FBLA International Business

International Business

any business that operates across international borders

types of economic systems

Traditional economies: a system that relies on customs, history, and time-honored beliefs (agriculture, fishing, etc.)

Command economies: the central government dictates the level of production of goods and controls their distribution and prices

Mixed Economies: protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims

Market economies: economic decisions and the pricing of goods and services are guided by the interactions of a country's individual citizens and businesses

Terms Characterizing Economic Development

Per capita Real Income: the mean income computed for every man, woman, and child in a particular group including those living in group quarters.

Unemployment rates: the percentage of the labor force who do not have a job

Dependence of primary sector: increased economic activity in agriculture, fishing, forestry, mining, and deposits

Level of Productivity: how much output can be produced with a given set of inputs

Human development rank: better qualities of life which include high literacy rates, life expectancy, infant mortality rate, access to healthcare, income

Technological advancements

Infrastructure Rates

impact international business has on consumers, business, and countries

allows countries to expand their markets and access goods and services that otherwise may not have been available domestically. As a result of international trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product home to the consumer. (Apple, McDonalds, Coca-Cola)

Define terms

Inflation: a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services

Gross domestic product: a monetary measure of the market value of all the final goods and services produced and sold in a specific time period by countries

Purchasing power parity (PPP): the rates of currency conversion that try to equalize the purchasing power of different currencies, by eliminating the differences in price levels between countries

Balance of trade: the difference in value between a country's imports and exports.

Cost of Living: the level of prices relating to a range of everyday items

Foreign debt: money borrowed by a government, corporation or private household from another country's government or private lenders.

Describe the decision-making process, opportunity costs, and scarcity

Decision making process: Identify a business problem. Seek information about different possible decisions and their likely effect. Evaluate the alternatives and choose one of them. Implement the decision in business operations.

Opportunity cost: which is reflected in the comparative advantage, is the key to international trading. We benefit from trade if we are able to obtain a good from a foreign country by giving up less than we would have to give up to obtain the good at home

Scarcity: one of the most significant factors that influences supply and demand. The scarcity of goods plays a significant role in affecting competition in any price-based market. Because scarce goods are typically subject to greater demand, they often command higher prices as well.

Identify the impact of geography on international business

Geography: helps you understand how the climate and terrain of a country can affect transportation, housing, and other business activities.

Climate: As the risk of extreme weather events increases, premiums for flood and storm protection will likely rise to mitigate insurance companies' risk. This could result in higher insurance costs for many firms and negatively impact their bottom lines.

Time Zones: Different time zones force businesses to factor in time zone conversion when dealing with international business and can negatively impact worker productivity.

Topography: mountains, deserts, and water, which directly impact the movement of people and thus the movement of trade

Natural resources: They are also crucial for importers who may have no domestic supply and for whom resources are an essential input to their economies

Describe how concepts (e.g., ethnocentrism, culture, social institutions, stereotyping, and cultural bias) affect conducting international business

Ethnocentrism: evaluation of other cultures according to preconceptions originating in the standards and customs of one's own culture

Stereotyping: Stereotypes lead to decreased productivity, dissatisfied customers and reduced revenues.

Culture: it influences how multinational and cross-cultural teams interact and collaborate.

Social Institutions: an interrelated system of social roles and social norms, organized around the satisfaction of an important social need or social function

Cultural Bias: the phenomenon of interpreting and judging phenomena by standards inherent to one's own culture

Compare and contrast international and domestic business

International has to use laws of the world, domestic only laws of the country

In international marketing, there is an advantage that the business organization can have access to the latest technology of several countries which is absent in case of domestic countries.

International marketing requires huge capital investment, but domestic marketing requires less investment for acquiring resources.

Evaluate how the political environment impacts international business

Political leaders often make decisions that impact labor laws, education, transportation, and taxes, which, in turn, influence business. Some governments use trade as a retaliatory measure if another country is politically or economically unfair

types of ownership of selected businesses involved in international trade

Sole proprietorship: someone who owns an unincorporated business by himself or herself

General partnerships: the basic form of partnership under common law, in most countries an association of persons or an unincorporated company which must be created by agreement, proof of existence and estoppel

Limited liability partnership: a type of general partnership where every partner has a limited personal liability for the debts of the partnership

Limited partnership: generally used by hedge funds and investment partnerships as they offer the ability to raise capital without giving up control.

