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50 Cards in this Set
- Front
- Back
Global Business
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Globalisation
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• Nature and Trends
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• Growth of the Global Economy
• The process of globalisation has been assisted by advancements in technology, mainly in communications and computers. |
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• Changes in Markets
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• Financial
• Deregulation of financial markets and the removal of exchange rates in the ‘80s • Development of international finance and equity markets • Foreign exchange market - electronic network that connects worlds major financial sectors • Trading value in excess of 4.2 trillion dollars per day (US) • Labour • Legal barriers to free movement known as immigration • Trans-national corporations have encouraged labour movement • Consumer • Developing of similar needs and wants ‘world culture’ • Driven by technology such as pay TV and internet • Reduction of trade barriers results in reduced prices for foreign goods • TNCs sell standardised products to consumers around the world |
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• Trends in Global Trade Since World War II
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• Tariff Reductions, for manufactured goods the tariffs decreased from 40% to 4%
• Agricultural products used to amount for half of all trade, now they amount to less than 11% • Rising incomes have increased demand for services and manufactured goods • Most capital transfers occur between already wealthy countries • Global financial transactions have increased at a faster rate then trade in goods and services |
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• Drivers of Globalisation
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• Role of Trans-national Corporations
• Bring world economies closer together as they try to maximise sales, obtain resources and invest money • TNC’s in an increasingly competitive business environment seek new market opportunities in conjunction with more efficient and less costly production methods • Global Consumers • Increase contact between people from around the world and the impact of media have reduced cultural differences and the preference for local products • This benefits TNCs through large scale production and marketing efforts • The rise in incomes allows people to afford more internationally made products |
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Impact of Technology • Developments in information technology and transport have made movements of goods, information, equipment, ideas and people easier, faster and cheaper • Email and video conferencing co-ordinates business activities across different countries • Role of Government • Governments have promoted international trade through the reduction of trade barriers in the form of tariffs and duties • Policy changes such as privatisation and deregulation have created opportunities for globalisation • Specific trade agreements have been made between countries to lower trade barriers |
• Deregulation of Financial Markets
• Australia removed controls over interest rates and regulations which prevented entry of foreign banks. • Australian dollar was floated on the foreign exchange market • Government restrictions on the movement of capital were lifted in the ‘80s to stimulate economic growth |
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• Interaction Between Global and Australian Business
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• Competition
• AU businesses face greater competition from overseas suppliers of goods and services due to the reductions in trade barriers and tariffs. • Foreign Investment • Australia is seen as a low risk country for investment with relatively good rate of return |
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• Global Networks • Sydney is a significant world city in terms of global business links • Qantas’s membership of the One-World Alliance • Global Business Co-operation • Australian businesses have established links with overseas businesses to achieve market and production economies • Exports of Goods and Services • Export has always been important to the rural and mining industry however it is increasingly more important to elaborately transformed manufactures and service businesses |
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Global Business Strategy
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• Methods of Internal Expansion
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• Exporting
• Low cost, low risk way of becoming a global business • Types of exporting • Indirect - business sells products to domestic consumers • Direct - Sells products to agents or intermediary • Intra-corporate - products sold within the company • Foreign Direct Investment • When a business in one country owns property, assets or business interests in another country • Can result in a variety of business agreements • Wholly owned subsidiaries • Joint ventures • Strategic alliances • Currency fluctuations may eliminate any cost efficiencies |
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• Relocation of Production
• Reasons for may include: • Reduced labour costs • Avoidance of trade barriers • Closure proximity to customers • Possibility of consumer backlash if exploitive work practices are used • Decreased production costs may lead to increased profit |
• Management Contracts
• An arrangement under which a global business provides managerial assistance and technical expertise to a second or host business for a fee • Provides extra income with little capital outlay and potentially opens new markets in foreign countries • Host business does not gain any managerial training • Licensing / Franchising • Licensing is an agreement in which one business permits another to produce and market its product • Franchising is a specialised form of licensing in which the franchisor grants the franchisee the right to use a company’s trademark an distribute its product |
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• Reasons For Expansion
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• Increase Sales / Find New Markets
• Due to Australia being a relatively small market it is important for AU businesses to export their products overseas • Acquire Resources and Access to Technology • Due to climactic, geological and historical factors, many resources are unavailable or difficult to obtain locally • Some economies have high levels of technology and efficient production methods, expansion into these economies can provide great advantages to a company.1 |
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• Diversification
• Expanding production and activities overseas in order to reduce risk • Three types • Geographic - operating in foreign locations • Product - entering into a foreign market in an effort to increase the range of products sold • Supplier - having multiple suppliers of materials • Minimising Competitive Risk • By expanding into a wide range of diverse markets a business reduces the risk it faces from internal competition330430: |
• Minimising Competitive Risk
