Chapter 3 Business Practice – Flashcards
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advancing technology and falling trade barriers have created
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unprecedented international business opportunities
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despite the global economic crisis that began in 2008, high developing countries (such as China, India, Indonesia, and Brazil) continue to offer
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the most potential due ti their size and strong economic growth rates
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the benefits of international trade for individual firms include access to factors of
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production, reduced risk, and inflow of new ideas from foreign markets
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The growing number of people with cell phones offers an interesting indicator of what?
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Economic growth
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If countries increase cell phone penetration by 10 percentage points, the GDP will likely increase from
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.5% to 1.2%; this equates to 49-118 billion dollars for an economy
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Where is cell phone penetration skyrocketing
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india and China
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BRIC countries-Brazil, Russia, and China are
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migrations of labor intensive low wage manufacturing jobs away from china has benefited their economic growth
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Vietnam , the Philippines, and Bangladesh are areas where
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migration of labor intensive, low wage manufacturing jobs away from China makes them beneficiaries of economic growth
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how does international trade help countries in terms of new markets
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new consumers/customers
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International trade allows what types of access to factors of production?
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-international trade helps even out some of the resource imbalances among nations -taking advantage of international specialized suppliers
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international trade is a source of what
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new ideas for companies
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global trade reduces dependence on what
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one economy, lowering the risk for multinational firms
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What country is currently the world's largest base of cell phone users
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China
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industries tend to succeed on a global basis in countries that enjoy
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competitive advantage
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a country has absolute advantage I given industry when it can produce
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more of good than other nations, using same amount of resources,
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which country displays absolute advantage
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China in terms of clothing production
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a country has comparative advantage when it can make
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products at a lower opportunity cost than other nations
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unless countries face major trade barriers, the industries in any country tends to product products for which they have
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comparative advantage
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define opportunity cost
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the opportunity of giving up the second best choice when making a decision
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define absolute advantage
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the benefit a country has in given industry hen it can produce more of a product that other nations using same amount of resources
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define comparative advantage
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the benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries.
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measuring the impact of international trade on individual nations requires
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a clear understanding of balance of trade, balance of payments, and exchange rates
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define balance of trade
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a basic measure of difference between a nation's exports and imports
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define balance of payments
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a measure of the total flow of money into or out of a country, including the balance of trade, plus other financial flows, such as foreign loans, foreign aid, and foreign investments
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define exchange rates:
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a measure of value of one nation's currency relative to the currency of other nations. The exchange rate has a powerful influence on the way global trade affects both individual nations and their trading partners
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define trade surplus
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overage that occurs when the total value of nation's exports is higher than the total value of its imports
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define trade deficit
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shortfall that occurs when the total value of nation's imports is higher than total value of exports
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a large deficit can be
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destabilizing; as it indicates that goods and services flow into nation, money flows out
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define balance of payments surplus
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overage that occurs when more money flowers into a nation than out of thatnation
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define balance of payments deficit
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shortfall that occurs when more money flowers out of a nation than into that nation
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define countertrade
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international trade that involves the barrier f products for products rather than for currency
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firms can enter global markets by developing what
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foreign suppliers, foreign customers, or both
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two strategies for acquiring foreign suppliers are
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outsourcing and importing
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key strategies for developing foreign markets include
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exporting, licensing, franchising, and direct investment
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define direct investment
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foreign production and marketing facilities represent the deepest level of global involvement
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exporting is relatively low cost and low risk but offers little control over what
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the way that the business unfolds
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most direct investments takes the form of either acquiring
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foreign firms or developing new facilities from the ground up
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the cost for direct investment tis high but companies with direct investment have more control over
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how their business operates in the given country
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foreign acquisition enables companies to gain
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foothold in new markets
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direct investment tends to be high cost and high risk but offers more
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control and potential profits
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even though direct investments can be significantly costly, why are firms attracted to them?
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they ave complete control and high potential for high profits
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developing new facilities fro scratch or "offshoring" is the most what type of direct investment?
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costly
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what are the market development options
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exporting-;licensing-;franchising-;direct investments
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define foreign outsourcing
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(also contract manufacturing) contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production
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define importing
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buying products domestically that have been produced or growing foreign nations
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define exporting
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selling products in foreign nations that have been produced or grown domestically
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define foreign licensing
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authority granted by a domestic firm to a foreign firm for the rights to produced market its product or to use its trademark/patent rights in a defined geographical area
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foreign licensing allows firms to
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expand into foreign markets with little or no investments; helps circumvent government restrictions on importing in closed markets
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define foreign franchising
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a specialized type of foreign licensing in which a firm expands by offering businesses in other countries the right to produce and market its products according to specific operating requirements
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a firm that expands through foreign franchising is called
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franchisor, offers other businesses
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franchisers often offer their franchisees
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management guidance, marketing support, or even financing
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franchisees
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the right to produce and market its produce
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what is one key difference between franchising and licensing?
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franchisees assume the identity of franchisors
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in what industries is foreign licensing common in
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food and beverage
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individual countertrade agreements range from simple barter to complex web of
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exchanges that end up meeting the needs of multiple parties
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counter trading is a powerful tool for gaining what?
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customers and products that would not otherwise available
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barter opportunities tend to increase during
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economic downturns
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while international trade can offer new profit streams and lower costs, it can also introduce
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higher level of risk and complexity to running business
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companies that choose to export products to foreign countries spend less to enter the market than who?
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companies that choose to build their own factories
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companies that build their own factories have a lot more control than
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exporters over how their business unfolds
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smaller firms tend to begin with
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exporting and move along the spectrum as business develops
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larger firms may jump straight into strategies that
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give more control over their operations; use number of approaches depending on the goals and structure of foreign market
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foreign outsourcing define
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contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production
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what is the key benefit from foreign outsourcing?
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dramatically lower wages which drives down the cost of productions
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even though foreign outsourcing lowers costs, it involves significant risks as well as quality control requires
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very detailed specifications to ensure that a company gets what it actually needs
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what is another key risk of foreign outsourcing?
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involves social responsibility
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a firm that contracts with foreign producers has an obligation to ensure that factories adhere to?
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ethical standards
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imported products do not carry the ____ of the importer
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brand name
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define exporting
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the most basic level of international market development; producing products domestically and selling them abroad
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exporting represents a strong opportunity for what types of companies?
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small and mid-sized
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define joint venture
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involves two or more companies joining forces-sharing resources, risks, and profits (but not merging companies) to pursue specific opportunities
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a formal long term agreement is called
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partnership
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less formal, less encompassing agreement is called
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strategic alliance
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joint ventures are popular, though controversial, means of entering
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foreign markets
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sociocultural differences include what
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differences among countries in language, attitudes, and values
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what are some sociocultural differences that may affect businesses?
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nonverbal communication, forms of address, attitudes towards punctuality, religious celebrations and customs, business practices, and expectations regarding meals and gifts
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the best way to jump over sociocultural barriers is to conduct thorough
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consumer research, cultivate firsthand knowledge, and practice extreme sensitivity
