Business Chapter 4

Front 1

Explain the importance of international business and the primary reasons nations trade.

Back 1

The US is both the world's largest importer and the largest exporter, although less then 5% of the world's population lives within its borders. With the increasing globalization of the world's economies, the international marketplace offers tremendous opportunities for US and foreign businesses to expand into new markets for their goods and services. Doing business globally provides new sources of materials and labor. Trading with other countries also reduces a company's dependence on economic conditions in its home market; Countries that encourage international trade enjoy higher levels of economic activity, employment, and wages than those that restrict it.

Front 2

Why do nations trade?

Back 2

NAtions trade bceause trading boots economic growth by providing a market for products and access to needed resources. This makes production and distribution systems more efficient and reduces dependence on the economy of the domestic market.

Front 3

Cite some measure of the size of the international marketplace.

Back 3

Though developing countries have lower per-capita incomes than developed nations in North America and western Europe, their populations are large and growing. China's population is almost 1.3 billion and India's is roughly 1.1 billion.

Front 4

Discuss the concepts of absolute and comparative advantage in international trade.

Back 4

Nations usually benefit if they specialize in producing certain goods or services. A country has an absolute advantage if it holds a monopoly or produces a good or service at a lower cost than other nations. IT has a comparative advantage if it can supply a particular product more efficiently or at a lower cost than it can produce other items.

Front 5

Define absolute advantage.

Back 5

Absolute advantage means a country can maintain a monopoly in or produce a product at lower cost than any other competitor.

Front 6

How does a nation acquire a comparative advantage?

Back 6

Comparative advantage exists when a nation can supply a product more efficiently and at a lower price than it can supply other goods, compared with the outputs of other countries.

Front 7

Describe how nations measure international trade.

Back 7

Countries measure the level of international trade by comparing exports and imports and then calculating whether a trade surplue or a deficit exists. This is the balance of trade, which represents the difference between exports and imports. The term balance of payments refers to the overall flow of money into or out of a country, including overseas loans and bnorrowing, international investments, and profits from such investments.

Front 8

Describe the significance of exchange rate.

Back 8

An exchange rate is the value of a nation's currency relative to the currency of another nation. Currency values typically fluctuate, or "float," relative to the supply and demand for specific currencies in the world market. When the value of the dollar falls compared with other currencies, the cost paid by foreign businesses and households for US products declines, and demand for exports may rise. An increase in the value of the dollar raises the prices of US products sold abroad, but it reduces the prices of foreign products sold in the US.

Front 9

Compare balance of trade and balance of payments.

Back 9

Balance of trade is the difference between exports and imports; balance of payments is the overally flow of money into or out of a country.

Front 10

Explain the function of an exchange rate.

Back 10

A nation's exchange rate is the rate at which its currency can be exchanged for the currencies of other nations to make it easier for them to trade with one another.

Front 11

What happens when a currency is devalued.

Back 11

Devaluation describes a fall in a currency's value relative to other currencies or to a fixed standard.

Front 12

Identify the major barriers that confront global businesses.

Back 12

Businesses face several obstacles in the global marketplace. Companies must be sensitive to social and cultural differences, such as languages, values, and religions, when operating in other countries. Economic differences, include standard-of-living variations and levels of infrastructure development. Legal and political barriers are among the most difficult to judge. Each country sets its own laws regulating business practices. Trade restrictions such as tariffs and administrative barriers also present obstacles to international business.

Front 13

How might values and attitudes form a barrier to trade, and how can they be overcome?

Back 13

Marked differences in values and attitudes, such as religious attitudes, can form barriers between traditionally capitalist countries and those adapting new capitalist systems. Many of these can be overcome by learning about and respecting those differences.

Front 14

What is a tariff? What is its purpose?

Back 14

A tariff is a surcharge or duty charged on foreign products. A tax on imported goods. It purpose is to protect domestic producers of those items.

Front 15

Why is dumping a problem for companies marketing goods internationally?

Back 15

Dumping is selling products abroad at prices below the cost of production or exporting products at a lower price than charged in the home market. IT drives the cost of domestic products sharply down.

Front 16

Explain how international trade organizations and economic communities reduce barriers to international trade.