Limited liability company: business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities.

Business corporations: a legal entity that is separate and distinct from its owners

appropriate business strategies for operating in foreign market situations

Pure competition: a marketing situation in which there are a large number of sellers of a product which cannot be differentiated and, thus, no one firm has a significant influence on price.

Monopoly: the state can establish anti trust legislation, control prices, have organized consumer associations, create effective publicity, and create fair competition.

Oligopoly: two or more companies control the market, none of which can keep the others from having significant influence → Operating for longer hours, or providing 24/7 customer support bc oligopolies mean higher operational costs

different organizational structures that a company might use

Polycentric Approach: a company adopts the strategy of limiting recruitment to the nationals of the host country (local people) to gradually decrease cost of foreign operations

Geocentric Approach: a company adopts the strategy of recruiting the most suitable persons for the positions available in it, irrespective of their nationalities

Regiocentric Approach: uses managers from various countries within the geographic regions of business

Ethnocentric Approach: to hire management that is of same nationality of parent company

risks and rewards related to doing business in a foreign market

Risks: Foreign exchange risks, currency value fluctuations, usually related to an appreciation of the domestic currency relative to a foreign currency, political risk happens when countries change policies that might negatively affect a business, such as trade barriers.

Rewards: new and increased revenue potential, benefitting from currency exchange, the ability to help more people, greater access to talent, exposure to foreign investment opportunities, and diversifying your company's markets.

advantages and disadvantages of expansion into international business

Advantages: entry to new markets, access to local talent, increased business growth, stay ahead of competition, regional centers, cost of establishing and terminating an entity, diversify assets

Disadvantages: cost of establishing and termination of an entity, compliance risk, business practices and cultural barriers, managing international employees

social, cultural, and political factors affect the new product development process

Social factors: people & media affect what we want to produce, lifestyle differences, buying habits, religious beliefs, sex distribution, etc. of the target market affect demand.

Political factors: Bureaucracy, Freedom of the press, Education Law, Environmental Law, Health and safety law, Regulation and deregulation, Tax policy (tax rates and incentives), and Government stability and related changes can affect what can and cannot be sold in a market

factors that affect international business competition

shaped by aspects of domestic market:

(1) demand conditions: the size and nature of the customer base for products

(2) factor conditions: the inputs that allow competition to take place such as human, physical, knowledge, and capital resources as well as the type, quality, and availability of infrastructure

(3) related and supporting industries

(4) strategy, structure, and rivalry among its domestic competitors

describe various opportunities for conducting international business

Exporting: companies from one country sell their goods and services to companies or consumers in a different country.

Franchising: involves a franchisor, who establishes the brand's trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system; allows organisations to enter overseas markets and expand their products and reach new customers, in a lower risk model than traditional company-owned expansion.

Licensing: involves 2 firms from different countries, with the licensee receiving the rights or resources to manufacture in a foreign country

Joint Ventures: when two businesses based in two or more countries join together to exchange resources, share risks and divide rewards from a joint enterprise

organizations, government agencies, and other resources that a small or medium-sized business might use to investigate international business opportunities

The United States Commercial Service (USCS), the United States Department of Commerce, U.S. Export Assistance Centers (USEACs), the Small Business Development Centers (SBDCs), World Trade Organization, International Chamber of Commerce, The Federation of International Trade Associations

role and purpose of the International Organization for Standardization

Through its members, it brings together experts to share knowledge and develop voluntary, consensus-based, market relevant International Standards that support innovation and provide solutions to global challenges; it facilitates world trade by standardizing production across countries

quality management standards

ISO 9000: ​​set of international standards on quality management and quality assurance developed to help companies effectively document the quality system elements needed to maintain an efficient quality system.

