question

International business

answer

Performance of trade and investment activities by firms across national borders

question

Globalization of markets

answer

ongoing economic integration and growing interdependency of countries worldwide

question

International Trade

answer

Exchange of products and services across national borders, typically through exporting and importing.

question

Exporting

answer

The strategy of producing products or services in one country (often the producer's home country), and the selling and distributing them to customers located in other countries

question

Importing or global sourcing

answer

procurement of products or services from suppliers located abroad for consumption in the home country or a third country

question

International investment

answer

The transfer of assets to another country or the acquisition of assets in that country

question

International portfolio investment

answer

Passive ownership of foreign securities such as stocks and bonds for the purpose of generating financial returns.

question

Foreign direct investment (FDI)

answer

An internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, land, plant, and equipment

question

Cross-cultural risk

answer

A situation or event where a cultural misunderstanding puts some human value at stake.

question

Country risk

answer

Exposure to potential loss or adverse effects on company operations and profitability caused by developments in a country's political and/or legal environments.

question

Currency risk

answer

potential harm that arises from changes in the price of one currency relative to another

question

Commercial risk

answer

firm's potential loss or failure from poorly developed or executed business strategies, tactics, or procedures.

question

Multinational enterprise (MNE)

answer

A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries

question

Small and medium-sized enterprise (SME)

answer

A company with 500 or fewer employees (as defined in Canada and the US)

question

Born global firm

answer

a young entrepreneurial company that initiates international business activity very early in its evolution, moving rapidly into foreign markets.

question

STARTING CHAPTER 2

answer

GLOBALIZATION AND THE INTERNATIONALIZATION OF THE FIRM

question

Does distance not matter anymore?

answer

Yes; investing in Mexico versus Japan (from the U.S.), but advances in technology have made distance less of a problem.

question

ICT?

answer

Information and Communications Technology. Levels the playing field, we are able to outsource work now.

question

Globalization affects everyone, but it affects some industries more than others. Globalization especially affects industries that experience:

answer

Expensive product development costs Fast changing technology Similar buyer wants and needs worldwide Low trade barriers and few regulatory constraints

question

Firm's Value Chain

answer

Upstream value chain activities: Market Research->R&D->Sourcing Production Downstream value chain activities: Marketing->Distribution->After-sales service

question

Offshoring and the Flight of Jobs:

answer

Jobs are lost as firms shift production of goods and services abroad in order to cut costs and obtain other advantages. Firms benefit, but communities and industries may be disrupted. Firms benefit; individuals/industries detrimental from offshoring.

question

National prosperity is strongly associated with

answer

-Participation in international trade and investment -The nation's level of economic freedom

question

Economic freedom....

answer

Economic freedom is the extent of government interference in business, strictness of the nation's regulatory environment, and the ease with which economic activity can be carried out

question

Who has Profited Most from Liberalization?

answer

Biggest winners of liberalization were the super poor and super rich countries. After 25 years, it appeared that both rich and poor countries grew faster than middle income countries But some middle income countries are now doing well again.

question

Contagion

answer

the tendency of a financial or monetary crisis in one country to spread rapidly to other countries, due to the ongoing integration of national economies. Caused the global recession. Began in the U.S. and spread rapidly because of globalization.

question

Globalization of Markets

answer

ongoing economic integration and growing interdependency of countries worldwide.

question

World Trade Organization

answer

a multilateral governing body empowered to regulate international trade and investment

question

value chain

answer

the sequence of value-adding activities performed by the firm in the course of developing, producing, marketing, and servicing of product.

question

Reciprocity

answer

increasingly enforced by the WTO.

question

Exporting is the fastest, easiest and least risky way to enter foreign markets... T of F

answer

True

question

MNEs leverage ICTs to optimize their performance, managing operations around the world.

answer

leveled the playing field... able to outsource work.

question

ICTs opened the global marketplace to firms that historically lacked the resources to internationalize. T or F

answer

True

question

CAD

answer

computer-aided design of products

question

SECTION 2

answer

PARTICIPANTS IN INTERNATIONAL BUSINESS

question

Focal firm

answer

are primarily large multinational enterprises (MNEs) and small and medium-sized enterprises (SMEs). Some are manufacturing businesses, while others are in the service sector.

question

Distribution channel intermediary

answer

is a specialist firm that provides various logistics and marketing services for focal firms as part of the international supply chain, both in the focal firm's home country and abroad. Typical intermediaries are independent distributors and sales representatives, usually located in foreign markets where they provide distribution and marketing services to focal firms on a contractual basis.

question

Facilitator

answer

is a firm or an individual with special expertise in banking, legal advice, customs clearance, or related support services that helps focal firms perform international business transactions. Facilitators include logistics service providers, freight forwarders, banks, and other support firms that assist focal firms in performing specific functions. A freight forwarder is a specialized logistics service provider that arranges international shipping on behalf of exporting firms, much like a travel agent for cargo. Facilitators are found in both the home country and abroad.

question

Freight forwarder

answer

a specialized logistics service provider that arranges international shipping on behalf of exporting firms.

