricing

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market. dumping idea. raise prices after have the lead

how do related and supporting industries effect industry?

the presence or absence in a nation of supplier industries or related industries that are national competitive

buy in

the process of convincing others of the importance and relevance of the project.

stereotype

to develop a fixed, unvarying ideas about

goals of mercantilism in 1500 to 1800

to earn gold and silver. to gain wealth (store of governments's gold and silver). have a trade surplus. maximize exports through subsidies. limit imports through tariffs and quotas.

goal of an accounting system

to identify, measure, and communicate economic information to allow informed judgements and decisions by constituents

goal of cultural competence

to move from having knowledge to having the ability to leverage by using your understanding and appreciation

how do developed countries use local content requirements

to protect local jobs and industry from foreign competitions

reform needed in openness in india

trade barriers have diminished, but economy is still not as open as leaders in region. activity within india is suppressed due to difference in tax rates, levels of infrastructure and posture towards business activity amongst states/regions.

corruption across countries is tracked by...

transparency international

four pillars of GATT

transparency, non-discrimination, liberalization, self-enforcement

comparative advantage

two countries (or other kinds of parties, such as individuals or firms thereas) will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies. ex: one company has workers that can make 3 shoes and 3 shirts per hour. another company has workers that can produce 4 shirts and 2 shoes per hour. by trading with eachother one country benefitis in shoes, other in shirts even if first company is much wealthier

perceptual ability and expatriate success factors

understand why people in other countries behave the way they do, non-judgemental, non-evaluative in interpreting other's behaviors

main difference between us accounting system and the international standards of the ifrs

us accounting system based on detailed rules, intl system expects companies to follow broad pirnciples

r&d costs in us gaap vs international standards

us: generally counted as an expense when they occur intl: spread out over time when project goes into development

oil, gas, insurance in us gaap vs international standards

us: has industry-specific standards intl: few industry-specific standards

off-balance-sheet rules in us gaap vs international standards

us: putting related company off balance sheet depends on several factors including a calculation that tries to measure control. intl: generally more difficult to put off balance sheet. key factor: whether the parent exercise effective control

real estate in us gaap vs. international standards

us: value of real-estate assets can't be revised upward intl: companies can revalure certain assets to fair value

direct tax credit

used for amount paid directly by parent company to a foreign government such as in the case of withholding taxes for dividend payments, royalty payments, etc

indirect tax credit

used for amounts paid by overseas entities to host country governments

pros of global and transnational strategy

uses HR efficiently, builds strong global culture and informal management network

considerations for modes of transportation

value to volume or value to weight ratio (cost), perishability, stresses of mode (vibration, impact, dropping, etc)

foreign branches pay who's taxes?

viewed as foreign entity by host country so they pay home country taxes

UN Convention on Contracts for the International Sale of Goods

created contract term standards. poses as source of neutrality for disputes in big cases/those that involve the government

BOP includes

current account and capital/financial account

in general today, more political systems are moving towards __________, and more economic systems are moving towards ___________

individualism, market-based approaches

special tariff column

WTO members with whom you have even better relationship with (ex: national free trade agreement with canada)

balance of payments

accounts for a country's international transactions for a period of time, typically a calendar year

globalization I: 1492-1800

countries and muscles drove globalization. military force drove global integration (often inspired religiously or imperialistically). driven primarily by europeans and americans.

problem of import quotas

decreased supply in a nation = raised price for consumers. if domestic consumers feel foreign product is of a better quality/value, may be willing to pay even more for a foreign product.

how do developing companies use local content requirements

develop their manufacturing base

what does double entry system mean?

each transaction is a positive and a negative (counted twice) in the columns.

factors affecting globalization

education (more readily available), limited liability forms of business ownership (don't have to risk everything), technology (huge accelerant. cheaper and faster), growth in property rights, including intellectual property protection (patents and secret formulas, ie), diminishing restrictions on trade and investment flows, growing homogeneity in tastes.

Cons of FDI

expensive, risky (more than exporting or licensing)

current account surplus

exports of goods and services exceed imports

quota rent

extra profit producers make when supply is artificially limited by an import quota.

specific tariff

fixed by unit or quantity (case, gallon, etc) regardless of quality of items in units

#1 export of US is...

goods that make other goods (=we have a lot of patents/protections). #2 is media service.

positive effects of subsidies

helps domestic producers compete internationally.

effects of tariff on importer

increases cost of business

New Investment FDI

no local entity exists or is available for sale, local financial incentives may encourage, no inherited prolems, long lead time to generation of sales or other desired outcomes.

2 tariff column

non wto members (observers included)

harmonized tariff schedule

numerical system minimizes discrepancies worldwide that could be caused by language

general tariff column

originally applies to countries you wish to establish relations with (MFN = most favored nation column). now it applies to all members of WTO (since you want everyone to be nice to you in return, duh)

direct subsidy

payments to reduce cost.

effect of tariff on foreign producers

price is upped to import

who benefits from local content requirements

producers

market economy

productive activities are privately owned, supply and demand focused

Vertical Backward FDI

providing inputs (raw materials, parts) for a firm's domestic production processes

M&A FDI

purchase of existing assets. quick entry, local market know-how, local financing may be possible, eliminate competitor, buying problems. (merging)

voluntary export restraints

quota on trade imposed by the exporting country at the request of importing country's government (do it or we'll do it for you)

in US, what does the government still control?

roadways, rail lines, eduction, correctional facilities

globalization III: today

shrinking the world from a small size to a tiny size. individuals (not countries or companies) will be the primary force driving globalization. software (not hardware) facilitates the new power of individual entrepreneurship. global fiber-optic network allows indviduals to connect seamlessly (call centers, radiologists, accountant, reservations). driven by non-westerners (places are still developing)

compound tariff

specific tariff and ad valorem tariff together.

contract

specifies conditions under which an exchange will happen, rights/obligations of parties. based on a country's legal system.

globalization

trend away from distinct national economic units and toward one huge global market (homogeneity)

impact of protectionism on workers

two fold. lowers unemployment, creates domestic output. but long term, the idea of creating too much buffer for domestic industries can create complacency. eventually, government may have to take protections away = skills/products behind time.

impact of protectionism on government

two fold. source of taxation (revenue). source of power, protection of certain interests. retaliating companies overseas = lower imports/exports

what is the main problem with international contract disputes?

under which country's legal system should the dispute be heard? (generally bigger party has the power)

trademark

unique design and name, often officially registered

as an owner of a product, I have the right to...

use, hide, give, and dispose of a product (for free or for money)

antidumping policies

used to punish foreign firms. protect local industry from unfair practices. impose countervailing duties.