International Business 3
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Complete list of Terms and Definitions for International Business 3

Terms Definitions
MNE Multinational enterprise any business that has productive activities in 2 + countries.
FDI Foreign Direct Investment occurs when a firm invests resources in business activities outside its home country.
interbank transaction foreign-exchange transactions that take place between commercial banks
The Financial Accounting Standards Board sets accounting standards in the United States.(T/F) True
What is dependency? a. Input control b. Market control c. Position control d. Staged contributions
Managment Contract Contract to provide managerial services to existing facilities. It is appropriate when the facility is acquired under a turnkey operation, local managment sucks, or the facility is confiscated from another company.
outsourcing where one company contracts with another company to perform certain functions, including manufacturing and back office operations. may be done in or close to the company's home country (nearshoring) or in another country (offshoring)
What are the advantages/disadvantages of a Fixed exchange system? Advantage:StableDisadvantage:1.Serious burden to maintain fixed rates-to maintain a fixed rate, there is a need to create additional demand (country must buy its own currency) and pay in foreign currency2.Chaos if country runs out of foreign currency3.Shortage of international money (While world trade increased, the gold and money supply were limited)4.Mistrust of Dollar (US Balance of payment deficit increased)5.Gold convertability was suspended in 1971
common law based on tradition, judge-made precedent and usage and it assigns a preeminent position to existing case law as a guide to dispute resolution; courts interpret the law ---UK and former British Colonies
dumping the underpricing of exports, usually below cost or below the home-country price
Managed Float country's currency is nominally allowed to float freely against other currencies.
The functional division structure is popular among companies with a broad range of products.(T/F) False
_____% of Fortune 1000 companies outsource logistics and distribution. 27%
Mercantilism occurred with the shift from ____ economies to exchange economies. barter
Eclectic Paradigm Theory that combining localtion specific assets or resource endowmenrs and the firms own unique assets often requires FDI.
Nondurable Josh ate a hamburger yesterday which is an example of which type of good:
Command economy Economics system in which the government owns resources and dictates what is produced
Barter the direct exchange of goods and/or services between two parties without a cash transaction. It is the simplest form, but most restrictive from of countertrade. It is trading with partners who are not credit worthy or trust worthy.
divisional structure an organization that contains separate divisions based around individual product lines or based on the geographic areas of the markets served
2. Limitations of Licensing ¡Internalization theory (also known as market imperfections) suggests that licensing has three major drawbacks 1.it may result in a firm’s giving away valuable technological know-how to a potential foreign competitor 2.it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability 3.It may be difficult if the firm’s competitive advantage is not amendable to licensing
Transitional Strategy - solution to standardization vs. localization- attempt of an MNE to be cost efficient and locally responsive. Hard to implement.
Licensing vs. Franchising Different: In franchising the franchisor has more control over the franchisee and assists in continual operation of the business to keep the business running.Similar: In both forms of licensing and franchising the licensee or franchisee pay royalties for the use of trademarks, patents, or copyrights.Different: Franchisors may provide supplies, management services, or technology, whereas in licensing this is not provided.
embargo a specific type of quota that prohibits all trade
Licensing rights to intangible property for a specific period.
_____ is the oldest form of countertrade in which goods or services are traded for goods or services of equal value without any flow of cash. Barter
Since 1998, the number of attacks against U.S. facilities and attacks in which U.S. citizens suffered causalities has increased each year. (T/F) True
formalized the system of floating exchange rates as the new international monetary system jamaica agreement
the downfall of mercantilism was started by the ______ _______. industrial revolution
What is individualism? Individualists: people achieve alone and assume personal responsibility
Social Democrats Those who believed in achieving socialism through democratic means
Economic resources Means from which goods and services are produced
Objective Pricing Consists of three phases: Market Holding, Market Skimming, and Market Penetration. Market Holding: This is used for a stable market, for pricing you just use the "cost plus" system. You want to maintain your market share. Market Skimming: Your in a monopolistic position. Here you can charge the maximum price for your product. Market Penetration: You want to enter the market and you charge only your variable cost (marginal cost pricing)
Eurocurrency any currency that is banked outside of its country of origin
Customs Union A group of countries committed to eliminating trade barriers and adopting a common external trade policy.
Political Economy of FDI Different views/ideologies of dealing with Foreign direct investment
Limitations of Exporting ¡The viability of an exporting strategy can be constrained by transportation costs and trade barriers ¡When transportation costs are high, exporting can be unprofitable ¡Foreign direct investment may be a response to actual or threatened trade barriers such as import tariffs or quotas
economic exposure Also known as operating exposure, is the potential for change in expected cash flows because of differences and changes in exchange rates. (752
transit tariff taxes collected by a country through which the goods have passed
sight draft a commercial bill of exchange that requires payment to be made as soon as it is presented to the party obligated to pay
terms currency exchange rates are quoted as the number of units of the terms currency per base currency
currency swap the exchange of principal and interest payments
Fixed Exchange Rate exchange rate for converting one currency into another is set at a constant rate.
