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31 Cards in this Set

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International Investment

Transfer of assets to another country or the acquisition of assets in that country (aka FDI)

International Portfolio Investment

Passive ownership of foreign securities such as stocks and bonds in order to generate financial returns

Trade vs investment

Trade: exchange of products or services across national borders, through import and export


Investment (FDI): companies physically moving to a different nation and setting up business

Dimensions of International Business

-Globalization of markets


-International trade


-Entry strategies


-International investment


-Risks


-Participants: firms, intermediaries, facilitators, governments

Four Risks of International Business

-Cross-Cultural

-Country (political)


-Currency (financial)


-Commercial


Cross-Cultural Risk

-Cultural Differences: differences in language, lifestyle, attitudes, customs, and religion

-Negotiation Patterns


-Decision-making styles


-Ethical practices: standards of what is right and wrong vary around the world


Country Risk (Political Risk)

-Government intervention, barriers to trade and investment


-Red tape, corruption


-Social and political unrest


-Lack of legal safeguards

Currency Risk (Financial Risk)

-Currency Exposure: unfavorable exchange rate fluctuations


-Asset valuation: risk that exchange rate fluctuations will adversely affect the value of the firm's assets and liabilities


-Foreign taxation


-Inflation

Commercial Risk

-Weak partner


-Operational problems


-Timing of entry


-Competitive intensity


-Poor execution of strategy

Why do firms participate in IB?

-Seek opportunities for growth through market diversification


-Earn higher margins and profits


-Gain new ideas about products, services, and business methods


-Better serve key customers that have relocated abroad


-Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products

Mercantilism

A belief, popular in the 16th century, that national prosperity results from maximizing exports and minimizing imports


-now some argue for neomercantilism, idea that nation should run a trade surplus


supporters of neomercantilism are: labor unions, farmers, some manufacturers

Free Trade theory

The absence of restrictions to the flow of goods and services among nations


-Usually best because it leads to: more choices for consumers and firms, lower prices for goods, higher profits and better wages, higher living standards for consumers, greater prosperity in poor countries

Comparative Advantage

-Foundation concept of international trade; answers the question of how nations can achieve and sustain economic success and prosperity


-refers to the superior features of a country that provide it with unique benefits in global competition


-Derived either from natural endowments or from deliberate national policies

Factors Proportions Theory

-Argues that each country should produce and export products that intensively use relatively abundant factors of production, and import goods that intensively use relatively scarce factors of production


-"Leontief Paradox" reveals that countries are capable of doing the opposite; implies that international trade is complex

International Product Life Cycle Theory

-Each product and its associated manufacturing technologies go through three stages of evolution: introduction, maturity, and standardization

-Example: USA and the television


Dunning's Eclectic Paradigm

Three conditions determine whether or not a company will enter a given foreign country via FDI:


-Ownership specific advantages


-Location specific advantages


-Internalization advantages

Political Freedom measures:

-the degree to which fair and competitive elections occur


-the extent to which individual and group freedoms are guaranteed


the legitimacy ascribed to the general rule of law


-freedom of the press

Totalitarianism

-government controls all economic and political matters


-state party is led by a dictator


-power sustained via secret police


-does not tolerate criticism by individuals or groups such as churches, labor unions, or political parties

Socialism

-Capital and wealth should be vested in the state and primarily be used as a means of production rather than for profit


-group welfare > individual welfare


-gov't intervention in the private sector

Democracy

-All citizens are politically and legally equal


-All are equally entitled to freedom of thought, opinion, belief, speech, and association


-Economic activity occurs freely, as per market forces


-Limited gov't


Private property rights

Command Economies

-The state is responsible for making all decisions


-State owns all wealth, land, and capital, and allocates resources based on which industries they want to develop


-Central planning is less efficient than market forces in synchronizing supply and demand

Market Economies

-Decisions regarding production levels, consumption, savings, and investment result from interaction of supply and demand


-gov't intervention in the marketplace is limited


-economic decisions are left to individuals and firms

Mixed Economies

-Exhibits market and command economy features, combining state intervention and market mechanisms


-Most industries under private ownership


-The state usually funds public education, health care, and other vital services and owns enterprises in transportation, telecommunications, and energy

Legal Systems

-Common law


-Civil Law


-Theocratic (religious) law


-Customary law


-Mixed systems

Common Law

(Based on precedent)


-Open to interpretation by courts; more flexible than other legal systems


-Judges have sustainable power to interpret laws based on the unique circumstances of individual cases

Civil Law

-Based on an all-inclusive system of laws that have been "codified"


-rules and principles form the starting point


-Codified rules emerge as specific laws and codes of conduct produced by legislative body or some other other supreme authority

Theocratic Law

-Strongly influenced by religious beliefs, ethical codes, and moral values


-Most important systems based on Hindu, Jewish and Islamic law

Customary Law

-Based on norms of behavior practiced over a long period


-Defines the rights and responsibilities of members


-Prevails in developing countries

Mixed Legal Systems

-Two or more legal systems operating together


-Contrast between common and civil law has become blurred as countries combine both

Regional Economic Integration

The growing economic interdependence that results when nations within a geographic region form an alliance aimed at reducing barriers to trade and investment


(example: EU)

Culture

Refers to the learned norms based on values, attitudes, and beliefs of a group of people