Global Business FBLA Study Guide Notes on Basic International Concepts
Global Business FBLA Study Guide Notes on Basic International Concepts
Heckscher-Ohlin Theory
Definition: This theory posits that countries will export goods that make intensive use of locally abundant factors of production and import goods that make intensive use of locally scarce factors of production.
Globalization of Markets
Concept: Movement away from a system where national markets are distinct entities, separated by trade barriers, distance, time, and culture, towards a unified global market.
Balance of Payments
Definition: The difference between the money a country pays out to and receives from other nations.
Freight Forwarder
Definition: A firm that arranges for the shipping of goods to customers in foreign countries.
European Union Members
Countries: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the UK.
Total Members: 28
Interdependency
Definition: The quality of being interdependent or mutually reliant on each other, particularly in the context of the global economy.
Expropriation
Definition: Occurs when a public agency takes private property for purposes considered to be in the public interest.
Expatriate
Definition: A person who lives outside their native country.
Largest U.S. Trading Partners (Top 5)
Canada
China
Mexico
Japan
Germany
Largest Global Exporters (Top 5)
China
EU
USA
Germany
Japan
Largest Global Importers (Top 5)
USA
EU
China
Germany
Japan
ISO 9000
Definition: A series of standards developed by the International Organization for Standardization (ISO) that define, establish, and maintain an effective quality assurance system for manufacturing and service industries.
QS 9000
Definition: A company-level certification focused on quality system requirements related specifically to the automotive industry, necessitated for suppliers to U.S. automakers, developed by Ford, GM, and Chrysler.
Common Market
Definition: When countries join together to eliminate duties and other trade barriers, which allows companies to invest freely and labor to move across borders.
Job Creation Through Exports
Fact: The U.S. Department of Commerce calculates that every $1 billion in exports of manufactured goods creates 20,000 jobs.
Context: Seen during the recovery phase of the business cycle when employment increases and businesses invest in inventory.
Reengineering
Definition: The process of redesigning or restructuring aspects of a business.
Cultural Influences
Values and Norms: Influenced by religion, language, education, and the economic/political/social structure and philosophies.
Cross-Cultural Literacy
Development Requirement: International businesses must guard against ethnocentric behavior and embrace cultural differences.
Optimal Manufacturing Location
Factors to Consider: Country factors, technological factors, and product factors, characterized mainly by the influence of factor costs.
Multinational vs. Small Businesses
Dilemma: Multinationals must find a balance between local market adaptation and efficiency. Small businesses focus more on exporting.
Focus: Small businesses often have founder influence shaping international strategies.
Non-Profit Organizations
Definition: Business entities formed to provide services without a profit motive, which include municipal organizations.
Trust Issues in International Trade
Solution: Use third parties like banks to mitigate trust issues between exporters and importers.
Techniques for Fund Transfer: Transfer prices, royalty payments/fees, and fronting loans.
Strategic Alliances
Activities Included: Design contracts, purchasing agreements, and joint product development.
National Context
Definition: Comprises the cultures and social institutions within a society.
Ownership and Management Competencies
Functional Structure
Organization: Sections based on purpose (e.g., sales, marketing, production).
Advantage: Good for small businesses.
Disadvantage: Can lead to poor communication between sections.
Divisional Structure
Organization: Sections based on regions or product lines.
Advantage: Suitable for large companies with broad geographic distribution.
Disadvantage: Can create communication barriers.
Matrix Structure
Definition: Combination of divisional and functional structures, organizing sections by purpose and region/product line.
Use: Common in large, multinational companies.
Controlling Interest
Definition: Occurs when a firm owns more than 50% of another business entity's voting stock.
Cultural Controls
Definition: Achieving control by aligning subordinates with organizational norms and values, promoting self-control.
Multinational Corporation (MNC)
Definition: A company operating across multiple countries.
Transnational Corporation (Borderless Organization)
Definition: An MNC that eliminates structural divisions that create artificial geographic barriers.
Major Areas of Business Management
Production
Finance
Information Systems
Marketing
Human Resources (HR)
International Organization for Standardization (ISO)
Definition: An international standard-setting body formed by representatives from national standards organizations.
Total Quality Management (TQM)
Definition: A continuous process aimed at reducing or eliminating errors in manufacturing and improving supply chain management, customer experience, and employee training. Developed by the Japanese.
Tailored Logistics
Definition: Companies employing various logistics approaches to target distinct customer groups.
High-Context Cultures
Characteristics: Emphasize relationships, often collectivist, intuitive, and contemplative; prioritize trust-building in business transactions.
Career Development Resources
Occupational Outlook Handbook
Definition: A publication by the United States Department of Labor's Bureau of Labor Statistics, covering job nature, conditions, training, education, earnings, and job outlook for numerous occupations in the U.S.