QS 9000: a company level certification based on quality system requirements related specifically to the automotive industry. These standards were developed by the larger automotive companies including Ford, General Motors and DaimlerChrysler

legal issues related to managing a business in the global environment

employment law, intellectual property, contracts, business acquisitions, taxes, data protection,

legal differences

Consumer protection: the measures adopted for the protection of consumers from unscrupulous and unethical malpractices by the business → Higher in middle and low income countries

Product guidelines: a document that itemizes in detail the integral parts of how a product is conceived, designed, and executed and in different countries the requirements may be different so a product may not be able to sell in foreign countries

Labor laws: Foreign labor laws generally provide much more protection for workers than labor laws in the United States. (Austria, Belgium, denmark, etc have best labor laws)LEGAL

Contract formulation: contracts can only be enforceable if they meet the specific requirements of a contract: an offer, acceptance, consideration, and a mutual intent to be bound.

Liability: The liability of foreignness (LOF) looks at the costs of moving in and competing with businesses that are already established in the host country. These native businesses have certain social and economic advantages that foreign companies do not.

Taxation: In developed countries governments are more likely to rely on income taxes for national output, and in Developing countries governments are more likely to rely on trade taxes.

protection provided to businesses by the components of international law

protections for international patents and intellectual property through the World Intellectual Property Organization and the European Patent Office. Treaties and agreements include the UN Treaties Series, ASEAN, and the World Court. The World Trade Organization also regulates international business law

major legal aspects and ramifications of international relations

Financial Systems: a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds; borrowers, lenders, and investors exchange current funds to finance projects, either for consumption or productive investments, and to pursue a return on their financial assets.

Licensing: International licensing gives a foreign business entity the right to manufacture or use a company's product for its market

Judicial Systems: A country's law regulates business practices, defines business policies, rights and obligations involved in business transactions. The World Court can also get involved in international business law.

Repatriation: Repatriation usually refers to the conversion of offshore money back to the currency of the country in which it is a corporation and can result in losses and comes with certain risks, such as foreign currency risks.

levels of regulation applied intellectual properties

Copyright: (gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work) Even though global copyright treaties and agreements exist, there is no one "international copyright law." Different countries have different standards for what is protected by copyright, how long copyright lasts and what it restricts, and what penalties apply when it is infringed.

Trademarks: (a recognizable sign, design, or expression that identifies products or services from a particular source and distinguishes them from others) a U.S. trademark registration will not protect your trademark in a foreign country. Trademarks are territorial and must be filed in each country where protection is sought.

Patents: (gives its owner the legal right to exclude others from making, using, or selling an invention) Almost every country has its own patent law, and a person desiring a patent in a particular country must make an application for patent in that country, in accordance with the requirements of that country. The laws of many countries differ in various respects from the patent law of the United States

methods for resolving legal differences

Arbitration: Disputes referred to international arbitration often bring together arbitrators, counsel and witnesses from different jurisdictions with different cultures and practices

Mediation: Mediation is so much quicker and simpler and so much less expensive than litigation and arbitration, and the mediation procedure has a high rate of success. 80 countries and international organizations have made mediation laws and established mediation service institutions to promote and support the use of mediation to resolve disputes

Litigation: Litigation is simply the trial of cases in international courts such as the International Court of Justice, the Court of Justice of the EU, and the Inter-American Court of Human Rights. The defendants must agree to such litigation and both parties must agree to follow the judgment

describe information systems and communications for international business

Information Systems: complementary networks and interconnected components that amass, disseminate, and otherwise make data useful to bolster management's decision-making processes

Communication: everything from an initial handshake to the delivery of the final report. It includes all written, spoken, and electronic communication within a company or between companies

Define terms such as culture, multiculturalism, stereotyping, and cultural bias and their effects on conducting business internationally

Culture: the social behavior, institutions, and norms found in human societies, as well as the knowledge, beliefs, arts, laws, customs, capabilities, and habits of the individuals in these groups; it influences how multinational and cross-cultural teams interact and collaborate

Multiculturalism: the presence of several distinct cultural or ethnic groups within a society; a country that has multiculturalism will be able to more effectively communicate with international people

Stereotyping: viewing someone as a generalized belief about a particular category of people; when stereotypes are present at the early stage of the relationship, they could hinder the later progress of the potential partnership.

