International Business Flashcards
(51 cards)
1
Q
Definition of International Business?
A
- International Business refers to the performance of trade and investment activities by firms across national borders.
- the exchange of products and services across national borders.
- it includes activities such as goods, services, knowledge, technology, skills, investment, etc.
2
Q
Dimensions/Elements of International Business
A
- Globalisation of markets
- foreign market entry strategies
- participants; firms, intermediaries, govt
- Intnl investment
- intnl trade
- intnl biz risks
3
Q
Four risks of international Business
A
- cross cultural risk
- country risk
- currency risk
- commercial risk
4
Q
Four risks of international Business: CROSS CULTURAL RISK
A
- Cultural differences
risk arising from differences in language, lifestyle, attitudes, customs, and religion, where a cultural miscommunication jeopardises a culturally valued mindset or behaviour. - Negotiation Patterns:
negotiations are required in many types of business transactions - Decision making styles
managers make decisions continually on the operations and future direction of the firm.
e.g japs tend to take a lot of time whereas canadians tend to be decisive ‘shoot from the hip’ - Ethical Practices
standards of right and wrong vary considerably around the world. e.g. attitudes to bribery
5
Q
Four risks of international Business: COUNTRY RISK
A
- govt intervention, protectionism, and barriers to trade and investment
- lack of legal safeguards for property rights
- social and political instability
- economic failures
6
Q
Four risks of international Business: CURRENCY RISK
A
- Currency exposure
general risk of unfavourable exchange rate fluctuations - Asset Valuation
risk that exchange rate fluctuations will adversely affect the value of the liabilities - foreign taxation
income, sales, and other taxes vary widely worldwide with implications to performance and profitability - Inflation
high inflation , common to many countries, complicates business planning and pricing
7
Q
Four risks of International Business: Commercial Risk
A
- Weak partner
- Operational problems timing of entry
- competitive intensity
- poor execution of strategy
8
Q
Why do firms participate in International Business?
A
- Seek opportunities for growth thru market diversification
- earn higher margins and profits
- gain new ideas about products and business methods
- serve key customers that have relocated abroad.
- be closer to supply sources, benefit from global sourcing advantages. Or gain flexibility in the sourcing of products.
- Gain access to lower cost or better value factors of production.
- Develop economies of scale in sourcing production, marketing and R&D .
- confront intnl competitors more effectively or thwart the growth of competition
- invest in a potentially rewarding relationship with a foreign partner.
9
Q
Drivers of globalisation?
A
- worldwide reduction of barriers to trade and investment
- market liberalisation and adoption of free markets
- industrialisation, economic level and modernisation
- integration of world financial markets
- advances in technology
10
Q
Dimensions of market Globalisation?
A
- integration and interdependence of national economies
- rise of regional economic integration blocs
- growth of global investment and financial flows.
- convergence of buyer lifestyles and preferences
- globalisation of production activities
- globalisation of services
11
Q
Firm level consequences of market globalisation
A
- countless new business opportunities for internationalising firms
- new risks and intense rivalry from foreign competitors
- more demanding buyers who source from suppliers worldwide
- greater emphasis on proactive internationalisation
- internationalisation of firms value chains
12
Q
Societal consequences of market spread globalisation
A
- contagion: rapid spread of financial or monetary crises
- loss of national sovereignity
- offshoring and flight of jobs
- effect on the poor
- effect on natural environment
- effect on national culture
13
Q
Drivers of market globalisation.
A
- worldwide reduction of barriers to trade and investment
- national govt have greatly reduced trade and investment barriers
- facilitated by WTO 150 members.
- market liberalisation and adoption of free markets
- industrialisation, econ. development and modernisation
- these trends transformed many developing economies from producers of low value goods, such as electronics and computers
- simultaneously rising living standards have made such
14
Q
glob: Advances in technology
A
- Reduces the cost of doing biz internationally, by allowing firms to interact cheaply with suppliers, distributors + customers.
facilitates internationalisation of firms.
15
Q
glob: integration of world financial markets
A
- enables firms to raise capital, borrow funds, and engage in foreign currency transactions wherever they go
- banks now provide a range of services that facilitate global transactions.
16
Q
glob: integration and interdependence of national economies
A
- results from firms’ collective intnl activities.
- govts contribute by lowering trade and investment barriers.
17
Q
glob: rise of regional economic integration blocs
A
- free trade areas are formed by 2 or more countries to reduce or eliminate barriers to trade and investment.
EU, NAFTA
18
Q
glob: growth of global investment. and financial flows
A
- associated with rapid growth in foreign direct investment (FDI), currency trading and global capital markets.
19
Q
glob: convergence of buyer lifestyles and preferences
A
- facilitated by global media, which emphasise lifestyles found in the us, eu or elsewhere
- firms market standardised products.
20
Q
glob: globalisation of production.
+ glob of services
A
- To cut costs, firms manufacture in low labour cost locations such as mexico and eastern europe.
+ - banking, hospitality, retailing and other services are rapidly internationalising.
21
Q
Company internationalisation of the value chain
A
Value chain: the sequence of value adding activities performed by the firm in the process of developing, producing, and marketing a product or a service.
- glob. allows the firms to internationalise its value chain, leading to various advantages.
- international firms configures their sourcing, manufacturing, marketing and other value adding activities on a global scale.
22
Q
rationale for internationalisation
A
- cost savings
- increases in efficiency, productivity, and flexibility of value chain activities.
- access customers, inputs, labour, or technology
- benefit from foreign partner capabilities.
