internationel Flashcards by Jep Serrato

Any commercial activity or transaction that takes place
between businesses, organizations, people, or governments
and crosses boundaries into other nations and areas is
referred to as transactions are not constrained to a particular asset,
interest rate, or currency.

INTERNATIONAL
BUSINESS

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is the most fundamental
and the largest international business
activity, and it is often the first choice when
businesses decide to expand abroad as it
is the easiest way to enter the market with
a small outlay of capital.

Importing & exporting

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is one of the other ways to expand the
business internationally. is the arrangement
between a firm, called a licensor, allowing another
one to use its intellectual property such as brand
name, copyright, patent, technology, trademark, and
so on for a specific period. The licensor gets benefits
in terms of royalty.

Licensing

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is closely related to licensing.
is a parent company
(franchiser) that gives another company
(franchisee) the right to do business using
the franchiser’s name and products in a
prescribed manner.

Franchising

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or alliance is a positive aspect of the
cooperation of two or more companies in different countries that
are joined together for mutual gain. A joint venture is a special
type of strategic alliance, where partners across the globe
collectively found a company to produce goods and services.
The cooperation between the companies allows them to share
the production cost, technologies, development, and sales
networks. The resources will be pooled to mutual advantage and
put the companies in win-win situations.

strategic partnerships & Joint venture

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is a company’s physical
investment such as into the building and facilities in a
foreign country and acts as a domestic business with
a full scale of activity. Companies practice FDI to get
benefits from cheaper labor costs, tax exemptions,
and other privileges in that foreign country. The host
country will benefit from introducing new products,
services, technologies, and managerial skills.

Foreign direct investment

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is defined as a process that moves
businesses, organizations, workers, technology, products,
ideas and information beyond national borders and
cultures. Supporters say that this is making countries more
interdependent on free trade. But critics maintain that it is
also concentrating wealth in the corporate elite, disrupting
industries and making local economies more vulnerable.

Globalization

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provides some economic benefits that
financially benefit people that otherwise
wouldn’t have enough opportunity where
they live. Here are the four largest
advantages to globalization:

Advantages of Globalization

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It’s hard to argue with the point that
globalization makes more goods and
services available to more people,
often at lower prices.

Globalization Broadens Access to
Goods and Services

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The argument that globalization has
lifted people in developing countries out
of poverty is somewhat controversial
because opinions differ as to the
quantity – and quality – of the jobs
created by globalization.

Globalization Can Lift People Out of
Poverty

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Globalization’s defenders say it has
increased cross-cultural understanding
and sharing. A globalized society boosts the
rate at which people are exposed to the
culture, attitudes and values of people in
other countries. That exposure can inspire
artists, strengthen ties between nations and
dampen xenophobia.

Globalization Increases Cultural Awareness

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Art and culture aren’t the only things
that spread more easily in a globalized
society. The same goes for information
and technology.

Information and Technology Spread More Easily With Globalization

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WORKERS CAN LOSE JOBS TO COUNTRIES WITH LOW-
COST LABOR
GLOBALIZATION HASN’T PROTECTED LABOR,
ENVIRONMENTAL OR HUMAN RIGHTS
GLOBALIZATION CAN CONTRIBUTE TO CULTURAL
HOMOGENEITY
GLOBALIZATION EMPOWERS MULTINATIONAL CORPORATIONS

Drawbacksof
Globalization

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comprise all commercial transactions (private and
governmental, sales, investments, logistics, and transportation) that take place
between two or more regions, countries, and nations beyond their political
boundaries.

International Business

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Moral principles that govern a person’s behavior or the conduct of an
activity.

Ethics

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outsourcing, working standards and conditions,
workplace diversity and equal opportunity, child labor and
human rights.

ethical issues

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Mercantilism
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin Theory (Factor Proportions Theory)

Classical or Country-Based Trade Theories

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Country Similarity Theory
Product Life Cycle Theory
Global Strategic Rivalry Theory
Porter’s National Competitive Advantage Theory

Modern or Firm-Based Trade Theories

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Mid-16th Century
A nation’s wealth depends on accumulated treasure
Maximize exports and minimize imports

mercantalism

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Adam Smith: Wealth of Nation [1776]
Smith offered a new trade theory called which focused on the ability of a country to produce a good more efficiently than another nation.

absolute advantage

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David Ricardo, an English economist, introduced the theory of…
Efficiency or resource utilization leads to more productivity.
Makes better use of resources.

comparative advantage

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Two Swedish economists, Eli Heckscher and Bertil Ohlin
This theory assumes that there are only two factors of production and labor, and that is fixed in every country, varying only across national borders.

