001

Question 1

The________ is the buying, selling, or exchanging of goods and services across national borders, distinguished from ____________ (within the same country).Complexity arises due to differing national cultures, political systems, and legal frameworks.

Answer 1

International Trade and Domestic Trade

Question 2

What are the Benefits of Trade

Answer 2

o Greater Variety:
- Access to goods and services that may not be locally available (e.g., Finland imports cotton but exports lumber products to the US).

o Job Creation:
- Trade supports millions of jobs. For example, the US has 39 million trade-supported jobs, benefiting from trade with partners like Canada, Mexico, the EU, and China.

Higher Standard of Living:
- Countries can focus on producing goods where they have a comparative advantage, boosting overall productivity and consumption potential.

Question 3

______ to ______: Measures a country’s trading activity against its GDP (____________). Smaller economies often have higher trade-to-GDP ratios due to reliance on imports.

Examples:
o High-Income Nations: Trade constitutes around 62% of their GDP.

o Middle and Lower-Income Nations: Trade averages 45-46% of GDP.

Answer 3

Trade to GDP Ratio,
Total economic Output

Question 4

This is what happens when a country becomes dependent on their trading partners

Answer 4

Trade Interdependence

Countries often depend on trade with specific partners, especially between neighboring or economically integrated regions.

o Benefits: High interdependence can lead to mutual economic growth through investments and joint ventures (e.g., German companies in Eastern Europe).

o Challenges: Dependency can cause economic instability if trade shifts, as seen when companies relocate from Mexico to Asia and leave economic gaps.

Question 5

__________ involves commercial transactions crossing the borders of two or more nations. This includes the import (buying) and export (selling) of goods and services.

Answer 5

International Business

o Impact: International business affects daily life globally, with products and services from different countries circulating worldwide.

Question 6

What is a Born Global Firm

Answer 6

A born global firm is a company with a global perspective from its inception, rapidly entering international markets to gain a competitive edge.

o Characteristics: These firms have an innovative culture and knowledge-based resources, allowing them to build competitive advantages quickly, unlike traditional multinational corporations that establish a strong home base first.

o Examples: Companies like Airbnb, Uber, Spotify, Twitch, and TikTok are born globals, leveraging IT infrastructure to scale rapidly and compete internationally.

Question 7

___________ refers to the trend of greater economic, cultural, political, and technological interdependence among countries, characterized by reduced relevance of national boundaries (denationalization) rather than mere cooperation (internationalization).
Impacts: Globalization transforms business by enhancing interdependence and expanding opportunities for trade and foreign investment. It also periodically contracts or stabilizes, influenced by economic and political shifts.

Answer 7

Globalization

Question 8

Different Perspectives on Globalization

Answer 8

1. Business
2. Workers
3. Environmentalist and Anthropologist

o Business: Sees globalization as a chance to reduce costs and access new markets.
o Workers: May view globalization as an opportunity or a threat, depending on job security.
o Environmentalists and Anthropologists: Focus on how globalization affects the environment and cultural practices.

Opportunities and Challenges: - - While globalization connects people and fosters cross-cultural exchange, it also presents competitive challenges for businesses and potential risks to local jobs and economies.
Globalization is dynamic, driving firms toward greater competition and reshaping the balance of economic power worldwide, as evidenced by the rise of Chinese firms and the shifting presence of companies from the U.S., Japan, and Britain in the global market.

Question 9

__________ organization
o Established in 1947 by 23 nations to promote free trade by lowering tariffs and nontariff barriers.

o Resulted in 20x growth in world trade over 40 years, with average tariffs dropping from 40% to 5%.

o Revised in 1994 to further reduce tariffs, define intellectual property rights (patents, copyrights, trademarks), and limit agricultural subsidies.

o Major flaw: No enforcement power, which led to the creation of the World Trade Organization (WTO).

Answer 9

General Agreement on Tariffs and Trade (GATT)

Question 10

o Established to enforce international trade rules and settle trade disputes.

o Key functions: Support free trade flow, negotiate market openings, penalize rule-breaking nations.
o Agreements require open trade policies; members violating rules may face sanctions.

Answer 10

World Trade Organization (WTO)

Question 11

o Smaller economic integrations, like USMCA, EU, and APEC, promote trade and investment regionally.

o Advantage: Easier negotiations with fewer nations than in WTO.

o May serve as an alternative if the WTO remains ineffective.

Answer 11

Regional Trade Agreements (RTAs)

Question 12

Finances economic development projects, currently focused on Africa, South America, Southeast Asia.

Answer 12

World Bank

Question 13

Manages international monetary system, promotes monetary cooperation, balanced trade growth, and provides temporary financial resources to nations in need.

Answer 13

International Monetary Fund (IMF)

Question 14

International business involves transactions between parties in different countries, such as

Answer 14

• Importing raw materials for assembly elsewhere
• Exporting finished products for retail
• Establishing plants abroad to benefit from lower costs
• Obtaining financing across borders

In contrast, domestic business takes place within a single country’s borders.

Question 15

__________Selling domestically produced goods or services to foreign markets. _______ can be crucial to a firm’s financial health, providing revenue and market expansion

Answer 15

Exporting, exports

Question 16

Purchasing foreign goods or services for resale or use within one’s country.

