BUSMHR 2000 Exam 2

Constituents

the people and organizations that support the political system and receive government resources.

Legal System

a system for interpreting and enforcing laws. Laws, regulations, and rules establish norms for conduct.

provide a framework of rules and norms of conduct that mandate, limit, or permit specified relationships among people and organizations and provide punishments for those who violate these rules and norms.

Global Sourcing

when firms, striving for competitive advantage, capitalize on the comparative advantages of select countries to meet that demand. This results in increased imports through global trade.

Innovation

including new product designs and more efficient production methods.

Economies of Scale

the larger the quantity produced, the lower the cost per unit to produce.

Free Trade

the relative absence of restrictions to the flow of goods and services between nations.

Competitive Advantage

assets and capabilities of a company that are difficult for competitors to imitate.

Such advantages help the firm enter and succeed in foreign markets. These capabilities take various forms such as specific knowledge, competencies, innovativeness, superior strategies, or close relationships with suppliers. Competitive advantage is also known as firm-specific advantage

Mercantilism

the belief that national prosperity results from a positive balance of trade achieved by maximizing exports and minimizing or even impeding imports.

Absolute Advantage Principle

a country benefits by producing primarily those products in which it has an absolute advantage—those that it can produce using fewer resources than any other country.

Comparative Advantage Principle

it will be beneficial for two countries to trade with each other as long as one is relatively more efficient at producing goods or services needed by the other.

the ability of a specific country to produce a given product or service better or for a lower cost than other countries.For example, Apple bases most of its iPhone manufacturing in China because of the country's high-quality, low-cost labor.

Factor Proportions Theory (Factor Endowments Theory)

each country should export products that intensively use relatively abundant factors of production and import goods that intensively use relatively scarce factors of production.

International Product Life Cycle (IPLC) Theory

Vernon observed that each product and its manufacturing technologies go through three stages of evolution: introduction, maturity, and standardization.

New Trade Theory

increasing returns to scale, especially economies of scale, are important for superior international performance in industries that succeed best as their production volume increases.

For example, the commercial aircraft industry has high fixed costs that necessitate high-volume sales to achieve profitability.

Porter Diamond Model

Demand conditions: refer to the nature of home-market demand for specific products and services.

Firm strategy, structure, and rivalry: refer to the nature of domestic rivalry and conditions in a nation that determines how firms are created, organized, and managed.

Factor conditions: the nation's resources such as labor, natural resources and advanced factors such as capital, technology, entrepreneurship, advanced workforce skills, and know-how.

Related and supporting industries: the presence of clusters of suppliers, competitors, and a skilled workforce.

Industrial Cluster

A concentration of businesses, suppliers, and supporting firms in the same industry at a particular location, characterized by a critical mass of human talent, capital, or other factor endowments.

National Industrial Policy

a proactive economic development plan a government launches to build or strengthen a particular industry, often implemented in collaboration with the private sector.

Born Global Firm

innovative start-ups that initiate international business soon after their founding.

Ex: Mojang, maker of the Minecraft video game.

Monopolistic Advantage Theory

firms that use FDI as an internationalization strategy must own or control certain resources and capabilities not easily available to competitors.

Internalization Theory

the process by which firms acquire and retain one or more value-chain activities inside the firm. Internalizing value-chain activities (instead of outsourcing them to external suppliers) reduces the disadvantages of dealing with outside partners for performing arms-length activities such as exporting and licensing. Internalization also gives the firm greater control over its foreign operations.

Leontief Paradox

International trade is complex and cannot be fully explained by a single theory!

Foreign Direct Investment (FDI)

An internationalization strategy in which the firm establishes a physical presence abroad.

Acquisition of productive assets such as capital, technology, labor, land, plant, and equipment

Dunning's Eclectic Paradigm

Ownership-specific advantages: the firm owns knowledge, skills, capabilities, processes, or physical assets

Country Risk

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

Political System

a set of formal institutions that constitute a government. It includes legislative bodies, political parties, lobbying groups, and trade unions.

Productivity

a gauge of how efficiently products are manufactured.

Authoritarianism

Authoritarianism centralizes power in the government.

the state attempts to regulate most aspects of public and private behavior

Socialism

Based on a collectivist ideology. Collective welfare of people is seen to outweigh the welfare of the individual

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

Social Democracy

an ideology that supports economic and social interventions to promote social justice through democratic means.

