Intro To Business Ch4: Understanding the Global Context of Business

Imports

Products made or grown abroad and sold domestically in the United States are referred to as

Negative Balance Trade

The value of a country's imports exceeds the value of its exports.

Exchange Rate

the bills and coins you have will need to be converted to that country's currency. The _______ is the rate at which the currency of one nation can be exchanged for the currency of another nation.

Strategic Alliance

When a company finds a partner it wants to do business with in another country, each party agrees to invest resources and capital into a new business or to cooperate in some mutually beneficial way.

Foreign direct investment

This is an international organizational structure in which a firm buys or establishes tangible assets in another country.

Absolute Advantage

The ability to produce something more efficiently than any other country.

• Cocoa in Brazil or oil in the middle east

Time Orientation

members of a culture adopt a long-term versus a short-term outlook on life, work, and other elements of society

Quota

A country placing limits on the amount of timber that can be imported..

• helps to regulate the volume of trade between countries, and increase domestic production

Local Content Law

This is a requirement that products sold in a country be at least partly made there. This way some of the profits from doing business in a foreign country stay there rather than flow out to another nation.

Dumping

Practice of selling a product abroad for less than the cost of production. Products are priced at "less than fair value" and the result unfairly harms domestic industry.

• point is to hurt the foreign economy

• this cheap foreign markets messes with domestic prices

• Illegal

Break Even Point

the exact point where the original cost of start-up is covered, so that the next unit sold is profit

Buy-Sell Agreement

Legally binding contract between business co-owners that dictates how an owner's share of the company is handled if they die, become disabled, retire, or leave

Why does U.S Trade?

• largest exporter and importer

• less than 5% world pop in U.S.A

• increases standard of living

• helps economy

International Business

• Buying, selling, and trading goods and services across national boundaries

• Balancing a firm’s global brand with the needs of local consumers

  • Why Trade?

    • absolute advantage

    • comparative advantage

    • outsourcing

Comparative Advantage

The ability to produce some products more efficiently than others

Absolute Advantage

the ability to produce something more efficiently than any other country can

Trade Surplus

• Higher exports, lower imports

Trade Deficit

• Lower exports, higher imports

Balance of Payments

• Cash inflows (coming into the country) vs cash outflows (going out of the money)

Barriers to International Trade

• Cultural and Social

  • Language

  • Social and Religious Values

  • Attitudes and Customs

• Economic

  • best country to increase profits

  • wages —> who can afford what (price accordingly)

• Political and Legal

  • Changes rapidly

  • Cartels

Foreign Corrupts Act (FCPA)

• Any U.S company cannot bribe overseas officials to get business.

  • Huge fines filed in the U.S

  • Even if bribing is a norm in that oversea country

Trade Restrictions

Tariff Barriers: taxes on foreign goods

• protecting local producers

Non-Tariffs Barriers

• Quotas

• Dumping

• Embargo

• Exchange Controls

Embargo

an official ban or restriction imposed by a government or organization on trade, commerce, or the publication of specific information.

Exchange Rates

• More exports —> more money —> higher currency value.. more people buy foreign goods because it is cheaper rather than the inflated domestic goods

• Manipulated by external countries to make domestic economy weaker (higher prices) and their foreign economy stronger (domestic ppl buy foreign products cause they are cheaper)

World Trade Organization (WTO)

• 160 countries members

• monitor GATT

  • Generally Agreement Tariffs and Trades

• reduce tariffs and enhance trade between countries

World Bank

• After WWII

• loans to developing countries

• develop infrastructure, transportation, medical, education

International Monetary Funds (IMF)

• short term loans to struggling members to meet expenses

• last option

International Pacts

• USMCA (used to NAFTA)

• CAFTA (Central American Countries)

• Asia-Pacific Economic Cooperation (APEC)

  • 1989, general trading cooperation

• EU (European Union)

  • 1958, promote trade

Levels of Involvement

• Direct Investment (most involvement)

  • Setting up shop

  • high risk

• Contractual Involvement (mid involvement)

  • Franchising, licensing, subcontracting

  • mid risk

• Export/Import (low involvement)

  • least risk

Hard Currency

• Huge demand (dollars) in the world market

Soft Currency

• low demand (ruble) in the world market

Counter-trading

an international business arrangement where goods and services are exchanged for other goods and services, rather than entirely with hard currency.

Joint Venture

• 2 companies come together to create a new object

Strategic Alliance

• working together, but not making a new entity

• working toward one objective but staying separate

International Strategies

• Global (Standardization)

  • selling the product the SAME way in all countries

  • universal product

• Multi-domestic (Adaptation)

  • Company tries to adapt to local needs

  • customized for culture, location, and people