international business midterm Flashcards

Terms Definitions
increase multilateral economic cooperation between nations bordering the Pacific Ocean.
horizontal constraints that follow from having specific employees only do specific jobs in specific units and the vertical constraints that separate employees into specific levels of the heirarchy.
Political Union
central political apparatus coordinating the economic, social and foreign policies.
The international division structure is probably best suited for global strategies.(T/F)
External forces: interest rates inflation rates and taxation
Economic philosophy advocating that countries should simultaneously encourage exports and discourage imports.
External Channel
Distribution channel that consists of: Import agents (exlusive or general), foreign distributors (foreign trade company/foreign export house), branch (unincorporated business unit), subsidiary (incorporated business unit under foreign law).
the course--physical path or legal title--that goods take between production and consumption
- Lending institutions provide tiny loans ($50-$300) to entrepreneurs in developing countries that would lift them out of poverty.
experience curve
the relationship of production-cost reductions to increases in output
Market Segmentation
identifying distinct groups of consumers whose purchasing behavior differs from others.
Translation Risk
risk associated with reporting consolidated results and balance sheets.
Importing is sending goods and services from one country to another and exporting is bringing goods and services into one country from another.(T/F)
A lag strategy means either collecting foreign-currency receiveables before they are due when the foreign currency is expected to weaken or paying foreign-currency payables before they are due when the foreign currency is expected to strengthen. (T/F)
When managers speak different native languages the use of e-mail will completely alleviate any communication difficulties.(T/F)
In industries in which technological changes are frequent and affect many products, companies in various countries often exchange technology rather then compete with each other on every product in every market through arrangements known as _____.
internal forces that management adminnisters to adapt to changes in the uncontrollable forces
internal forces(controllable
monetary policy directly affects interest rates and money supply. fiscal policy indirectly affects taxes and spending
money supply
Insuring 1's bus against froeign exchage risk by using forward exchanges or currency swaps.
Goods that are purchased to add comfort or pleasure to life
Host country manager, you save money by having a host country manager, thye have insider knowledge, they can help and relate with local employees.

disadvantages include them having a conflict of interest because they work for a foreign company. Language is an issue, ignorance of their host countries system, and it is difficult to move the manager somewhere else (to another country for instance).
mixed structure
a structure that integrates various aspects of the other forms of structures
zero defects
the elimination of defects, which results in the reduction of manufacturing costs and an increase in consumer satisfaction
Bringing in goods or services from another country
Drawbacks to alliances
Choosing wrong partners, Potential partner opportunism Risks of helping nurture competitors (also called learning race).
A specialized form of licensing in which one party (the franchisor) sells to an independent party (the franchisee) the use of a trademark that is an essential asset for the franchisee’s business and also gives continual assistance in the operation of the business.
oligopolistic reaction
the process in oligopoly industries for competitors to emulate each other, such as going to the same locations
Experience Curve Pricing
aggressive pricing designed to increase volume.
According to eMarketer in 2000 there were 352.2 million internet users worldwide and by 2004 they estimate there will be _____ million internet users worldwide.
A study of foreign subsidiaries of U.S. MNEs found that the debt/assets of those studied averaged _____.
A company can usually, but not always, gain all of the information its managers would like when making site selection decisions. (T/F)
An import broker is responsible for obtaining various government permissions and other clearances before forwarding necessary paperwork to the carrier that is to deliver the goods to the importer.(T/F)
____ principles: trade will be without discrimination, trade should be freer with trade barriers negotiated downward, trade should be predictable, trade should be more competitive, trade should be more beneficial for less developed countries, encouraging
What are pragmatic considerations?
Pragmatic considerations:
1. Short-term and long-term strategies can be different.
2. Only strategies that one has power to implement are feasible.
Customs Union
group of countries committed to eliminating tade barriers & adopting a common external trade policy
Political economy
political, economic, and legal sytems of a country are interdependent; they interact and influence each other.
Canada, USA, and Mexico make up this trade agreement.
Marketing Mix
Consists of four variables: a) Product Policy b)Pricing c)Distribution (Placement) d)Promotion
a reciprocal buying agreement. It is when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.
unity-of-command principal
holds that an unbroken chain of command and communication should flow from the senior executive to the worker on the factory floor
Neo conservatives
a political group that created the concept of pre-emptive defense.