Personal Data Sheet
Definition: Document providing personal and logistical information, including contact details, prior residences, education, and community involvement.
Union Membership Trends
Observation: Union membership in the U.S. is in a steady decline.
Comparison: Lower than most developed countries.
Feature in Europe: Strong ties between unions and political entities.
Legal Issues in International Trade
International Law
Basis: Derived from Western civilization; includes contracts and other legal frameworks.
Essential Components of a Valid Contract
Offer and Acceptance: Lawful offer by one party and lawful acceptance by another are required.
Intention to Create Legal Relationship: Parties must intend to form a legal relationship; social agreements are not covered.
Lawful Consideration: A valid contract must involve lawful consideration.
Capacity of Parties: Parties must have the legal capacity to contract; otherwise, the contract is void.
Types of Law
Civil Law: Based on a comprehensive legal code, often updated and includes specifics (e.g., Roman law).
Statutory Law: Written laws established by the legislature, distinct from common law.
Common Law: Based on historical cases and precedents instead of a written code.
Theocratic Law: System based on religious teachings; Islamic law is prevalent among Islamic nations.
Contractual Terms in U.S. Courts
Ambiguity: Handwritten terms take precedence over typewritten or printed terms in a contract.
Copyrights and Employee Forbearance
Copyright Protection: Covers works of authors, composers, artists, extending beyond their lifetime plus 50 years.
Forbearance: Agreement to refrain from exercising a legal right.
Regulatory Agencies and Legal Standards
Federal Trade Commission (FTC): Enforces consumer protection laws, utilizing industry guides and trade regulations.
Business Contracts Defined
Components:
Parties: Entities involved in the agreement.
Consideration: Benefits each party receives.
Terms and Conditions: Rights and obligations of each party.
Duties: Specific responsibilities each party must fulfill.
Rights: Legal entitlements of each party.
Dates/Deadlines: Important dates associated with the contract.
Payment Terms: Amount and method of payment outlined.
Confidentiality: Agreement not to disclose sensitive information.
Competent Parties: Validity may be questioned if parties lack competency to contract.
Legal Purpose: Contract must serve a legal purpose to remain valid.
Infant Industry
Definition: A new industry in a developing nation needing protection to grow.
Dispute Resolution Methods
Arbitration: Use of an arbitrator to settle disputes.
Mediation: Attempt to resolve disputes peacefully between parties.
Legal Risks
Litigation Risk: Exposure to potential legal action due to actions of individuals or companies.
Monitoring Regulations
Foreign Corrupt Practices Act: Prevents bribing foreign officials.
Federal Trade Commission Act: Prohibits misleading advertising.
Flammable Fabrics Act: Sets safety standards for highly flammable clothing; all U.S. imports must comply.
International Court of Justice
Role: The primary judicial branch of the U.N., resolving disputes between nations.
Business Communication Defined
Definition: The exchange of information within an enterprise aimed at achieving commercial benefits.
Communication Process Components
Key Elements:
Sender
Ideas
Encoding
Communication Channel
Receiver
Decoding
Feedback
Ethnocentrism in International Business
Definition: The belief that one's culture is superior, which can create communication barriers in business dealings across cultures.
Communication Barriers
Types: Language differences, environmental context, technological access, social organizations, and authority conceptions.
Office/Workplace Communication Types
Memos: Short, internal communications with a clear purpose.
Reports: In-depth analysis of issues or problems.
Global Information System (GIS): A system developed for global context communication.
International Marketing Definitions
Export Management Company
Role: Export specialists acting as a marketing department for clients.
Export Trading Company
Role: Provides support services like warehousing and shipping for exporters.
Internalization Theory
Concept: Focuses on imperfections in the market that necessitate foreign direct investment.
Experience Curve
Definition: Cost reductions that occur systematically over the life of a product due to increased efficiency.
Experience Curve Pricing
Definition: Aggressive pricing to increase volume, leading to cost efficiencies.
Multipoint Pricing
Definition: Pricing strategies in one market affect rival pricing in others.
Predatory Pricing
Definition: Pricing below fair market value to eliminate competition.
Cross-Cultural Literacy in Business
Concept: Understanding how a country's culture influences business practices.
Pricing Strategies
Geographical Pricing
Definition: Price adjustments based on customer location for product delivery.
Captive Product Pricing
Strategy: Low pricing on a primary product, offset by high prices on necessary supplies.
Test Market
Definition: A group or location used to assess the market viability of a product/service.
Market Research
Definition: The process of collecting consumer data regarding needs and preferences.
Product Planning
Definitions:
Product Mix: All different items a company makes.
Product Line: A group of related products.
Product Item: A specific variant within a product line.
Trade Terms
FOB (Free on Board): Seller's obligation to deliver goods on board a vessel designated by the buyer.
CIF (Cost, Insurance, Freight): Seller arranges transportation, insurance, and documentation for the buyer.