question

Governments

answer

are active in international business as suppliers, buyers, and regulators. State-owned enterprises account for a substantial portion of economic value added in many countries, such as Russia, China, and Brazil. Governments in advanced economies like France and Sweden have significant ownership of companies in telecom, banking, and natural resources. The global financial crisis that began in 2008 led governments to step up their involvement in business, especially as regulators.

question

Diasporas

answer

emigrant communities with ties to the homeland. Ex) Jews living outside of Israel.

question

Largest MNEs in the Fortune Global 500

answer

A notable transition in the first decade of the 21st century is the rise of emerging market MNEs. This trend is illustrated in the exhibit, which shows the number of MNEs listed in Fortune magazine's "Global 500", the 500 largest multinational firms worldwide. The exhibit reveals that just as the number of MNEs based in the United States and Japan has declined steadily during the 2000's, the number of MNEs based in Brazil, China, India, and Russia has risen. The increase of Global 500 MNEs in China, from nine firms in 2001 to 61 today, is particularly significant. We should note that during the 2000's the number of Global 500 MNEs based in each of France and Germany has remained relatively stable at about 36 firms each. The number of MNEs based in the United Kingdom has held steady at about 33, and South Korea has remained at about 13 firms. The trend suggests a sort of "balancing" of MNE power - where the United States and Japan once dominated the Global 500, today emerging market MNEs are on the rise.

question

Can Local Firms Compete With MNEs?

answer

"These days new local brands are always coming at you. And we take them very seriously, whereas five years ago all eyes were on the other multinationals."

question

Defender Strategy for Local Firms:

answer

Local firms can leverage -Knowledge of local tastes/ customs -Good relationships with local distributors and/or suppliers Local governments may show preference to local firm

question

Extender Strategy for Local Firms

answer

Assets that work for defenders may also work in similar markets abroad

question

Contender Strategy for Local Firms

answer

Local firms upgrade capabilities to compete globally in global industries that requires global scale R&D and/or manufacturing Turkey's Arcelik (Beko) was a successful contender in Europe

question

Dodger Strategy for Local Firms

answer

Local firms cooperate with global competitors rather than compete with them They agree to a joint venture They sell out to MNEs Example) In the documentary about Kosmos energy company doing off shore drilling off the west coast of Africa... the new government stepped in and made the entities combine their venture.

question

The Power of Market Preemption

answer

-Disney in Hong Kong faced surprisingly tough Chinese competition -Local firms increasingly expect MNEs to arrive in their markets and prepare for this

question

SOEs

answer

State-Owned Enterprise -Mid-20th century -Especially in communist countries and developing countries -These firms were established to support government development plans

question

Advantages of SOEs

answer

-Priority to government financing -Protected from bankruptcy -Often granted a monopoly at home

question

Disadvantages of SOEs

answer

-Lack of funding due to government cutbacks -Lack of competitiveness -Forced to administer auxiliary government objectives

question

Privatization

answer

-The sale of state-owned enterprises or their assets -A major trend worldwide in 1990s -Still, SOEs remain formidable competitors in some markets

question

SOEs in China

answer

Still important part of the economy Many Chinese companies are SOE hybrids - companies where government holds a partial (though usually significant) equity position SOE hybrids: government holds partial ownership (equity) SOEs are adversaries for foreign firms but they also like to hire foreign managers!

question

Small and Medium-sized Enterprise (SME) as a Focal Firm

answer

-A relatively small player in its respective industry, usually defined as firms with 500 or fewer employees. -Constitutes the great majority of firms worldwide SMEs usually create the most new jobs. Characterized by limited resources, which often prevents internationalizing via FDI. Instead, SMEs usually internationalize via exporting. Many more SMEs do international business today than ever before.

question

Distribution Channel Intermediary

answer

Specializes in physical distribution and marketing. Connects the focal firm with the end user in the foreign market. Assists the focal firm by providing logistics services such as warehousing and customer support Especially critical to exporters that do not engage in FDI Based either in the foreign market or in the home country

question

Intermediaries Based in the Foreign Market

answer

Foreign Distributor: Takes title to the exporter's goods and performs marketing functions such as sales, promotion, and after-sales service on the exporter's behalf. Serves as the extension of the focal firm in the foreign market. Also arranges for local transportation and advises focal firms on how to function effectively in the local market.

question

Intermediaries Based in the Foreign Market

answer

Agent: Also known as a broker. Does not take title to the goods. Works on a commission basis to bring the buyer and seller together.

question

Intermediaries Based in the Foreign Market

answer

Manufacturer's Representative: Works under contract by the exporter to represent and sell its merchandise in designated territories. Acts as a contracted salesperson in a designated territory.

question

Intermediaries Based in the Home Country

answer

Trading Company: An intermediary that handles imports and exports of various raw materials, parts, and finished products. Large trading companies are typically high-volume, low-margin resellers. Many deal primarily in commodities such as grains, minerals, coal, and metals (e.g., Cargill in the USA). In Japan, trading companies are key players in international trade. E.g., Mitsubishi, Marubeni, Mitsui, Sumitomo - all firms in Fortune's Global 500.

