Chapter 3: Doing Business in Global Markets

Question 1

Importing

Answer 1

Buying goods from another country

Question 2

Exporting

Answer 2

Selling goods and services to another country

Question 3

Free Trade

Answer 3

Movement of goods/services across a country without political or economic barriers

Question 4

Pros and Cons of Free Trade

Answer 4

-Global competition/fairness/innovation of products/outsourcing
-hurts domestic countries

Question 5

Balance of Payment vs Balance of Trade

Answer 5

Payments: movement of money due to exports and imports
Trade: value of nation’s exports vs imports

Question 6

Comparative Advantage Theory

Answer 6

-principle of free trade economics
-producing and trading what gives you the smallest amount of opportunity cost
-guiding principle of free market exchange

Question 7

Absolute Advantage

Answer 7

Countries that produce a certain good/service better than any other country

Question 8

Trade surplus/Trade deficit

Answer 8

exports>/

Question 9

Dumping

Answer 9

Price of a product from the export country exceeds the cost of what it is sold for in the importing country

Question 10

Licensing

Answer 10

right to manufacture product or use trademark to a foreign country for a fee (use label for a fee)

Question 11

indirect exporting

Answer 11

exporting a product through a specialized service (EAC for example)

Question 12

Export Assistance Centers (EAC)

Answer 12

-helps smaller-mid size businesses compete in a global market (trade-finance support)

Question 13

Franchising

Answer 13

-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

Question 14

Contract Manufacturing

Answer 14

-producing items in a foreign destination
-domestic country attaches brand/label to it to sell in their country

Question 15

Joint Venture

Answer 15

-two or more companies (usually from different countries) join to undertake a project
-(shared risk, using expertise to help them succeed)

Question 16

Strategic alliance

Answer 16

long-term partnership between two or more companies to help each company build competitive market advantages (better themselves in the market)

Question 17

foreign direct investment (FDI)

Answer 17

buying permanent property and business and foreign nations

Question 18

Foreign subsidiary

Answer 18

most common form of FDI (home company) residing in a host country that is run by a parent company

Question 19

multinational company

Answer 19

manufactures and markets products in many countries/has multinational stock ownership and management

Question 20

sovereign wealth funds (SWF)

Answer 20

investment funds controlled by governments holding investment stakes in foreign companies

Question 21

Hurdles to being successful in a global market

Answer 21

-sociocultural differences
-economic forces
-legal and regulatory forces
-physical and environmental forces

Question 22

ethnocentricity

Answer 22

-believing that your own culture is superior to others

Question 23

floating exchange rates

Answer 23

-currencies float in value

Question 24

exchange rates

Answer 24

-value of one dollar relative to another country’s

Question 25

devaluation

Answer 25

lowers value of nation’s currency relative to others

Question 26

countertrading

Answer 26

complex bartering between countries

Question 27

Foreign Corrupt Practices Act of 1984

Answer 27

-stops foreign officials from being paid to secure business contracts

Question 28

Trade Protectionism

Answer 28

-government regulations to limit imports of goods and services

Question 29

tariffs

Answer 29

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

Question 30

import quota/embargo

Answer 30

-limits # of products in certain categories
-ban on the import/export of a particular product or country

Question 31

General Agreements on Tariffs and Trade (GATT)

Answer 31

-1948, 23 nations formed this to reduce trade restrictions on goods, services, ideas, cultural programs

Question 32

World Trade Organization

Answer 32

-mediate disputes among nations

Question 33

Common markets

Answer 33

-regional group of countries with a common external tariff, no internal tariffs. coordinated laws

Question 34

North American Free Trade Agreement (NAFTA)

Answer 34

-free trade among US, Canada, and Mexico
-eliminate trade barriers, fair competition, effective protection/enforcement of property rights

Question 35

Central American Free Trade Agreement

Answer 35

-Nicaragua, Honduras, Costa Rica, Guatemala, Dominican, El Salvador
-improve working conditions
-create framework for further regional trade cooperation

Question 36

European Union

Answer 36

-make laws, coordinate, foreign affairs, common budget

Question 37

Outsourcing/insourcing

Answer 37

-contracting with other companies to spread out the workload (insourcing is the opposite)

Question 38

globalization affects all global trade barriers

Answer 38

goods and services move across borders