Factor Proportion Theory

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evolved with the growth of the multinational company (MNC). The country-based theories couldn’t adequately address the expansion of either MNCs or intraindustry trade, which refers to trade between two countries of goods produced in the same industry.

modern or firm-based theories

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Swedish economist Steffan Linder developed in 1961, as he tried to explain the concept of intraindustry trade. Linder’s theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences.

country similarity theory

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Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory in the 1960s. The theory, originating in the field of marketing, stated that a product life cycle has three distinct stages: new product, maturing product, and standardized product.

Product Life Cycle Theory

emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry.

Global strategic rivalry theory

research and development, the ownership of intellectual property rights, economies of scale, unique business processes or methods as well as extensive experience in the industry, and the control of resources or favorable access to raw materials.

barriers to entry that corporations may seek to optimize

In the continuing evolution of international trade theories, Michael Porter of Harvard Business School developed a new model to explain national competitive advantage in 1990. Porter’s theory stated that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. His theory focused on explaining why some nations are more competitive in certain industries.

Porter’s National Competitive Advantage Theory

Porter recognized the value of the factor proportions theory, which considers a nation’s resources (e.g., natural resources and available labor) as key factors in determining what products a country will import or export.

Local market resources and capabilities (factor conditions).

Porter believed that a sophisticated home market is critical to ensuring ongoing innovation, thereby creating a sustainable competitive advantage.

Local market demand conditions

To remain competitive, large global firms benefit from having strong, efficient supporting and related industries to provide the inputs required by the industry.

Local suppliers and complementary industries.

Local firm characteristics include firm strategy, industry structure, and industry rivalry.

Local firm characteristics

is basically the system of politics and government in a country. It governs a complete set of rules, regulations, institutions, and attitudes.

POLITICAL SYSTEM

contends that individuals should control political activities and public government is both unnecessary and unwanted.

ANARCHISM

which contends that every aspect of an individual’s life should be controlled and dictated by a strong central government.

TOTALITARIANISM

which asserts that both public and private groups are important in a well-functioning political system.

PLURALISM

How stable is the government? Is it a democracy or a dictatorship? If a new party comes into power, will the rules of business change dramatically? Is power concentrated in the hands of a few, or is it clearly outlined in a constitution or similar national legal document? How involved is the government in the private sector? Is there a well-established legal environment both to enforce policies and rules as well as to challenge them? How transparent is the government’s political, legal, and economic decision-making process?

A company may ask several questions regarding a prospective country’s government to assess possible risks:

set of beliefs and ideas characterized by a particular culture.

IDEOLOGICAL FORCES

a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs.

Communism

is an economic system in which private individuals or businesses own capital goods.

Capitalism

is a social and economic doctrine that calls for public rather than private ownership or control of property and natural resources.

Socialism

Governments have the capacity to make broad changes to monetary and fiscal policy, including raising or lowering interest rates, which has a huge impact on business.

GOVERNMENT OWNERSHIP OF BUSINESS

The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases, and the contraction out of activities previously conducted by the state.

PRIVATIZATION

Characteristic of a government that maintains itself in power and fiscal, monetary and political policies are whose predictable and not suddenly change.

GOVERNMENT STABILITY

Country risk assessment is a study of business environment of different countries and the purpose of this study is to predict the various from of risk that MNC's face in those countries.

COUNTRY RISK ASSESSMENT

There are three main kinds of legal systems—common law, civil law, and religious or theocratic law. Most countries actually have a combination of these systems, creating hybrid legal systems.

Different Legal Systems

is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. It’s the most widespread legal system in the world.

Civil law

is based on traditions and precedence. In common law systems, judges interpret the law and judicial rulings can set precedent.

Common law

is also known as theocratic law and is based on religious guidelines. The most commonly known example of religious law is Islamic law, also known as Sharia. Islamic law governs a number of Islamic nations and communities around the world and is the most widely accepted religious law system. Two additional religious law systems are the Jewish Halacha and the Christian Canon system, neither of which is practiced at the national level in a country. The Christian Canon system is observed in the Vatican City.

