global dimensions of business kimmel final

Foreign Direct Investment

Investment made by a foreign company in the economy of another country.

exporting

selling products to another country

oligopoly

A market structure in which a few large firms dominate a market

Direction of FDI

-Historically, most FDI has been directed at the

developed nations of the world

-The United States is a favorite target as is the

European Union

-More recently, developing nations have been

the recipients of FDI

-South, East, and Southeast Asia, and particularly

China have received significant inflows

-Latin America is also emerging as an important

region for FDI

Source of FDI

- United States of America

- United Kingdoms

- Netherlands

- France

- Germany

- Japan

- China (recently emerged)

price floor

A legal minimum on the price at which a good can be sold

price ceiling

A legal maximum on the price at which a good can be sold

Pros of Regional Trade Agreements

boosts economic growth, volume of trade, quality and variety of goods

Regional Trade Agreements

agreements among nations in a particular region to reduce tariffs and develop similar technical and economic standards

Cons of Regional Trade Agreements

trade diversion, employment shifts/deductions, loss of national sovereignty

EU Institutions

Form a federal pattern with executive, parliamentary and judicial branches: the European Commission, the Council of Ministers, the European Parliament, and the Court of Justice

types of REI

free trade area, customs union, common market, economic union, political union)

free trade area

A zone in which there are no tariffs or other restrictions on the movement of goods and services across borders

customs union

a common external tariff adopted by members of a free trade area; that is, participating states adopt a unified set of tariffs with regard to goods coming in from outside

common market

a group of countries that have eliminated tariffs and harmonized trading rules to facilitate the free flow of goods among the member nations

economic union

A group of countries committed to (1) removing all barriers to the free flow of goods, services, and factors of production between each other, (2) the adoption of a common currency, (3) the harmonization of tax rates, and (4) the pursuit of a common external trade policy.

political union

economic and political integration whereby countries coordinate aspects of their economic and political systems

transaction

A business activity that changes assets, liabilities, or owner's equity

translation

Business translation is the process of translating any type of text into one or more target languages to accompany global business activities.

economic exposure

Economic exposure is a type of foreign exchange exposure caused by the effect of unexpected currency fluctuations on a company’s future cash flows, foreign investments, and earnings.

floating exchange rate

an exchange rate policy under which a government permits its currency to be traded on the open market without direct government control or intervention

managed exchange rate

A managed currency is one whose value and exchange rate are influenced by some intervention from a central bank.

pegged exchange rate

A pegged exchange rate, also known as a fixed exchange rate, is a type of exchange rate in which a currency's value is fixed against either the value of another country's currency or another measure of value, such as gold.

Spot Rates

The spot rate is the price quoted for immediate settlement on an interest rate, commodity, a security, or a currency.

forward rates

A forward rate is an interest rate applicable to a financial transaction that will take place in the future.

exchange rate

the value of one currency for the purpose of conversion to another:

par value

face value

currency value appreciation

Currency appreciation refers to the increase in value of one currency relative to another in the forex markets.

currency value depreciation

fall in the value of a currency in terms of its exchange rate versus other currencies

international monetary system

a well-designed system that regulates the valuations and exchange of money across countries

international monetary fund

The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity for all of its 190 member countries.

Bank for International Settlements

supervises central bank monetary policy and other activities

Hedging

hedging is a practice that may offer protection against the risk of potential losses of your finances

arbitrage

Arbitrage is an investment strategy1in which an investor simultaneously buys and sells an asset in different markets to take advantage of a price difference and generate a profit

functions of foreign exchange market

Transfer Function: To transfer money and purchasing power from one country to another.

Credit Function: To include overseas exchange credit.