1. Encouraging Inward FDI         

¡Governments offer incentives to foreign firms to invest in their countries
¡Incentives are motivated by a desire to gain from the resource-transfer and employment effects of FDI, and to capture FDI away from other potential host countries
equity-based alliances - strategic investment one partner invests in another (3 terms)
1.       cross-shareholding - both partners invest in each other 2.       Strategic Investment- one Firm invests in another as a strategic investor 3.       Joint Venture- A new corporate entity given birth and jointly owned by two or more parents companies.
compound duty
a tax placed on goods traded internationally, based on value plus units
core competency
those functions of value creation in which the firm is most competent
integration-responsiveness (IR) grid
the interaction of global integration and local responsiveness shown in a grid format
futures contract
an agreement between two parties to buy or sell a particular currency at a particular price on a particular future date, as specified in a standardized contract to all participants in that currency futures exchange
Core Competencies
skills within a firm that competitors cannot easily match or imitate.
What is a spot contract?
Spot contracts-agreement to deliver/take delivery of certain amount of foreign currency immediately*Spot Rate is the exchange rate for the contract*
A _____ sells products in foreign markets on a commission basis, without assuming risk or responsibility.
sales representative
The largest exporter in the world is the United States.(T/F)
_____ is a quality control system aimed at eliminating defects, slashing product cycle times and cutting costs across the board.
Six Sigma
people who are affected by a firms performance and who have claims on its performance
What is included under conservation?
i. Conformity--Restraint of actions, inclinations, and impulses likely to upset or harm others and violate social expectations or norms.
ii. Security-- Safety, harmony, and stability of society, of relationships, and of self
iii. Tradition--Respect, commitment and acceptance of the customs and ideas that traditional culture or religion provide the self
Common Law
System of law based on tradition, precedent, & custom
International Tax Managment
Consists of tax credits, and tax deferrals.

Tax credit: avoids double taxation. A US firms tax liablitiy is reduced by the amount they pay to a foreign government in income taxes.

Tax Deferral: Incourages foreign business activity (i.e US business to do business in foreign countries) because the collection of tax on foreign income is delayed until is sent back to the US.
Tax Deferral can only be used for income from a subsidiary not a branch of a company.

A tax deferral is only applied to a non controlled foreign subsidiary (meaning the U.S compnay is a minority shareholder) and it is also applied when a foreign subsidiary has active income (normal business income) and is a majority controlled subidiary.

A tax deferral is not applied when their is a controlled foreign subsidiary has passive income (abnormal income resulting from tax evasion).
Problem with IMF
its rescue efforts are showing a problem known to economists as moral hazard. This has caused moral hazard because the banks are being helped and don’t learn the reason how to not get back into debt.
controlled foreign corporation (CFC)
a foreign corporation of which more than 50% of the voting stock is owned by U.S. shareholders (taxable entities that own at least 10% of the voting stock of the corporation)
National Product
Is altered to be sold in other countries
multinational enterprise 
Once a firm undertakes FDI it becomes a 
Direct exporting
oods and services are sold to an independent party outside of the exporter’s home country, which then sells the product in the export market to the final consumer. Direct selling involves sales representatives, distributors, or retailers. Products can be also sold directly to the end users or through the Internet.Adventages: more exposure, more control, more profit; Disadvantages: more attention
World Trade Organization (WTO)
a voluntary organization through which groups of countries negotiate trading agreements and which has authority to oversee trade disputes among countries
letter of credit
a precise document by which the importer's bank extends credit to the importer and agrees to pay the exporter
Law of One Price
principle that in competitive markets free of transportation costs and barriers.
The degree to which a firm funds the growth of the business by debt is known as leverage.(T/F)
Even if a brand name has a trademark, it may become a generic name in some countries because it takes on the name of a product rather than a brand. (T/F)
What is the decision making process?(6)
diagnose problem, generate alternatives, evaluate alternatives, choose best alternative, implement decision, evaluate results
What are fully integrated business operations? (Reich)
a. For complex manufacturing businesses—ex: automobiles, electronics—only FIBOs build local skill base and infrastructure in such a way as to increase the standard of living.
b. “Insources” product design, manufacturing, process engineering, vendor management.
c. Raises quality, decreases labor hours, provide a high level of product variety, and rapidly incorporate new technology into products.
What is urgency?
any time constraints on the matter. The need for immediate action and can range from highly urgent to not at all urgent. Managers faced with a conflict situation tend to take the expedient (forcing or avoiding) even when they recognize that collaboration or problem solving might lead to more positive outcomes. IN short term, they often select more expedient strategies.
Theocratic Law System
system of law based on religious teachings
Managment Styles
Theory X: People are born to be lazy and you have to be authoratative (crack the whip)