question

World's largest trading companies

answer

The exhibit provides a list of the largest trading companies in the world. What strikes you about these firms? First, they tend to be high-volume, low-margin resellers dealing largely in commodities such as grains, minerals, and metals. Second, note that five of the ten are based in Japan, where trading companies long have played a critical role in external trade. Being an island country with few natural resources, over time Japan became very good at importing parts and materials needed in manufacturing. Trading companies are also common in South Korea, India, and Europe. In Japan, large trading companies are known as sogo shosha. The sogo shosha usually engage in both exporting and importing and are specialists in low-margin, high-volume trading. They may also supply a range of manufacturing, financial, and logistical services. To stay close to foreign markets, managers of the sogo shosha travel widely, employ extensive networks of local offices, participate in trade shows, and establish business relationships with agents and distributors worldwide. The sogo shosha include giant firms that are little known in the West, such as Mitsui, Sumitomo, Itochu, and Marubeni, all firms on the Fortune Global 500. In the 1990s, total trade of the nine top sogo shosha averaged about 25 percent of Japan's total GDP. They typically have extensive global operations. For example, Marubeni (www.marubeni.com) has hundreds of subsidiaries in seventy countries. It is consistently ranked in the upper end of the Global 500 and had recent annual sales of more than $25 billion. In the United States, trading companies have had a relatively negligible impact on the volume of export activity. One deterrent is the preference of U.S. firms to pursue international expansion independently of other firms.

question

Intermediaries Based in the Home Country

answer

Export Management Company (EMC): Common in the USA and numerous other countries. Acts as an export agent on behalf of the focal firm. Finds export customers, negotiates terms of sale, and arranges for international shipping, typically for smaller exporters. Most specialize in specific industries and geographic areas.

question

Disintermediation

answer

'Disintermediation' - bypassing traditional intermediaries - is made possible by the Internet. Examples include Amazon and eBay Traditional retailers such as Tesco and Wal-Mart have also established an online presence. One negative outcome is that unscrupulous marketers prey on unsuspecting customers with fake products (e.g., pharmaceuticals).

question

Disintermediation 2

answer

Some focal firms use the Internet to sell products directly to customers rather than going through traditional wholesale and retail channels. By eliminating traditional intermediaries, companies can sell their products faster and more cheaply. This benefits SMEs in particular because they usually lack the often substantial resources needed to undertake conventional international operations. Countless online intermediaries broker transactions between buyers and sellers worldwide. Emergent technologies offer—and sometimes require—new roles that intermediaries have not taken previously. Many traditional retailers establish Web sites or link with online service providers to create an electronic presence. The electronic sites of retailers like Tesco (www.tesco.com) and Wal-Mart (www.walmart.com) complement existing physical distribution infrastructure and bring more customers into physical outlets. Read more about Internet-based international intermediaries in the Global Trend feature.

question

Born global firm

answer

a young entrepreneurial company that initiates international business activity early in its evolution, moving rapidly into foreign markets.

question

Licensor

answer

a firm that enters a contractual agreement with a foreign partner to allow the partner the right to use certain intellectual property for a specified period of time in exchange for royalties or other compensation

question

Franchisor

answer

a firm that grants another the right to use an entire business system in exchange for fees, royalties, or other forms of compensation.

question

Turnkey contractors

answer

Focal firms or a consortium of firms that plan, finance, organize, manage, and implement all phases of a project and then hand it over to a foreign customer after training local personal.

question

Joint venture partners

answer

a focal firm that creates and jointly owns a new legal entity through equity investment or pooling of assets.

question

project based, nonequity venture partners

answer

a collaboration in which the partners create a project with a relatively narrow scope and a well defined timetable, without creating a new legal entity.

question

foreign distributor

answer

a foreign based intermediary that works under contract for an exporter, takes title to, and distributes the exporter's products in a national market, often performing marketing functions such as sales, promotion, and after-sales service.

question

Agent

answer

an intermediary (often an individual or a small firm) that handles orders to buy and sell commodities, products, and services in international business transactions for a commission.

question

Manufacturer's representative

answer

an intermediary contracted by the exporter to represent and sell its merchandise or services in a designated country or territory

question

Trading company

answer

an intermediary that engages in import and export of a variety of commodities, products, and services

question

Export management company (EMC)

answer

a domestically based intermediary that acts as an export agent on behalf of a client company.

question

Logistics service provider

answer

a transportation specialists that arranges for physical distribution and storage of products on behalf of focal firms, as well as controlling information between the point of origin and the point of consumption.

question

Customers brokers

answer

specialist enterprises that arrange clearance of products through customs on behalf of importing firms.

question

Soverign wealth fund (SWF)

answer

a state-owned investment fund that undertakes systematic, global investment activities.

question

T or F

answer

A belief by certain diasporas that they would fare better than an MNE in their homelands because they better understand their homelands. This belief may or may not be true.