• By expanding into a wide range of diverse markets a business reduces the risk it faces from internal competition • Economies of Scale • The reduction in costs of production caused by increasing the size or scale of the production facility and spreading overhead costs over a larger output. • By expanding overseas, the business acquires a larger customer base which allows the volume of production to increase |
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• Cushioning Economic Cycles
• Economies fluctuate between boom and recession, by selling in multiple markets, a recession in any one market will not affect the business as much as if it were the business’s only market.16 |
• Regulatory Differences
• Government regulations vary depending on the country, this allows the business to exploit reduced regulations in different countries. Such regulations may include taxation, environmental protection and wages. • Tax Minimisation • Every tax payer is entitled to minimise their taxes legally, business try to evade taxes • Tax holiday - scheme where no company or personal tax is paid for a period of time • Tax haven - a country which imposes little or no tax on business income1 |
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Specific Influences on Global Business
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• Financial
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• Currency Fluctuations
• The conversion of currency is done through the foreign exchange market • The exchange rate is the value of one currency compared to the value of another’s. • Effects of Currency Fluctuations Fall in AU Dollar (Depreciation)...- Import more expensive Exports cheaper...- Increase in AU business competitiveness...- Rise in AU Dollar (Appreciation)...- Exports more expensive Imports cheaper...- Decrease in AU business competitiveness (: |
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• Interest Rates
• Due to the deregulation of the financial markets, businesses can negotiate countless options for borrowing money in international financial markets. • The risk of using overseas institutions is fluctuating currencies which can eliminate any financial gains. |
• Overseas Borrowing
• Occurs through international capital markets • International bond market enable lenders to sell bonds to international borrowers • Euro-Currency - any currency that is banked outside its country of origin • Offshore financial centres - cities or countries which provide large amounts of funds to countries other than their own96620 |
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• Political
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• Tensions Between Protectionism and Free Trade
• Protectionism - the practice of creating artificial barriers to free trade, in order to protect domestic industry and jobs • For: Protects domestic jobs • For: Protect health of citizens by banning products not meeting regulations • Against: Causes higher prices for consumers • Against: Leads to lower economic growth rates • Free trade - the free flow of goods and services across countries unobstructed by tariffs or trade barriers1e1a |
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• International Organisations and Treaties
• United Nations - plays a controlling role in world affairs and international peacekeeping • World bank - provides low interest loans for developing countries • International monetary fund - fosters an orderly foreign exchange agreements and a workable international monetary system • Bank of international settlement - Meets ten times a year in Switzerland to discuss the global financial system • World trade organisation - responsible for managing world trade and investment activities and works to eliminate barriers on international trade |
• Trade Agreements
• A negotiated relationship between countries that regulates trade between them • NAFTA - (North American Free Trade Agreement) - free trade zone incorporating Mexico, Canada and the United States • Trading bloc - An organisation of nations formed to promote free trade among it’s members and to create common policies. • European Union - trading bloc with the European nations which has it’s own parliament, courts, commission and currencyØ_º |
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• Regionalism
• A focus on securing trade agreements between groups of countries in a geographic region • War and Civil Unrest • In unstable regions, the political and social environment must be closely monitored to ensure the safety of all personnel. • Department of Foreign Affairs and Trade - provides up to date information about the level of political risk for each country in the world |
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• Legal
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• Contracts
• A legally enforceable agreement • Outlines the details of the agreement and the rights and obligations of each of the parties involved • Contract law refers to those laws that govern the enforcement of contracts • Common law - based on tradition, judges decisions and custom • Civil Law - a very detailed set of laws which is organised into codes which list what is and is not permissible.477551 |
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• Dispute Resolution
• Negotiation • Parties enter into private discussion to resolve and contractual disputes • Mediation • Guiding of a discussion between parties in an effort to resolve their disputes without resorting to legal action • Arbitration • The process which involves the settlement of a dispute before an impartial umpire, such as a judge, who makes a binding decision.} |
• Intellectual Property
• Refers to monopoly rights that a person acquires over a ‘product’ generated by intellectual activity. • Copyright - the protection of intellectual ideas put in permanent for, it gives certain people exclusive rights to deal with certain works. • Patent - gives the inventor the exclusive right to make, use or sell, as well as licence other to make or sell, a newly invented product or service. • Trademark - a brand name of design that is officially registered, they may be such things as headings, names, signatures, words, labels, etc.8oUB |
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• Sociocultural
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• Languages
• Not being able to understand a foreign language may prevent a person from fully understanding a country’s culture. • Non-verbal communication refers to the messages we convey through boy movements, facial expressions and the physical distance between individuals. • English is the most common language in businessdf99 |
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Tastes
• Global business needs to modify products to suit local tastes • Colour can be related to a culture’s taste • Food preferences are influences by culture • TNC’s must maintain consistency in quality and integrity of brand name |
• Religion
• Affects business relationships and types or products consumed • Food styles religious holidays and prayer time must also be considered • Varying Business Practices and Ethics • Countries have their own standards of acceptable business standards • In certain countries, making payments or providing gifts to government officials to get services or contracts is considered normal. • Business practices can require the exchange of gifts, business cards, gestures, etc. • Entertainment can play a significant role in the business relationship |
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Well Done!!!