Hedging Function: To make it easier to purchase and sell spot or forward foreign exchange, and to facilitate buying and selling spot or forward foreign exchange.

law of one price

The law of one price is the foundation of purchasing power parity.

moral hazard

Moral hazard is a term used in economics and finance to describe a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk

currency speculation

Currency speculation is the act of buying and selling the money of various countries in order to take advantage of fluctuating exchange rates

currency swap

A currency swap, sometimes referred to as a cross-currency swap, involves the exchange of interest—and sometimes of principal—in one currency for the same in another currency

efficient market

Market efficiency refers to how well current prices reflect all available, relevant information about the actual value of the underlying assets

carry trade

A carry trade is a trading strategy that involves borrowing at a low- interest rate and investing in an asset that provides a higher rate of return.

bandwagon effect

The bandwagon effect is part of a larger group of cognitive biases or errors in thinking that influence the judgments and decisionsthat people make.

gold standard

The gold standard is a system where money is backed by gold and can be exchanged for it at a fixed price

premium trade

A price that exists above some sort of fundamental value is referred to as a premium

discount trade

A trade discount is a reduction in the list price of a product or service offered to a customer by a supplier.

Dollarization

Dollarization is the term for when the U.S. dollar is used in addition to or instead of the domestic currency of another country.

strategic alliance advantages/disadvantages

advantages: ease of market entry, shared risk, shared knowledge and expertise, synergy and competitive advantage

disadvantages: dealing diverse/conflicting operating practices, conflicting objectives, strategies, corporate values, ethical standards, becoming too dependent on another firm for essential expertise over the long term

joint ventures advantages/disadvantages

advantages: Access to new markets, distribution networks, and audiences

Increased capacity, productivity, and revenue

disadvantages: unclear/conflicting objectives, lack of leadership/coordination, differences, unequal distribution

franchises

Privileges granted by a company or government to sell a product or service under specified conditions.

advantages of franchises:

access to free training/marketing, being part of an established business, lower risk, support/guidance from franchise owner, opportunities

Franchise Disadvantages

high initial investment/ongoing fees, limited creativity/less control, lack of privacy/shared information, decreased profits due to royalties/other expenses, damaged reputation if franchisor/franchisees perform poorly, restricting regulations/potential conflict, geographical locations limitations

licensing advantages

advantages: You will not need to incur the costs of producing, promoting, packaging, or selling your product; The licensee already has knowledge and know-how as it pertains to breaking into an already established market, so there is no risk to you; Depending on the terms of your agreement, your royalty payments can last a very long time.

licensing disadvantages

You will likely lose control over your product, including promotion, packaging, and selling; You will only receive a portion of the profits from the sale of your product, as outlined in your agreement; If your product does not sell well, you will not receive royalty payments; or, it may take a while until you receive a payment, depending on your agreement

drivers of choice of markets

external factors: market size, market growth, government regulations, level of competition, physical infrastructure, level of risk

internal factors: company objectives, availability of company resources, level commitment, international experience, flexibility

pioneering costs

1) the product innovation requires a higher investment in research and development than does product imitation, and 2) the necessary marketplace education and testing forces the pioneer to spend heavily on advertising and promotion.

first mover advantage

advantages a company can gain by being the first to enter a new market or introduce a new product

second mover advantage

competitive edge that a company has when it enters the market later than other companies

strategic alliances

A strategic alliance is a win-win partnership between two or more independent companies that cooperate for a common goal.

profitability

Profitability is a measurement of efficiency.

profit growth

percentage change in profit from one period to another.

controls

Business controls are procedures and processes that help an organization achieve its mission and objectives

Incentives

material or intangible rewards that can motivate employees to work more enthusiastically in a constructive manner

location economies

cost advantages from performing a value creation activity at the optimal location for that activity

experience curve

Introduced by the Boston Consulting Group, Experience Curve is a concept that states that there is a consistent relationship between the cumulative production quantity of a company and the cost of production

learning effects

When there is spending on education, people will gain more skills such as literacy, numeracy and problem-solving skills. With this greater education, the general productivity (output per worker) of the economy will increase, leading to higher economic growth and firms will be able to increase wages.

economies of scale

Economies of scale are cost advantages reaped by companies when production becomes efficient.