question

Since 2008, Germany requires parliamentary approval or foreign investments that acquire more than 25% of a German company. T or F

answer

T

question

Sovereign wealth funds

answer

are state-owned investment funds that undertake systematic, global investment activities to generate income or to achieve policy objectives. Governments make and enforce laws and regulations and devise fiscal and monetary policies. Many governments have developed new legislation aimed at protecting the natural environment. For example, the U.S. and European governments are cooperating to develop policies to cut carbon dioxide emissions. Multilateral environmental regulations are deemed necessary to address climate change, which can lead to harmful cross-national events such as crop failures and business calamities. Increasingly, governments also regulate markets. During the recent global financial crisis, governments moved to stimulate national economies through such programs as the Economic Stimulus Act in the United States, the European Union stimulus plan, and the Economic Stimulus Plan in China. Central banks are the monetary authorities in each country that issue currency and regulate national money supplies. Australia, Canada, China, Indonesia, the United States, and numerous European countries cut bank interest rates and injected billions into national money supplies. The European Central Bank (www.ecb.int) devised new banking regulations with the goal of averting future crises. Sovereign wealth funds are state-owned investment funds that undertake systematic, global investment activities to generate income or to achieve policy objectives, such as reviving a collapsed economy. In 2007 China invested billions in Blackstone, a New York-based private-equity firm. In 2008, the governments of Singapore, Kuwait, and South Korea provided much of a $21 billion lifeline to Citigroup and Merrill Lynch, two banks that lost fortunes in the global financial crisis. In 2012, China's SWFs dramatically increased investments in Europe, to acquire debt-ridden European firms.

question

U.S. Exon-Florio Amendment

answer

Part of Omnibus Trade and Competitiveness Act of 1988 The President of the United States may block foreign investment if "the foreign interest exercising control might take action that threatens to impair the national security."

question

Conclusion

answer

As long as sovereign wealth funds own a very small percentage of a local firm, the local government should feel confident Large purchase could face push-back similar to FDI by SOEs

question

Dubai Ports World (DPW)

answer

State-owned DPW purchased management contracts for six major U.S. ports from a British company in 2006. President George W Bush supported the sale but Democrats and Republicans in Congress opposed it.

question

Dubai Ports World (DPW) cont.

answer

Reasons to Support The UAE was a Strategic Partner Allowed the US Military access to its land, ports and airspace An ally in the War on Terror Port security was always the responsibility of the US government Blocking the transfer appeared discriminatory towards Arabs What happened? DPW graciously withdrew

question

Mercantilism

answer

The belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports

question

Who Gets Hurt By Mercantilism

answer

Importers Consumers -Imports can increase purchase options -Imports can reduce prices

question

Neomercantilism

answer

Today, some argue for neomercantilism --- the idea that the nation should run a trade surplus. Supporters of neomercantilism include: Labor unions (who want to protect domestic jobs), Farmers (who want to keep crop prices high) Some manufacturers that rely on exports.

question

Free Trade

answer

The absence of restrictions to the flow of goods and services among nations. Free trade is usually best because it leads to More and better choices for consumers and firms Lower prices of goods for consumers and firms Higher living standards for consumers because their costs are lower. Higher profits and better worker wages because imported input goods are usually cheaper. Greater prosperity in poor countries.

question

Absolute Advantage Principle

answer

A country should produce only those products in which it has absolute advantage or can produce using fewer resources than another country

question

Comparative Advantage Principle

answer

It is beneficial for two countries to trade even if one has absolute advantage in the production of all products; what matters is not the absolute cost of production but the relative efficiency with which it can produce the product

question

Factor Proportions Theory

answer

Also known as the factor endowments theory, it argues that each country should produce and export products that intensively use relatively abundant factors of production and import goods that intensively use relatively scarce factors of production. Basically, they should export products that they have abundant, and import products that are scarce to them.

question

International Product Life Cycle Theory

answer

Each product and its associated manufacturing technologies go through three stages of evolution: 1-Introduction: the inventor country enjoys a monopoly both in manufacturing and exports. 2-Maturity: the product's manufacturing becomes relativelyt standardized; other countries start producing and exporting the product. 3-Standardization: manufacturing ceases in the original innovator country, which then becomes a net importer of the product. Today under globalization, for many products, the cycle occurs quickly.

question

Leontief Paradox

answer

In the 1950's, Leontief Paradox revealed that countries can successfully export products that use less abundant resources (e.g., the U.S. often exports labor-intensive goods). Implies that international trade is complex and cannot be fully explained by a single theory. Labor productivity should be considered as well as hourly wages.

question

Competitive Advantage

answer

A foundation concept that explains how individual firms gain and maintain distinctive competencies, relative to competitors, that lead to superior performance. It refers to the distinctive assets, competencies, and capabilities that are developed or acquired by the firm. The collective competitive advantages held by the firms in a nation are the basis for the competitive advantages of the nation at large. Competitive advantage describes organizational assets and competencies that are difficult for competitors to imitate and thus help firms enter and succeed in foreign markets. These competencies take various forms, such as specific knowledge, capabilities, innovativeness, superior strategies, or close relationships with suppliers. Competitive advantage is also known as firm-specific advantage. In recent years business executives and academics such as Michael Porter have used competitive advantage to refer to the advantages possessed by both nations and individual firms in international trade and investment. To be consistent with the recent literature, we adopt this convention as well.

question

New Trade Theory

answer

Argues that economies of scale are an important factor in some industries for superior international performance, even in the absence of superior comparative advantages. Some industries succeed best as their volume of production increases. "Economies of Scale" basically means if you produce more you save costs. Cost savings and level of production are proportionate. Ex) The commercial aircraft industry has very high fixed costs that necessitate high-volume sales to achieve profitability.

