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Chapter 7 Management

The buying and selling of goods and services
the buying and selling of goods and services from people of different countries
global business
corpartions that own businesses in two or more countries
mutlinational corporations
occurs when a current company buildsn anew business or acquires a new business in a foreign country
direct forieng investment
Why do governments use trade barriers?
to make it more expensive or difficult to buy or consume imported
the use of trade barriers to protect local economies and their workers from foreign competition
a direct tax on imported goods
nontax method of increasing the cost or reducing the volume of imported goods
nontarriff barrier
specific limit on the amount of imported products
a voluntary exporting quota set by a country due to the improting country threating the use of quotas
voluntary export restraints
established to protect the health of citizens
government import standards
as products are imported they are examined by customs agent who cedides which category the product lies in
customs classification
the 5 nontarriff barriers
1) Quotas
2) Voluntary export restraints
3) Government import standards
4) Subsidies
5) customs classifications
General Agreement on Tariffs and Trade
An agreement to regulate trade among 120 countries to reduce tariffs and restrictions on trade
What was the general agreement on Tariffs and Trade replaced by?
The World trade organization
tariff and non-tariff barriers are reduced or eliminated within these zones
regional trading zones
world trade organization
replacement for the general agreeement on tariffs and trade and is the adminsitration for trade agreements between countries
How are trade disputes between countries settled?
By an arbitration panels of the WTO
Do countries at the WTO have veto power?
Not anymore
maastricht treary
formed the european union by combining twelve different european currencies and economies into one
liberalized trade between US CANADA and mexico
central american free trade agreement: US, dominciin republic, and central america
union of south american nations: permits free movement between nations by creating a common infastructure and interoceanic highway that establishes the region as a single market by elimainting tariffs
association of southeast asian nations
asia pacific economic cooperation
The two largest and most important trading groups in ASIA
increase choice, competition, and purchasing power and decrease prices
trade agreements
the two choices when a company decides to go global
consistency or adaption
does consistency or adaption simplify decisions?
modifying your standards to adpat to differences in foreign customers, government, and regulatory agencies
the steps for the phase model of going global
1) exporting
2) Cooperative contracts
3) Strategic alliances
4) Wholly owned affiliates
selling domestically made products to foreign markets
Advantages of exporting
1) Makes company less dependant on domestic sales
2) gives company more control
Disadvantages of exporting
1) Goods subject to trade barriers (tariff and non tariff)
2) Transportation Costs
A domestic company, the licensor, allow a foreign company, the licensse to produce its product, provide its service, or use its brand name in a foriegn market for royalty payments
licencing – cooperative contracts
Advantage of licensing
1) earn money without investing more money
2) companies can avoid trade barriers
Disadvantages of licensing
1) give up control over product qualtiy
2) Licensses can become competitors
A collection of networked firms in which the manufacturer or marketer of a product or service, the franchiser, licenses the entire businesss to another person or organization, the franchise
Franchising – 2nd type of cooperative contract
Advantages of franchising
1) Fast way to enter a foriegn market
2) Gives franchiser additonal cash flows
Disadvantages of Cooperative contracts
1) Loss of control
2) Culture Bound
When companies combine key resources, costs, risk, technology, and people
strategic alliance
When two existing companies collaborate to a form a third company
joint venture
Advantages of strategic alliances
1) Companies avoid trade barriers
2) Companies only bear part of the costs
3) Partners can learn from each other
Disadvantages of strategic alliances
1) Profits have to be shared
2) Merging of cultures
Foreign offices, plants, or facilities that are 100 percent owned by the parent company
wholly owned affiliates
advantages of wholly owned affiliaties
1) parent company recieves all of the profits and has complete control
1) losses for the parent company can be enormous
Companies that are founded with an active global strategy
Global new ventures
Companies that are founded with an active global strategy 2 characteristics
1) their leaders communicate their global strategy from incpetion
2) Bring a product or service to market several foriegn markets at a time
The key metric in deciding where to go global
Growth potential
The two factors that create growth potential
1) Foriegn competition
2) Purchasing power
measured by comparing the cost of a standard set of goods in several countries
purchasing power
Qualitative factors that affect location strategy
1) Workforce Quality
2) Company Strategy
Quantitative factors that affect location strategy
1) Kind of facility being built
2) trade Barriers
3) Exchange rates
4) Transportation and labor rates
The two types of political risk in conducting global business
1) Political uncerainty
2) Policy unceratinty
political uncertainty
Risk in major changes to political regimes
Policy uncertainty
refers to the risk assocaited with chaanges in laws and government policies
used when the risks of conducting business in a foriegn conutry are too great
avoidance strategy
active strategy to prevent or reduce political risks
makes use of joint ventures and collaborative contracts to deal with political risk
divesting or selling businesses to avoid risk
limits a company’s exposure to risk associated with foreign ownership of a business
The set of share values and beleifs that affects the perceptions, decsions, and behavior of the people from a particular country
national culture
the extent to which people in a country accept that power is distributed unequally in society and organizations
power distance
the degree to which societies believe that individuals should be self-sufficent
captures the difference between highly assertive and highly nurturing cultures
masulinity and feminity
the degree to which peolpe in a country are uncomfortable with unstructued, ambigous, and unpredicatabel situations
uncertainty avoidance
adderesses wherether cultuers are orietnated to the presnet and seek immediate gratification or to the futrue and defer graitication
short term/long term orientation
someone who lives and works outside his or her native country
The chance of success of expatriates can be increased by
1) cross cultural training
2) consideration of spouse
3) Consideration of family
4) consideration of dual career issues
training for expatriates that focuses on special critical diffeences between cultures
documentary training
training for expatraites in which they practice adpating to cultural differenes
cultural simulations
placing trainees in ethical neighborhood for three hours to talk to residents about cultural differences
field simulation training
assesses how well managers and family are likely to adapt to foriegn cultures
adaptability screeing

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