Theory Y: People are self motivated and you can have democratic leadership.

Theory Z: Long term employment is better, collective decision making is better, individual decision making is better, evaluation over long periods of time is better, implicit control is better, and task specilizaiton is better.
foreign trade zones (FTZs)
a government designated area in which goods can be stored, inspected, or manufactured without being subject to formal customs procedures until they leave the zone
Factor Proportion Theory (Hecksher-Ohlin Theorem)
Question: What commodity is a country likely to have a comparative advantage?Answer: The Heckscher-Ohlin Theorem: A country will have a CA in the commodity for which they can use the more abundant factor more intensivelyExample: A labor abundant country will have a comparative advantage in labor intensive products
Free trade
a system in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions
Market spreading vs. market penetration
Two export market expansion strategic alternatives - how fast to expand internationally:Market Penetration – marketing to a relatively small number of export markets; characteristic: high penetration, high control, knowledge of market conditions, economies of scale, economies of information, steep learning curve, short product life cycleMarket Spreading – marketing to as many export markets as possible; characteristic: low penetration, low control, little effort in single markets, target market do not reflect national borders, diversification
spot rate
the market in which an asset is traded for immediate delivery, as opposed to a market for forward or future deliveries
Describe the Political argument used for import restrictions.
Used to protest/punish unacceptable political behaviorProblem:1.Can hurt punisher more than punishee
The theory that an MNEs' bargaining strength is eroded as a host country gradually gains assets from it is known as
theory of obsolescing bargain.
What does ASEAN stand for?
Association of South East Asian Nations
What is power?
how much power the sides have. The decision maker’s ability to influence the outcomes of a conflict ranges from complete control to no influence at all.
Free Trade Area
Area in which all barriers to the trade of goods & services among member countries are removed
Turnkey Operation (Plant/Project Export)
A contract for construction of a large facility in a foreign country. The facility will be transferred to the owner when the construction is finished. This is appropriate when foreign countries have money but no technology to build the plant, or they dont like foreign ownership of the plant.