turnkey

A turnkey business is a business that is ready to use, existing in a condition that allows for immediate operation.

licensing

business arrangement where a company authorizes another company to use its intellectual property rights

importing

bring goods or services into a country from abroad for sale

joint venture

a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities.

wholly owned subsidiary

A wholly owned subsidiary is a company whose common stock is 100% owned by another company

draft

A draft in business is a written order by one party to pay money to another party

bill of exchange

a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date

letter of credit

A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.

bill of lading

A bill of lading (BL) is a legal document that records the details of a shipment.

process of using a letter of credit

The process for a letter of credit involves the following steps123:

The importer's bank drafts the letter of credit using the sales agreement's terms and conditions.

The letter of credit is sent to the exporter's bank for review and approval.

The exporter ships the goods as the letter of credit describes.

The exporter submits the documents to the advising bank, which checks the documents for discrepancies, and if no discrepancies are found, they send the documents to the issuing bank.

The issuing bank settles the payment from the importer and the exporter takes possession of the goods.

process of documentary collection

Documentary Collection Process The process begins with a buyer making an order or a purchase of goods. The exporter or seller then makes arrangements to send the goods to the buyer or importer. The seller submits a collection order to his or her bank. The seller’s bank then submits the collection order to the bank of the buyer.

sight draft

bill of exchange that is payable on demand. used in international trade to reduce risk of default

time draft

A time draft is a form of payment that is guaranteed by an issuing bank but is not payable in full until a specified amount of time after it is received and accepted.

freight forwarders

A freight forwarder is a firm specializing in the arrangement of cargo on behalf of shippers.

export management companies

An Export Management Company (EMC) is a company that acts as an outside export department for small and mid-sized U.S. manufacturers

export trading company

An export trading company is an independent company that provides support services for firms engaged in exporting.

export packers

The preparation of goods for international shipping. The degree of export packing required greatly depends on the kind of product, the mode of transportation, and the facilities at the shipment and destination port or airport.

customers brokers

private individuals, partnerships, associations or corporations licensed, regulated and empowered by U.S. Customs and Border Protection (CBP) to assist importers and exporters in meeting Federal requirements governing imports and exports.

confirming house(s)

A trading company that represents the interests of foreign buyers.

piggyback marketing

marketing strategy where two firms collaborate and represent each other’s complementary products in a competitive market rather than competing with each other.

export processing zone

An export processing zone, or EPZ, is an area set up to enhance commercial and industrial exports by encouraging economic growth through investment from foreign entities.

role of ExIm bank

The Export-Import Bank is the export credit agency of the United States.

EXIM's mission is to support American jobs through U.S. exports.

EXIM provides loans, guarantees, and insurance services to foreign buyers to finance purchases of products from American exporting businesses.

measures within World Bank's Logistics Performance

Customs performance

Infrastructure quality

Ease of arranging shipments

Logistics services quality

Consignment tracking and tracing

Timeliness of shipments

logistics

the commercial activity of transporting goods to customers

production

the action of making or manufacturing from components or raw materials, or the process of being so manufactured

supply chain management

Supply chain management (SCM) is the centralized management of the flow of goods and services to and from a company and includes all of the processes involved in transforming raw materials and components into final products.

purchasing

the act of acquiring goods or services for a business purpose

upstream supply chain

The upstream supply chain includes all activities related to the organization’s suppliers: those parties that source raw material inputs to send to the manufacturer

downstream supply chain

The downstream supply chain refers to activities post-manufacturing, namely distributing the product to the final customer.

value to weight ratio

The relationship between price and weight of a product. For example, pharmaceuticals have a high value-to-weight ratio because they are expensive and do not weigh much. So, even if they are shipped long distances, the transportation costs account for a small percentage of total costs

global learning

The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary

offshore factory

a factory that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market

source factory

a factory whose primary purpose is also to drive down costs in the global supply chain

server factory

a factory linked into the global supply chain for a global firm to supply specific country or regional markets around the globe