Cultural bias: the interpretation of situations, actions, or data based on the standards of one's own culture; people may conduct business internationally without regard to their environment, so things they deem respectful may not be in the foreign country and vice versa and it may hinder international relations

effective business communications based on differences in tone, style, and format of other countries

Tone: speaking in a neutral tone and making a conscious effort to be considerate of others' input, even if it is given in a manner to which you are not accustomed, can help foster effective business communication.

Style: Levels of conservatism, gender views and ideologies can vary greatly between cultures. Presenting a campaign that is not in line with specific cultural norms can insult the target audience and greatly hinder the campaign.

examples of nonverbal communications

Eye contact, touch, gestures, physical distance, facial expressions, appearance, posture, and paralanguage (tone of voice, loudness, speed of speech and inflection) are all different in various countries and they may change based on the context of the situation

distinctive social and cultural factors that affect business activities/etiquette in a multicultural environment

Greetings: people may have to shake hands with everyone or kiss everyone on the cheek when they walk into a room

Time: In Latin America people are usually late and in central Europe they usually start things on time, but regardless of where you are doing business, being on time is the generally accepted norm

Names and titles: While using last names is formal and customary in some countries, others are more comfortable addressing business counterparts by their first name. Americans usually use first names in in formal situations, Germans rarely use first names, and French people refer to people as "Monsieur" or "Madame"

Gifts: Even if gift-giving is not anticipated, it displays courtesy and helps you establish a healthy relationship with business associates. The Japanese business culture focuses on the gift-giving ritual rather than the gift itself.

Compare the business protocol of various countries

Punctuality. In German eyes, time is money. Wasting time by showing up late is disrespectful. In Brazil, meetings often run late, and leaving early is bad manners. In Italy and France, meeting start times are guidelines, not commitments.

Business wear. In many American businesses, you can get by with business casual. In France, even low-ranked executives place a priority on dressing well. Italian business people also expect elegance from their business colleagues. In China, dressing conservatively makes a good first impression.

Physical contact. In China, physical contact from a business colleague is frowned upon. In Brazil, by contrast, it's a sign of trust. Brits don't maintain eye contact for as long as Americans think is appropriate.

Gift-giving. In Japan, gift-giving is common, but the present should always be wrapped. In China, offering a gift to associates is essential, although the recipient makes a show of refusing. In Italy, giving a business colleague a gift is inappropriate unless the relationship has become close.

international marketing and apply technical words that pertain to international marketing

International Marketing: the marketing of products or services outside of your brand's domestic audience, By expanding into foreign territories, brands are able to increase their brand awareness, develop a global audience, and of course, grow their business.

Exporting: the practice of shipping goods directly to a foreign country

Licensing: an agreement whereby a company, known as the licensor, grants a foreign firm the right to use its intellectual property

Franchising: involves a parent company granting a foreign firm the right to do business in its name. However, franchises usually have to follow stricter guidelines in running the business than licensing

Joint Venture: describes the combined effort of two businesses from different countries to their mutual benefit

Foreign Direct Investment (FID): a company places a fixed asset in a foreign country to manufacture a product abroad

what a company must consider when marketing a product/service in other countries

Language, Taste, Regional Values, Consumer Habits, Age/Demographics, Per Capita Income, Relevant Class Structure, Supply and Demand

Describe how language, culture, media availability, and regulations affect international advertising and marketing

Language: you gain exposure and create brand awareness in different cultures. Translation allows for better receptiveness, thus permitting potential buyers to see that you are willing to go above and beyond to cater to their needs

Culture: As culture affects a consumers' lifestyle, so brands do focus on the cultural values of their consumer in order to make them believe that they really know their consumer well

Media availability: Social media is also extremely effective in global marketing due to its ability to increase global awareness of products and services

Regulations: Marketing compliance standards protect consumers so that they are not lied to, tricked, or misled by businesses

Describe how consumer behavior and foreign markets can affect the elements of the marketing mix

Marketing mix: a combination of factors that can be controlled by a company to influence consumers to purchase its products.

Consumer behavior: Studying consumer behavior is important because it helps marketers understand what influences consumers' buying decisions.

