The Global Market Place Flashcards
Chapter 3
Why nations trade
- Focus on areas in which they produce more efficiently than other countries (i.e.
oil and aircraft) and import what’s not available or efficiently produced in the
country (i.e. vehicles and medical equipment). - Pursuing economies of scale that enable a company to produce goods/
services at a lower cost by manufacturing higher quantities, hence
specialization. - Keeping up with customers’ requests.
- Keeping up with competitors.
Economic Globalization
the increasing integration and interdependence of national economies around the world.
Trade Surplus
when the value of goods and services exported by a country exceeds the value of goods and services it imports, the country has a positive balance of trade
Trade Deficit
when a country imports more than it exports.
The US trade deficit has been increasing through the years
Exchange Rate
the rate at which the money of one country is traded for the money
of another.
Because the supply and demand for a currency are always changing, the exchange rate may change every day.
Free Trade
when, in theory, international trade happens without interferences. In reality, sometime the government interferes to subsidise the export
of a certain good
Negatives of Free Trade
as it favorites richer countries and, sometimes, exploits workers around the world to obtain lower prices, with
no regard to safety and environmental regulations. Others claim that free trade motivates less developed countries to improve their economic and social policies (China)
Protectionism
the government intervenes to protect the national security or a specific industry
Tariffs
Taxes or surcharges on imported goods
Quotas
Limit the amount of quantites imported
Embargo
the complete ban of an import/export on a certain product
Export
when the government subsidize the export of a product
Antidumping measures
to avoid that companies sell large quantities of one product and a lower price than its production cost
Sanctions
politically motivated embargoes to revoke normal trade relations
International Trade
In an effort to ensure equitable trading practices and to iron out the inevitable disagreements over what is fair and what isn’t, governments around the world have established a number of important agreements and organizations that address trading issues
Types of International Trade Organizations
- The World Trade Organize (wto)
- The International Monetary Fund (imf)
- The World Bank
- Trading Blocks
The World Trade Organization (WTO)
a permanent forum that negotiates and monitors international trade procedure and mediates
int’l trade disputes among its members (160 countries)
The International Monetary Fund (IMF)
foster financial cooperation and stability among its members (188 countries). Ex. provides loans
to a country that deals with a natural disaster.
The World Bank
a group of five financial institutions whose goal is to eradicate the extreme levels of poverty around the world.
Trading Blocks
organizations of nations that remove barriers to trade among their members
Types of Trading Blocks
- North American Free Trade Agreement (NAFTA 1994)- among the US, Canada and Mexico
- European Union (EU)- one step further in the alliance by creating its own currency, the euro.
- Asia-Pacific Economic Cooperation (APEC)- 21 countries liberalizing trade among regions around the Pacific Ocean
Culture
a shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.
Legal Differences among Countries
- Contracts
- Copyrights
Tax Haven
- a country whose favorable banking laws and low tax rates give companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business.
- Some criticize the fact that these large corporations (i.e. Microsoft, Google and Amazon) avoid paying internal taxes and there are proposed changes to international tax law that will make it difficult for companies to avoid taxes.
Bribery
- making payments to government officials in some countries in order to secure contracts or otherwise gain a business advantage.
- These practices discourage much-needed investment in developing countries, undermine democratic processes and weaken trust in government, raise prices for consumers by inflating business costs, potentially create environmental degradation by letting companies skirt regulations, and can even present security risks by essentially putting officials’ actions up for the highest bid
Forms of International Business Activity
- Importing and Exporting
- International Licensing
- International Franchising
- International strategic Alliances and Joint ventures
- Foreign direct investments
Importing
involves buying goods or services from a supplier in another country
International Licensing
License agreements entitle one company to use some or all of another firm’s intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment.
Exporting
the selling of products outside the country in which they are produced.
International Franchising
franchising involves selling the right to use a entire business system, including brand names, business processes, trade secrets, and other assets
International Strategic Alliances and Joint Ventures
Forming a long term businesspartnership with a local company in a new market or creating a new company with a local partner
Foreign Direct Investments
Buying an established company or launching in another country
Organizational Strategies for International Expansion
- Multidomestic- highly decentralized approach
- Global- highly centralized approach
- Transnational- a hybrid approach
