Chapter 2 Flashcards
Trade War
economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers
Tariff Barriers
These are taxes on certain imports. They raise the price of goods making imports less competitive.
Joint Ventures
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
Quotas
A limit placed on the number of imports
Political campaigns
advocating domestic consumption
eg. “Buy American”.
Non-Tariff Barriers.
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.
Subsidies.
A domestic subsidy from government can give the local firm a competitive advantage.
Voluntary Export Restraint (VER).
Similar to quotas, this is where countries agree to limit the number of imports. This was used by US for imports of Japanese cars
Embargo
A complete ban on imports from a certain country. E.g. US embargo with Cuba.
Anti-dumping legislation
the practice of firms selling to export markets at lower prices than are charged in domestic markets. Must be selling product below cost
Exchange rate control:
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.
History of Trade Barrier
assoicated with mercantlism
- theory believed that a positive trade balance generate weath and can be achieved by protective policies
Why was protectionlism needed?
needed to grow the domestic and local industries (protect local businesses)
Businesses grow, more jobs are created
More jobs = better economy
Why is protectionism no longer needed?
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
Benefits of specialization
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
Free Trade vs Fair trade
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
Fair Trade
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.
Acquistion
When one company takes over another and clearly established itself
as the new owner
Merger
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.”
Mergers of Equals
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.
Synergies
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.
Staff Reductions
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.
Economies of Sale
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.
Acquiring new technology
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.
Improved market reach and industry visibility
Companies buy
companies to reach new markets and grow revenues and earnings.
Horizontal merger
Two companies that are in direct competition and
share the same product lines and markets.
Vertical merger
A customer and company or a supplier and company.
Think of a cone supplier merging with an ice cream maker.
Market-extension merger
Two companies that sell the same products in
different markets.
Product-extension merger -
Two companies selling different but related
products in the same market.
Conglomeration
Two companies that have no common business areas.
Benz with Chrysler merger
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
global sourcing
process of buying equipment, capitals goods, raw materials from around the world
value added
the amount of worth that is added to a product after its processed
Licensing agreements
gives a company permission to use a product, service, brand name, or patent in exchange for a fee or royalty.
Exclusive distribution rights
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.
foreign subsidiary
exists when a parent company allows a branch of its company, in another country, to be run as an independent entity
World Trade Organization (WTO)
The WTO oversees the rules of global trade
floating-rate
which means our exchange rate changes with respect to other currencies
Currency devaluation
occurs when supply is greater than demand and the value of the Canadian dollar decreases.
Gross domestic product (GDP)
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.
Hard Currcenies
Stable currencies, such as the euro, U.S. dollars, and Canadian dollars,
Currency speculating
involves buying, holding, or selling foreign currency in anticipation of its value changing. It is done to profit from the fluctuations in its price.
Trade Missons
Visits by organizations ( heads of states) to target foriegn market
Trade Shows
Connect potential purchasers with suppliers
Foriegn Investment
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
Foreign direct investment
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
Portfolio investment
An investor buys a share of a foreign company but
has no controlling interest