Marketing Strategies
Pull Strategy
Definition: Emphasizes mass media advertising.
Push Strategy
Definition: Focuses on personal selling and direct engagement.
Context: Used by new businesses to gain product exposure.
Global Business Strategies
International Strategy: Focus mainly on home market with some involvement abroad.
Global Strategy: Treats the world as a single market.
Multinational Strategy: Tailors strategies to fit different international markets.
Transnational Strategy: Combines aspects from both global and multinational strategies.
Taxes and Government Regulations
Ad Valorem Tariff (VAT)
Definition: Tax measured as a percentage of the value of imported goods.
Deferral Principle
Definition: Parent companies are taxed on foreign subsidiary income only when dividends are received.
Antidumping Regulations
Definition: Laws to prevent selling goods below fair market value.
Trade Policies
Competition Policy: Aims to encourage fair competition and mitigate monopolistic practices.
Deregulation: Removal of limitations on business operations.
Excise Tax: Tax applied to specific goods.
Hypothecated Tax: Tax on specific goods used to fund specific purposes.
Marginal Tax Rates
Definition: The percentage taken from income above a predefined threshold.
Trade Barriers
Types: Formal barriers (government-imposed) and informal barriers (cultural).
Trade Quotas and Tariffs
Quota: Limits on quantities of goods imported or exported to protect domestic industries.
Tariff: A tax imposed on imported goods to protect domestic production.
Embargo
Definition: Complete prohibition on the import or export of specific goods as a governmental disapproval.
Treaties and Trade Agreements
World Trade Organization (WTO)
Role: Supervises international trade agreements and policies; EU represents as a bloc.
Export-Import Bank (Eximbank)
Purpose: Facilitates and finances international trade for U.S. businesses.
North American Free Trade Agreement (NAFTA)
Description: Free trade agreement between the U.S., Canada, and Mexico, signed under Clinton.
Trans-Pacific Partnership (TPP)
Definition: Proposed trade agreement involving the U.S. and several Asian countries.
Andean Pact
Definition: Agreement towards forming a customs union among Bolivia, Chile, Ecuador, Colombia, and Peru.
European Union (EU)
Definition: Functions as a single market among member nations.
European Free Trade Association (EFTA)
Members: Includes Norway, Iceland, and Switzerland; not part of the EU.
General Agreement on Tariffs and Trade (GATT)
Purpose: An international treaty aimed at reducing trade barriers leading to the formation of the WTO.
Maastricht Treaty
Significance: Committed EU member countries to deeper economic and political union.
MERCOSUR
Purpose: A trade agreement among Argentina, Brazil, Paraguay, and Uruguay to form a free trade area.
Organization for Economic Cooperation and Development (OECD)
Function: A platform for wealthy nations to discuss and solve shared economic challenges.
Currency Exchange Concepts
Currency Future
Definition: A contract to exchange currencies at a specified date in the future.
Spot Rate
Definition: The exchange rate for immediate transactions of currencies.
Forward Rate
Definition: The exchange rate determined for future transactions.
Purchasing Power Parity (PPP)
Concept: Adjustments in exchange rates based on price level differences among nations.
Fisher Effect
Explanation: The relationship between nominal interest rates and real interest rates, factoring inflation.
Exchange Risk Strategies
Avoidance: Avoiding foreign currency transactions.
Adaptation: Altering business operations to manage risks.
Transfer: Shifting risk to third parties.
Diversification
Strategy: Spreading assets across various currencies to mitigate risk.
Currency Definitions
Floating Rate Currency: Determined by supply and demand.
Fixed Rate Currency: Set by a central authority.
Convertible Currency: Can be traded freely without restrictions.
Non-convertible Currency: Not openly traded due to governmental constraints.
Currency and Foreign Exchange Market Definitions
Foreign Exchange Market: Comprises banks engaging in currency trades.
Currency Crisis: A sudden decrease in the value of a currency due to speculative attacks.
Currency Swap: Involves simultaneous buying and selling of foreign exchange for different value dates.
Currency Translation: The process of converting foreign subsidiary financial statements into the home country currency.
Eurobonds: Bonds issued in a currency other than that of their domestication.
Eurocurrency: Currency deposited in banks outside its country of origin.
Eurodollars: U.S. dollars held in banks outside the U.S.
Exchange Rates
Exchange Rate Mechanism (ERM): Aligning EU country currencies against each other.
Floating Exchange Rates: Continuously adjusted exchange rates based on demand-supply forces.
Fixed Exchange Rates: Tying a country's currency value to another's or to gold, maintaining stability within narrow bands.
Risks in Foreign Exchange
Economic Exposure: Risks affecting a firm's future earning power from exchange rate volatility.
Foreign Exchange Risk: The risk of diminished profitability due to currency value changes.