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Managing Global Business
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• Financialural
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• Methods of Payment
• Payment in advance - method allows the exporter to receive payment and then arrange the goods to be sent • Letter of credit - a commitment by the importers bank which promises to pay the exporter a specified amount when documents proving shipment of the goods are presented • Clean payment - (remittance) - occurs when the payment is sent to, but not receive by the exporter before the goods are transported • Bills of exchange - a document drawn up by the exporter demanding payment from the importer at a specified time • Open credit - allows the importer access to the goods with a promise to repay at a later datek=7970 |
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• Credit Risksl
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• Risks for global business
• Default on payment • Partial payment • Slow payment • Failure to supply goods • Supply of poor quality goodss |
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• HedgingRisksl
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• Hedge contract - contraction a company enters into to limit foreign exchange losses
• Forward exchange contract - contract to exchange one currency for another currency at an agreed upon rate on a future date • Options contract - gives the purchases the right, but not obligation to buy or sell a certain amount of foreign currency as a set exchange rate within a specified amount of time • Swap contract - an agreement to exchange currency in the spot market with an agreement to reverse the transaction in the future. • Used when a business needs to raise finance in a country in which they are not well known and therefore would be required to pay a higher interest rate.qGa |
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• Insurancesksl
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• Protects businesses from other risks such as non-payment of goods
• Export Finance and Insurance Corporation - provides insurance to exporters, the insurance can cover non-payment of goods and also political risk, however it only applies in countries where Australia has signed treaties. • Marine insurance - covers shipments by air, road, sea and rail • Product liability insurance - protects manufactures from liability due to damage caused by the use of the product • Currency risk insurance - protects exporter from loses due to currency fluctuations0/12 |
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• Obtaining Finance
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• Domestic capital market - a facility for organising finance through domestic financial
institutions • International capital market - services provided by international banks include working capital loans, finance, cash management services, finance for mergers and joint ventures • Eurocurrency - currency of a country that is placing in the bank of another country t”m |
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• Marketingsksl
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• Research of Market
• Problems with secondary data: • Not readily available or reliable • Could be altered to promote foreign investment • Most countries do not have a regular census to provide demographic information • Problems with primary data: • May be difficult to collect • Researchers need to be very familiar with the local language and dialect in order to prepare questions and interpret answer correctly • Social structures, attitudes and values vary from country to country • People may be reluctant to provide information |
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• Global Branding
• The worldwide use of a name, term, symbol or log to identify products from one seller and differentiate them from those of competitors • Reasons for usage: • Cost effective as one advertisement can be used in a number of locations • Provides a uniform worldwide image • The successful brand name can be linked to new products being released on the market |
• Standardisation
• Offering of a common product on a worldwide basis • Global business can gain economies of scale, savings on research and development • This assumes that the way a product is used and the need it satisfies are the same the world over • Differentiation • A business develops a marketing mix that makes it stand out from it’s competitors • Can be based on factors such as reliability, quality, fashion, product design or brand image92^1271 |
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• Operationsksl
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• Sourcing
• Business must decide whether it should make or buy the resources needed to create their products • Outsourcing - the business buys component part from either a domestic or overseas supplier, this may result in: • Lower prices • Higher quality and better designed components • More advanced technology • Vertical Integration - the expansion of the business’s production in related but different areasmeS |
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• Global Web
• A network of production sites located around the world, each specialising in the part of the production process which it can most efficiently perform6 |
RADICAL!!