BOT (Build operate and Transfer): Same thing as Turnkey, but used more for foreign firms that have little money or technology.
resource-based view (of the firm)
a perspective that holds that each company has a unique combination of competencies
Two Basic Economic problems
1) How to produce wealth2) How to distribute wealth
John Dunning’s eclectic paradigm
argues that in addition to the various factors discussed earlier, two additional factors must be considered when explaining both the rationale for and the direction of foreign direct investment
Will Dell’s Direct Business model work in emerging markets, like China or India? What aspects of the model are likely to run into hurdles? How would you address these hurdles? (article and a little bit from Ch 17)
Background info: Dell’s direct sales model is a build-to-order; eliminated resellers and retailers that sell directly to the consumer by phone or internet; customizes every computer to customer’s needs and waits to build it until ordered → little inventory, newest technology, costs minimized China:not working wellhad to change their model to competedon’t have credit cards → adapted by striking deals w/banks to facilitate pymtsdon’t purchase w/o seeing first & learning about → forced to go back to retail outlet approachholds hands-on promo events in shopping mallsadvertise in newspapers & direct mailnot perceived as affordable → now producing basic PC (SmartPC?) → competitive price pointaggressively marketing this PC to corp, govt entities, etc → bulk of revenuesbetting as infrastructure is developed/improved, PC to the home user will pay offworry about fluctuations of yuan:if weakens → sales will declineif strengthens → improve sales (since products manufactured locally in Chinaanalyst: challenge by relying on direct-sales model to attract mainland consumers because Chinese consumers don't buy purely on price…need retail outlets for consumers…need to do a lot of educating the buyer in China…Dell, despite gains, remains a bit player in country dominated by Beijing-based Legend, which has 30% market share & presence in big-city retail outlets…Dell is 4th just ahead of IBMpersonal market is too important to ignore because so few Chinese have computers at homeunclear how many can afford to buy a computer (varies by area)analyst said skeptical that Dell can make profit w/such low price & doesn't think consumers will be willing to buy sold only over telephone (use a month's salary to buy → have to see it)Dell thinks its direct-sales model will be wave of the future in Chinaas more enterprises become tech-savvy and infrastructure improves, several analysts agree the direct-sales model could win out in long runIndia:is working well w/ corp & govt entities as they like to bypass the retailersstill had to deploy retail outlets to sell to the home user consumerinfrastructure is barrier; takes 21 days to receive after placing order (instead of 7)price point also an issue, but basic PC → help capture more market shareAdditional notes:Asia, in general, like to negotiate & bargain; part of culture, built in to collective systemSupply chain control – lack of excellent transportation and delivery logistics (for parts and finished goods), could cause delays & increase costs → locate plant near manufacturing for parts required (physical factor under operating environment pg653) for faster delivery and reduction of transportation & transaction costs. If unable to locate in these places, would need larger inventory. (Concept: shortening distance in supply chain → improve dependability)Use retailers (already have goods shipped to their facilities) less worry about transportation infrastructure (this would be a strategy under operations pg653)Lack of cultural experience → hire local managers to provide insight to culture
Price Elasticity of Demand
measure of how responsive demand for a product is to changes in price.
_____ is considered to be a general motive for engaging in collaborative agreements.
Spreading and reducing costs
What does the world bank advocate?
urges developed nations to cute agriculture subsidies
- to help developing nations compete
- canada reluctant to do so because of shorter growing seasons
group that establishes use of euro in the 12 country euro zone. when the euro was adopted, the rate for exchanging members currencies into Euros was irrevocably fixed. The three countries from "old EU" that do not participate are Denmark, Sweden
European Monetary Union (EMU)
What counter-arguments to Reich are offered by Tyson?
1) US multinationals still locate their “higher-end” jobs within the US. Companies and continue to spend the bulk of their R&D budgets within the US.
2) Most large American companies don’t have any foreigners on their boards of directors.
3) Many foreign markets are highly regulated, often in America’s disadvantage.
4) America cannot just foster the best possible workforce and then rely on market forces to bring high-wage jobs to our shores.
5) Foreign affiliates still represent only a relatively small fraction of total economic activity within the US.
How does the international market potentially reduce the cost of capital?
The exchange rate is equal or favorable or the borrowing costs were less in the other country it could reduce this cost.
What are the major accounts included in the Official Reserve Account in the Balance of Payment?
The Official Reserve Account shows what changes are occuring on the Balance of Payment. It includes a) Gold and Foreign Exchange (F.X.) and b) S.D.R (Special Drawing Right) which is the right to print money.

When this account is added to all the other accounts, it will yield an "Overall Balance"

4. Effect on Competition and Economic Growth

¡FDI in the form of greenfield investment
¡increases the level of competition in a market
¡drives down prices
¡improves the welfare of consumers
¡Increased competition can lead to
¡increased productivity growth
¡product and process innovation
¡greater economic growth
revocable letter of credit
a letter of credit that can be changed by any of the parties involved
Which of the following statements regarding exporting is accurate?
The probability of being an exporter increases as company size, as defined by revenues, increases.
what are the disavantages to spot checks?
exporters are vulnerable to DC appreciation
-importers are vulnerable to DC depreciation
-monitoring is required to transact at favourable rate b/c so unpredictable
Exchange Rate Importance
When ever a receipt or a payment is to be made in a foreign currency there is a foreign exchange risk.
Segmentation of Global Consumers
Global citizens- favor buying global brands that signal prestige
Global dreamers- who cant afford but nevertheless admire, global brands
Antiglobals- skeptical about whether global brands deliver higher quality goods.
Global agnostics- most likely to lead antiglobalization demonstrations such as smashing McDonalds windows
What are some uses of a foreign exchange market?
1.Settlement of international trade of foreign debt by transferring purchasing power from one currency to another2.Arbitrage-Taking advantage of exchange rate discrepancies to earn a *riskless* profit3.Hedging-transaction in forward market designed to minimize potential loss from exchange rate fluctuation
What are some criticisms of the World bank?
Malaria situation
- not kept promise of spending 300-500 mil
-reduced experts from 7 to 0
- inveted bogus epidemiological statistics
-backed out of date treatment in india