Back 16

Many international organizations seek to promote international trade by reducing barriers. Examples include the World Trade Organization, the World Bank, and the International Monetary Fund. Multinational economic communities create partnerships to remove barriers to flows of goods, capital, and people across the borders of member nations. Three such economic agreements are the NOrth American Free Trade Agreement, the Central American Free Trade Agreement, and the European Union.

Front 17

What international trade organization succeeded GATT, and what is its goal?

Back 17

The World Trade Organization (WTO) succeeded GATT with the goal of monitering GATT agreements, mediating disputes, and continuing the effort to reduce trade barriers throughout the world.

Front 18

Compare and contrast the goals of the World Bank and the International Monetary Fund.

Back 18

The World BAnk funds projects that build or expand nations' infrastructure such as transportation, education, and health systems and facilities. The International Monetary Fundmakes short-term loans to member nations that are unable to meet their budgets. The fund operates as a lender of last resort.

Front 19

Identify the members of NAFTA and briefly explain how it works.

Back 19

NAFTA created a free-trade zone between the US, Canada, and Mexico by eliminating trade barriers and investment restrictions on services such as banking and establishing uniform rules for protection of intellectual property.

Front 20

What are the goals of the European Union and how do they promote international trade?

Back 20

The European Union's goals include promoting economic and social progress, introducing European citizenship as a complement to national citizenship, and giving the EU a significant role in international affairs. Unifying growth standards and laws is expected to contribute to international trade and economic growth.

Front 21

Compare the different levels of involvement used by businesses when entering the global markets.

Back 21

Exporting and importing, the first level of involvement in international business, involves the lowest degree of both risk and control. Companies may rely on export trading or management companies to hel distribute their products. Contractual agreements such as franchising and lisencing are especially appropriate for services. Companies may also chools local subcontractors to produce goods for local sales. INternational direct investment in production ane marketing facilities provides the highest degree of control but also the greatest risk. Firms make direct investments by acquiring foreign companies or facilities, by forming joint ventures with local firms, and setting up their own overseas divisions.

Front 22

Name three possible stratigies for beginning overseas business operations.

Back 22

Stragegies are exporting or importing; contractual agreements such as franchising, lisencing, or subcontracting; and making direct investments in foreign markets through acquisition, joint venture, or establishment of an overseas division.

Front 23

What is countertrade?

Back 23

Countertrade consists of payments made in the form of local products, not currency.

Front 24

Compare and contrast lisencing and subcontracting.

Back 24

In a foreign lisencing agreement, one firm allows another to produce or sell its product or use its trademark, patent, or manufacturing process in a specific geographical area in return for royalty payments or other compensations. IN subcontracting a firm hires local companies abroad to produce, distribute or sell tis goods and services.

Front 25

Describe joint ventures.

Back 25

Joint ventures allow companies to share risks, costs, profits, and management responsibilities with one or more host country nationals.

Front 26

Distinguish between a globla business strategy and a multidomestic business stragegy.

Back 26

A company that adopts a global (or standardization) strategy develops a single, standardized product and marketing strategy for implementation throughout the world. The firm sells the same product in essentially the same manner in all countries in which it operates. Under a multidomestic (or adaptation) strategy, the firm develips a different treatment for each foreign market. IT develops products and marketing strategies that appeal to the customs, tastes, and buying habits of particular nations.

Front 27

What is a global business strategy? What are its advantages?

Back 27

A golbal business strategy specifies a standardized competitive strategy in which the firm sells the same product in essentially the same manner throughout the world. It works well for goods and services that are common to many nations and allows the firm to market them without making significant changes.

Front 28

What is a multidomestic business strategy? What are its advantages?

Back 28

A multidomestic business strategy allows the firm to treat each foreign market in a different way to appeal to the customs, tastes, and buying habits of particular national markets. It allows the firm to customize its marketing appeals for individual cultures of areas.

Front 29

Exports

Back 29

domestically produced goods and services sold in other countries

Front 30

Imports

Back 30

Foreign goods and services purchased by domestic customers.

