Chapter 2: Doing Business in Global Markets

Question 1

Selling products to another country.

Answer 1

Exporting

Question 2

Buying products from another country.

Answer 2

Importing

Question 3

The movement of goods and services among nations without political or economic barriers.

Answer 3

Free trade

Question 3

The movement of goods and services among nations without political or economic barriers.

Answer 3

Free trade

Question 4

Theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently.

Answer 4

Comparative Advantage Theory

Question 5

The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

ex: Saudi Arabia, a country with abundant oil supplies that provide it with an absolute advantage over other nations.

Answer 5

Absolute Advantage Theory

Question 6

The total value of a nation’s exports compared to its imports over a particular period.

Answer 6

Blanace of Trade

Question 7

A favorable balance of trade; occurs when the value of a country’s exports exceeds that of its imports.

Answer 7

Trade Surplus

Question 8

An unfavorable balance of trade; occurs when the value of a country’s imports exceeds that of its exports.

Answer 8

Trade Deficit

Question 9

The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

Answer 9

Balance of Payments

Question 10

Selling products in a foreign country at lower prices than those charged in the producing country.

Answer 10

Dumping

Question 11

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

Answer 11

Licensing

Question 11

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

Answer 11

Licensing

Question 12

A foreign company’s production of private-label goods to which a domestic company then attaches its brand name or trademark; part of the broad category of outsourcing.

ex: parts for Apple, Xbox, Microsoft

Answer 12

Contract Manufacturing

Question 13

Strategies for reaching global markets

Answer 13

Question 14

Strategies for reaching global markets

Answer 14

Question 15

A partnership in which two or more companies (often from different countries) join to undertake a major project.

ex: Often mandated by governments like China as a condition for doing business in their country. Disney and Shanghai’s Disney Group

Answer 15

Joint venture

Question 16

A long-term partnership between two or more companies established to help each company build competitive market advantages.

Answer 16

Strategic alliance

Question 17

The buying of permanent property and businesses in foreign nations.

Answer 17

Foreign direct investment (FDI)

Question 18

A company owned in a foreign country by another company, called the parent company.

ex: 7-Eleven, a convenience store chain in the U.S. After 70% of the company was acquired by a Japanese affiliate in 1991, 7-Eleven is now a wholly-owned subsidiary held by Seven-Eleven Japan

Answer 18

Foreign subsidiary

Question 19

An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.

ex: Walmart, Nestle, BP, Volkswagen

Answer 19

Multinational corporation

Question 20

Investment funds controlled by governments holding large stakes in foreign companies.

Answer 20

Sovereign wealth funds (SWFs)

Question 21

What services are usually provided by an export-trading company?

Answer 21

An export-trading company not only matches buyers and sellers from different countries but also deals with foreign customs offices, documentation and even weights and measures conversions to ease the process of entering global markets.

Question 22

What is the key difference between a joint venture and a strategic alliance?

Answer 22

In summary, a joint venture is a separate entity with shared ownership, while a strategic alliance is a cooperative agreement between two or more companies without shared ownership.

Question 23

The value of one nation’s currency relative to the currencies of other countries.

Answer 23

Exchange rate

Question 24

Currencies “float” in value according to the supply and demand for them in the global market for currency

Answer 24

Floating exchange rates

Question 25

Lowering the value of a nation’s currency relative to other currencies.

Answer 25

Devaluation

Question 26

Lowering the value of a nation’s currency relative to other currencies.

Answer 26

Devaluation

Question 27

A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

Answer 27

Countertrading

Question 28

This law prohibits “questionable” or “dubious” payments to foreign officials to secure business contracts

Answer 28

Foreign Corrupt Practices Act of 1978

Question 29

The use of government regulations to limit the import of goods and services.

Answer 29

Trade protectionism

Question 30

The use of government regulations to limit the import of goods and services.

Answer 30

Trade protectionism

Question 31

A tax imposed on imports.

Answer 31

Tariff

Question 32

Raises the retail price of imported products so that domestic goods are more competitively priced

These tariffs are meant to save jobs for domestic workers and keep industries-especially infant industries that have companies in the early stages of growth-from closing down because of foreign competition

Answer 32

PROTECTIVE Tariff

Question 33

Designed to raise money for the government

Answer 33

Revenue Tariff

Question 34

A limit on the number of products in certain categories that a nation can import.

Answer 34

Import qutoa

Question 35

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

Answer 35

Embargo

Question 36

A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

Answer 36

General Agreement on Tariffs and Trade (GATT)

Question 37

The international organization that replaced the General Agreement on Tariffs and Trade, and was assigned the duty to mediate trade disputes among nations.

Answer 37

World Trade Organization (WTO)

Question 38

A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. An example is the European Union.

Answer 38

Common market

Question 39

Contracting with other companies (often in other countries) to do some or all of the functions of a firm, like its production or accounting tasks.

Answer 39

Outsourcing