Intro To Business Chapter 3

NAFTA'S Objections are

1) Eliminate trade barriers and facilitate cross-border movement of goods and services. 2) Promote conditions of fair competition. 3) Increase investment opportunities. 4) Provide effective protection and enforcement of intellectual property rights. 5) Establish a framework for further regional trade cooperation. 6) Improve working conditions in North America.

General Agreement On Tariffs And Trade

A Global forum for reducing trade restrictions on goods, services, ideas, and cultural problems.

Foreign Subsidiary

A company owned in a foreign country by another company called the parent company. The most common form of FDI.

Multinational Corporation

A company that manufactures and markets products in many different countries and has multinational stock ownership and management. Only firms that have manufacturing capacity or some other physical presence in different nations can truly be this.

Embargo

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

Franchising

A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.

Absolute Advantage

A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Comparative Advantage

A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently.

Contract Manufacturing

A foreign company produces private label goods to which a domestic company than attaches its own brand name or trade mark. A form of outsourcing.

What's the key difference between a joint venture and a strategic alliance?

A joint venture is a partnership between two or more companies whereby they undertake a major project. Joint ventures generally involve: (a) sharing technology and risk; (b) sharing marketing and management expertise; (c) entry into markets where foreign companies are often not allowed unless goods are produced locally. In a strategic alliance partners do not share costs, risks, management, or even profits. The purpose is to gain advantages in building competitive market advantages.

Strategic Alliance

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

How would a low value of the dollar affect U.S. exports?

A low value of the dollar would make U.S. exports cheaper in foreign markets and may lead to higher demand for U.S. products.

What makes a company a multinational corporation?

A multinational corporation manufactures and markets products in many different countries and has multinational stock ownership and management. Only firms that have manufacturing capacity or other physical presence in other countries can be called multinational.

Joint Venture

A partnership in which two or more companies join to undertake a major product.

Common Market

A regional group of countries with a common external tariff, no international tariffs and coordinated laws to facilitate exchange among members.

Contract Manufacturing can be used to

Allow a company to experiment in a new market without incurring heavy start up costs such as building a manufacturing plant. Temporarily meet an unexpected increase in orders.

What does the acronym BRIC stand for?

BRIC stands for Brazil, Russia, India, and China.

Importing

Buying products from another country.

What's comparative advantage, and what are some examples of this concept at work in global markets?

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

Countertrading

Complex form of bartering in which several countries each trade goods or services for other goods or services.

Environmental forces

Developing countries have transportation and storage systems that make international distribution difficult or impossible. Often, technological capabilities are far from those in the US. which make for a tough business environment.

Low value of a dollar

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

High value of a dollar

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

What's meant by dumping in global trade?

Dumping is the selling of products in foreign countries at lower prices than those charged in the producing country. This tactic is sometimes used to reduce surplus products in foreign markets or gain a foothold in a new market.

What does ethnocentricity mean and how can it affect global success?

Ethnocentricity is an attitude that your nation's culture is superior to other cultures. It can affect global trade because all nations are proud of their cultures and do not aspire to be like other countries. Thus it's easy to offend potential customers by being ethnocentric.

What services are usually provided by an export-trading company?

Export trading companies provide such services as assistance in associating and establishing the desired trading relationships, matching buyers and sellers from different countries, and help dealing with foreign customs offices, documentation, and weights and measures.

What are four major hurdles to successful global trade?

Four major hurdles to successful global trade are: sociocultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces.

Licensing Benefits

Gaining revenues it wouldn't otherwise gain. Sppnding little or no money to produve or market their products

Sovereign Wealth Funds (SWFs) might be used for

Geopolitical objectives. - Gaining control of strategic natural resources. - Obtaining sensitive technologies. - Undermining the management of the companies in which they invest.

HOW FREE TRADE BENEFITS the WORLD

Global trade has led the world in a new direction: Literacy rates worldwide have increased from 56% in 1950 to 89% in 2011. Life expectancy in less developed areas rose from 40.9 years in 1950 to 69 years in 2011.

World Trade Organization

Headquartered in Geneva, it is an independent entity of 153 member nations whose purpose is to oversee cross-border trade issues and global business practices.

What key challenges must India and Russia face before becoming global economic leaders?

India must relax its difficult trade laws and inflexible bureaucracy. Russia is plagued by political, currency, corruption, and social problems.

Sovereign Wealth Funds (SWFs)

Investment funds controlled by governments holding large stakes in foreign companies.

Import Quota

Limitations the number of products in certain categories a nation can import

Devaluation

Lowers the value of a nation's currency relative to others.

