chapter 3 Flashcards
dont fail (22 cards)
what is an international business?
all business activities involving exchanges between national boundaries (countries).
what is the absolute and comparative advantage?
absolute: if it can produce more of a good or service with the same amount of resources, or if it can produce the same amount of a good or service with fewer resources.
comparative: if it can produce it at a lower opportunity cost than another country. Opportunity cost refers to the value of what you give up when you make a choice. A country has a comparative advantage if it can produce a good or service at a lower opportunity cost, even if it doesn’t have an absolute advantage.
what is exporting and importing?
exporting: the process of selling goods or services to another country.
importing: the process of buying goods or services from another country.
what is the balance of trade?
the difference between the value of a country’s exports and imports. If exports are higher, there’s a trade surplus; if imports are higher, there’s a trade deficit.
what is the balance of payments?
the total flow of money into a country minus the total flow of money out of that country over a period of time.
including: imports & exports, investments, money spent on foreign tourists, payments by foreign governments, aid to foreign governments, all other receipts & payments.
what is licensing? and what are some advantages and disadvantages?
a contract where one company allows another to produce and sell its product, and use its brand name, in exchange for a fee or royalty.
advantage: simple method for expanding into a foreign market with basically no investment.
disadvantage:
- if the licensee doesn’t meet the licensor’s product standards, it could harm the product’s image.
- a licensing agreement may not give the original producer any experience in foreign marketing.
what is an advantage and disadvantage of exporting?
advantage: relatively low risk method of entering foreign markets.
disadvantage: not a simple method.
- the exporting firm can sell its products directly to an export-import merchant, acting like a wholesaler.
- alternatively, it can send its products to an export-import agent, who arranges sales to foreign intermediaries for a commission.
- the exporting firm may also set up its own sales offices or branches in other countries.
what is a joint venture? and what are some advantages and disadvantages?
a partnership made to achieve a specific goal or to operate for a specific amount of time.
advantage: a joint venture with a well-established firm in a foreign country offers immediate market knowledge and access, lowers risk, and allows control over product features.
disadvantage:
- agreements across national borders can become really risky.
- agreements generally require a high level of commitment from all parties involved.
what are totally owned facilities? give an advantage and disadvantage.
refers to a business or organization that is completely owned and controlled by a single entity, with no external investors or partners.
advantage: total control and decision-making authority, allowing for swift and flexible management.
disadvantage: sole responsibility for all financial risks and liabilities, which can be a significant burden if the business encounters difficulties.
what two forms can direct investment take?
- the firm builds or buys manufacturing and other facilities in a foreign country to produce and market its own products there.
- ex: General Motors and Colgate-Palmolive have manufacturing facilities worldwide.
- a firm acquires an existing company in a foreign country that operates independently from the parent company.
- ex: Sony Corporation bought Columbia Pictures Entertainment in the U.S. instead of starting a new studio from scratch.
what are strategic alliances?
a partnership created to gain a competitive advantage globally.
- ex: New United Motor Manufacturing, Inc. (NUMMI), formed by Toyota and General Motors, combines Toyota’s engineering quality with General Motors’ marketing expertise and market access.
what are trading companies?
connects buyers and sellers in different countries.
- it doesn’t manufacture or own manufacturing assets; instead, it buys products in one country at the lowest quality-consistent price and sells them to buyers in another country.
- the trading company takes ownership of the products and handles all activities needed to transport them from the domestic country to a foreign country.
what is a countertrade?
an international barter transaction.
ex: Philip Morris’s sale of cigarettes to Russia in return for chemicals used to make fertilizers.
what are multinational firms?
a firm that operates globally without being connected to any particular country or region.
what are tariffs and what are two types?
- Import duty (tariff): A tax placed on a specific foreign product entering a country.
Two types of tariffs:
1. Revenue tariffs: Intended only to generate government income.
2. Protective tariffs: Imposed to protect a domestic industry from competition by ensuring that the price of imported products is the same as or higher than that of similar local products.
what is the definition of dumping?
exporting large quantities of a product at a price lower than its price in the home market.
what are non-tariff barriers? and what are some examples?
a government-imposed measure that favors domestic suppliers over foreign ones, without involving taxes.
examples:
- import quota: a limit on a the number of a particular good that may be imported into another country.
- embargo: a complete halt to trading with a nation or a particular product.
- foreign-exchange control: restricts the amount a particular foreign currency that can be purchased or sold.
- currency devaluation: the decrease in the value of a nation’s currency compared to the currencies of other countries.
what are cultural barriers?
can hinder the acceptance of products in foreign countries.
-ex: Illustrations of feet are considered disrespectful in Thailand, and black and white are associated with mourning in Japan, so they should not be used in packaging.
what are some reasons for and against trade restrictions.
Reasons for Trade Restrictions:
- to balance a nation’s payments.
- to support new or struggling industries.
- to ensure national security.
- to safeguard citizens’ health.
- to respond to trade restrictions from other countries.
- to protect domestic jobs.
Reasons Against Trade Restrictions:
- higher prices for consumers.
- limited choices for consumers.
- misallocation of international resources.
- potential job losses.
what is the General Agreement on Tariffs and Trade (GATT)?
an international organization aimed at reducing or eliminating tariffs and other barriers to global trade.
what is the World Trade Organization (WTO)?
a powerful successor to GATT that includes trade in goods, services, and ideas. It was established during the Uruguay Round of negotiations.
what is an economic community and what are som examples?
an economic community is an organization of nations formed to encourage the free movement of resources and products among its members and to establish common economic policies.
ex:
- The European Union (EU).
- The North American Free Trade Agreement (NAFTA).
- The Central Free Trade Agreement.
- The Association of Southeast Asian Nations (ASEAN).
- The Commonwealth of Independent States (CIS).
- The Trans-Pacific Partnership (TPP).
- The Common Market of the Southern Cone (Mercosur).
- The Organization of Petroleum Exporting Countries (OPEC).