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• Employment Relationsge
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• Organisational Structure
• Centralised decision making - the extent to which decision making is controlled at a high level at a single location • Decentralised decision making - subsidiaries closer to markets have a better understanding of local culture, policies, laws and competitors, therefore decisions are made at a much lower level |
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• Staffing
• International employment relations managers are responsible for: • Managerial and executive staff • Production workers and office staff • International operations will require bicultural managers who understand the culture, customs and practices of the host and home countries • Shortage of Skilled Labour • It may be difficult for the business to find skilled employees and managers overseas • Labour may be cheap in a foreign country however the employees may require training t”m |
• Labour Law Variations
• Laws relating to the following areas differ across countries • Minimum age a person can work full time • Maximum hours of work per day • Legal minimum wage • Sick leave and holiday pay • OHS regulationsame |
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• Minimum Standards of Labour
• Employment relations management considerations • Level of education in mathematics • The ability of employees to speak English • The speed at which local people can attain new skills • The current skill level of employees271638 |
Staffing Systems
• Ethnocentric • All key staffing positions at all company locations are filled by parent company personnel • Poly-centric • Personnel from the host country manage the subsidiaries, while the parent company personnel fill the key roles at company headquarters • Geocentric • Seeking the best people for key jobs throughout the entire organisation, irrespective of nationality |
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• Evaluationksl
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• Involves comparing actual performance with planned performance
• The business must analyse it’s strategic plan to determine what it wants to achievet |
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• Modification of Strategiesl
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Modification of Strategies
• Strategies must be modified according to evaluations based on political, social and economic influences of the period • Changes in strategies may be influenced by: • Employment relations • Supplier difficulties • Policy changes • Ecological sustainabilitylayA |
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COOL!
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Management Responsibility in a Global Environment
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• Ethical Practice
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• Tax Havens
• A country that imposes little or no taxes on business income • Tax paradise - no relevant company tax • Tax Shelter - tax may be levied on some internal transaction, low rates of tax in profits from internal sources • Tax privilege - no tax for some types of businesses |
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• Transfer Pricing
• The prices one subsidiary of a company charges a second subsidiary for goods and services |
Australia
Item costs $1000 to produce, it is sold to a Malaysian Subsidiary for $1000 Tax rate: 30% Tax paid: $0sl Malaysia The Malaysian subsidiary resells the item for $2000 to a US subsidiary Tax rate: 15% Tax paid: $150 United States The US subsidiary sells the item at cost for $2000 No profit earned No tax paid Tax rate: 32% Tax paid: $050 |
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• Minimum Standards of Labour
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• Labour standards - the conditions tat affect a business’s employees, or those of it’s
suppliers, subcontractors, or others in the production chain.yt |
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Dumping Illegal Products
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• Types of products
• Harmful or illegal products that cannot be sold in other markets • Harmful chemicals • Poorly designed machinery • Inappropriate food stuffs • The environmental laws in some developing countries are lax so that the material isn’t properly stored or treated3516 |
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• Ecological Sustainabilityur
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• The use of methods of production that conserve the Earth’s resources for future generations
• Economic growth should not occur at the expense of the environment • International standards organisation - series of voluntary environmental standardsve-flas |
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Management Responsibility in a Global Environment
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• Ethical Practice
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• Tax Havens
• A country that imposes little or no taxes on business income • Tax paradise - no relevant company tax • Tax Shelter - tax may be levied on some internal transaction, low rates of tax in profits from internal sources • Tax privilege - no tax for some types of businessesObHwAyt |
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• Transfer Pricing
• The prices one subsidiary of a company charges a second subsidiary for goods and services |
Australia
Item costs $1000 to produce, it is sold to a Malaysian Subsidiary for $1000 Tax rate: 30% Tax paid: $0 Malaysia The Malaysian subsidiary resells the item for $2000 to a US subsidiary Tax rate: 15% Tax paid: $150 United States The US subsidiary sells the item at cost for $2000 No profit earned No tax paidid=62 Tax rate: 32% Tax paid: $0 |
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• Minimum Standards of Labour
• Labour standards - the conditions tat affect a business’s employees, or those of it’s suppliers, subcontractors, or others in the production chain. |
• Dumping Illegal Products
• Types of products • Harmful or illegal products that cannot be sold in other markets • Harmful chemicals • Poorly designed machinery • Inappropriate food stuffs • The environmental laws in some developing countries are lax so that the material isn’t properly stored or treated |
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• Ecological Sustainability
• The use of methods of production that conserve the Earth’s resources for future generations • Economic growth should not occur at the expense of the environment • International standards organisation - series of voluntary environmental standards62 |
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