Introduction to Business – Chapter 3 – Flashcards
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Absolute Advantage
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When a country can produce a good or service at a lower cost than other countries (Examples: South America - coffee, Saudi Arabia - oil production)
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Comparative Advantage
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A situation in which a country specializes in the production of a good or service at which it is relatively more efficient. (If a country can maximize in more than 1 area then they must choose).
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Importing
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Items bought from other countries (Half of fish and crude oil are from other countries. 20-50% account for carpets, sugar, leather gloves, dishes, sewing machines. Without foreign trade, products may be unavailable or provided at a high price).
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Exporting
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Goods and services sold to other countries. (Agricultural products, chemicals, fertilizers, medicines, and plastics are exported).
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Measuring Trade Relations:
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Balance of trade Balance of payments 1st sell labor wages
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Foreign Debt
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Amount a country owes to other countries
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Balance of Trade
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The difference between a country's total exports and total imports
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Trade surplus
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Sells more than buys (Favorable Balance of Trade)
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Trade deficit
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Buys more than sells (Unfavorable Balance of Trade)
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Balance of Payments
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Difference between the amount of money that comes into a country and the amount that goes out of it. (Other forms take place in addition to goods and services - money, investments, tourism, deposits into banks).
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Factors affecting currency values
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Balance of payments, economic conditions - interest rates, political disability.
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4 main elements of the International Business environment
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Geography, cultural influences, economic development, political and legal concerns.
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Economic factors of the international business environment
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Technology Education Inflation Exchange Rate Infrastructure (Everybody Thinks Edward is Entertainingly Interesting)
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Geographic Factors of the international business environment
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Location Climate Terrain Waterways Natural Resources (George Likes Cats That Wear Necklaces)
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Cultural factors of the international business environment
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Language Family Religion Customs Traditions Food (Computers Like Fingers Rapidly Clicking The Functions)
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Political and Legal factors of the international business environment
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Government system Political stability Trade barriers Business regulations (People Genuinely Please Their Brothers)
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Infrastructure
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A nation's transportstion, communication, and utility's systems
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International Trade Barriers
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Restrictions to free trade
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3 common barriers
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Quotas Tariffs Embargoes
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Quotas
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To set a limit on quantity (amount) of a product
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Reasons for quotas
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To keep supply low and prices the same. (To express displeasure at the policies of the importing country. To protect themselves.)
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Tariff
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A tax on certain goods
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Reasons for tariffs
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To set the value of a good. (To set amount per pound, gallon, or other unit.)
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Embargoes
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Stop the export or import of a product
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Reasons for embargoes
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To protect a country's industries from international competition more than the quota or tariff will achieve. (To prevent sensitive products from falling into the hands of unfriendly groups or nations).
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Free - Trade Zones
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A selected area where products can be imported daily - free and then stored, assembled, and used in manufacturing. (Located around a seaport or airport. Importer pays only when product leaves the zone).
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Free - Trade Agreements
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Under the NAFTA agreement, countries agree to remove duties (import taxes) and trade barriers.
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Common Markets - (Economic Community)
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Members do away with duties and trade barriers, invest freely, workers move freely. (Ex. Europe, Latin America)
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Multinational Companies (MNC)
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Organizations that do business in several countries
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Home country
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Where a parent country is placed
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Host country
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A country in which the MNC places business activities
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MNC Strategies
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Global Strategy Multinational Strategy
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Global Strategy
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Uses the same product and marketing strategy worldwide. (The same product is sold in essentially the same matter throughout the world. Ex. Coca-cola)
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Multinational Strategy
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Treats each country market differently. (Firms develop products and marketing strategies that adapt to the customs, tastes, and buying habits of a distinct national market. Ex. Some restaurant chains employ a multinational strategy when they modify their menus to local tastes).
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MNC Benefits
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Large amount of good available. Lower prices. Career opportunities. Foster understanding, communication, and respect. Friendly international relations.
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MNC Drawbacks
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Economic power. Worker dependence on the MNC. Consumer dependence. Political power.
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Global market entry modes
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Licensing Franchising Joint Venture
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Licensing
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Selling the right to use some tangible property for a fee or royalty. (Production process, trademark, or brand name. Low risk and low financial investment. Ex. Nike, this is made by Nike but not an actual thing you can touch.)
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Franchising
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The right to use a company name or business process in a specific way. (Enter into contracts to set up that business in other countries. Same marketing elements are used. Ex. Fast food companies, found all across the world.)
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Joint Venture
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An agreement between two or more companies to share a business project (Benefit - sharing of raw materials, shipping facilities. Concerns - sharing profit, not as much control. Ex. Manufacturing)
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International Trade Organizations
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World Trade Organization - WTO. International Monetary Fraud - IMF. World Bank.
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World Trade Organization
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Promotes trade Settles trade disputes Enforces free - trade agreements 150 member countries (Other goals: Lowering tariffs that discourage free trade. Eliminating import quotas. Reducing barriers for banks, insurance companies, and other financial services. Assisting the poor countries with economic growth.)
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International Monetary Fund
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Helps to promote economic cooperation. Maintains an orderly system of world trade and exchange rates. Includes more than 150 member nations.
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World Bank
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Created in 1944 to provide loans for rebuilding after World War II. (Today has more than 180 member countries and 2 main divisions: International Development Association which makes loans to help developing countries. International Finance Corporation which provides technical capital and technical help to private businesses in nations with limited resources).
