PF Intro to Business Ch3 Vocab Flashcards
Global business
Any activity that seeks to provide goods and services to others across national borders while operating at a profit
Thomas Friedman
In his book The World is Flat discusses how the competitive field is leveling for all countries, including those which are still developing.
discusses technology as being one of the main drivers of the phenomenon that he calls the “flattening of the world
Why trade globally?
first, no nation, not even a technologically advanced one, can produce all of the products that its people want and need
Second, even if a country did become self-sufficient, other nations would seek to trade with that country in order to meet the needs of their own people
Third, some nations have an abundance of natural resources and a lack of technological know-how, while others have sophisticated technology but few natural resources.
Exporting
is selling products to another country
Importing
Buying products from another country
Free Trade
the movement of goods and services among nations without political or economic trade barriers.
Global trade
The exchange of goods and services across national borders
Comparative Advantage Theory
states that a country should sell to other countries those products that it produces most effectively and efficiently and buy from other countries those products it cannot produce as effectively or efficiently
suggested in the early 19th century by English economist David Ricardo
Absolute Advantage
A country has an absolute advantage if it has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries
Most absolute advantage situations involve natural resources that one country has and others do not have
Absolute advantage can also be difficult to sustain if conditions change or resources are discovered elsewhere
Two key indicators in measuring effectiveness of global trade
Balance of trade
Balance of payments
Balance of Trade
is a nation’s ratio of exports to import
Favorable balance of trade or Trade Surplus
occurs when the value of the country’s exports exceeds or trade surplus
Unfavorable balance or Trade Deficit
occurs when the value of the country’s imports exceeds that of its exports
Balance of Payments
is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus or minus money flowing coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment
The goal is always to have more money flowing into the country than flowing out of the country - favorable balance of payments
Unfair trade practices
Dumping
Gray Market
Dumping
The practice of selling products in a foreign country at lower prices than those charged in the producing country
dumping can also include selling products in a country below what it cost to produce the product
promises to remain a difficult trade issue in the coming years because it can hinder a country from selling its own products domestically at a fair price.
Gray Market
The flow of goods in a distribution channel other than those intended by the manufacturer
Trade Protectionism
the use of government regulations to limit import of goods and services
Advocates of trade protectionism believe it allows domestic producers to survive and grow, thus producing more Jobs.
Tariff
A tax on imported goods
two different kinds of tariffs
protective
revenue
protective tariff
(import taxes) - designed to raise the retail price of imported products so that domestic goods will be more competitively priced
these tariffs meant to save jobs for domestic workers and to keep industry from closing down
revenue tariff
designed to raise money for the gov’t
commonly used by developing countries to help infant industries compete in global markets
Harmonized Tariff Schedule
a publication by US gov’t that lists the tariffs and quotas for every imported good
Import Quota
limits the number of products in certain categories that a nation can import
goal is to prevent other countries from flooding the market with products, thereby driving down the price (according to law of supply and demand
Embargo
complete ban on goods to or from a country
goal is to get a country to change its policies
Nontariff Barriers
restrictive standards that detail exactly how a product must be sold in a country
not as specific as formal tariffs, import quotas, and embargoes…but can be quite detrimental to free trade
General Agreement on Tariffs & Trade (GATT) and the WTO
an agreement signed by many countries to reduce the restrictions on trade with one another…overseen by the WTO
World Trade Organization (WTO)
established by the Uruguay Round in 1995
it is an organization that mediates trade disputes between countries and also sets policies in place to encourage trade
Common Markets (aka 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
Examples of common markets
European Union (EU) South American Common Market (Mercosur
European Union (EU
an agreement among european member countries to eventually reduce all barriers to trade and become unified both economically and politically
objective was to make Europe the world’s second largest economy
South American Common Market (Mercosur)
made up of brazil, argentina, paraguay, and uraguay and associate members of chile and bolivia
formed using an agreement called the Treaty of Asuncion
common markets reflect nations’ desire to be an economic union (using the same currency) as well as to have a means for focusing efforts on free trade
Organization of the Petroleum Exporting Countries (OPEC
an organization consisting of 12 oil producing countries to work collectively for oil interests.
North American Free Trade Agreement (NAFTA)
an organization consisting of 12 oil producing countries to work collectively for oil interests.
an agreement signed by the US, Mexico and Canada to reduce or eliminate tariffs on goods and to encourage trade between the countries
Objectives to…
a) eliminate trade barriers and facilitate cross-borer movement of goods and services among the three countries
b) promote conditions of fair competition in this free trade area
c) increase investment opps in the territories of the three nations
d) provide effective protection and enforcement of intellectual property rights in each nation’s territory
e) establish a framework for further regional trade cooperation
Strategies or reaching global markets
licensing
exporting
franchising
contract manufacturing
Licensing
selling the right to manufacture a product or use a trademark to a foreign company (licensee) for a fee (royalty)
through licensing a firm can gain additional revenues from a product that it would normally have not generated in its home market
Exporting
US gov’t has created Export Assistance Centers (EACs) to provide hands-on exporting assistance and trade-finance support for small and medium sized businesses that choose to directly export goods and services
EACs represent a strong source of future federal export promotion efforts
Franchising
Franchising Agreement
an arrangement whereby someone with a good idea for a business sells the rights to use the business name an sell a product or a service to others in a given territory
franchisors have to be careful to adapt their products or service to the countries they serve
Contract Manufacturing
when one country produces goods with another country’s company label on it
involves a foreign company’s production of private label goods to which a domestic company then attaches its own brand name or trademark (outsourcing)
enables a company to experiment in a new market without incurring heavy start-up costs such as a manufacturing plant
Joint Venture
a partnership in which two or more companies (often from different countries) undertake a major project
Benefits:
- shared technology
- shared marketing and management expertise
- enter into markets where foreign companies are often not allowed unless their goods are produced locally
- shared risk
Greenfield Investment
alternative to joint venture
means that a company will enter into a country and build factories and offices on its own
disadvantage may be lack of knowledge of country’s ways of doing business
form of foreign direct investment
Strategic Alliance
long-term partnership between two or more companies established to help each company build competitive market advantages
can be flexible and they can be effective between firms of vastly different size
Foreign Direct Investment (FDI
buying of permanent property and businesses in foreign nations
Foreign Subsidiary
a company that is owned in a foreign country by another company (parent company)
advantage of subsidiary is that the home company maintains complete control over any technology or expertise it may possess disadvantage of subsidiary is that parent company is expending large amount of funds and technology within foreign boundaries
Expropriation
when a host gov’t takes over a foreign subsidiary in a country
Multinational Corporation
an organization that manufactures and markets products in many different countries; it has multinational stock ownership and multinational management
Forces affecting trade in global market
Sociocultural Forces
Economic & Financial Forces
Legal & Regulatory Forces
Physical & Environmental Forces
Sociocultural Forces
Culture
Ethnocentricity
Global Marketing
Culture
refers to set of values, beliefs, rules and institutions held by a specific group of people
primary components of a culture can include…
social structures
religion (may be the most important of sociocultural forces)
manners & customs
values & attitudes
Ethnocentricity
attitude that one’s own culture is superior to all others
Global Marketing
used to describe selling the same product in essentially the same way everywhere in the world
Economic & Financial Forces
Exchange Rate
Bartering
Countertrading
Exchange Rate
value of one nation’s currency relative to the currencies of other countries
Bartering
exchange of merchandise for merchandise or service for service with no money involved
Countertrading
a complex form of bartering in which several countries may be involved, each trading goods for goods or services for services with the others