Front 31

Balance of Trade

Back 31

difference betweeen a nation's exports and imports

Front 32

Balance of payments

Back 32

overall money flows into and out of a country

Front 33

exchange rate

Back 33

the vaule of a nation's currency relative to the currency of another country

Front 34

Tariff

Back 34

tax imposed on imported goods

Front 35

World Trade Organization (WTO)

Back 35

149 member international institution that moniters GATT agreements and mediates international trade disputes.

Front 36

North American Free Trade Agreement (NAFTA)

Back 36

Agreement among the US, Canada, and Mexico to break down tariffs and trade restrictions.

Front 37

Central American Free Trade Agreement (CAFTA)

Back 37

Agreement between the US, Costa Rica, thje Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua to reduce tariffsand trade restrictions.

Front 38

European Union (EU)

Back 38

25 nation European economic alliance.

Front 39

Multinational corporation (MNC)

Back 39

Firm with significant operations and marketing activities ourside its home country

Front 40

Golbal business strategy

Back 40

offering a standardized, worldwide product and selling it in essentially the same manner throughout a firm's domestic and foreign markets

Front 41

Multidomestic business strategy

Back 41

Developing and marketing products to serve different needs and tastes of separate national markets

Front 42

Devaluation

Back 42

describes a drop in a currency's value relative to other currencies or to a fixed standard

Front 43

Infrastructure

Back 43

Infrastructure refers to basic systems of communication (telecommunications, television, radio and print media), transportation (roads and highways, railroads, and airports), and energy facilities (power plants and gas and electric utilities). The internet and technology use can also be considered part of infrastructure. Financial systems are also a part.

Front 44

Quotas

Back 44

limit the amounts of particular products that countries can import during specified time periods.

Front 45

dumping

Back 45

a practice originated in the 1970s. In one form of dumbing, a company sells products abroad at prices below its cost of production. IN another form of dumping a company exports a large quantity of a product at a lower price than the same productin the home market and drives down the price of the domestic product. Dumping benefits doemstic consumers in the impoorting market, But it hurts domestic producers. It also allows companies to gain quick entry to foreign markets.

Front 46

Embargo

Back 46

imposes a total ban on importing a specified product or even a total halt to trading with a particular country.

Front 47

Exchange controls

Back 47

Imposed through a central bank or gov. agency, exchange controls affect both exporters and importers. Firms that gain foreign currencies through exporting are required to sell them to the central bank or another agency. Importers must buy foreign currencies to pay for their purchases from the same agency. The exchange control authorigy can then allocate, expand, or restrict foreign exchange in accordance with national policy.

Front 48

The General Agreement on Tariffs and Trade (GATT)

Back 48

an international trade accord, sponsored a serice of negotiations, called rounds, that substantially reduce worldwide tariffs and other barriers.

Front 49

World bank

Back 49

The world bank primarily funds projects that build or expand nations' infrastructure such as transportation, education, and medical systems and facilities.

Front 50

International Monetary Fund (IMF)

Back 50

created to promote trade through financial cooperation and, in the process, eliminate barriers. The IMF makes short-term loans to member nations that are unable to meet their expenses. In exchange for these emergency loans, IMF lenders frequently require significant commitments from the borrowing nations to address the problems that led to the crises.

Front 51

Countertrade

Back 51

A sizable share of international trade involves payments made in the form of local products, not currency. This system of international bartering agreements is called countertrade. The seller may agree to accept part or all of the purchase cost in merchandise rather than currency.

Front 52

A franchise

Back 52

is a contractural agreement in which a wholesaler or retailer (the franchisee) gains the right to sell thge franchisor's products under that company's brand name if it agrees to the related iperating requirements. The franchisee can also receive marketing, management, and business services from the franchise.

Front 53

foreign licensing agreement

Back 53

one firm allows another to produce or sell its product or use its trademark, patent, or manufacturing processes, in a specific geographical area. In return, the firm gets a royalty or other compensation.

Front 54

Subcontracting

Back 54

involves hiring local companies to produce, distribute, or sell goods or serives. This move allows a foreign firm to take advantage of the subcontractor's expertise in local culture, contacts, and regulations. Subcontracting works equally well for mail order companies. A key disadvantage of subcontracting is that companies cannot always control their subcontractors' business practices.

Front 55

Joint ventures

Back 55

allow companies to share risks, costs profits, and mamangement responsibilities with one or more host country nationals.