MGMT 309 - Exam #1 - Chapter 5

North American Free Trade Agreement (NAFTA)

The _____ is an agreement made by the United States, Canada, and Mexico to promote trade with one another. a.General Agreement on Tariffs and Trade (GATT) b.Multilateral Agreement on Investment c.European Union Free Trade Agreement d.North American Free Trade Agreement (NAFTA)

General Agreement on Tariffs and Trade (GATT)

The _____ was a major stimulus to international trade after it was first ratified in 1948 by 23 countries. a.General Agreement on Tariffs and Trade (GATT) b.Preferential Trade Arrangement c.North American Free Trade Agreement (NAFTA) d.Multilateral Agreement on Investment

Export restraint agreements

are designed to persuade other governments to voluntarily limit the volume or value of goods exported to or imported from a particular country. They are, in effect, export quotas.

North American Free Trade Agreement (NAFTA)

-These countries have also negotiated a variety of agreements to make trade even easier. eliminates many of the trade barriers—quotas and tariffs, for example—that existed previously.

Domestic business:

-acquires essentially all of its resources and sells all of its products or services within a single country. -Most small businesses are essentially domestic in nature; this category includes local retailers and restaurants, agricultural enterprises, and small service firms such as dry cleaners and hair salons. -However, there are very few large domestic businesses left in the world today.

Maquiladoras

-are light assembly plants built in northern Mexico close to the U.S. border. The plants are given special tax breaks by the Mexican government, and the area is populated with workers willing to work for very low wages.

government stability

-as the ability of a given government to stay in power against opposing factions in the country -as the permanence of government policies toward business.

Advantages of Import/export

-easiest way to enter a market with a small outlay of capital

nationalized

-foreign businesses may be taken over by the government. -with little or no warning. For example, the government of Peru once nationalized Perulac, a domestic milk producer owned by Nestlé at the time, because of a local milk shortage.

Multinational business:

-has a worldwide marketplace from which it buys raw materials, borrows money, where it manufactures its products, and to which it subsequently sells its products. -Example: Coca-Cola -derives more than half of its revenue and profits outside of the United States -Markets hundreds of beverages world wide that have never been sold in the U.S. -Often called a Multinational Corporation, or MNC.

Two advantages of licensing:

-increase profitability -extend profitability

Primary disadvantage of licensing:

-inflexibility -licensees can take the knowledge and skill to which they have been given access for a foreign market and exploit them in the licensing firm's home market.

licensing:

-is an arrangement whereby a firm allows another company to use its brand name, trademark, technology, patent, copyright, or other assets. In return, the licensee pays a royalty, usually based on sales. -Example: Kirin brewery: Japan's Largest producer of beer wanted to expand its international operations but feared at the time shipping the beer would cause it to lose its freshness. -Found people to license to and produce this beer in other countries

International Business

-one that is based primarily in a single country but acquires some meaningful share of its resources or revenues (or both) from other countries. -Example: Lowe's -Lowe's is based in the U.S. with 1800 stores, but they also have 40 stores in Canada and Mexico. -A lot of the things they sell are made abroad

Disadvantages of import/export

-subject to taxes, tariffs, and higher transportation expenses. -Furthermore, because the products are not adapted to local conditions, they may miss the needs of a large segment of the market. -Finally, some products may be restricted and thus can be neither imported nor exported.

Incentives for international trade

-the state of Alabama offered Mercedes-Benz huge tax breaks and other incentives to entice the German firm to select a location for a new factory in that state.

Three basic goals of the World Trade Organization

1-To promote trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies 2-To reduce remaining trade barriers through multilateral negotiations 3-To establish impartial procedures for resolving trade disputes among its members

1- Government Stability 2- incentives for multinational trade 3- controls on international trade 4- the influence of economic communities on international trade

4 aspects of the political-legal environment

transcends national boundaries and is not committed to a single home country.

A global business: a.restricts its trade operations to within the home country and its neighboring countries. b.transcends national boundaries and is not committed to a single home country. c.buys raw materials and sells finished products to a single country. d.borrows money from a single country to manufacture and sell its products and services.