Foreign Markets: The place element of the marketing mix is about distributing a product or service to the customer, at the right place and at the right time. Distribution in national markets such as the United Kingdom will probably involve goods being moved in a chain from the manufacturer to wholesalers and onto retailers for consumers to buy from

Define the steps in the marketing research process

1. Identify an issue, discuss alternatives and set out research objectives

2. Develop a research program

3. Choose a sample

4. Gather information

5. Gather data

6. Organize and analyze information and data

7. Present findings

8. Make research-based decisions

9. Take action based on insights

promotion strategies that can be used to promote products internationally

extension, adaptation, invention, pricing consideration, product standardization, product customization, social media, events

product life cycle

A product life cycle is the length of time from a product first being introduced to consumers until it is removed from the market.

Intro product: a corporation in a developed country will innovate a new product export the product out to other developed nations

The maturity stage: open production plants locally, which means labor costs and export costs go down so more profit on manufacturers side... developed nations demand for product will continue increase

Product standardization and streamlining of manufacturing: products begin exporting to less developed countries, move production to nations where average income is much lower and standardize manufacturing so it costs less... people in LDC learn how products are manufactured and new competitors arise in LDC, and demand for products in the original nation dies.... Multinational corporation leaves manufacturing of product to LDC and focuses on new product

Explain how currency exchange rates, economic conditions affect prices charged

Current exchange rates: A higher-valued currency makes a country's imports less expensive and its exports more expensive in foreign markets. A lower-valued currency makes a country's imports more expensive and its exports less expensive in foreign markets.

Economic Conditions: large currency moves like the Asian currency crisis; also foreign market objectives, product related costs, demand, and competition

differences in the roles of agents, wholesalers, retailers, freight forwarders, export companies, trading companies, and customs' brokers

Agents: a person who represents or acts on the behalf of a business owner involved in foreign import or export of goods

Wholesalers: a person or company who sells products in bulk to various outlets or retailers for onward sale, either directly or through a middleman

Retailers: a person or business that you purchase goods from; they don't typically manufacture their own goods

Freight Forwarders: a person or company that organizes shipments for individuals or corporations to get goods from the manufacturer or producer to a market

Export Companies: an independent company that provides support services for firms engaged in exporting

Trading Companies: businesses working with different kinds of products which are sold for consumer, business, or government purposes

Customs' Brokers: clear their goods through customs, which includes tracking shipments, filing customs entries, and paying duties and fees

factors in determining the appropriate mode of transportation

railroad=cheap for heavy over long distances

motor= cheap for small traffic over short distances

water= cheap for heavy over long distance and time isn't an issue

air= expensive but good for light, perishable goods that need quick delivery

types of governments

Monarchy: a form of government in which a person, the monarch, is head of state for life or until abdication.

Theocracy: a system of government in which priests rule in the name of God or a god

Oligarchy: a small group of people having control of a country, organization, or institution

Dictatorship: form of government in which a person possesses absolute power without effective constitutional limitations

Representative Government: a type of democracy where elected persons represent a group of people

strategies governments use to control international trade

Quota systems: imposes restrictions on the specific number of goods imported into a country (allow governments to control the quantity of imports to help protect domestic industries.)

Tariffs: allow governments to control the quantity of imports to help protect domestic industries. (increase the price that consumers pay for the good, thus reducing the quantity of the good demanded and making the price more in line with the price charged by domestic producers)

Subsidies: grants given to domestic industries to help them develop and compete with foreign producers. (domestic producers can charge less for their goods without losing money due to outside grants)

impact of inflation and tax structures on international business decisions

Inflation: it can lead to increased competition as businesses strive to maintain market share. This can put pressure on margins and lead to a decline in profitability, but it can also lead to innovation and growth

Tax structures: taxation is a critical factor to international businesses because investors highly consider it before deciding to invest in a certain region in the world

economic effects of foreign trade

increased efficiency and allows countries to participate in a global economy, encouraging the opportunity for foreign direct investment (an investment in the form of a controlling ownership in a business in one country by an entity based in another country)

activities and risks associated with importing and exporting

Exporting is the sale of products and services in foreign countries that are sourced or made in the home country. Importing refers to buying goods and services from foreign sources and bringing them back into the home country.