Religious law

Why Do Governments Intervene in Trade?

Governments intervene in trade for a combination of political, economic, social, and cultural reasons.

Protecting infant industries National defence Employment rates Environmental concerns Aggressive trade Emotional argument Consumer safety Medical drugs

world intervene in international trade

are taxes imposed on imports. Two kinds of tariffs exist—specific tariffs, which are levied as a fixed charge, and ad valorem tariffs, which are calculated as a percentage of the value. Many governments still charge ad valorem tariffs as a way to regulate imports and raise revenues for their coffers.

Tariffs

is a form of government payment to a producer. Types of subsidies include tax breaks or low-interest loans; both of which are common. Subsidies can also be cash grants and government-equity participation, which are less common because they require a direct use of government resources.

Subsidies. A subsidy

Import quotas and voluntary export restraints (VER) are two strategies to limit the amount of imports into a country. The importing government directs import quotas, while VER are imposed at the discretion of the exporting nation in conjunction with the importing one.

Import quotas and VER.

Governments may limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports. Additionally, some governments will manage the exchange rate at a high level to create an import disincentive.

Currency controls

Governments provide financing to domestic companies to promote exports.

Export financing

Many countries designate certain geographic areas as free-trade zones. These areas enjoy reduced tariffs, taxes, customs, procedures, or restrictions in an effort to promote trade with other countries.

Free-trade zone

These are the bureaucratic policies and procedures governments may use to deter imports by making entry or operations more difficult and time consuming.

Administrative policies

is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy.

Foreign direct investment (FDI)

is a key element in international economic integration because it creates stable and long-lasting links between economies.

FDI

involves the creation of a new company or establishment of facilities abroad. A greenfield investment is a form of market entry commonly used when a company wants to achieve the highest degree of control over foreign activities

Greenfield Investment

amounts to transferring the ownership of existing assets to an owner abroad. In a merger, two companies are merged to form one, while in an acquisition one company is taken over by another.

Mergers and Acquisitions

a company establishes the same type of business operation in a foreign country as it operates in its home country. A U.S.-based cellphone provider buying a chain of phone stores in China is an example.

horizontal FDI

a business acquires a complementary business in another country. For example, a U.S. manufacturer might acquire an interest in a foreign company that supplies it with the raw materials it needs.

vertical FDI

a company invests in a foreign business that is unrelated to its core business. Because the investing company has no prior experience in the foreign company’s area of expertise, this often takes the form of a joint venture.

conglomerate FDI

Wage Rates Labor Skills Tax Rates Size of Economy / Potential for Growth Political Stability / Property Rights

Factors Influencing FDI

Resource-transfer Effects Employment Effects Balance-of-Payments Effect Effect on Competition and Economic Growth

Benefits to the Host Country

Possible Adverse Effects on Competition within the Host Nation Adverse Effects on the Balance of Payments Perceive Loss of National Sovereignty and Autonomy

Costs of FDI to Host Countries

called "the way of life for an entire society” It includes codes of manners, dress, language, religion, rituals, and norms of behavior such as law and morality, and systems of belief.

CULTURE

Defines simple aspects such as how people dress (casual or formal), how they perceive and value employees, or how they make decisions (as a group or by the manager alone).

ORGANIZATIONAL CULTURE

The whole of the environment and the cultural activities carried out therein that is created and fostered by the residents of the region and which reflects the ethnic, linguistic, historical

REGIONAL CULTURE

Comprise of ideas about what in life is important.

values

Consist of expectations of how people will behave in different situations.

NORMS

Also known as tradition. It is an activity, a way of behaving, or an event which is usual or traditional in a particular society or in particular circumstances.

CUSTOMS

“ is the expression of ideas by means of speech- sounds combined into words. Words are combined into sentences, this combination answering to that of ideas into thoughts. ” – Henry Sweet, English phonetician and language scholar. It includes communication, the expression of identity, play, imaginative expression, and emotional release.

Language

“Culture is the collective programming of the human mind that distinguishes the members of one human group from those of another. Culture in this sense is a system of collectively held values. ”-.