International business

A(n) _____ is a business that is based primarily in a single country but acquires some meaningful share of its resources or revenues (or both) from other countries. a.domestic business b.intranational business c.racketeering business d.international business

EUROPE

Along with North America, where is another mature market system?

is an easy way to enter a market with a small outlay of capital.

An import/export operation is advantageous because it: a.is subject to low transportation expenses. b.is an easy way to enter a market with a small outlay of capital. c.adapts a product to local conditions easily. d.involves paying low taxes and tariffs to the government.

Pacific Asia

Another Mature market is: -this market system includes Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, and Australia.

The first type of international business in which a firm gets involved.

Importing or exporting (or both) is usually the first type of international business in which a firm gets involved.

need to organize to implement their plans.

International managers: a.are not required to develop control mechanisms. b.need to organize to implement their plans. c.have a minimal understanding of environmental issues. d.do not interact with those who are lower in the hierarchy

Importing:

Is bringing a good, service, or capital into a firm's home country from abroad.

Exporting:

Making the product in the firm's domestic marketplace and selling it in another country, can involve both merchandise and services.

Other economies:

One major area that falls outside of these categories is the oil-exporting region generally called the Middle East. The oil-exporting countries present mixed models of resource allocation, property ownership, and infrastructure development. -Iran, Syria, Iraq, Kuwait, Saudi Arabia, Libya, United Arab Emirates -Political instability makes these countries extremely risky to do business in.

high-potential/high-growth economies

These economies have been relatively underdeveloped and immature and, until recently, were characterized by weak industry, weak currency, and relatively poor consumers.- South Africa, China, India, Vietnam

1- The economic environment 2- the political-legal environment 3- Cultural environment

Three Environmental challenges of International Management:

1- Economic system 2- Natural resources 3- Infrastructure

Three aspects of the economic environment

European Union

Western European countries with traditional market economies have been working together to promote international trade for decades. -currently comprised of 28 members, has long been a formidable market system. The EU's origins can be traced to 1957 when Belgium, France, Luxembourg, Germany, Italy, and the Netherlands signed the Treaty of Rome to promote economic integration.

1- Domestic business 2- International business 3- Multinational business 4- Global business

What are the four levels of international business:

China

Which of the following countries remains largely underdeveloped but has a high-potential economy? a.Taiwan b.China c.Cuba d.Japan

complete private ownership

Which of the following is a pure type of property ownership? a.Joint tenancy b.Complete private ownership c.Communal ownership d.Complete open access

They transfer capital and information from one market to another.

Which of the following is true of Multinational Corporations (MNCs)? a.They transfer capital and information from one market to another. b.They do not give their managers discretion to address regional issues. c.Their employees are not accountable to a central authority. d.Their primary goal is to expand within the domestic market.

deal with human resources

While performing the function of organizing in a global economy, managers should: a.eliminate the responsibility of local managers. b.deal with human resources. c.avoid change. d.promote organizational inflexibility.

A tariff

_____ is a tax collected on goods shipped across national boundaries. a.Tithe b.A tariff c.Carucage d.A fee

collectivism

_____, an extreme of social orientation, is the belief that the group comes first. a.Marxism b.Individualism c.Totalitarianism d.Collectivism

Tariff

a tax collected on goods shipped across national boundaries. Tariffs can be collected by the exporting country, countries through which goods pass, and the importing country.

market systems

are clusters of countries that engage in high levels of trade with one another. -one mature market system is North America (U.S., Canada, and Mexico are major trading partners)

quotas

are the most common form of trade restriction. A quota is a limit on the number or value of goods that can be traded. The quota amount is typically designed to ensure that domestic competitors will be able to maintain a certain market share. Honda is allowed to import 425,000 autos each year into the United States.

World Trade Organization (WTO)

came into existence on January 1, 1995. The WTO replaced the GATT and absorbed its mission.

Infrastructure

consists of its schools, hospitals, power plants, railroads, highways, shipping ports, communication systems, airfields, commercial distribution systems, and so forth. The United States has a highly developed infrastructure.

