Chapter 3: Doing Business in Global Markets Flashcards
Importing
Buying goods from another country
Exporting
Selling goods and services to another country
Free Trade
Movement of goods/services across a country without political or economic barriers
Pros and Cons of Free Trade
-Global competition/fairness/innovation of products/outsourcing
-hurts domestic countries
Balance of Payment vs Balance of Trade
Payments: movement of money due to exports and imports
Trade: value of nation’s exports vs imports
Comparative Advantage Theory
-principle of free trade economics
-producing and trading what gives you the smallest amount of opportunity cost
-guiding principle of free market exchange
Absolute Advantage
Countries that produce a certain good/service better than any other country
Trade surplus/Trade deficit
exports>/
Dumping
Price of a product from the export country exceeds the cost of what it is sold for in the importing country
Licensing
right to manufacture product or use trademark to a foreign country for a fee (use label for a fee)
indirect exporting
exporting a product through a specialized service (EAC for example)
Export Assistance Centers (EAC)
-helps smaller-mid size businesses compete in a global market (trade-finance support)
Franchising
-someone has a good business idea
-business sells their rights to their own business name
-person with idea can sell the product/service in a given territory
Contract Manufacturing
-producing items in a foreign destination
-domestic country attaches brand/label to it to sell in their country
Joint Venture
-two or more companies (usually from different countries) join to undertake a project
-(shared risk, using expertise to help them succeed)
Strategic alliance
long-term partnership between two or more companies to help each company build competitive market advantages (better themselves in the market)
foreign direct investment (FDI)
buying permanent property and business and foreign nations
Foreign subsidiary
most common form of FDI (home company) residing in a host country that is run by a parent company
multinational company
manufactures and markets products in many countries/has multinational stock ownership and management
sovereign wealth funds (SWF)
investment funds controlled by governments holding investment stakes in foreign companies
Hurdles to being successful in a global market
-sociocultural differences
-economic forces
-legal and regulatory forces
-physical and environmental forces
ethnocentricity
-believing that your own culture is superior to others
floating exchange rates
-currencies float in value
exchange rates
-value of one dollar relative to another country’s
devaluation
lowers value of nation’s currency relative to others
countertrading
complex bartering between countries
Foreign Corrupt Practices Act of 1984
-stops foreign officials from being paid to secure business contracts
Trade Protectionism
-government regulations to limit imports of goods and services
tariffs
tax/fee placed on goods being imported into a country
-protective tariffs: raise retail price of imported goods so that domestic producers can compete
-revenue tariffs: raise money for the government
import quota/embargo
-limits # of products in certain categories
-ban on the import/export of a particular product or country
General Agreements on Tariffs and Trade (GATT)
-1948, 23 nations formed this to reduce trade restrictions on goods, services, ideas, cultural programs
World Trade Organization
-mediate disputes among nations
Common markets
-regional group of countries with a common external tariff, no internal tariffs. coordinated laws
North American Free Trade Agreement (NAFTA)
-free trade among US, Canada, and Mexico
-eliminate trade barriers, fair competition, effective protection/enforcement of property rights
Central American Free Trade Agreement
-Nicaragua, Honduras, Costa Rica, Guatemala, Dominican, El Salvador
-improve working conditions
-create framework for further regional trade cooperation
European Union
-make laws, coordinate, foreign affairs, common budget
Outsourcing/insourcing
-contracting with other companies to spread out the workload (insourcing is the opposite)
globalization affects all global trade barriers
goods and services move across borders
