CH5 - Business in Global Environment

Question 1

Under The concept of Global Trading what is absolute advantage?

Answer 1

A country has an absolute advantage if: 1. it’s the only source of particular product 2. it make more of a product using fewer resource than other countries.

Question 2

Under The concept of Global Trading what is comparative advantage?

Answer 2

When a country can produce a product at a lower OPPORTUNITY COST than others it has a comparative advantage.

Question 3

What does the term Opportunity Cost mean?

Answer 3

Economists use the term opportunity cost to indicate what must be given up to obtain something that is desired. In short opportunity cost is the value of the next best alternative.

Question 4

How do we measure trade between nations?

Answer 4

The country’s balance of trade is determined by subtracting the value of its imports from the value of its exports. If a country sells more than it buys, it has a favorable balance.

Question 5

What is a trade surplus?

Answer 5

If a country sells more than it buys, it has a favorable balance, which is called a trade surplus.

Question 6

What is a trade deficit?

Answer 6

If a country buys more than it sells, it has a favorable balance, which is called a trade deficit.

Question 7

Under the concept of international trade what does balance of trade measures?

Answer 7

Balance of trade measures only the import and export transactions.

Question 8

One key measure of the effectiveness of international trade is balance of payments, what does balance of payment mean?

Answer 8

The difference over a period of time, between the total flow of money coming into a country and the total flow of money going out is called balance of payment.

Question 9

What is the biggest contributor in a country’s balance of payment.

Answer 9

The biggest contributor is the money that flows as a result of import and exports.

Question 10

What are some of the other factors in a country’s balance of payment.

Answer 10

Cash received from or paid for foreign investment, loans, tourism, military expenditures, and foreign aid.

Question 11

What are some examples of opportunities in international business in the book? (5 examples)

Answer 11

1. Importing & Exporting.
2. Licensing & Franchising.
3. Contract Manufacturing & Outsourcing.
4. Strategic Alliances & Joint Ventures.
5. Foreign Direct Investment & Subsidiaries.
6. Multinational Corporations.

Question 12

What is “Importing”?

Answer 12

Buying products overseas and reselling them in one’s own country.

Question 13

What is “Exporting”?

Answer 13

Selling domestic products to foreign customers.

Question 14

One way to get into an international market is through licensing agreement. What is a “Licensing agreement”?

Answer 14

Licensing agreement allows a foreign company (the licensee) to sell the products of a producer (the licensor) or to use its intellectual property in exchange for a royalty fee.

Question 15

One way to get into an international market is through franchising. What is a “Franchising”?

Answer 15

Under an international franchise agreement, a company (the franchiser) grants a foreign company (the franchisee) the right to use its brand nae and to sell its product or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. (McDonald’s)

Question 16

One way to get into an international market is through contract manufacturing (outsourcing). What is a “Contract Manufacturing”?

Answer 16

Due to high domestic labor costs many US or Canadian companies manufacture their products in other countries with lower labor cost. This arrangement is called international contract manufacturing which is a form of outsourcing.

Question 17

One way to get into an international market is through strategic alliances. What is a “Strategic Alliance”?

Answer 17

A strategic alliance is an agreement between two companies (or a company and a nation) to pool resources in order to achieve business goals that benefit both parties.

Question 18

What are the main purposes that an alliance can serve?

Answer 18

1. Enhancing marketing efforts.
2. Building sales and market share.
3. Improving products.
4. Reducing production and distribution costs.
5. Sharing tech

Question 19

What is Joint Venture?

Answer 19

A joint venture is a form of strategic alliance in which the partners fund a separate entity to manage their joint operation.

Question 20

One way to get into an international market is through foreign direct investment. What is a “Foreign Direct Investment”?

Answer 20

FDI refers to the formal establishment of business operations on foreign soil, the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company’s home country.

Question 21

What is an “Offshoring”?

Answer 21

Offshoring occurs when the facilities set up in the foreign country replace Canadian manufacturing facilities and are used to produce goods that will be sent back to Canada for sale.

Question 22

What is a common form of FDI and what does it mean?