Mature market economy

economies include the United States, Canada, Japan, the United Kingdom, France, Germany, and Sweden. These countries have several things in common. For example, they tend to employ market forces in the allocation of resources. They also tend to be characterized by private ownership of property, although there is some variance along this dimension. France, for example, has a relatively high level of government ownership among the market economies.

The cultural environment

how culture affects businesses.

social orientation

is a person's beliefs about the relative importance of the individual versus the groups to which that person belongs. The two extremes of social orientation are individualism and collectivism. -individualism vs collectivism

economic community

is a set of countries that agree to markedly reduce or eliminate trade barriers among member nations. The first and in many ways still the most important of these economic communities is the European Union (EU), discussed earlier. The passage of NAFTA, as also noted earlier, represents perhaps the first step toward the formation of a North American economic community.

Joint venture:

is a special type of strategic alliance in which the partners actually share ownership of a new enterprise. -General Mills and Nestlé formed a separate company called Cereal Partners Worldwide (CPW) to produce and market cereals. General Mills supplies the technology and proven formulas, while Nestlé provides its international distribution network.

General Agreement on Tariffs and Trade (GATT)

is a trade agreement intended to promote international trade by reducing trade barriers and making it easier for all nations to compete in international markets. The GATT was a major stimulus to international trade after it was first ratified in 1948 by 23 countries.

Market economy

is based on the private ownership of business, and it allows market factors such as supply and demand to determine business strategy.

uncertainty orientation

is the feeling people have about uncertain and ambiguous situations. People in cultures with uncertainty acceptance are stimulated by change and thrive on new opportunities. Hofstede suggested that many people in the United States, Denmark, Sweden, Canada, Singapore, Hong Kong, and Australia are among those in this category. In contrast, people with uncertainty avoidance tendencies dislike and will avoid ambiguity whenever possible.

goal orientation

is the manner in which people are motivated to work toward different kinds of goals. One extreme on the goal orientation continuum is aggressive goal behavior. People who exhibit aggressive goal behaviors tend to place a high premium on material possessions, money, and assertiveness. On the other hand, people who adopt passive goal behavior place a higher value on social relationships, quality of life, and concern for others. According to Hofstede's research, many people in Japan tend to exhibit relatively aggressive goal behaviors, whereas many people in Germany, Mexico, Italy, and the United States reflect moderately aggressive goal behaviors. People from the Netherlands and the Scandinavian countries of Norway, Sweden, Denmark, and Finland all tend to exhibit relatively passive goal behaviors.

direct investment:

occurs when a firm headquartered in one country builds or purchases operating facilities or subsidiaries in a foreign country. -For instance, Disney is investing approximately $4 billion to construct a new Disney theme park and resort near Shanghai, China. Similarly, Coca-Cola spent $150 million to build a new bottling and distribution network in India.

Global Business:

one that transcends national boundaries and is not committed to a single home country. -Currently no business has reached this level of internationalization

power orientation

the beliefs that people in a culture hold about the appropriateness of power and authority differences in hierarchies such as business organizations. -power respect vs power tolerance

Controls on international trade

the extent to which there are controls on international trade. In some instances, a country's government might decide that foreign competition is hurting domestic trade. To protect domestic business, such governments may enact barriers to international trade. These barriers include tariffs, quotas, export restraint agreements, and "buy national" laws.

-mature market economies and systems -high-potential/high-growth economies -and other economies

three different elements of the global economy

strategic alliance:

two or more firms jointly cooperate for mutual gain. -American Airlines and British Air have a code-sharing alliance. International agreements allow British Air (BA) to fly passengers from London to Dallas. However, it cannot board new passengers in Dallas and fly them on to Los Angeles. But passengers can buy a single ticket that allows them to fly from London to Dallas on BA and then change to an American Airlines flight to continue their journey.

time orientation

was recently added to the framework.Footnote Time orientation is the extent to which members of a culture adopt a long-term versus a short-term outlook on work, life, and other elements of society. Some cultures, such as Japan, Hong Kong, Taiwan, and South Korea, have a longer-term orientation. One implication of this orientation is that people from these cultures are willing to accept that they may have to work hard for many years before achieving their goals. Other cultures, like Pakistan and West Africa, are more likely to have a short-term orientation.

Natural resources

where are you getting your materials to create a product or service