question

Monopolistic Advantage Theory

answer

Argues that MNEs prefer FDI because it provides the firm with control over resources and capabilities in the foreign market and allows them to enjoy a degree of monopolistic power relative to foreign competitors. Key sources of monopolistic advantage include proprietary knowledge, patents, unique know-how, and sole ownership of other assets such as brands.

question

Michael Porter's Diamond Model: Sources of National Competitive Advanatage

answer

1-Factor conditions: ex)An abundance of cost-effective and well-educated workers give China a competitive advantage in the production of laptop computers. 2-Demand Condition: The strengths and sophistication of customer demand. Ex) Japan is a densely populated, hot, and humid country with very demanding consumers. These conditions led Japan to become one of the leading producers of superior, compact air conditioners 3-Domestic Rivalry: Firm strategy, structure, and rivalry - The nature of domestic rivalry, and conditions that determine how a nation's firms are created, organized, and managed. Ex) Italy has many top firms in design industries such as textiles, furniture, lighting, and fashion. Vigorous competitive rivalry puts these firms under constant pressure to innovate, which has propelled Italy to a leading position in design, worldwide. 4-Related and Supporting industries: The presence of suppliers, competitors, and complementary firms that excel within a given industry. Ex) The Silicon Valley in California is a great place to launch a computer software firm because it is home to thousands of knowledgeable firms and workers in the software industry 5-industrial cluster: A concentration of suppliers and supporting firms from the same industry located within the same geographic area. A strong cluster can serve as an export platform for the nation. Ex)Silicon Valley; pharmaceutical cluster in Switzerland; footwear industry in Pusan, South Korea; IT industry in Bangalore, India; fashion cluster in northern Italy; and Silicon Valley North near Ottawa, Canada.

question

How Firms Gain and Sustain International Competitive Advantage

answer

Since the MNE was traditionally the major player in international business, scholars have offered numerous explanations of what makes these firms pursue, and succeed in, internationalization Because FDI has been MNEs' main strategy in the 20th Century international expansion, theoretical explanations have tended to emphasize it.

question

Internalization Theory

answer

Explains how the MNE chooses to acquire and retain one or more value-chain activities inside itself. Such 'internalization' provides the MNE with greater control over its foreign operations. Internalization avoids the drawbacks of dealing with external partners, such as reduced quality control and the risk of losing proprietary assets to outsiders. Ex) In China, Intel owns much of its value chain, to ensure that Intel knowledge, patents, and other assets are not misused or illicitly obtained by potential rivals.

question

Relationships Matter!

answer

Cooperation among partners and firms can create value and competitive advantage even among competitors.

question

Dunning's Eclectic Paradigm

answer

Three conditions determine whether or not a company will enter a given foreign country via FDI: Ownership-specific advantages - knowledge, skills, capabilities, relationships, or physical assets that the firm owns and which are the basis of its competitive advantages Location-specific advantages - similar to comparative advantages, they are specific advantages that exist in the country that the MNE has entered, or is seeking to enter, such as natural resources, low-cost labor, or skilled labor Internalization advantages - control derived from internalizing foreign-based manufacturing, distribution, or other value chain activities

question

International Collaboration

answer

Starting in the 1980s, firms increasingly began using collaborative ventures to expand abroad Collaboration provides access to foreign partners' know-how, capital, distribution channels, or marketing assets and helps overcome government imposed obstacles The advantages of collaboration challenge the advantage of internationalization

question

SECTION 5

answer

SECTION 5

question

Three Major Types of Political Systems

answer

Totalitarianism Socialism Democracy

question

Democracy

answer

Limited Government: The government performs only essential functions that serve all citizens, such as national defense, maintaining law and order, foreign relations, and providing basic infrastructure. Private Property Rights: The ability to own property and assets and to increase these by accumulating private wealth. Democracy is associated with market economies and capitalism in which decisions are largely left to market forces, that is, supply and demand

question

Totalitarianism

answer

Government controls all economic and political matters. Either theocratic (religion based) or secular. Power is sustained via secret police, propaganda, and regulation of free discussion and criticism. Totalitarianism is associated with command economies, wherein the state makes all decisions on what to produce, how much to produce, and what prices to charge. The concept of "profit" is unkown

question

Socialism

answer

Capital is vested in the state and used primarily as a means of production for use rather than for profit. Group welfare outweighs individual welfare. Government's role is to control the basic means of production, distribution, and commercial activity. State-owned enterprises dominate some if not all sectors. Government intervention in the private sector is extensive. Corporate income tax rates are higher Socialism is associated with mixed economies, which have features of both market and command economies, combining state intervention and market mechanisms (e.g. Sweden, Singapore, many developing countries).

question

Common Law:

answer

A legal system that originated in England and spread to Australia, Canada, USA, and other former members of the British Commonwealth (also known as case law). The basis of law is tradition, past practices, and legal precedents set by courts. Judges have much power to interpret laws based on the circumstances of individual cases. Thus, common law is relatively flexible. Australia, Canada, Ireland, New Zealand

question

Civil Law

answer

Based on an all-inclusive system of laws that have been "codified"—clearly written by legislative bodies. Laws are more 'cast in stone' and not strongly subject to interpretation by courts. Much of Western Europe and Latin America -America, Japan, Russia, South Korea

question

Does Civil Law travel well?

