Chapter 10 Flashcards
What are the 3 ways to participate in international business?
- Foreign trade.
- Foreign contractual relationships.
- Foreign direct investments.
Why is foreign trade the most common way to participate in international business?
It requires the lowest level of resource commitment and has the lowest business risk (the risk of loss or gain due to
economic variables, such as product demand and market competition).
What does Office of Foreign Assets Control (OFAC) do?
Enforces economic and trade sanctions established
by US foreign policy and security goals.
How does the US regulate imports?
a. tariffs–taxes assessed on imported goods;
b. quotas–limits on the amount of imported goods;
c. licensing–mandatory business license that sets the terms on which goods are imported, rather than letting competition negotiate the terms;
d. prohibited imports–goods that are illegal to import and sell.
Which body governs governs the formation and execution of international contracts for the sale of goods.
The United Nations Convention of Contracts for the International Sale of Goods (CISG)
What are the four methods of payment?
a. cash in advance–funds on deposit before receipt of goods,
b. open account–rotating charge account that the buyer settles at set intervals,
c. draft–written order by the first party (drawer) to the second party (drawee) to pay a third
party (payee), and
d. letter of credit (LOC)–bank instrument that authorizes the seller to withdraw up to a specified amount from the buyer’s pre-established bank account.
What does product licensing do?
grants another firm the right to manufacture one’s product or to use its distribution facilities or technology.
What are three reasons a firm might license its products?
a. It is not economically feasible to sell its product in the second country due to labor costs, transportation costs, and/or regulations.
b. The firm does not have the time or resources to sell its product in the second country.
c. The firm lacks knowledge about the second country’s legal, political, social, and/or business environments.
How does franchising work?
One firm (the franchisor) grants another firm (the franchisee) the right to supply its product within a designated market. The franchisor retains control over the use of its image and name and ensures standardization of its good or service.
Why might a firm chose foreign direct investment over trade?
to overcome transportation costs, language barriers, cultural differences, tariffs, quotas, and/or political issues.
What are two types of foreign direct investment?
Subsidiaries
Joint Ventures
What is a subsidiary?
A stock-issuing company owned or controlled by another. A fully-owned subsidiary provides the highest level of control over operations, but presents the highest level of business risk, commitment of resources, and managerial control.
What are the characteristics of joint ventures?
shared ownership, responsibilities, and management of foreign ventures.
What are three theories why firms enter foreign markets?
- Resource seekers–look for resources such as oil and low-cost labor.
- Market seekers–look for markets that cannot be served by exporting.
- Market followers–such as insurers following their clients and clients’ exposures overseas.
What are the three stages in a civil-law case?
a. The preliminary stage–The parties submit pleadings. A hearing judge is appointed.
b. The evidence stage–The hearing judge takes evidence and prepares a written summary of the proceedings.
c. The decision stage–The presiding judge decides the case based on the report from the hearing judge and the counsel’s briefs and arguments.