EXPORT TRADING CENTERS help companies engage in indirect exporting by

Matching buyers and sellers. Dealing with foreign customs offices, documentation, and conversions.

Foreign Subsidiary Primary Disadvantage

Must commit funds and technology within foreign boundaries.

Which three nations comprise NAFTA?

NAFTA is comprised of the United States, Canada and Mexico.

What are two of the main arguments favoring the expansion of U.S. businesses into global markets?

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

Foreign Subsidiary Primary Advantage

Parent company maintains complete control over its technology or expertise.

Central American Free Trade Agreement

Passes in 2005, created a free-trade zone with costa rica, dominican republic, el salvador, guatemala, honduras, and nicaragua.

Outsourcing

Process by which a firm contracts with other companies to do some or all of it's functions.

Types Of Tarriffs

Protective Revenue

Revenue Tarrifs

Raise money for governments.

Protective Tarrifs

Raise the retail price of imports so domestic goods are competitively priced.

North American Free Trade Agreement

Ratified in 1994, created a free-trade area among the United States, Canada and Mexico.

Dumping

Selling products in a foreign country at lower prices than those charged in the producing country. It is prohibited.

Exporting

Selling products to another country.

Benefits of joint ventures

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

Cultural Differences

Social structure. Religion. Manners. Values. Language Personal Communication.

Forces Affecting Global Trade

Sociocultural Economic And Financial Legal And Regulatory Physical And Enviromental

Tariffs

Taxes on imports, making imported goods more expensive.

What does the Foreign Corrupt Practices Act prohibit?

The Foreign Corrupt Practices Act prohibits "questionable" or "dubious" payments to foreign officials to secure business contracts. Other nations do not have to follow this law causing some disadvantages for U.S. businesses.

Exchange Rate

The Value of one nation's currency relative to the currencies of other countries.

What's the primary purpose of the WTO?

The World Trade Organization (WTO) was established to mediate trade disputes among nations.

How are a nation's balance of trade and balance of payments determined?

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

Foreign Direct Investment (FDI)

The buying of permanent property and businesses in foreign nations.

Balance of Payments

The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows.

What are the advantages of using licensing as a method of entry in global markets? What are the disadvantages?

The key advantages of using licensing as a method of entry into global markets are: (a) a firm can often gain revenues in a market it would not have generated in its home market; (b) licensees must purchase start-up supplies and consulting services from the licensing firm; and c) licensors spend little or no money to produce and market their products. Disadvantages to licensing include: (a) if a product is extremely successful in another market, the licensor does not receive the bulk of the revenues and (b) if the foreign licensee learns the company's technology and product secrets, it may break the agreement and begin producing similar products on its own.

What are the two primary concerns about offshore outsourcing?

The key concern about offshore outsourcing is the loss of jobs. Today such loss includes professional services as well as production jobs. Questions also linger about outsourcing sensitive products like airline maintenance and medical devices. Consumers' fears about quality and product safety keep the issue center stage.

What are the major threats to doing business in global markets?

The major threats to doing business in global markets are: terrorism, nuclear proliferation, rogue states, and other issues.

Free Trade

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

What's the key objective of a common market like the EU?

The purpose of a common market like the EU is to have common external tariffs, no internal tariff, and coordinated laws to facilitate exchange between member nations. This enables smaller nations to compete as a group against large economies like the United States, China, and Japan.

Balance of Trade

The total value of a nation's exports compared to its imports measured over a particular period.

Trade Protectionism

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

Legal concerns overseas

There's no global system of laws. Laws may be inconsistent. US. businesses must follow US. laws while conducting global business. The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and bribery in foreign markets and have had limited success.

What are the advantages and disadvantages of trade protectionism and of tariffs?

Trade protectionism is the use of government regulations to limit the import of goods and services. It can be a barrier to global trade. Trade protectionism often involves the use of tariffs or taxes on imported goods that makes them more expensive to buy. Protective tariffs can be an advantage to workers in certain industries since it makes the products they produce more cost competitive with imported products. American labor unions have sought certain protective tariffs. Revenue tariffs are designed as a source of revenue for the government. Most economists do not favor the use of tariffs; instead they are in favor of free trade.

Licensing

When a firm provides the right to manufacture its product or use its trademark to a foreign company for a fee(royalty)

Trade Deficit (Unfavorable)

When the value of a country's exports is less than that of its imports.

Trade Surplus (Favorable)

When the value of a country's exports is more than that of its imports.

EXPORT ASSISTANCE CENTERS

provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services.