answer

Property laws in civil law countries vs non-civil law countries -we would think civil law would be better, but the study found the opposite. -lots of countries borrowed laws from Europe -research concluded: when you adopt something from another culture, it doesn't't travel well.

question

Limited gov't

answer

The government performs only essential functions that serve all citizens, such as national defense, maintaining law and order, foreign relations, and providing basic infrastructure.

question

Private Property Rights

answer

The ability to own property and assets and to increase these by accumulating private wealth.

question

What is democracy associated with?

answer

Openness, lack of regulation and barriers to the entry of firms in foreign markets. Openness is associated with: -Competition on quality, which improves overall product quality. -Increased competition, which leads to efficiencies and lower prices Democracy is associated with market economies and capitalism in which decisions are largely left to market forces, that is, supply and demand

question

Totalitarianism is associated with?

answer

Totalitarianism is associated with command economies, wherein the state makes all decisions on what to produce, how much to produce, and what prices to charge. The concept of "profit" is unkown

question

Socialism is associated with?

answer

Socialism is associated with mixed economies, which have features of both market and command economies, combining state intervention and market mechanisms (e.g. Sweden, Singapore, many developing countries).

question

See s5, slide 22 pic

answer

see it

question

Islamic Law

answer

Based on holy writings and religious tradition In modern era, commercial or business law in Muslim countries was often adopted from European law. Most commercial law will come from different European traditions. However, there are certain areas of business that Islamic Law has had impact (family law), one example is inheritance. Because of this, property/money will be divided among decedents.

question

Islamic Law: Impact on Business

answer

Family law in Egypt is Islamic Family law determines inheritance Islamic law disallows leaving a whole company to a single heir. This destroyed Arab Contractors in Egypt after its founder died Today many Muslims want to see a more strict interpretation of Islamic law and a more stringent application of Islamic law to business. Example: Islamic Banking Does the Koran forbid the paying and collecting of interest? In 19th century most Muslims scholars said "no". Today, most say "yes". In the 19th century they wouldn't't charge interest, they would charge "fees"

question

see s5 slides 26 and 27

answer

see it

question

Government Takeover of Corporate Assets

answer

Confiscation: Seizure of corporate assets without compensation. Expropriation: Asset seizure with compensation. Nationalization: Takeover of an entire industry, with or without compensation.

question

When China liberalized... a lot of companies were doing very well (Amway, Avon) because they were selling products via sales associates to China... But once China liberalized, it became that they couldnt do direct sales anymore... So they were required to open stores in China (this was against their business models) so they went out of business.

answer

yep

question

Macro risk

answer

Threat to all firms in a country

question

Micro risk

answer

Threat to an industry or a firm, or firms from a certain home country

question

Firm-specific risks - directed at a particular company are rare. Government will nullify its contract with a given firm or that a terrorist group will target the firm's physical operations are firm-specific. It is easier to reduce the likelihood and impact of firm-specific risks by incorporating strong arbitration language into a contract or by enhancing onsite security to protect against terrorist attacks. Country-specific risks - not directed at the firm but are countrywide are more common. Examples include a government's decision to forbid currency transfers or the outbreak of civil war in the country. Firms usually have little control over the impact of country-level political risks aside from stop operating in the country of question. Government risks - Arise from the actions of a governmental authority, where that authority is used legally or not. Examples include a legitimately enacted tax hike or an extortion ring that is allowed to operate and is led by a local police chief may both be considered government risks. Instability risks - Arise from political power struggles. Conflicts could be between members of a government fighting over succession or mass riots in response to deteriorating social conditions.

answer

yep

question

Regulatory Change vs. Political Risk

answer

Political Risk: More unexpected and drastic changes Regulatory Change: More moderate and predictable changes in the business environment due to changes in law

question

www.doingbusiness.org

answer

This World Bank site ranks countries by ease of doing business in their national environments

question

Country Risk Arising from the Host Country Legal Environment

answer

Foreign investment laws Controls on operating forms and practices Marketing and distribution laws Laws regarding income repatriation Environmental laws Contract laws Inadequate or underdeveloped legal systems Internet and e-commerce regulations

question

Country Risk Arising from the Home Country Legal Environment

answer

The Foreign Corrupt Practices Act (FCPA) Anti-boycott regulations Accounting and reporting laws Transparency in financial reporting

question

MNE's Manage Political Risk

answer

Chose entry/finance options that put little capital at risk seek insurance options from home governments or transnational organizations (e.g. World Bank) Make money fast Diversify: Dont put all your business in one risky country

question

Managing Regulatory Risk

answer

Pay attention to government policy statements Understand how economic situation could affect regulations Utilize scenario planning Be proactive!

question

Trade sanctions

answer

Bans on international trade The point of "Sanctions" is trying to change a country without bombing, war, etc.

question

Extraterritoriality

answer

Extraterritoriality: the application of home-country laws to actions in other countries.

question

U.S. Foreign Corrupt Practices Act

answer

Forbids U.S. citizens to bribe foreign government employees or politicians - or to give money to agents that is subsequently used to bribe - in order to obtain or retain business Overseas bribery remained legal in Germany - and tax-deductible for another 20 years!