Answer 16

Importing

Question 17

(Merchandise Exports/Imports or Visible Trade): Physical products like clothing, electronics, and raw materials.

Answer 17

Goods

Question 18

__________ (Invisible Trade): Intangible products such as banking, travel, and professional services.

Answer 18

Services

Question 19

refer to capital investments made by residents of one country in assets or companies in another country

Answer 19

International Investments

Question 20

o This type of investment involves a company or individual in one country (the home country) making an investment to actively control property, assets, or operations in another country (the host country).

o Examples include opening a subsidiary, acquiring a company, or building a factory in a foreign country. _____ often requires a hands-on approach to manage and influence the operation of the invested business.

Answer 20

Foreign Direct Investment (FDI)

Question 21

o it involves the purchase of foreign financial assets, such as stocks, bonds, or other securities, for investment purposes without the intent to control the foreign entity.

o The goal of ____ is typically to earn financial returns from the assets, but it does not involve managing or controlling the company in which the assets are invested.

Answer 21

Foreign Portfolio Investment (FPI)

Question 22

o A contractual arrangement where a company in one country (the licensor) allows a company in another country (the licensee) to use its intellectual property (such as patents, trademarks, or copyrights) in exchange for a royalty payment.

o This method allows companies to expand their reach without directly entering foreign markets themselves.

Answer 22

International Licensing

Question 23

o A specific form of international licensing where a company (the franchisor) grants the right to another company (the franchisee) to use its brand, trademarks, and operating systems in return for royalties.

o McDonald’s, for example, franchises its restaurants worldwide, allowing its business model and brand to spread globally.

Answer 23

International Franchising

Question 24

o Involves a company from one country providing management services, such as operating facilities or offering specialized expertise, to a firm in another country for a fee.

o This is often seen in industries like international hotels, where companies like Marriott or Hilton manage hotel operations in foreign markets without owning the property.

Answer 24

International Management Contracts

Question 25

*__________ corporation is a firm that engages extensively in international business activities, particularly through foreign direct investments (FDI).

• it owns or control value-adding activities in multiple countries, including manufacturing, marketing, or distribution operations.
• These companies often buy resources, produce goods or services, and sell products in different countries, thereby creating a global presence.

Answer 25

Multinational Corporation

Question 26

_____________ also known as offshoring, refers to the practice where a company transfers certain functions or business processes to an external supplier located in a foreign country.

_____________often involves the procurement of services or material inputs from external suppliers who operate in different countries. For example, a company may outsource its customer service or IT support to firms based in countries with lower labor costs.

Answer 26

International Outsourcing, outsourcing

Question 27

Why companies Export?

Answer 27

1. To expand Sales
2. To Diversify Sales
3. To Gain International Business Experience

Question 28

While exporting is one of the most straightforward methods of international trade, ____________ is another alternative used in situations where cash transactions may be difficult.

________________involves the exchange of goods and services between countries, often used as a form of trade when one party is unable to pay with cash.

This method can help facilitate trade between countries that might not have sufficient foreign exchange or those facing economic sanctions. It can take various forms, such as barter, counter-purchase, and offset arrangements, where goods or services are exchanged instead of money

Answer 28

Countertrade

Question 29

__________ Exporting occurs when a company sells its products directly to buyers in a foreign market, taking full responsibility for market entry

Answer 29

Direct

Question 30

____________ Exporting is a good option for companies with limited resources or experience in international markets. In this model, a company sells its products to intermediaries who then resell the goods in the target market.

Answer 30

Indirect Exporting

Question 31

Types of Export Intermediaries

Answer 31

1. Agent
   o An agent is an individual or organization that represents one or more indirect exporters in a target market. Agents typically receive commissions based on the value of sales. The advantage of using agents is that it is a relatively inexpensive and easy method to establish a market presence.
2. Export Management Company (EMC)
   o An Export Management Company (EMC) handles export activities on behalf of an indirect exporter. The EMC acts either as an agent (receiving commissions) or a distributor (taking ownership of goods and earning profits from resales).
3. Export Trading Company (ETC)
   o An Export Trading Company (ETC) provides additional services beyond just handling export activities. ETCs help with storage, financing, investment projects, and even manufacturing.
4. Freight Forwarders
   - Freight Forwarders are specialists in handling export logistics, including customs clearing, tariff schedules, shipping, and insurance fees. They are responsible for getting a shipment from the port of export to the port of import and ensuring that all necessary export-related activities are conducted smoothly.

Question 32

Types of Counter-Trade

Answer 32

1. Barter
   Barter is the direct exchange of goods or services for other goods or services without using money. This is the oldest form of countertrade.
2. Counterpurchase
   In a counterpurchase, a company sells goods or services to a country and agrees to purchase a specific product from that country in the future.
3. Offset
   An offset agreement involves a company making a hard-currency sale to a nation, with the commitment to make an unspecified hard-currency purchase from that nation in the future.
4. Switch-Trading
   Switch trading occurs when a company sells its obligation to purchase goods in a specific market to another company. The original company may have no use for the product but promises to buy it to enter the market. A trading company then buys the obligation to fulfill the purchase, potentially reselling the goods to a third party that needs them.
5. Buyback
   Buyback involves the export of industrial equipment in exchange for the products produced by that equipment.