Counter-trade trade of goods and services for other goods/services.
Each country has a different mix of available workers and a different mix of labor costs. (T/F) True
The first step in choosing a new location is to scan for alternatives based on broad variables that indicate opportunities and risks.(T/F) True
If a U.S. company looking to expand internationally for the first time perceived similar market size, political and economic risk and opportunity in the following countries, which country would they be most likely to prefer? Canada
put? - holder has right, but not obligation to sell at strike price
theory that a nation has absolute advantage when it can product a larger amount of a good or service for the same amount of inputs as can another country or when it can produce the same amount of a good or service using fewer inputs than could another cou absolute advantage
What are ethical corollaries? 1. Use collaborative problem-solving approaches when possible. 2. Negotiation and compromise may be considered second in preference. 3. Avoiding, forcing, and accommodation are usually only short-term or low-power solutions. 4. Education is a long-term strategy that often accompanies other shorter-term strategies like forcing, accommodation or negotiation.
Fisher effect Theory that nominal interest rates in 4ach country equal the required real rate of interest & expected rate of inflation.
Private property Right to purchase, use, and discard of things of value
Transaction exposure the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values
tax-haven country countries with low income taxes or no taxes on foreign source income
European Union (EU) The regtional economical union of most European countries, formed as a result of the 2 world wars and the European nations' desire to hold their own in the world's political and economic stage.
gross fixed capital formation summarizes (the total amount of capital invested in factories, stores, office buildings, and the like
international division - typically set up when firms initially expand abroad, often engaging in a home replication strategy
Forward discount (p. 345) The difference between the spot (present rate) and forward (projected future rate) exchange rates in the forward market; a foreign currency sells at a forward discount when the forward rate for a foreign currency is less than the spot rate and when the domestic currency is quoted on a direct basis.Spot > Forward -> a foreign currency strengthens / appreciates / revaluates (it takes less foreign currency to buy local currency)
industry structure the makeup of an industry: its number of sellers and their size distribution, the nature of the product, and the extent of barriers to entry
Export Management Company Export specialists that act as an export marketing or international department for their client firms.
One of the major causes of the Asian financial crisis in 1997 was that Asian companies relied too much on equity to fund their growth.(T/F) False
Which of the following statements regarding control mechanisms is accurate? When evaluating management performance it is best to compare actual results to a budget that has been agreed upon by headquarters and subsidiary managers.
what is OECD's purpose? purpose: to gather information about the activities of various countries and regions so that senor goverments can make decisions extra: collect data, monitor trends, forcast developments, research
group of government leaders from industrialized nations that meets regularly to discusss issues of concern group of eight G8
Global corporation characteristics? Focus is at home Knowledge created at home Historically, product is produced at home Export to subsidiaries that just sell products from HQ Efficiency, mass production, global product
Describe Schwartz’s culture framework. (10 values, 4 grouped domains) 1. Openness to change a. Hedonism b. Stimulation c. Self-direction 2. Conservation a. Conformity b. Security c. Tradition 3. Self-enhancement a. Power b. Achievement 4. Self-transcendence a. Universalism b. Benevolence
PPP theory predicts that changes in relative prices will result in change in exchange rates
Translation Risk This is the Risk that foreign held assets liabilities will change in value from one to the next, as a resut of fluctuation in the exchange rate. Translation risk is usually not a problem for any such lossesgains are realised i.e paper gainslosses
Effects of purchasing power parity comparing prices of identical products in different currencies; it would be possible to determine the “real” or PPP exchange rate that would exist if markets were efficient
What is Socio-cultural-economic environment? (aka Globilization) Think of his example of Princess Dianas death, and the many products and nations involved.
flow of FDI refers to the amount of FDI undertaken over a given time period 
civil law based on a very detailed set of laws that are organized into a code. often charge political officials, not judges, responsibility for specifying accessible and written codes of law that apply to all citizens. judges apply existing legal and procedural codes to resolve disputes--- Germany France and Japan
export management company (EMC) a company that buys merchandise from manufacturers for international distribution or sometimes acts as an agent for manufacturers
Time Draft allows for a delay in payment to set future day
According to IRS guidelines, for a company to quality as an FSC it must maintain a foreign office
Name 7 exposures to foreign exchange risk. -sales and inventory -capital equipment -supplies and services -debt/lease costs -payroll-payments to shareholders -transfer payments
identical item must have an identical price in all countries when expressed in a common currency law of one price
What is sequential? 1. One activity at a time 2. Keep appointments strictly 3. Preference for following plans as they are laid out and not deviating from them
Differences between US and Japanese business styles Japanese: Longer term of employment, more loyalty to a company, use collective decision making, personal lives are concerns to managers, do not want specilization (want general knowledge). American: opposite of everything the japanese do.