Foreign Exchange Exposure: The risk of future changes in currency rates affecting the firm.
Translation Methods
Temporal Method: Using historical exchange rates for asset translation purposes.
Currency Classifications
Soft Currency: Fluctuates, often due to political/economic issues.
Hard Currency: Widely accepted and stable, often from developed nations.
Hedging and Financial Techniques
Hedging: Contracts designed to protect against currency fluctuations.
Factors Affecting FOREX Rates:
Inflation differences.
Interest rate variations.
Current account deficits.
Public debt levels.
Terms of trade agreements.
Economic performance predictions.
Company Types
Importers & Exporters: Companies operating without foreign investments.
Multinational Companies: Firms investing abroad and localizing products.
Global Companies: Firms with universal marketing strategies across borders.
Transnational Companies: Empower local branches while maintaining global strategies.
Debt vs. Equity Financing
Debt Financing: Borrowing with a commitment to repayment; typically involves loans.
Equity Financing: Providing ownership stakes for cash, sharing risk with investors.
Trade Finance Relationships
Process: Importers supply Letters of Credit as guarantees for payments in transactions with exporters.
Export Credit Agencies: Provide financing and insurance for international exports.
Trade Credit: Credit extended by suppliers allowing importers to delay payment.
Credit Insurance: Provides protection against nonpayment risks for exporters.
Political Risk Insurance: Protects against losses due to political events.
Investments and Bonds
Foreign Bond: A bond of a foreign company sold within the domestic market.
American Depository Receipt (ADR): Represents shares from non-U.S. companies, traded in the U.S.
Global Depository Receipt (GDR): Represents foreign companies globally.
Countertrade and Noncash Transactions
Countertrade: Trading goods for goods, akin to barter at the international level.
Noncash Transactions: Transactions that impact equity or long-term assets without altering cash flows.
Global Financial Institutions
International Monetary Fund (IMF): Established in 1944 to promote international monetary cooperation.
World Bank: Provides loans for economic development in poorer countries.
Important Trade and Shipping Documents
Certificate of Origin: Indicates the origin of goods, essential for customs clearance.
Bill of Lading: Document held by the shipper outlining shipment specifics and ownership transfer.
Commercial Invoice: Required for customs assessment, detailing the shipment’s value.
Letter of Credit: Bank document ensuring payment to exporters upon meeting conditions.
Fronting a Loan: Intra-company loan facilitated through international banks.
Financial Concepts in Business
Foreign Exchange Risk (FX Risk): Involves transactions in currencies differing from the base currency.
Financial Structure: The blend of debt and equity used to fund business operations.
Financial Accounting Standards Board (FASB): Organization setting U.S. accounting principles.
Foreign Portfolio Investment: Investitions in foreign financial assets by individuals or entities.
Fronting Loans: Loans routed through intermediaries between parent companies and foreign subsidiaries.
Hedge Fund: Investment funds engaging in aggressive strategies across various financial assets.
Accounting Techniques
Current Cost Accounting: Adjusts financial statements for inflation effects.
Current Rate Method: Utilizes balance sheet date exchange rates for financial translations.
International Business Management
Multinational Corporation (MNC): Operates in several countries with diverse management structures.
Ethnocentric Attitude: Believing in the superiority of one’s culture; can affect international operations and relations.
Staffing Policies:
Ethnocentric Staffing: Home country nationals fill top positions.
Polycentric Staffing: Local managers are utilized in host countries.
Geocentric Staffing: The best individuals are selected for roles regardless of nationality.
Contingency Approach: Proposes that management must be tailored to specific organizational circumstances, promoting flexibility.
Business Ethics and Social Responsibility
Business Ethics: The examination of proper business practices concerning controversial issues including insider trading, discrimination, and corporate governance.
Social Responsibility: Obligations toward stakeholders and society, influencing decision-making processes.
Core Principles of Ethical Business:
Integrity: Adherence to laws and fair dealings.
Respect: Valuing employees, customers, and community dynamics.
Loyalty: Building mutually beneficial relationships among stakeholders.
Consequences of Unethical Practices
Employee Performance: Poor ethics can result in decreased motivation and adherence to protocols.
Employee Relations: Managers lacking ethics may lose employee respect.
Company Credibility: Breaches of ethical standards can damage a company's reputation.
Strategies to Prevent Unethical Practices
Realistic Goal Setting: Setting achievable objectives to reduce unethical shortcuts.
Performance Monitoring: Continuous evaluation of employee output can mitigate misconduct.
Training: Proper employee training to uphold ethical standards and practices.
Currency Usage Around the World
Common Currency Uses:
Countries Using Dollar: Australia, Canada, USA, and several others.
Countries Using US Dollar: East Timor, Ecuador, El Salvador, and others.
Various International Currencies: Include yuan (China), shekel (Israel), ruble (Russia), and many more.