Chapter 3 - Doing Business in Global Markets

Question 1

What is Importing?

Answer 1

Buying products from another country

Question 2

What is Exporting?

Answer 2

Selling products to another country

Question 3

What is Free Trade?

Answer 3

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

Question 4

What is Comparative Advantage Theory?

Answer 4

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

Question 5

What is Balance of Trade?

Answer 5

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

Question 6

What is a Trade Surplus?

Answer 6

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

Question 7

What is a Trade Deficit?

Answer 7

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

Question 8

What is the Balance of Payments?

Answer 8

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

Question 9

What is dumping?

Answer 9

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

Question 10

What are the two main arguments favoring the expansion of U.S. businesses into global markets?

Answer 10

1. Competition abroad is not as intense as at home.
2. Exporting is a terrific boost to the economy at home.

Question 11

What is Licensing?

Answer 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)

Question 12

How can a Licensing Agreement benefit a firm (3 responses)?

Answer 12

1. the firm can gain revenues it would not otherwise generate in its home market.
2. Foreign licensees will purchase start-up supplies, materials, and consulting services from the licensing firm.
3. The licensors spend little or no money to produce and market their product.

Question 13

What is the EAC?

Answer 13

Export Assistance Centers to provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services.

Question 14

What do export-trading companies do for US businesses?

Answer 14

They match buyers and sellers from different countries and deal with foreign customs offices, documentation, and weights and measures conversions to ease the process of entering global markets.

Question 15

What is Franchising?

Answer 15

A contractual agreement whereby someone with a good idea for a business sells others the rights to use the business name and sell a product or service in a given territory in a specified manner.

Question 16

What is Contract Manufacturing?

Answer 16

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

Question 17

What are Joint Ventures?

Answer 17

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

Question 18

What are the three benefits of a Joint Venture?

Answer 18

1. Shared technology and risk.
2. Shared marketing and management expertise.
3. Entry into markets where foreign companies are often not allowed unless goods are produced locally.

Question 19

What is a Strategic Alliance?

Answer 19

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

Question 20

What is Foreign Direct investment (FDI)?

Answer 20

the buying of permanent property and businesses in foreign nations.

Question 21

What is a Foreign Subsidiary?

Answer 21

The most common form of FDI. A company owned in a foreign country by another company, called a parent company. This subsidiary operates like a domestic firm.

Question 22

What is a Multinational Corporation?

Answer 22

A corporation that manufactures and markets products in many different countries and has multinational stock ownership and management.

Question 23

What are Sovereign Wealth Funds (SWF)?

Answer 23

Investment funds controlled by government holding investment stakes in foreign companies, real estate, and other investments.

Question 24

What is the exchange rate?

Answer 24

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

Question 25

What is the Floating Exchange Rate?

Answer 25

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

Question 26

What is Devaluation?

Answer 26

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

Question 27

What is Countertrading?

Answer 27

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

Question 28

What are four major hurdles to successful global trade?

Answer 28

1. Sociocultural Forces
2. Economic and Financial Forces
3. Legal and Regulatory Forces
4. Physical and Environmental Forces

Question 29

What is Ethnocentricity?

Answer 29

An attitude that your own culture is superior to other cultures.

Question 30

How would a low value of the dollar affect U.S. exports?

Answer 30

A low value dollar would make exports less expensive in other countries.

Question 31

What does the Foreign Corrupt Practices Act prohibit?

Answer 31

It prohibits “questionable” or “dubious” payments to foreign officals to secure business contracts.

Question 32

What is Trade Protectionism?

Answer 32

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

Question 33

What is a tariff?

Answer 33

A tax imposed on imports.

Question 34

What are Protective Tariffs?

Answer 34

Import taxes that raise retail price of imported products so that domestic goods are more competitively priced.

Question 35

What are Revenue Tarrifs?

Answer 35

Tariffs designed to raise money for the government. U.S. companies (importers) pay for this.

Question 36

What is an Import Quota?

Answer 36

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