Central American Common Market A trade pact among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collaped in 1969 due to war.
What is the gold Standard system? A foreign exchange system in which:a.the exchange rate is pegged to a certain amount of goldb.Gold convertability is maintained (There is a strict linkage between money and gold)
Green-field operation – (equity mode- wholly owned subsidiaries) - wholly owned subsidiary created by building new factories and offices from scratch
import (or export) license a method of government control of the exchange rate whereby all recipients, exporters, and others who receive foreign exchange are required to sell to the central bank at the official buying rate
Describe the National income argument used for import restrictions. Increase national income by minimizing imports (from the economist John Maynard Keynes)Y=Demand=Consumption+Investment+gov't spending+(Net Exports-Net imports)Problems:1.Often makes both parties worse off since both can't reduce imports and increase exports
What are the advantages of forward contracts? -protection from adverse currency moves - no transaction costs -simple to minotr and simple to unwind - sell to someone else via currency swap
security alliance of 26 north american and european nations north atlantic treaty organization NATO
What is convenient relativism? Convenient Relativism – is a term to critique ethical relativism, made up by ethical absolutists. Some accept unfair/inappropriate practices because it is advantageous
Civil Law System system of law based on a derailed set of written laws and codes
List the importance of each of the three factors of Globalization 1) Technological development has yielded the "death of distance", as well as time and space compression by new technology, and example of such being satellites and the jumbojet.2) Institutional arrangment: having international committees has forwarded globalization, such as the WTO, IMF, and the OECD3) Deregulation/Liberization by governments themselves has also spurred on globalization.
Pragmatic Political Economy of FDI View FDI as an instrument to develop economyWish to control FDI so Benefits>Costs
High risk of collusion in industries with Few Firms, Industry Price leader, homogeneous products, high entry barriers, high market commonality.
What are the goals of the Free Trade Agreement with Canada? 1.Expand market opportunities2.Widen choices3.Improve efficiency4.Horizontal integration
give an example of WTO dispute settlement? Canadian santions against Brazil to improve competition of bombardier
What are some characteristics (e.g., theoretical vs. empirical) and strengths/weaknesses of these different frameworks (especially Hofstede)? Hofstede: items used to measure values lack face validity and capitalize on chance, research is based on responses from IBM only, dimensions are based on data collected in the past, framework was data-driven, empirical (lots of data)—not theoretical The Kluckholn and Strodtbeck model is based on the belief that that it is possible to distinguish cultures based on how they each addressed five common human concerns. It is based upon a ranking of CORE VALUES. The basic survey method consists of a survey with 16 situations and corresponding questions.
What are the two ways of implementing the rule of Transfer: 1) Arbittrage: where you buy/sell from/to different places. This tactic must be carried out quickly, because time is of the essence 2) Speculation: "buy now low, sell later at a high price".
What are the advantages of supporting a global brand vs. launching local brands in international markets? Provide examples to support your answer. Global brands are standardized and can become well-known all over the world by being seen repeatedly in different parts of the world. Therefore, recognition of the brand will be higher with global brands. However, global brands can sometimes be unsuitable for certain locations in the world where that particular culture does not understand or accept the brand. This is a specific problem with language in branding. An example of this would be using the number 4 in a brand (from class), when in Asia the number 4 is synonymous with death. Using the number 4 would create a social conflict around your brand in Asia. Adopting local brands for each country uniquely, however, will create the ability to customize the brand to each countries unique cultural characteristics and language.
What are some differences between the USA and EU 27? USA= 303 million, 18.1% arable land, about twice the land size of EU 27.. EU 27= 491 million, 22.1% arable land, about 50% the land size of the USA
Are we living in a transitory period today? Yes, because there is no political system for world peace without another super power.
What are some of the impacts, if any, of globalization on MNCs? 1) Globalization is the process of losing soverighnty of the nation state to the MNCs (note: Canada). the power of the MNCs override a countrys ability to control their own economy.2) The size of economic activities increase with globalization (500 MNCs control 70% of trade, 200 MNCs produce more than 1/3rd of the worlds output).3) It also creates a "borderless market" where national boundries become meaningless4) Globalization developed the use of strategic alliances (look at Daemlyr-Crystler) which formed stateless corporations where the nationality of firms/products become obscure.
11. In the first exam, you selected 3 currencies as good potential investmnts. Again, identify these currencies and their exchange rates vs. the dollar (week of 3/02/09 vs. week of 1/05/09). Choose one from these 3 currencies. Did the currency appreciate Current 1/05/09 Russian Rouble- 35.9 29.42 Indian Rupee - 51.8 49.65 Brazilian Real - 2.39 2.34 I think that you could select any of these currencies and explain the depreciation in the same way. The United States economy encountered, and began to deal with, the severe economic downturn. Additionally, these countries are producing countries, and relying on the consuming countries of the world to drive their economies, so as the United States fell further and further into trouble, these economies were bound to follow.