on globalization:
- expansion of exports is disastrous for the environment
How can one also account for individual differences within cultures?
Culture is representative of a large group of people, however there will always be differences between individuals. Culture is generalized.
what are ways that the central bank can intervene in the currency market?
1) coordinate its action with other banks
2) execute own actions
3) enter the market aggressively (buy and sell DC)
4) Call for reassuring action (public speech)
5) public relations activities (announcement)
6) operate through brokers
Describe the cultural adjustment curve by Gullahorn & Gullahorn.
The curve is shaped like a "W". First there is a high degree of satisfaction and then culture shock. At the end there is a feeling of home and upon return to home place there is reverse culture shock.
Graph of Economic Integration
European Commission
Responsible for proposing, implementign, and monitoring comliance with EU legislation: run by a group of commissioners appointed by each member country.
Strategic Alliances
cooperative agreement between competitors for the benefit of all companies.
Dependicia theory holds that developing countries have significant power in their dealings with MNEs.(T/F)
external forces: national and international agencies available for distributing goods and services
$42, 129 per capita
Parent country national manager: Moving a manager from the home country to the foreign subisidary. Advantages include tighter control, consistency between the subsidiary and the parent company, and ease of rotation.

disadvantages include high cost, unfamiliarity with the local environment, as well as ethnocentric attitudes.
transaction exposure
foreign-exchange risk arising because a company has outstanding accounts recievable or accounts payable that are denominated in a foreign currency
Global matrix
An organizational structure often used to alleviate the disadvantages associated with both geographic area an global product division structures, especially for MNEs adopting transnational structure..-cons- Some people have to report to two bosses. MNEs appoint host country nationals as head managers of subsidaries abroad because they want a global standardization strategy that values globally coordinated and controlled actions.
a reciprocal requirement. very similar to countertrade (synonomous)
Transnational Strategy
attempting to simultaneously achieve low costs through location, economies of scale and learning effects.
What is APEC?
Asia Pacific Economic CooperationEconomic forum of 22 Asia-Pacific Countries that account for more than 2/3 of total world output (Japan/China/Russia/US/Canada/Mexico)
The electronic linkage of suppliers, customers, and third-party intermediaries to expedite documents and financial flows is known as _____.
MNEs that follow a multidomestic strategy do not need to transfer human resource competencies from one unit to another; in fact it is not generally possible.(T/F)
Companies that operate according to _____ orientation ask questions such as "What can the company sell in country A?"
Companies must carefully consider the information they use in making site selection decisions as some false or purposefully misleading data may be published to mislead government superiors, the country's rank and file, or companies and institutions abroa
External forces: elements of nations politcal climates such as nationalism, forms of government, and international organizations
What is culture?
Culture definitions:
1. Definition: “Traditional ideas and their attached values”
2. A set of characteristics common to a particular group of people.
3. Culture is pervasive, it exists around individuals.
political system that believes in state ownership of a country's means of production, distribution, & exchange so that all can benefit
Stopping the importing or exporting of a certain product or service.
Third country national managment: A person not from the home or subsidary country. Advantages include: less expensive, the personal acts as a mediator, and they are the best person on a global scale. However they are hard to find qualified.
horizontal differentiation
how the company specifies, divides, and assigns the set of organizational tasks
gray market
the handling of goods through unofficial distributors
Eclectic Theory (Dunning)
Mashes all other theories together:Ability: Firm specific advantage (Monopolistic/imperfect theory)Opportunity: Country specific advantageMotivation: Minimize transaction costs
integration-responsiveness framework - means by which MNEs primarily confront two sets of pressures:
Ø      cost reductions Ø                      local responsiveness
lead strategy
An operational strategy that involves either collecting foreign-currency receivables before they are due when the currency is expected to weaken or paying foreign-currency payables before they are due when the currency is expected to strengthen." -(833)
a government tax levied on goods, usually imports, shipped internationally
comparable-access argument
companies and industries often argue that they are entitled to the same access to foreign markets as foreign industries and companies have to their markets
perfect competition
theoretical context in which the performance of any firm is largely determined by the industry characteristics
common market
a form of regional economic integration in which countries abolish internal tariffs, use a common external tariff, and abolish restrictions on factor mobility
In direct selling the exporter sells goods directly to or through an independent domestic intermediary in the exporter's home country that exports the products to foreign markets. (T/F)
Which of the following country groups is the highest on both secrecy and conservatism in terms of measurement and disclosure in accounting systems?
Which of the following collaborative strategies offers a company the most control of its foreign operations?
joint venture
A product facing declining sales in one country may have growing or sustained sales in another.(T/F)
Offset trade occurs when an exporter sells products for cash and then helps the importer find opportunities to earn hard currencies.(T/F)
language, behavior, nonverbal communication, symbolic meanings, cultural norms, cultural values, cultural beliefs, cultural traditions
culture as an iceberg
What general considerations are likely to influence strategy selection?
ethical corollaries
Infant Industry Argument
