Competing In Global Markets - Chapter 3

Question 1

Free trade

Answer 1

Movement of goods/services among nations without political or economic barriers

Question 2

Comparative advantage theory

Answer 2

A country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products it can’t produce as effectively or efficiently

Question 3

Absolute advantage

Answer 3

Monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Question 4

2 Indicators of measuring effectiveness of global trade

Answer 4

1. Balance of trade
2. Balance of payments

Question 5

Balance of trade

Answer 5

Nation’s ratio of exports/imports

Question 6

Trade surplus / favourable balance of trade

Answer 6

Occurs when the value of the country’s exports exceeds that of its imports

Question 7

Trade deficit / unfavourable balance of trade

Answer 7

Occurs when the value of the country’s imports exceeds that of its exports

Question 8

Balance of payments

Answer 8

Difference between money coming into a country (from exports) and $ leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

Question 9

Licensing

Answer 9

Right to manufacture its product or use its trademark to a foreign company for a fee.

Question 10

The 2 ways Licensing agreement can benefit a firm

Answer 10

1. Firm can gain rev it would not otherwise have generated in its home market
2. Foreign licensees must often purchase start-up supplies, component materials, and consulting services from the licensing firm

Question 11

What problems might licensors experience?

Answer 11

Firms must grant licensing rights to its product for an extended period, 20 yrs +. If product experiences remarkable growth in foreign market, bulk of revenues goes to the license.

Question 12

Franchising

Answer 12

contractual agreement whereby someone w a good idea for a business sells the rights to use the business name and sell a product/service in a given territory in a specified manner

Question 13

Contract manufacturing

Answer 13

enables a company to experiment in a new market without incurring heavy start up costs such as building a manufacturing plant.

Question 14

Strategic alliances

Answer 14

Don’t share costs, risks, management, or even profits unlike joint ventures

Alliances provide broad access to markets, capital, and technical expertise

Question 15

Foreign direct investment (FDI)

Answer 15

Buying permanent property and businesses in foreign nations

Question 16

Foreign subsidiary

Answer 16

Company owned in a foreign country by another company (parent company).

Question 17

Multinational corporation

Answer 17

One that manufactures and markets products in many diff countries and has multinational stock ownership and management

typically extremely large corporations like Nestle, but not all large global businesses are multinationals

Question 18

Culture

Answer 18

The set of values, beliefs, rules and institutions held by a specific group of ppl.

Question 19

Ethnocentricity

Answer 19

An attitude that one’s own culture is superior to all others

Question 20

Exchange rate

Answer 20

The value of one nation’s currency relative to the currencies of other countries

Question 21

High value of the dollar

Answer 21

dollar would be traded for more foreign currency than normal

Question 22

Low value of the dollar

Answer 22

dollar is traded for less foreign currency than normal

Question 23

Devaluation

Answer 23

Lowering the value of a nation’s currency relative to other currencies

Question 24

Countertrading

Answer 24

Complex form of bartering in which several countries may be involved, each trading goods for goods or services for services

Question 25

Trade protectionism

Answer 25

Use of gov regulations to limit the import of goods and services

Question 26

Dumping

Answer 26

Selling products in a foreign country at lower prices than those charged in the producing country

Question 27

Tariffs

Answer 27

Taxes on imports ; imported goods r more expensive to buy

Question 28

Import quota

Answer 28

Limits the number of products in certain categories that a nation can import

Question 29

Embargo

Answer 29

Complete ban on the import or export of a certain product or the stopping of all trade w a particular country

Question 30

General Agreement on Tariffs and Trade (GATT)

Answer 30

Global forum for reducing trade restrictions on goods, services, ideas, and cultural programs

Question 31

What is GATT short for?

Answer 31

General Agreement on Tariffs and Trade

Question 32

What is WTO short for?

Answer 32

World Trade Organization

Question 33

WTO

Answer 33

independent entity of 164 member nations, and its purpose is to oversee cross-border trade issues and global business practices among those nations

Question 34

What is IMF short for?

Answer 34

International Monetary Fund

Question 35

IMF

Answer 35

international bank supported by its members that usually makes short term loans to countries experiencing problems w their balance of trade

Question 36

World Bank

Answer 36

Concerned w developing infrastructure in less-developed countries

Question 37

Producers’ cartels

Answer 37

Organizations of commodity-producing countries
Formed to stabilize or increase prices, in order to optimize profits over the long term

Question 38

Common market / trading bloc

Answer 38

Regional group of countries that have a common external tariff, no internal tariffs, and the coordination of laws to facilitate exchange among member countries.

Question 39

Export-trading companies / export-management companies

Answer 39

For firms that are hesitant on exporting, they can do indirect exports through specialists called export-trading companies that assist in negotiating and establishing trading relationships.

Question 40

What does a contract manufacturing enable?

Answer 40

Enables a company to experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant

Question 41

Why are Crown corporations set up?

Answer 41

1. Provide service that are not provided by businesses
2. Bail out a major industry in trouble
3. Provide some special services that couldn’t otherwise be made available