International Business Operations Flashcards
Fact: entities are encouraged to look beyond the political borders in which they were organized to maximize shareholder value; several economic theories support international trade as a means of achieving improved shareholder value
comparative advantage - specialization in the production and trade of specific products produces a comparative advantage in relation to trading partners; companies and countries use this to maximize the value of their efforts and resources
imperfect markets - resource markets are often deemed to be imperfect; the ability to trade freely between markets is often limited by the physical immobility of the resource or regulatory barriers; in order to retrieve more resources, companies must trade outside their borders
Important terms
international trade - companies and nations conduct international trade by exporting/importing goods and/or services
licensing - entities that provide the right to use processes or technologies in exchange for a fee are engaged in licensing activities
franchising - franchisors are entities who se marketing service or delivery strategy provides training and related service delivery resources in exchange for a fee
joint ventures - take advantage of comparative advantage of one or both of the participants in marketing or delivering a product
direct foreign investment (DFI) - an entity may establish international operations by purchasing a foreign company as a subsidiary or by starting a subsidiary operation within the borders of a foreign country
global sourcing - the synchronization of all levels of product manufacturing, including research and development, production, and marketing on an international basis; global sourcing is frequently implemented through a range of organizational and business arrangements
Factors relevant to assessing the effect of international business operations include:
political and legal influences, potential for asset expropriation, taxes and tariffs, limitations on asset ownership or joint venture participation, content or value added limits, foreign trade zones, economic systems (centrally planned economies, market economies, and conglomerates), culture (individualism vs collectivism), uncertainty avoidance, short-term vs long-term orientation, acceptance of leadership hierarchy, and technology and infrastructure
The risks associated with conducting international business operations are generally categorized by the following:
exchange rate fluctuation (risk is divided into 3 categories: transaction risk, economic risk, and translation risk), foreign economies (foreign demand, interest rates, inflation, and exchange rates), and political risk