Answer 22

A common form of FDI is “the foreign subsidiary” which is an independent company owned by a foreign firm (called the parent).

Question 23

What is a “Multinational Corporation”?

Answer 23

A company that operates in many countries is called a multinational corporation (MNC).

Question 24

What is the main approach by MNC’s?

Answer 24

MNC’s often adjust their operations, products, marketing, and distribution to mesh with the environments of the countries in which they operate. They are willing to accommodate cultural and economic differences.

Question 25

What are some criticism of MNCs?

Answer 25

Critics argue that
1. MNCs often destroy the livelihoods of home-country workers by moving jobs to developing countries with poor working conditions and less pay.
2. MNCs weaken the traditional values and they foster a global culture of American movies, fast food, cheap mass-produced consumer products.
3. MNCs demand for rapid economic growth and cheaper access to natural resources do irreversible damage to the physical environment.
(These all stem from abuses of international trade-from the policy of placing profits above people.)

Question 26

What are some supporting factors of MNCs?

Answer 26

1. Some argue that big corps deliver better, cheaper products for customers everywhere.
2. They create jobs, and raise the standard of living in developing countries.
3. That globalization increases cross-cultural understanding.
4. Infant mortality rate decline.
5. Literacy rates have risen.
6. Decline in world poverty.

Question 27

What are the 2 main environments within “Global Business Environment” context?

Answer 27

1. The Cultural Environment.
2. The economic Environment.

Question 28

What is the cultural Environment?

Answer 28

The differences in communication styles reflect differences in culture: the system of shared beliefs, values, customs, behaviors that govern the interactions of members of a society bring about the cultural environment.

Question 29

What are the key aspects of the cultural environment? (4 aspects)

Answer 29

1. Language
2. Time and Sociability
3. High and Low Context Cultures
4. Intercultural Communication

Question 30

What are the key aspects of the economic environment? (4 aspects)

Answer 30

1. Economic Development
2. Currency Valuations & Exchange Rate
3. The Legal & Regulatory Environment
4. Foreign Corrupt Practices Act

Question 31

What are some factors related to economic growth within the “Economic Development” context.

Answer 31

1. Reliable banking system
2. A string stock market
3. Government policies to encourage investment and competition
4. Government policies that discourage corruption

Question 32

What is the Canadian Corruption of Foreign Public Officials Act (CFPOA)?

Answer 32

It is a Canadian law that prohibits the distribution of bribes and other favors in the conduct of business.

Question 33

What is “perceived corruption”?

Answer 33

The abuse of entrusted power for private gain.

Question 34

In the concept of “Trade Control” what is a “Subsidy”

Answer 34

The government payments to local businesses to help offset some of their costs of production.

Question 35

What are “Tariffs”?

Answer 35

Tariffs are taxes on imports. They raise the price of the foreign-made goods which make them less competitive.

Question 36

What are “Quotas”?

Answer 36

A quota imposes limits on the quantity of a good that can be imported over a period of time.

Question 37

What are 2 forms of the Canadian import quotas?

Answer 37

1. Absolute quota: fixes an upper limit on the amount of a good that can be imported during a given period.
2. Tariff-rate quota: permits the import of a specified quantity and then adds a high import tax once the limit is reached.

Question 38

What is the “embargo”?

Answer 38

Embargo bans the import or export of certain good to or from a specific country (for economic or political reasons).

Question 39

What does “Dumping” mean?

Answer 39

Dumping the practice of selling exported goods below the price that producers would normally charge in their home markets (often below the cost of producing the goods).

Question 40

What are different types of trade controls?

Answer 40

1. Tariffs
2. Quotas

Question 41

What are the 2 most important organizations that monitor trade policies?

Answer 41

1. WTO
2. General Agreement on Tariffs and Trade (GATT)

Question 42

What are the groups called “trading blocs”?

Answer 42

Countries that have joined together to allow goods and services to flow without restrictions across their mutual borders.

Question 43

What are the 2 most powerful trading blocs mentioned in the book?

Answer 43

NAFTA and European Union