D270 Midterm: Chapter 1 Flashcards
What is international business?
- All commercial transactions that take place between 2+ countries
- Includes sales/investments/transportation/tourism
Why is it important to study international business?
- Most companies are international or compete with international companies
- Understand different modes of operation
- Best business practices vary by country
- Managers must consider where to obtain best materials at lowest price and where the best market is
What is globalization? Why is it attractive to companies?
- Widening set of interdependent relationships among people who are from different parts of the world
- Elimination of barriers to international movement of goods/services/capital/tech
- Enables better quality, more variety, lower prices
CASE: Globalized Business of Sports
How is globalization exemplified in the sports business?
- Fans (consumers) demand the best athletes (products) in the world
- Cities and countries compete to host events
- Teams/sports go global when popularity increases or revenue decreases (i.e., MLB)
What are 3 main forces that are driving globalization?
- Size of countries: smaller countries more globalized (have fewer resources, lower variety of production)
- Income of countries’ populations: higher income = more globalization (can afford global products)
- Variance among globalization aspects (countries vary for how they rank in terms of globalization)
Factors in increased globalization
- Increase in tech
- Liberalization of cross-border trade & resource movements
- Development of services that support IB (currency conversions)
- Growth of consumer pressures
- Increase in global competition
- Change in political situations and gov policies
- Expansion of cross-national cooperation
What is a born-global company?
A company that starts with a global focus due to founders’ international experience & advances in communication give them leg up in global market
What is clustering/agglomeration? How does it occur?
- Many new companies locate in areas w/ numerous competitors/ suppliers
- Observe how competitors benefit from foreign opportunities»_space; Human talent gravitates to area»_space; Gain easier access to resources needed
What are 3 costs of globalization?
- Threats to national sovereignty
- Environmental stress
- Growing income inequality and personal stress
How is national sovereignty threatened by globalization?
- Countries’ interests may be undermined by international trade
- Small economies might become overdependent on larger economies
- Loss of culture: globalization homogenizes products, work methods, social structures, and language
How is the environment adversely affected by globalization?
- Pollution from increased transportation
- Growth consumes nonrenewable natural resources
How has globalization increased income inequality?
- Created “super-star” system by increasing access to low-cost labor
- Developed competition resulting in win/lose system
- Profits from globalization go to superstars and aren’t evenly distributed
How has globalization increased personal stress?
Increased job insecurity because of offshoring
CASE: IBM Offshoring
Why did IBM (and other companies) choose to offshore?
Cost savings»_space; Growth»_space; More high-income jobs
What is 2 common arguments to the case that offshoring creates more high-income jobs?
Jobs being off shored were jobs that allowed workers to send their children to college»_space; upwardly mobile society
Jobs created in other countries take advantage of situation and don’t treat employees well
What are 3 main reasons why companies engage in globalization?
- Expanding sales
- Acquiring resources
- Reducing risk
How does globalization increase sales?
- Increase potential markets & profit
- Decrease per-unit cost by decreasing fixed costs
What advantages do companies have by acquiring foreign resources?
- Lower costs
- New/better products
- Additional operating knowledge
How does globalization reduce risk for companies?
- Smooths sales and profits
- Prevents competitors from gaining advantages
What are “invisibles?”
Non-product sales/purchases
tourism, transportation, banking, insurance, trademarks, patents, copyrights
What is the fastest growth sector in international trade?
Invisibles
What are turnkey operations?
Construction projects performed under contract and transferred to owners when operational
What are management contracts?
One company provides personnel to perform management functions for other company
What are licensing agreements? How do royalties relate to licensing agreements?
- Contracts that allow another company to use a different company’s assets (esp. trademarks, copyrights, etc.)
- Royalties are earning a company receives from a licensing agreement
What is franchising?
Mode of business in which one party (franchiser) allows another (franchisee) to use a trademark as an essential asset of the franchisee’s business.
Franchisor also assists continuously with operations of franchisee’s business
What is a foreign direct investment (FDI)? How does it differ from a portfolio investment?
Investor takes on a controlling interest in a foreign company
In a portfolio investment, a company takes a non controlling financial interest in another entity
What is a joint venture?
When 2+ companies share ownership of an FDI
What are collaborative arrangements?
Joint ventures, licensing agreements, management contracts, minority ownership, and long-term contractual arrangements
What is a strategic alliance?
An agreement that is of critical importance to 1+ partners
What is the qualification for a Multinational Enterprise (MNE)?
A company with foreign direct investments
How can companies compete internationally?
- Cost
- Differentiation strategies (brand image, unique characteristics)
What factors might affect a company’s competitive situation?
- Rankings among countries
- Competitors they face by country
- Resources they can commit internationally
What are 3 contrasting viewpoints about the future of globalization?
- Further globalization is inevitable
- IB will grow primarily along regional rather than global lines
- Foces working against further globalization and IB will slow the growth of both