Proposal that developing countries have a potential comparative adcantage in manufacturing
Balance of Trade
The difference between a country's total exports and total local imports of goods.
Intra-corporate funds
Involves either a loan, equity, or transfer price.
International Six Sigma
It eliminates errors through refining manufacturing processes and the intent is to eliminate all defects
foreign bonds
a bond sold outside the borrower's country but denominated in the currency of the country of issue
global bond
a combination of domestic bond and Eurobond that is issued simultaneously in several markets and that must be registered in each national market according to that market's registration requirements
Where does the world become interdependent?
1)National Level2)Personal level
greenfield investment
the establishment of a wholly new operation in a foreign country
3 drivers for counterattacks-
Awareness - prerequisite for counterattack Motivation - if the attacked market is of marginal value, managers may decide not to counterattack Capabilities - strong capabilities needed to carry out counterattacks Defender strategy - leveraging local assets in areas in which MNEs are weak
foreign-exchange control
a requirement that an individual or company must apply to government authorities for permission to buy foreign currency above some determined threshold amount
five-forces model
the moves of rivals battling for market sharethe entry of new rivals seeking market sharethe efforts of other companies outside the industry to convince buyers to switch to their own substitute productsthe push by input suppliers to charge more for their inputsthe push by output suppliers to pay less for products
foreign-exchange market
the market where foreign exchange is traded
Forward Rate
when 2 parties agree to exchange currency and execute a deal at some point in the future.
Describe the industrialization argument used for import restrictions.
Used to restructure agriculture oriented economy into a industrialized economy due to deteriorated tradeProblems:1.Citizens' sacrifice required
When a company has a global or transnational strategy there is much less need to impose standard human resources practices or a corporate culture abroad than when a company has a multidomestic strategy. (T/F)
Which tax practice tries to avoid double taxation of corporate income through split tax rates or tax credits?
integrated system
_______ ______ can help overcome these trade barrier problems.
international institutions
What is achievement?
1. Respect based on performance.
2. Influence based on performance.
3. Use of titles only when relevant.
What is the man-nature relationship?
i. NATURE DOMINATES MAN—people can’t change nature. Life is largely determined by genetic variables.
ii. HARMONY WITH NATURE—Man should try and live in harmony with nature.
iii. MAN DOMINATES NATURE—It is the great human challenge to conquer nature. All human achievement has come from this challenge.
Stock of FDI
total accumulated value of foreign owned assets at a given time.
Transacion Risk
This arises because most goods and services are sold on credit. If, the currency invoiced is not the sellers, then the seller's actual receipts, in his own currency, may well be different to the expected receipts due to the variations in the exchange rate
Enlightened self interest
a philosophy in ethics which states that persons who act to further the interests of others (or the interests of the group or groups to which they belong), ultimately serve their own self-interest
a bond sold in a country other than the one in whose currency it is denominated
What is the IMF?
International Monetary Fund - Agency created to regulate fixed exchange rates and enforce the rules of the international monetary system.
Comparative advantage
refers to the fact that although one country may have an absolute disadvantage with another, value can be created for both countries by allocating resources to the most competitive area of the disadvantaged country
Indirect exporting
goods and services are sold to an intermediary in the domestic market, which then sells the goods in the export market to the final consumer. The major types of indirect intermediaries are the export management company (EMC), the export trading company (ETC) and export agents, merchants, or remarketers.Advantages: leverage, risk limit, expanding exposure, learning from intermediaries; Disadvantages: sharing the profit, control limit;Generally, services are more likely to be sold in a direct fashion, whereas goods are exported both directly and indirectly.
harvesting (or divesting)
reduction in the amount of investment. also known as divestment
Trade creation
trade created with free trade area due to replacement of high cost.
If Tea, Inc was engaging in exporting and found itself unable to cope with the demands of exporting it would be said to be in which stage of export development?
initial exporting
____ are a type of collaborative arrangement in which one company contracts another to build complete, ready-to-operate facilities.
Turn key operations
This theory bridges the gap between older trade theories and the newer globally competitive market in which capital, technology, information and the firms are highly mobile. It answers the questions "why does international investment occur?"
contributions of IPLCT
Who are the transitional economies?
Czech Republic, Hungary, Russia, Poland
What are importers? (Reich)
a. Limit local economic activity to sales, marketing and distribution.
b. Goal is simply to gain market share for “engine of competitiveness” located offshore.
What is diffuse?
1. More indirect, more ambiguous in communications.
2. Work and personal relationships/lives are linked
3. Guard their public space carefully, because entry in public space affords entry into private space as well
4. Tend to seek personal relationships before doing business.
5. A friend is a friend across all situations.
What key factors and general considerations are likely to influence strategy selection?
moral significance, power, urgency
What is moral significance?
Moral significance – how morally significant the situation is. Values that are central to an individual, company, or society, and that are widely shared.
United Nations?
Intl org made up of 191 countries charged with keeping internaltional peace, developing cooperation between nations, amd promoting human rights.
Economic exposure
The degree to which a firms value is influenced by long term and fundamental (semi perminant or perminant FX change).