Geert Hofstede (Hofstede, 1991)

Power Distance Index Collectivism vs. Individualism Uncertainty Avoidance Index Femininity vs. Masculinity Short-Term vs. Long-Term Orientation Restraint vs. Indulgence

HOFSTEDE'S IDENTIFIED SIX CATEGORIES THAT DEFINE CULTURE

considers the extent to which inequality and power are tolerated. In this dimension, inequality and power are viewed from the viewpoint of the followers – the lower level.

power distance index

dimension considers the degree to which societies are integrated into groups and their perceived obligations and dependence on groups.

individualism vs. Collectivism

considers the extent to which uncertainty and ambiguity are tolerated. This dimension considers how unknown situations and unexpected events are dealt with.

uncertainty avoidance index

dimension is also referred to as “tough vs. Tender” and considers the preference of society for achievement, attitude toward sexuality equality, behavior, etc.

masculinity vs. Femininity

dimension considers the extent to which society views its time horizon

long-term orientation vs. Short-term orientation

dimension considers the extent and tendency for a society to fulfill its desires. In other words, this dimension revolves around how societies can control their impulses and desires.

indulgence vs. Restraint

high-context cultures, such as those found in Latin America, Asia, and Africa, the physical context of the message carries a great deal of importance. In contrast, in low-context cultures such as the United States and most Northern European countries, people tend to be explicit and direct in their communications.

HIGH-CONTEXT VS. LOW-CONTEXT CULTURES

refers to the study of physical space and people. Hall called this the study of proxemics, which focuses on space and distance between people as they interact.

Space

Hall identified that time is another important concept greatly influenced by culture. In polychronic cultures— polychronic literally means “many times”—people can do several things at the same time. In monochronic cultures, or “one-time” cultures, people tend to do one task at a time.

ATTITUDE TOWARDS TIME: POLYCHRONIC VS. MONOCHRONIC CULTURE

The concept of business ethics and—in the context of this book— global business ethics is much broader. It impacts human resources, social responsibility, and the environment. The areas of business impacted by global perceptions of ethical, moral, and socially responsible behavior include the following: Ethics and management Ethics and corruption Corporate social responsibility

IMPACT OF ETHICS ON GLOBAL BUSINESS

is “giving or obtaining an advantage through means which are illegitimate, immoral, and/or inconsistent with one’s duty or the rights of others.

Corruption

emerged more than three decades ago, and it has gained increasing strength over time as companies seek to generate goodwill with their employees, customers, and stakeholders. “Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Step 1: Identify the Need for a Policy Step 2: Determine Policy Content Step 3: Obtain Stakeholder Support Step 4: Communicate with Employees Step 5: Update and Revise the Policy

THE 5 STEPS NEEDED TO DEVELOP AND IMPLEMENT A NEW EMPLOYER POLICY ARE OUTLINE

world economy refers to all of the economic activity within each country and between countries around the world which are conducted both within and between nations, including production, consumption, economic management, work in general, exchange of financial values and trade of goods and services.

world economy

is the value of all the goods and services produced by a country in a single year. shows the total size of the economy, but a company will want to know the income per person, which may be a better indicator of the strength of the local economy and the market opportunity for a new consumer product.

Gross domestic product (GDP)

allows for economists to compare economic productivity and standards of living between countries. is, in essence, an economic theory that adjusts the exchange rate between countries to ensure that a good is purchased for the same price in the same currency. This is the measure most economists prefer when looking at per-capita welfare and when comparing living conditions or use of resources across countries.

Purchasing power parity (PPP)

which measures people’s satisfaction in three key areas—long and healthy life in terms of life expectancy; access to quality education equally; and a decent, livable standard of living in the form of income.

human development index (HDI)

also known as advanced economies, are characterized as postindustrial countries—typically with a high per capital income, competitive industries, transparent legal and regulatory environments, and well-developed commercial infrastructure.

Developed economies,

or world is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. The average income per resident is lower in developing countries and residents tend to have limited access to quality health care and education.

developing country

Low capita real income Mass poverty Rapid population growth The problem of unemployment and underemployment

Characteristic of the developing world

is one that's in the process of shifting to a mature, developed system where growth is more steady and political risks are lower. These markets are usually located in underdeveloped countries looking to build a steady business infrastructure. Many developed countries partner with emerging markets in pursuit of discounted goods and labor, while helping the emerging market grow.

emerging market economy

-Low Income -Swings -Rapid Economic Growth -Maintain a Regulatory Body -Transitional Nature -Growth Potential -Young Labor Force

Characteristics of Emerging -Market