question

END OF SECTION 5

answer

END OF SECTION 5

question

industrial cluster

answer

a concentration of businesses, suppliers, and the supporting firms in the same industry as a particular location, characterized by a critical mass of human talent, capital, or other factor endowments.

question

National industrial policy

answer

a proactive economic development plan initiated by the government, often in collaboration with the private sector, that aims to develop or support particular industries within the nation.

question

internationalization theory

answer

an explanation of the process by which firms acquire and retain one or more value-chain activities inside the firm, minimizing the disadvantages of dealing with external partners and allowing for greater control over foreign operations.

question

Rule of law

answer

a legal system in which rules are clear, publicly disclosed, fairly enforced, and widely respected by everyone.

question

transparency

answer

the degree to which companies regularly reveal substantial information about their financial condition and accounting practices.

question

extraterritoriality

answer

application of home-country laws to persons or conduct outside national borders.

question

anti-dumping duty

answer

-tax on imported product whose price is below domestic price level

question

countervailing duty

answer

-A duty put on an imported good to offset unfair subsidies in the exporting country -reduces competitive advantage from subsidies

question

protectionism

answer

national economic policies designed to restrict free trade and prtect domestic industries from foreign competition.

question

tariff

answer

tax on imported products, effectively increasing the cost of acquisition for the customer

question

nontariff trade barrier

answer

a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs

question

customs

answer

checkpoints at the ports of entry in each country where government officials inspect imported products and levy tariffs.

question

quota

answer

a quantitative restriction placed on imports of a specified product over a specified period of time

question

export control

answer

a government measure intended to manage or prevent the export of certain products or trade within countries.

question

import license

answer

government authorization granted to a firm for importing a product

question

subsidy

answer

-financing from gov. to ensure success -intended to encourage exports or to facilitate the production and markerting of products at reduced prices -increases competitive advantage Ex) farmers

question

countervailing duty

answer

-A duty put on an imported good to offset unfair subsidies in the exporting country -reduces competitive advantage from subsidies

question

dumping

answer

price exported products at less than their normal value, generally less than their price in the domestic or third-country markets, or at less than production costs

question

anti-dumping duty

answer

a tax imposed on products deemed to be dumped and causing injury to producers of competing products in the importing country.

question

investment incentive

answer

transfer payment of tax concession made directly to foreign firms to entice them to invest in the country.

question

foreign trade zone (FTZ)

answer

an area within a country that receives imported goods for assembly or other processing and re-exported. For customs purposes the FTZ is treated as if it is outside country's borders.

question

maquiladoras

answer

export-assembly plants in northern Mexico along the U.S. border that produce components and typically finished products destined for the U.S. on a tariff-free basis

question

Motivators of Government Intervention

answer

1.self-preservation 2.Security 3.Prosperity 4.Cultural Identity

question

Types of Government Intervention

answer

1.Tariff 2.Quotas 3.Local content requirements 4.Subsidies 5.Countervailing duties 6.anti-dumping duties 7.regulations and technical standards 8.administrative procedures 9.ownership restrictions

question

Local content requirements

answer

-require minimum percentage of local goods -discourages imports

question

Regulations and technical standards

answer

-safety, health, or technical regulations -hinder entry of foreign products

question

administrative procedures

answer

-requirements & procedures imposed on importers/exporters that hinder trade

question

ownership restrictions

answer

-limit ability of foreign firms to invest in certain industries -limits foreign stake within host country

question

Developing Economies

answer

Low-income countries characterized by limited industrialization and stagnant economies. Called 3rd world countries and are the largest group of countries. Ex: Bangladesh, Bolivia, Zaire.

question

Frontier Economies

answer

Currently classified as developing economies, but have the potential to become emerging markets in the near future. Ex: Estonia, Latvia, Lithuania, Slovakia, Uruguay, Kazakhstan, and United Arab Emirates.

question

Emerging Economies

answer

Former developing economies that achieved substantial industrialization, modernization, and remarkable economic growth. Ex: Indonesia, Mexico, Poland, Turkey.

question

Transition Economies

answer

These countries were once socialist states that have largely transitioned into capitalist-based systems, partly through the processes of privatization (transfer of state-owned assets to private concerns) and trade liberalization. Ex: China, Russia, and several Eastern European countries.

question

Advanced Economies

answer

Post-industrial countries with high per capita income, competitive industries, and developed commercial infrastructure. 14% of the world's population and nearly two-thirds of world GDP. Home to largest MNEs. Ex: Australia, Canada, Japan, U.S., and Western Europe.

question

What are the four (4) key characteristics that most global challengers share?

answer

- Pose growing competitive challenge to companies from advanced economy countries - Benefit from rapidly growing markets - Usually enjoy low-cost labor - Have complex operating environments, which produce some very capable firms

question

Emerging Markets as Target Markets

answer

Many have huge middle classes with significant income for buying electronics, cars, health care services, etc. Many exhibit high economic growth rates. Doubled their share of world imports in the last few years.

question

Emerging Markets as Manufacturing Bases

answer

Home to low-wage, high-quality labor for manufacturing and assembly operations. Large reserves of raw materials and natural resources as in South Africa, Brazil, Russia

question

Emerging Markets as Source Destinations

answer

MNEs have undertaken outsourcing - or subcontracting non-core business activities to specialized subcontractors. MNEs have established numerous call centers in Eastern Europe, India, the Philippines, and elsewhere. Dell and IBM outsource certain technological functions to knowledge workers in India. Intel and Microsoft have much of their programming activities performed in Bangalore, India.