Risks associated with importing and exporting are loss or damage to goods, non payment, political or economic instability, currency fluctuations, and lawsuits

benefits to countries for entering into trade agreements

Free trade agreements are contracts between countries to allow access to their markets. They can open new markets, increase gross domestic product (GDP), eliminate tariffs and invite new investments

U.S. Customs Service

U.S. Customs and Border Protection, CBP, is one of the world's largest law enforcement organizations and is charged with keeping terrorists and their weapons out of the U.S. while facilitating lawful international travel and trade. It includes an air and marines operation, field operations, border patrol, trade, enterprise services, operations support, trade relations, etc

why governments impose trade barriers and offer trade incentives

Trade barriers: to protect industries and workers within a country

Quotas: to help regulate the volume of trade between them and other countries.

Tariffs: to raise revenue, protect domestic industries, or exert political leverage over another country. (reduce high consumer prices)

Licensing requirements: to raise revenue or to fund the regulation of activities

Exchange rate controls: allow countries to better manage their economies by controlling the inflow and outflow of currency, which may otherwise create exchange rate volatility

Trade incentives: governments are choosing to invest public resources to make private investments feasible and therefore receive investment returns in the form of economic impacts.

Describe several international trade agreements and organizations

WTO: The World Trade Organization is the only global international organization dealing with the rules of trade between nations

GATT: The General Agreement on Tariffs and Trade is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas.

EU: European Union, international organization comprising 27 European countries and governing common economic, social, and security policies.

NAFTA: The goal of NAFTA is to eliminate all tariff and non-tariff barriers of trade and investment between the United States, Canada and Mexico.

MERCOSUR:South American trade bloc whos main objective has been to promote a common space that generates business and investment opportunities through the competitive integration of national economies into the international market.

Define procedures and documentation associated with foreign trade and the transportation of goods

Air Waybill: proves the goods have arrived and are ready to be shipped by air.

Certificate of Origin: required by the customs department of the country importing the goods to decide upon import duty.

Bill of Lading: proof that the consignment has been shipped from one destination to another

Combined Transport Document: issued when the goods need to be shipped through multiple modes of transportation.

Draft (or Bill of Exchange): exporter to the importer asking for a certain amount of money to be paid in the future and the importer also agrees

Insurance Policy (or Certificate)

Packing List/Specification

Inspection Certificate

factors that affect the value of currency

Inflation.

Interest Rates.

Public Debt.

Political Stability.

Economic Health.

Balance of Trade.

Current Account Deficit.

Confidence/ Speculation

Distinguish between currencies

Floating currencies: a type of exchange rate regime in which a currency's value is allowed to fluctuate with the market (ex. the US dollar, the euro, the Japanese Yen, and the UK pound sterling)

Fixed currencies: when a country ties the value of its currency to some other widely-used commodity or currency; most exchange rates are pegged to the U.S. dollar (ex. Danish krone, Fijian dollar, Moroccan dirham)

Convertible currencies: any nation's legal tender that can be easily bought or sold on the foreign exchange market with little to no restrictions (ex. the US dollar, the euro, the Japanese Yen, and the UK pound sterling)

Non Convertible currencies: one that is used primarily for domestic transactions and is not openly traded in the forex (FX) market. (ex. Brazilian real, Argentinian peso, and Chilean peso)

sources of capital for international, transnational, multinational, and global companies

foreign stock exchanges: the global marketplace for the trading of one nation's currency for another

foreign bond markets: the bonds that are sold in a country, using that country's currency, but issued by a non-domestic borrower

foreign banks: any United States operation of a banking organization headquartered outside of the U.S.

venture-capital firms: a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential

funding from the parent company

how a business finances trade with a business in another country

cash in advance, letter of credit, documentary collection or draft, open account and consignment. The most secure method for the exporter is the least secure for the importer and vice versa

Identify countertrade, offset, and noncash transactions in world trade

Countertrade: a reciprocal form of international trade in which goods or services are exchanged for other goods or services rather than for hard currency

Offset: industrial compensation practices that foreign governments or companies require U.S. firms to enter into as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services

Noncash Transactions: an accounting expense that does not involve any cash outflow