23
Q
societal consequences of globalisation
A
- effect on the natural environment
glob. harms the environment by promoting industrialisation and other activities that generate pollution - effect on national culture
glob. opens the door to foreign firms, global brands, unfamiliar products and new values.
traditional norms and values homogenise. national identity may be lost to global identity.
24
Q
What is country risk?
A
- exposure to potential loss or adverse effects on company operations and profitability caused by developments in a countries political and or legal environments
25
sources of country risk?
```
POLITICAL
- govt
- political parties
- legislative bodies
- lobbying groups
- trade unions
LEGAL SYSTEM
- laws, regulations and rules that aim to
- ensure order in commercial activities
- resolve disputes
- protect intellectual property
- tax economic output
```
26
Define Political System
- A set of formal institutions that constitute a govt
- it includes legislative bodies, political parties, lobbying groups, and trade unions.
- the system also defines how these groups interact with each other.
27
3 major types of political systems:
- totalitarianism
- socialism
- democracy
28
Define legal system
- a system for interpreting and enforcing laws.
| - the laws, regulations and rules establish norms for conduct.
29
4 major types of legal systems
- common law
- civil law
- religious law
- mixed systems
30
Political systems: totalitarianism
- govt controls all economic political matters either theocratic or secular
- a state party is led by a dictator
- power is sustained via secret police and propaganda
- north korea, cuba, formerly china and ussr
31
Political systems: Socialism
- Capital is vested in the state and used primarily as a means of production for use rather than profit
- group welfare outweighs individual welfare
- govts role is to control the basic means of production, distribution and commercial activity.
32
Political Systems: Democracy
- economic freedom activity occurs freely, as per market forces
- limited government
govt only performs essential functions like national defense and maintaining law and order, etc.
- private property rights
the ability to own property and assets. and to inc. ones asset base by accumulating private wealth.
- encourages initiative, ambition and innovation.
33
Components of the three main Political and Economic Systems
- Totalitarianism
is associated with command economies, wherein the state makes all decisions on what to produce, how much to produce, and what prices to charge
- Democracy
associated with market economies and capitalism, decisions are left to market forces, that is supply and demand
- Socialism
is associated with mixed economies, which have features of both market and command economies, combining state intervention and market mechanisms.
34
Examples of countries under various political systems
```
Totalitarianism
- cuba
- north korea
- sudan
Socialism
- bolivia
- china
- egypt
Democratic
- Australia
- canada
- japan
```
35
Define Common Law
- a legal system that originated in england, spread to aus, US
- basis of law is tradition, past practices and legal precedents set by courts interpretation of statues, legislation and past rulings
- judges have much power to interpret laws based on the circumstances of individual cases.
36
Define Civil Law
- Found in france, germany, Japan and Italy
- Based on all inclusive system of laws that have been 'codified' clearly written by legislative bodies
- laws are more 'cast in stone'
37
Define Religious Law
- strongly influenced by religious beliefs, ethical codes, and moral values, viewed as mandated by a supreme being
- jewish and islamic law (examples)
- Islamic law spells out norms of behaviour, regarding politics, economics, banking, contracts, marriages and many other social and business issues.
38
Define mixed systems
- two or mre legal systems operating together
- the contrast between civil and common law has become blurred as countries combine both systems.
- totalitarianism is most associated with religious law and socialist law.
39
govt takeover of corp. assets: Define Confiscation
seizure of corporate assets without compensation
40
govt takeover of corp. assets: Define Expropriation
asset seizure with compensation
41
govt takeover of corp. assets: Define Nationalisation
takeover of an entire industry
42
Define embargo
- are bans on intnl trade, usually undertaken by a country or a group of countries against another judged to have jeopardised peace and security.
43
define embargoes
- are bans on exports or imports that forbid trade in specific goods with specific countries
44
Country risk produced by host legal country
- foreign investment laws
- controls on operatin forms and practices
- marketing and distribution laws
- laws regarding income repatriation
- environmental laws
- contract laws
- inadequate or underdeveloped legal systems
45
Different types of Laws
- Controls on operating forms and practices
control how firms can conduct production, marketing and distribution activities
- marketing and distribution laws
regulate practices in advertising, promotion and distribution
- laws on income and repatriation
limit the amount of net income or dividends that firms can bring back to host country
- environmental laws
aim to preserve natural resources, combat pollution, and ensure safety
- contract laws
affect the sale of goods and services; intermediary agreements: licensing and franchising
46
Country Risk arising from the home country
- Extraterritoriality
the application of home country laws to other countries
- Accounting and reporting laws
differ widely around the world
- Transparency in financial reporting
is the degree to which firms regularly reveal substantial financial and accounting info. this varies worldwide.
47
How firms can manage country risk
- Proactive environmental scanning:
management should develop a comprehensive understanding of the political and legal environment in target countries.
- scanning
ongoing assessment of potential risks and threats to the firm, via intelligence sources such as:
- employees working in the host country
- embassy and trade association officials
- Firms must also engage strict adherence to ethical standards as this otherwise would invite criticism from host country scrutiny.
48
Protection Through Legal Contracts: 3 approaches to solve contract disputes
- conciliation
- arbitration
- litigation
49
Contract Laws: Conciliation
- is a formal process of negotiation whose objective is to resolve differences in a friendly manner.
it is the least adversarial method. common in china
50
Contract Laws: arbitration
- a neutral third party hears both sides of a case and decides in favour of one party or the other.
- Based on an objective assessment of the facts.
51
Contract Laws: Litigation
- occurs when one party files a lawsuit against the other. the most adversarial approach, it is common in the US