Democracy

a form of government in which people choose leaders by voting. Government by the people.

Characterized by:

1) private property rights which encourages innovation

2) limited government, which allows for more open markets.

Openness

lack of regulation low barriers to the entry of firms in foreign markets

National Governance

the system of policies and processes by which nations are governed.

Political Freedom

Free and fair elections.

The right to form political parties.

Fair electoral laws.

Existence of a parliament or other legislative body.

Freedom from domination by the military, foreign powers, or religious hierarchies.

Self-determination for cultural, ethnic, and religious minorities.

Economic Freedom

The extent of government interference in business.

The strictness of the regulatory environment.

The ease with which commercial activity is carried out according to market forces.

Command Economy

Also known as a centrally planned economy, makes the state a dominant force in the production and distribution of goods and services.

Market Economy

Market forces—the interaction of supply and demand—determine prices in a market economy.

Government intervention in the marketplace is limited, and economic decisions are left to individuals and firms.

Mixed Economy

exhibits the features of both a market economy and a command economy. It combines state intervention and market mechanisms for organizing production and distribution.

Political Systems

authoritarianism, socialism, and democracy—tend to influence their respective legal systems.

Rule of Law

a legal system in which rules are clear, publicly disclosed, fairly enforced, and widely respected by individuals, organizations, and the government.

Common Law

The basis is tradition, previous cases, and legal precedents set by the nation's courts through interpretation of statutes, legislation, and past rulings.

Civil Law

based on an all-inclusive system of laws that have been codified; the laws are clearly written and accessible. It is divided into three codes: commercial, civil, and criminal.

Religious Law

This legal system is strongly influenced by religious beliefs, ethical codes, and moral values viewed as mandated by a supreme being. The most important religious legal systems are based on Hindu, Jewish, and Islamic law.

Mixed Systems

two or more legal systems operating together.

In most countries, legal systems evolve over time, adopting elements of one system or another that reflect their unique needs.

Government

or the public sector, is the most important participant, operating at national, state, and local levels. Governments have the power to enact and enforce laws.

International Organizations

Supranational agencies such as the World Trade Organization (www.wto.org), the United Nations (www.un.org), and the World Bank (www.worldbank.org) strongly influence international business.

Regional Trade Organizations

Regional trade organizations, such as the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN), aim to advance the economic and political interests of their members.

Special Interest Groups

they advance the goals of a particular community, serve the interests of specific countries, industries, or causes.

Competing Firms

rival domestic firms with a strong presence in the host country naturally have an interest in opposing the entry of foreign firms into the local market and may lobby their government for protection.

Confiscation

seizure of corporate assets without compensation.

Expropriation

seizure with compensation.

Nationalization

government seizure of an entire industry, with or without compensation.

Sanction

a type of trade penalty imposed on one or more countries by one or more other countries. They typically take the form of tariffs, trade barriers, import duties, and import or export quotas. They generally arise in the context of an unresolved trade or policy dispute, such as a disagreement about the fairness of some international trade practice.

Embargo

an official ban on exports to or imports from a particular country to isolate it and punish its government. It is generally more serious than a sanction and is used as a political punishment for some disapproved policies or acts.

Terrorism

threat or actual use of force or violence to attain a political goal through fear, coercion, or intimidation.

Commercial Law

covers business transactions

Private Law

regulates relationships between persons and organizations, including contracts and liabilities that may arise due to negligent behavior.

Country Risk Arising from the Host-Country Legal Environment

Antitrust Laws, Foreign Direct Investment Laws, Marketing Laws, Environmental Laws, Internet and E-Commerce Regulation

Country Risk Arising from the Home-Country Legal Environment

Foreign Corrupt Practices Act (FCPA), Accounting and Reporting Laws, Transparency and Financial Reporting

Extraterritoriality

the application of home-country laws to persons or conduct outside national borders.

Transparency

the degree to which firms regularly reveal substantial information about their financial condition and accounting practices.

Managing Country Risk

-Proactive Environmental Scanning

-Strict Adherence to Ethical Standards

-Alliances with Qualified Local Partners

-Protection through Legal Contracts