Competing In Global Markets - Chapter 3 Flashcards
Free trade
Movement of goods/services among nations without political or economic barriers
Comparative advantage theory
A country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products it can’t produce as effectively or efficiently
Absolute advantage
Monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
2 Indicators of measuring effectiveness of global trade
- Balance of trade
- Balance of payments
Balance of trade
Nation’s ratio of exports/imports
Trade surplus / favourable balance of trade
Occurs when the value of the country’s exports exceeds that of its imports
Trade deficit / unfavourable balance of trade
Occurs when the value of the country’s imports exceeds that of its exports
Balance of payments
Difference between money coming into a country (from exports) and $ leaving the 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.
Licensing
Right to manufacture its product or use its trademark to a foreign company for a fee.
The 2 ways Licensing agreement can benefit a firm
- Firm can gain rev it would not otherwise have generated in its home market
- Foreign licensees must often purchase start-up supplies, component materials, and consulting services from the licensing firm
What problems might licensors experience?
Firms must grant licensing rights to its product for an extended period, 20 yrs +. If product experiences remarkable growth in foreign market, bulk of revenues goes to the license.
Franchising
contractual agreement whereby someone w a good idea for a business sells the rights to use the business name and sell a product/service in a given territory in a specified manner
Contract manufacturing
enables a company to experiment in a new market without incurring heavy start up costs such as building a manufacturing plant.
Strategic alliances
Don’t share costs, risks, management, or even profits unlike joint ventures
Alliances provide broad access to markets, capital, and technical expertise
Foreign direct investment (FDI)
Buying permanent property and businesses in foreign nations
Foreign subsidiary
Company owned in a foreign country by another company (parent company).
Multinational corporation
One that manufactures and markets products in many diff countries and has multinational stock ownership and management
typically extremely large corporations like Nestle, but not all large global businesses are multinationals
Culture
The set of values, beliefs, rules and institutions held by a specific group of ppl.
Ethnocentricity
An attitude that one’s own culture is superior to all others
Exchange rate
The value of one nation’s currency relative to the currencies of other countries
High value of the dollar
dollar would be traded for more foreign currency than normal
Low value of the dollar
dollar is traded for less foreign currency than normal
Devaluation
Lowering the value of a nation’s currency relative to other currencies
Countertrading
Complex form of bartering in which several countries may be involved, each trading goods for goods or services for services
Trade protectionism
Use of gov regulations to limit the import of goods and services
Dumping
Selling products in a foreign country at lower prices than those charged in the producing country
Tariffs
Taxes on imports ; imported goods r more expensive to buy
Import quota
Limits the number of products in certain categories that a nation can import
Embargo
Complete ban on the import or export of a certain product or the stopping of all trade w a particular country
General Agreement on Tariffs and Trade (GATT)
Global forum for reducing trade restrictions on goods, services, ideas, and cultural programs
What is GATT short for?
General Agreement on Tariffs and Trade
What is WTO short for?
World Trade Organization
WTO
independent entity of 164 member nations, and its purpose is to oversee cross-border trade issues and global business practices among those nations
What is IMF short for?
International Monetary Fund
IMF
international bank supported by its members that usually makes short term loans to countries experiencing problems w their balance of trade
World Bank
Concerned w developing infrastructure in less-developed countries
Producers’ cartels
Organizations of commodity-producing countries
Formed to stabilize or increase prices, in order to optimize profits over the long term
Common market / trading bloc
Regional group of countries that have a common external tariff, no internal tariffs, and the coordination of laws to facilitate exchange among member countries.
Export-trading companies / export-management companies
For firms that are hesitant on exporting, they can do indirect exports through specialists called export-trading companies that assist in negotiating and establishing trading relationships.
What does a contract manufacturing enable?
Enables a company to experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant
Why are Crown corporations set up?
- Provide service that are not provided by businesses
- Bail out a major industry in trouble
- Provide some special services that couldn’t otherwise be made available