For example, if the dollar appreciates (goes up) foreign firms will not purchase as much U.S. product, so the U.S. exporting firm will be hurt.
human resource management (HRM)
the primary staffing function of the organization. it includes the activities of human resource planning, recruitment, selection, performance appraisal, compensation, and retention
Marxist Political Economy of FDI
Marxists view FDI as imperialistic instrument to exploit countries and people They wish to prohibit FDI and prefer nationalization of businesses
Primary participants of corporate governance
Owners- Provide capital, bear risks, and own the firm.                 Managers-Especially those on the top management team led by the CEO The Board of Directors-An intermediary between owners and managers, the board of directors oversees and ratifies strategic decisions and evaluates, rewards, and if necessary penalizes top managers.
time draft – (pg 352)
Glossary: a commercial bill of exchange calling for payment to be made at some time after delivery (for example, 30 days after delivery)
small and medium-sized enterprise (SME)
fewer than 250 employees that typically do not have export managers
What are the different types of arbitrage?
Locational-disequalibrium of exchange rates among regional banksThree Point-disequilibrium among different foreign exchange markets
_____ refers to the fact that foreign companies have a lower survival rate than local companies for many years after they begin operations.
Liability of foreignness
What is the world Bank?
-comprised fo 5 institution
(mainly - International Bank of Reconstruction and Development (IBRD) and International Development Association (IDA))

- mainly a financial instutition: borrows and lends
What are some different approaches to manage risk?What are some specific ways in which organizations can adapt to the environment or create dependence?
avoidance, adaptation, dependency, hedging
Flow of FDI
International Capital Budgeting
Due to the time value of money, future cash flow must be discounted to present value by interest. For example, a million dollars tomorow is worth less than a million dollars, because of interest.

