Chapter 3 - Doing Business in Global Markets Flashcards
What are two of the main arguments favoring the expansion of U.S. businesses into global markets?
- Today, over 90% of companies doing business globally believe it’s important for their employees to have experience working in other countries.
- The global market is huge. There are over 7.1 billion potential customers in the 194 countries that make up the global market.
What is comparative advantage, and what are some examples of this concept at work in the US?
Comparative Advantage– A theory by David Ricardo. It states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively or efficiently.
The US has a comparative advantage in producing goods and services such as software and engineering services. In contrast, it lacks a comparative advantage in growing coffee or making shoes.
By specializing and trading, the US and its trading partners can realize mutually beneficial exchanges.
How are a nation’s balance of trade and balance of payments determined?
Balance of Trade– the total value of a nation’s exports compared to its imports measured over a particular period.
Balance of Payments– the difference between money coming into a country (from exports) and money leaving a country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures and foreign investment.
What is meant by the term DUMPING in global trade?
DUMPING is selling products in a foreign country at lower prices than those charged in the producing country.
This predatory pricing tactic is sometimes used to reduce surplus products in foreign markets or to gain a foothold in a new market.
What are the advantages to a firm of using licensing as a method of entry in global markets? What are the disadvantages?
Advantages: Licensing has the least amount of risks associated. It gives the right to manufacture its product or use its trademark to a foreign company for a fee.
The firm can gain revenues it would not otherwise have generated in its home market.
Also, foreign licensees often must purchase start-up supplies, materials, and consulting services from the licensing firm.
Licensors spend little or no money to produce and market their products. These costs come from licensee.
Disadvantage: Often, a firm must grant licensing rights to its product for an extended period of time (20 years or longer). If a product experiences remarkable growth in the foreign market, the bulk of the revenues belong to the licensee.
The licensee may get cocky and take all the firms trade secrets and leave to start a competing company.
What services are usually provided by an export-trading company?
US firms that are still hesitant can engage in INDIRECT exporting through specialists called export-trading companies that assist in negotiating and establishing trading relationships.
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.
It also can assist exporters with warehousing, billing, and insuring.
What is the key difference between a joint venture and a strategic alliance?
Joint Venture– a partnership in which two or more companies (often from different countries) join to undertake a major project.
Joint ventures are often mandated by governments (ex. China)
JV: Shared technology and risk. Shared marketing and management expertise. Entry into markets where foreign companies are often not allowed unless goods are produced locally.
Strategic Alliance– a long-term partnership between two or more companies established to help each company build competitive market advantages.
Unlike joint ventures, strategic alliances don’t share costs, risks, management, or even profits.
Such alliances provide broad access to markets, capital, and technical expertise.
Thanks to their flexibility, strategic alliances can effectively link firms from different countries and firms of vastly different sizes. (ex. Hewlett-Packard & Hitachi & Samsung)
What makes a company a multinational corporation?
An MNC is an organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management. (ex. Nestle)
Only firms that have MANUFACTURING CAPACITY or some other physical presence in different nations can truly be called multinational.
What are four major hurdles to successful global trade?
- Dealing with differences in sociocultural forces
- Economic and financial forces
- Legal and regulatory forces
- Physical and environmental forces
What does ETHNOCENTRICITY mean, and how can it affect global success?
An attitude that your own culture is superior to other cultures.
It can affect global success because if you want to get involved, it is critical you are aware of the cultural differences amongst nations.
How would a low value of the dollar affect US exports?
A low value of the dollar means a dollar is traded for less foreign currency–foreign goods become more expensive because it takes more dollars to buy them, but the US goods become cheaper to foreign buyers because it takes less foreign currency to buy them.
What does the Foreign Corrupt Practices Act prohibit?
This law prohibits ‘questionable’ or ‘dubious’ payments to foreign officials to secure business contracts
What are the advantages and disadvantages of trade protectionism and of tariffs?
Trade Protectionism– the use of government regulations to limit the import of goods and services.
Advantages: It allows domestic producers to survive and grow, producing more jobs. Tariffs imposed 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
Disadvantages: It can turn off potential exporters from engaging in global trade.
What is the primary purpose of the WTO?
WTO mediates trade disputes amongst nations.
Is an independent entity of 159 member nations whose purpose is to oversee cross-broder trade issues and global business practices.
What is the key objective of a common market like the EU?
The EU, European Union, is a group of 28 nations with a population of over 500 million and a GDP of $17.2 trillion.
Key objective: Although the EU will face challenges in the future, it still considers economic integration among member nations as the way to compete globally against major competitors like the US and China.