question

PPP adjusted per capita GDP

answer

Represents the amount of products that consumers can buy in a given country, using their own currency and consistent with their own standard of living.

question

Political Instability

answer

Corruption, weak legal systems, and unreliable government authorities increase business risks and costs and hinder forecasting

question

Bureaucracy, red tape, and lack of transparency

answer

Burdensome rules, excessive requirements for licenses, approvals, and paperwork; not accountable legal and political systems. Ex: It may take years, or many bribes, to obtain permissions to do business. China, India, and Russia are particularly problematic.

question

Poor Physical Infrastructure

answer

Basic infrastructure such as high-quality roads, drainage systems, sewers, and electrical utilities - are often sorely lacking in emerging markets.

question

Dominance of Family Conglomerate

answer

Dominance of Family Conglomerate Economies are often dominated by privately-owned, local companies that are highly diversified and control supplies and employment. They are common in South Korea (chaebols), India (business houses), Latin America (grupos), and Turkey (holding companies).

question

Customize Offerings to Unique Emerging Market Needs

answer

Needs Successful firms develop a deep understanding of the distinctive characteristics of buyers, local suppliers, and distribution channels in emerging markets, and customize offerings and business models accordingly.

question

Partner with a family conglomerate (FC)

answer

Reduce risks, time, and capital requirements. Develop relationships with governments and other key players. Target market opportunities more rapidly and effectively. Overcome infrastructure hurdles. Leverage FC resources and local contacts, including financing, bank services, local suppliers, and distribution channels

question

Target Governments / Government Agencies

answer

Buy enormous quantities of products, such as computers, furniture, office supplies, and motor vehicles, as well as services. State enterprises operate in key areas such as railways, airlines, banking, oil, chemicals, and steel. The public sector influences procurement in a variety of private and or semi-private entities

question

Skillfully Challenge Emerging Market Competitors

answer

New global challengers and other emerging market firms possess various advantages that require skillful strategies and due diligence to overcome.

question

Outsourcing

answer

The procurement of selected value-chain activities, including production of intermediate goods or finished products, from independent suppliers.

question

Global Sourcing

answer

The procurement of products or services from independent suppliers or company-owned subsidiaries located abroad for consumption in the home country or a third country.

question

Privatization

answer

transfer of state-owned industries to private concerns.

question

Purchasing Power parity (PPP)

answer

an adjustment for prices that reflects the amount of goods that consumers can buy in their home country, using their own currency and consistent with their own standard of living.

question

tenders

answer

formal offers made by a buyer to purchase certain products or services.

question

RANDOM QUESTIONS BELOW

answer

RANDOM QUESTIONS BELOW

question

Globalization especially affects industries that experience:

answer

Expensive product development costs -Airplane very high, beer very low Fast changing tech -Airplane industry is higher compared to breweries Similar buyer wants/needs across countries -similar for airplane, beer varies worldwide Low trade barriers and few regulatory constraints relative to price of commodity/service -few trade/regulatory barriers for Airplane, however beer is expensive to move across borders relative to its price and industry is highly regulated e.g. tariffs and taxes on beer CONCLUSION: Globalization affects the Airplane industry more than the beer industry!!!

question

Monopolistic advantage theory describe...

answer

how companies succeed internationally by developing resources and capabilities that few other firms possess.

question

T or F. Islamic law allows you to leave a whole company to a single heir?

answer

False; it forbids it that.

question

Which is more predictable? Political risk or regulatory change?

answer

Regulatory change is more predictable as compared to political risk.

question

What are trade sanctions?

answer

bans on international trade - tariffs, quotas, boycotts

question

What does the U.S. Foreign Corrupt Practices Act do?

answer

forbids U.S. citizens to bribe foreign government employees or politicians - basically can't bribe.

question

Types of economies: Democracy, Totalitarianism, Socialism

answer

Democracy is associated with market economy, Totalitarianism is associated with command economy, Socialism with mixed economies.

question

What is protectionism?

answer

a policy designed to restrict free trade and protect domestic industries from foreign competition.

question

Explain the trouble that happened in Mercosur?

answer

Mercosur was traumatized when Brazil devalued its currency significantly against the dollar and Argentina did not. Products in Brazil could then be produced cheaper than in Argentina, flooding Argentina with Brazilian exports and diverting most FDI to Brazil.

question

Regional Integration in Emerging Markets

answer

Lebanon-Syria FTA soon fell apart because Lebanon had very low tariffs and Syria had very high tariffs

question

Levels of Regional Integration:

answer

For countries to become members of an economic bloc, there are various stages of regional integration. (1) Free trade area: eliminates tariffs and other trade barriers. (2) Customs union: a free trade area in which common trade barriers are imposed on nonmember countries. (3) Common market: a customs union in which factors of production move freely among the members. (4) Economic union: a common market in which some important economic policies are harmonized among the member states.

question

Which stage is NAFTA in?

answer

only the free-trade area

International Business: The New Realities (CH. 1) – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards