International Business Midterm 2

Front 1

Country risk

Back 1

exposure to potential loss of adverse effects on company operations and profitability caused by developments in a country's political and legal environment.

Front 2

Country risk dimensions

Back 2

- Harmful or unstable political system
- Laws and regulations unfavorable to foreign systems
- inadequate or underdeveloped legal system
- bureaucracy and red tape
- Corruption and other ethical blunders
- Government intervention
- Mismanagement or failure of the national economy.

Front 3

Sources of country risk

Back 3

Political system (government, political parties, legislative bodies, lobbying groups, trade unions, other political institutions)
Legal system ( Laws. regulations and rules that aim to: ensure order in commercial activities, resolve disputes, protect intellectual property, tax economic output)

Front 4

Confiscation

Back 4

Seizure of corporate assets without
compensation

Front 5

Expropriation

Back 5

Asset seizure with compensation

Front 6

Nationalization

Back 6

Takeover of an entire industry, with or
without compensation

Front 7

Sanctions

Back 7

bans on international trade, usually undertaken
by a country, or a group of countries, against another country
judged to have jeopardized peace and security.

Front 8

Embargoes

Back 8

bans on exports or imports that forbid trade in
specific goods with specific countries. Example: The U.S. has
enforced embargoes against Iran and North Korea, labeled as state
sponsors of terrorism.

Front 9

Protectionism

Back 9

national economic policies that
restrict free trade. Usually intended to raise revenue or
protect domestic industries from foreign competition.

Front 10

Customs

Back 10

the "
checkpoint at national "
ports of entry where "
officials inspect imported "
goods and levy tariffs.

Front 11

Tariff

Back 11

a tax on imports (e.g., citrus, textiles)

Front 12

Nontariff trade barrier

Back 12

government policy, regulation,
or procedure that impedes trade

Front 13

Quota

Back 13

quantitative restriction on imports of a specific
product (e.g., imports of Japanese cars)

Front 14

Investment barriers

Back 14

rules or laws that hinder "
foreign direct investment (Ex: Currency control: In- and
outflows of currencies)

Front 15

Global market opportunities

Back 15

- Analyze organizational readiness to internationalize
- Assess the suitability of the firm's product and services for foreign markets
- Screen countries to identify attractive target markets
- Assess the industry market potential, or the market demand, for the product or service in selected target markets
- Choose qualified business partners, such as distributors or suppliers
- Estimate company sales potential for each target market

Front 16

Industry market potential definition and factors

Back 16

Definition - An estimate of the likely sales for all firms in a particular industry over a specific period.

Factors- Size and growth rate of the market and trends in the specific industry
- Tariff and nontariff trade barriers to market entry.
- Standards and regulations that affect the industry
- Availability and sophistication of distribution for the firms offerings in the market
- Unique customer requirements and preferences
- Industry-specific market potential indicators

Front 17

Company Sales potential and factors

Back 17

- An estimate of the share of annual industry sales that the firm expects to generate in a particular target market

Determinants of Company Sales Potential: Intensity of the competitive environment
Pricing and financing of sales
Financial Resources
Human Resources
Partner Capabilities
Access to distribution channels
Market penetration timetable
Risk tolerance of senior management
Special links, contacts, and capabilities of the firm
Reputation

Front 18

Advantages of exporting

Back 18

Low cost, low risk, combined with the ability to leverage foreign partners.
Increase sales, economies of scale
Diversify customer base
Minimize the cost of foreign market entry
Minimize risk and maximize flexibility

Front 19

Documentation

Back 19

Official forms and other paperwork required in export transactions for shipping and customs procedures

Front 20

Incoterms

Back 20

Universally accepted terms of sale that specify how the buyer and the seller share the cost of freight and insurance in an international transaction and at which point the buyer takes title to the goods

Front 21

Methods of payments in Exporting and Importing

Back 21

Cash in Advance - payment collected before the goods are shipped to the customer
Letter of Credit - contract between the banks of a buyer and a seller that ensures payments from the buyer to the seller upon receipt of an export shipment
Open Account - the buyer pays the exporter at somefuture time following receipt of the goods

Front 22

Greenfield Investment

Back 22

Direct investment to build a new manufacturing, marketing or administrative facility, as opposed to acquiring existing facilities

Front 23

Acquisition

Back 23

Direct investment to purchase an existing company or facility

Front 24

Merger

Back 24

A special type of acquisition in which two firms join to forma new larger firm

Front 25

Equity participation

Back 25

Acquisition of partial ownership in an existing firm

Front 26

Wholly owned direct investment

Back 26

A foreign direct investment in which the investor fully owns the foreign assets

Front 27

Equity joint venture

Back 27

A type of partnership in which a separate firm is created through the investment or pooling of assets by two or more parent firms that gain joint ownership of the new legal entity

Front 28

Contractual entry strategies in international business

Back 28

Cross-border exchanges where the relationship between the focal firm and its foreign partner is governed by an explicit contract

Front 29

Intellectual property

Back 29

Ideas or works created by individuals or firms including discoveries and inventions; artistic, musical and literacy works; and word.phrases, symbols and designs.

Front 30

Intellectual property rights

Back 30

The legal claim through which the proprietary assets of firms and individuals are protected from unauthorized use of other parties

Front 31

Licensing

Back 31

Arrangement in which the owner of intellectual property grants a firm the right to use that property for a specified period of time in exchange for royalties or other compensation

Front 32

Royalty

Back 32

A fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset

Front 33

Franchising

Back 33

Arrangement in which the firms allows another the right to use an entire business system in exchange for fees, royalties, or other forms of compensation

Front 34

Top franchise business'

Back 34

McDonald's, Subway, Dunkin Donuts, UPS, Pizza Hut and Seven Eleven

Front 35

Disadvantages of Licensing

Back 35

- Revenues are usually more modest than with other entry strategies
- Difficult to maintain control over how the licensed asset is used
- Risk of losing control of important intellectual property, or dissipating it competitors.
- Licensee may infringe the licensors intellectual property and become a competitor
- Does not guarantee a basis for future expansion
- Not ideal for products, services, or knowledge that are highly complex
- Dispute resolution is complex and may not produce satisfactory results

Front 36

Advantages of Franchising

Back 36

- Quick entry of foreign markets and cost effectively
- No need to invest capital
- Established brand name encourages early and ongoign sales potential abroad
- The firm can leverage franchisees' knowledge to efficiently navigate and develop local market

Front 37

Foreign Direct Investment (FDI)

Back 37

Internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, land, plant, and equipment.

Front 38

Key tasks in global market opportunity assessment (6)

Back 38

- Analyze organizational readiness to internationalize
-Assess the suitability of the firms products and services for foreign markets
- Screen countries to identify attractive target markets
- Assess the industry market potential, or the market demand, for the products or services in selected target markets
- Choose qualified business partners, such as distributors or suppliers
- Estimate company sales potential for each target market

Front 39

FDI

Back 39

When a firm invests capital in a foreign market in order to gain ownership of a facility it is known by which of the following terms?

Front 40

wholly owned subsidiary (FDI)

Back 40

Which of the following foreign market entry strategies offers the focal firm the highest degree of control over foreign operations?

Front 41

trade deficit statistics

Back 41

Governments use data on exporting and importing activities to calculate which of the following?

Front 42

Increased economies of scale
Stabilized sales fluctuations
Reduced dependence on domestic sales

NOT AN ANSWER
amplified country and corporate risk

Back 42

All of the following are advantages that firms often experience through exporting

Front 43

bill of lading

Back 43

Which of the following documents is the contract between the shipping company and the exporter?

Front 44

Incoterms were developed by the International Chamber of Commerce in order to...
define how the buyer and seller share freight and insurance costs

Back 44

Incoterms were developed by the International Chamber of Commerce in order to...

Front 45

the interests of the seller and buyer are protected simultaneously

Back 45

Why is a letter of credit most likely a popular method of payment in export transactions?

Front 46

All of the following are characteristics of foreign direct investment
involves substantial risk
necessitates significant resources
implies local presence and operations

NOT AN ANSWER
simplifies foreign market entry

Back 46

All of the following are characteristics of foreign direct investment

Front 47

attain knowledge

Back 47

Collaborative ventures, such as the one between GM and Toyota, are often motivated by the desire of each firm to ...
attain knowledge

Front 48

The service offered by the firm requires personal interfacing with customers

Back 48

Which of the following best explains why some service industry firms most likely enter foreign markets through FDI?

Front 49

Greenfield investment

Back 49

A firm that builds a new manufacturing facility in a foreign market is participating in which of the following?

Front 50

The focal firm can quickly reach its target market through readily available distribution networks.

Back 50

How does the acquisition of a foreign company most likely benefit a focal firm in the foreign market?

Front 51

National competitive advantage

Back 51

A nation's factor endowments help determine which of the following?

Front 52

Industrial cluster

Back 52

Northern Italy is recognized as a(n) ________ for the fashion industry.

Front 53

Nations create their own competitive advantages by investing in education, industry, and infrastructure.

Back 53

How do nations that lack natural or other resources compete in international business and trade?

Front 54

analyze the firm's readiness to internationalize

Back 54

A shoe manufacturer that is assessing a global market opportunity should first perform which of the following tasks?

Front 55

buyer preferences
risk
competitive product

NOT AN ANSWER
human resources

Back 55

When firm managers research the external business environment of a potential market they most likely examine all of the following...

Front 56

Increasing sales and profits

Back 56

One of the goals that firms most likely want to attain from internationalizing is

Front 57

market size and growth rates specific to the industry

Back 57

In order to estimate industry market potential, managers most likely require which of the following information?

Front 58

company sales potential

Back 58

The estimated percentage of annual industry sales expected from a firm in a target market is known by which of the following terms?

Front 59

predicted industry sales over a set period of time

Back 59

The term industry market potential can best be defined by which of the following?