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31 Cards in this Set
- Front
- Back
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International Investment |
Transfer of assets to another country or the acquisition of assets in that country (aka FDI) |
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International Portfolio Investment |
Passive ownership of foreign securities such as stocks and bonds in order to generate financial returns |
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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 |
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Dimensions of International Business |
-Globalization of markets -International trade -Entry strategies -International investment -Risks -Participants: firms, intermediaries, facilitators, governments |
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Four Risks of International Business |
-Cross-Cultural
-Country (political) -Currency (financial) -Commercial |
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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 |
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Country Risk (Political Risk) |
-Government intervention, barriers to trade and investment -Red tape, corruption -Social and political unrest -Lack of legal safeguards |
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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 |
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Commercial Risk |
-Weak partner -Operational problems -Timing of entry -Competitive intensity -Poor execution of strategy |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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Legal Systems |
-Common law -Civil Law -Theocratic (religious) law -Customary law -Mixed systems |
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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 |
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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 |
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Theocratic Law |
-Strongly influenced by religious beliefs, ethical codes, and moral values -Most important systems based on Hindu, Jewish and Islamic law |
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Customary Law |
-Based on norms of behavior practiced over a long period -Defines the rights and responsibilities of members -Prevails in developing countries |
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Mixed Legal Systems |
-Two or more legal systems operating together -Contrast between common and civil law has become blurred as countries combine both |
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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) |
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Culture |
Refers to the learned norms based on values, attitudes, and beliefs of a group of people |
