Chapter 2

Question 1

Trade War

Answer 1

economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers

Question 2

Tariff Barriers

Answer 2

These are taxes on certain imports. They raise the price of goods making imports less competitive.

Question 3

Joint Ventures

Answer 3

Companies from two different countries go in to produce a product service together. They share assets and control so that their is a mutal benefit (automotive industry - companies share technology and actual plants) Ford and Mazda

Question 4

Quotas

Answer 4

A limit placed on the number of imports

Question 5

Political campaigns

Answer 5

advocating domestic consumption

eg. “Buy American”.

Question 6

Non-Tariff Barriers.

Answer 6

These involve rules and regulations which make trade more difficult. For example, if foreign companies have to adhere to complex manufacturing laws it can be difficult to trade.

Question 7

Subsidies.

Answer 7

A domestic subsidy from government can give the local firm a competitive advantage.

Question 8

Voluntary Export Restraint (VER).

Answer 8

Similar to quotas, this is where countries agree to limit the number of imports. This was used by US for imports of Japanese cars

Question 9

Embargo

Answer 9

A complete ban on imports from a certain country. E.g. US embargo with Cuba.

Question 10

Anti-dumping legislation

Answer 10

the practice of firms selling to export markets at lower prices than are charged in domestic markets. Must be selling product below cost

Question 11

Exchange rate control:

Answer 11

A government may intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market.

Question 12

History of Trade Barrier

Answer 12

assoicated with mercantlism

- theory believed that a positive trade balance generate weath and can be achieved by protective policies

Question 13

Why was protectionlism needed?

Answer 13

needed to grow the domestic and local industries (protect local businesses)
Businesses grow, more jobs are created
More jobs = better economy

Question 14

Why is protectionism no longer needed?

Answer 14

different countries are now specialized and can do things better and cheaper (comparative advantage)
Eg. why make shoes in your country when another country makes them far, better and at a lower cost

Question 15

Benefits of specialization

Answer 15

Countries will focus on doing what they do best
Which will lead to an increase in export revenue
More countries will buy from you because your country is considered the best
Countries who specialize in certain products can make them at a lower cost, so the cost per item of importing the good should decrease
Consumers benefit due to increased variety, higher quality goods and lower cost
Importers and exporters benefit
And the country’s economy as a whole benefits

Question 16

Free Trade vs Fair trade

Answer 16

free trade only benefits those who are already in a position of wealth and power and leaves those who are marginalized to fend for themselves.
Especially developing nations
Export businesses want to keep the costs of their product down to attract more buyers (importers)
Paying low wages is one way to this (because that country has no minimum wage laws)
Seen as exploitive

Question 17

Fair Trade

Answer 17

Fair trade is an institutional arrangement designed to help producers in developing countries achieve better trading conditions. Members of the fair trade movement advocate the payment of higher prices to exporters, as well as improved social and environmental standards.

Question 18

Acquistion

Answer 18

When one company takes over another and clearly established itself
as the new owner

Question 19

Merger

Answer 19

a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain
separately owned and operated. This kind of action is more precisely
referred to as a “merger of equals.”

Question 20

Mergers of Equals

Answer 20

In practice, however, actual mergers of equals don’t happen very
often. Usually, one company will buy another and, as part of the
deal’s terms, simply allow the acquired firm to proclaim that the
action is a merger of equals, even if it’s technically an acquisition.

Question 21

Synergies

Answer 21

Synergy is the magic force that allows for enhanced cost efficiencies
of the new business. Synergy takes the form of revenue enhancement
and cost savings.
Examples of synergies include: It aligns with the companies long term
strategic goals. For example, they want more of a presence in the UK,
and this company has offices and factories in the UK.

Question 22

Staff Reductions

Answer 22

As every employee knows, mergers tend to mean
job losses. Consider all the money saved from reducing the number of
staff members from accounting, marketing and other departments.

Question 23

Economies of Sale

Answer 23

Mergers also translate into improved purchasing
power to buy equipment or office supplies - when placing larger
orders, companies have a greater ability to negotiate prices with their
suppliers.

Question 24

Acquiring new technology

Answer 24

To stay competitive, companies need to
stay on top of technological developments and their business
applications. By buying a smaller company with unique technologies,
a large company can maintain or develop a competitive edge.

Question 25

Improved market reach and industry visibility

Answer 25

Companies buy

companies to reach new markets and grow revenues and earnings.

Question 26

Horizontal merger

Answer 26

Two companies that are in direct competition and

share the same product lines and markets.

Question 27

Vertical merger

Answer 27

A customer and company or a supplier and company.

Think of a cone supplier merging with an ice cream maker.

Question 28

Market-extension merger

Answer 28

Two companies that sell the same products in

different markets.

Question 29

Product-extension merger -

Answer 29

Two companies selling different but related

products in the same market.

Question 30

Conglomeration

Answer 30

Two companies that have no common business areas.

Question 31

Benz with Chrysler merger

Answer 31

Daimler, makers of Mercedez-Benz, a German company buys Chrysler
for $36 billion.

Considered a merger of “equals”, this was more of an acquisition.

Daimler wanted to improve their US presence in German and
European markets

Ultimately this merger failed, and Daimer ended up selling 80% of
Chrysler to a private equity firm for $7.4 billion
Difference in corporate cultures and values

Daimler had more of a hierarchical command structure with a clear chain of
command. Chrysler favored more of an open team-oriented approach

Daimler valued quality and reliability, while Chrysler wanted catchy designs
and a competitive price with their cars

General distrust

Although this was a merger, Daimler fired many of Chrysler’s key executives
and replaced them with their German counterparts

Question 32

global sourcing

Answer 32

process of buying equipment, capitals goods, raw materials from around the world

Question 33

value added

Answer 33

the amount of worth that is added to a product after its processed

Question 34

Licensing agreements

Answer 34

gives a company permission to use a product, service, brand name, or patent in exchange for a fee or royalty.

Question 35

Exclusive distribution rights

Answer 35

are another form of licensing agreement. These rights allow a company to be the only distributor of a product in a geographic area or in a specific country.

Question 36

foreign subsidiary

Answer 36

exists when a parent company allows a branch of its company, in another country, to be run as an independent entity

Question 37

World Trade Organization (WTO)

Answer 37

The WTO oversees the rules of global trade

Question 38

floating-rate

Answer 38

which means our exchange rate changes with respect to other currencies

Question 39

Currency devaluation

Answer 39

occurs when supply is greater than demand and the value of the Canadian dollar decreases.

Question 40

Gross domestic product (GDP)

Answer 40

the value of all finished goods and services produced by a country in a specific time period. A stable or rising GDP similarly indicates a healthy economy, causing the Canadian dollar to rise.

Question 41

Hard Currcenies

Answer 41

Stable currencies, such as the euro, U.S. dollars, and Canadian dollars,

Question 42

Currency speculating

Answer 42

involves buying, holding, or selling foreign currency in anticipation of its value changing. It is done to profit from the fluctuations in its price.

Question 43

Trade Missons

Answer 43

Visits by organizations ( heads of states) to target foriegn market

Question 44

Trade Shows

Answer 44

Connect potential purchasers with suppliers

Question 45

Foriegn Investment

Answer 45

Many international businesses are partly
owned by companies in other countries
through foreign investment

Largest oil producing company in Canada is partly
owned by Canadian, US, China and Japanese
companies

Question 46

Foreign direct investment

Answer 46

This occurs when a company in one country
wishes to expand into another country

Building factories, buying land, or buying a large
controlling interest in a company

Question 47

Portfolio investment

Answer 47

An investor buys a share of a foreign company but

has no controlling interest