Net Present Value= Cash Inflow - Cash Outflow. (if NPV is + you invest, if it is - you dont invest).

Factors include: FX, local inflation rate forcasts, knowledge of the local and U.S. tax system, rate to discount future cash inflow, and political risk.
International Organization for Standardization (ISO)
formed in Geneva in 1947 to facilitate the international coordination and unification of industrial standards. partnered with IEC (international electrotechnical commission)
What is the Balance of Payment?
a summary of International Business activities of one country, which uses a double entry system to reflect a countrys "external liquidity" position. The balance of payment uses a Credit and Debit System, where cash flows in are a "Credit" and cash flows out are a "Debit"
Foreign direct investment (FDI)
occurs when a firm invests directly in new facilities to produce and/or market in a foreign country

¡There are two forms of FDI
¡A greenfield investment (the establishment of a wholly new operation in a foreign country)
¡Acquisition or merging with an existing firm in the foreign country
Country of Origin Effects
extent to which a place of products manufacture influences its evaluations in the market.
Companies that are new to exporting are most likely to use which manufacturing configuration?
centralized manufacturing in one country
how are WTO disputes settled?
a panel of specially selected experts are formed
who are the two capital market stakeholders?
shareholders, major suppliers of capital
What is specific?
1. More open, more direct, more to the point, purposeful in relating.
2. Work and personal relationships are separate.
3. Friendly and accessible with most people, but only intimate with close friends.
4. You can have interaction without completely knowing someone.
Subpart F (or passive) income
income of a CFC that comes from sources ofhter than those connected with the active conduct of a trade or business, such as holding company income
What are the three economic variables that can affect the BOP?
1)Inflation: This will always influence the BOP condition. High inflation is a negative impact on BOP.

2)Interest Rate: A high interest rate yeilds higher inflow of foreign money, yeilding a more positive B.O.P.

3)National Income increase: When our income goes up, consumers begin to buy large quantities of foreign goods and services, thus decreasing our B.O.P.

2. Adverse Effects on the Balance of Payments        

¡There are two possible adverse effects of FDI on a host country’s balance-of-payments
¡with the initial capital inflows that come with FDI must be the subsequent outflow of capital as the foreign subsidiary repatriates earnings to its parent country
¡when a foreign subsidiary imports a substantial number of its inputs from abroad, there is a debit on the current account of the host country’s balance of payments
European Court of Justice
1 judge from each member state of the EU and is the supreme court of appeals.
These are the core concepts from ____ ____ dealing with _____ _____. "the real wealth of a nation is an increase in the quality of living of its citizens" "the goal is to increase per capita income" "societys primary element is hu
Adam Smith and absolute advantage
What are the components of the Distribution channel?
This includes two channels: Internal and External.
8. Using the lessons learned from the TelCommTek case, identify and discuss Factor X (i.e., qualities that you look for in an expatriate assignment)?
no proven formulaMust understand business and issuescross cultural sensitivityadaptability and flexibilityproven track record of international knowledgedevelop satisfactory relationships with host nationalsleadership abilityknowledge of foreign languagefamily and spouse support
Describe the cheap labor argument used for import restrictions.
The argument is used to protect against exploitation of foreign workers and violations of human rightsProblems:1.Restrictions could help more than hurt2.Basically saying goods are too cheap to buy3.Domestic intervention of foreign affairs4.Protectionism disguised as humanitarianism
What are 10 things you never knew about the world bank?
1) largest funder of education
2) largest external funder to fight AIDS
3) leader of fight against corruption
4) supporter of debt relief
5) largest international funders of biodeiversity projects
6) work in partership more than ever before???
7) helping to bring clean water, electricity, and transport to poor ppl
8) civil society plays a larger role in our work???
9) help countries merger from conflict
10) responding to the voices of poor people
What stipulations does the IMF make to give loans to cash strapped nation-states?
Adopt specific economic policies aimed at returning their troubled economies to stability and growth.
What is the role of the central banks in the relation to the environments?
Political environment - laws and regulations

economic environment - banking is economic activitiy

technological environment - complext IT systems
What is the delivery style of the Site Draft and the Time Draft?
The actual paper drafts go from the Exporter --> Bank --> Importer
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