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MGMT Chapter 8

_______ is the buying and selling of goods or services
_________ is the buying and selling of goods and services by people from different countries.
global Business
__________ are corporations that own business in two or more countries.
multinational corporations
_________ occurs when a company builds a new business or buys an existing business in a foreign country.
direct foreign investment
National governments have traditionally preferred than consumers buy domestically made products in hopes that?
such purchases would increase the number of domestic business and workers
Government use ________ to make it much more expensive or difficult for consumers to buy or consume imported goods.
trade barriers
A government’s use of trade barriers to shield domestic companies and their workers from foreign competition
What are the two general kinds of trade barriers Governments use?
tariff; and non tariff barriers
A_____ is a direct tax on imported goods.
_____ Increase the cost of imported goods relative tho that of domestic goods.
_________ are non tax methods of increasing the cost or reducing the volume of imported goods.
non tariff barriers
What are the 5 types of non tariff barriers?
2-voluntary export restraints
3-government import standards
4-government subsidies
5-customs valuation/classification
_____ are specific limits on the number or volume of imported products

(allowing only a certain amount of something to be imported per year)

________ limit the amount of a product that can be imported annually
voluntary export restraints

(difference is that the exporting country rather than the importing country imposes restraints.)

Example of voluntary export restraints
To protect brazilian auto manufacturers from less expensive mexican-made cars, the brazilian government convinced mexico to “voluntarily” restrict auto exports to Brazil to no more than $1.55 billion a year for three years.
In theory, __________ are established to protect the health and safety of citizens. In reality, such standards are often used to restrict or ban imported goods.
government import standards
example of government import standards
russia bands the importation of US beef, pork, and turkey, claiming that the meat is contaminated by a commonly used food additive.
many nations also use_____, such as long-term, low-interest loans, cash grants, and tax deferments, to develop and protect companies in special industries.
A classification assigned to imported products by government officials that affects the size of the tariff and the imposition of import quotas
customs classification
example of customs classification
products are imported
-must be examined and decided which category of nearly 9,000 categories it is categorized in
-the category greatly affects the size of the tariff and whether the item is subject to import quotas
Most significant change in the 1990s was when 124 countries agreed to adopt the ?
General Agreement on Tariffs and Trade (GATT)
A worldwide trade agreement that reduced and eliminated tariffs, limited government subsidies, and established protections for intellectual property
General Agreement on Tariffs and Trade (GATT)
GATT was replaced by the ______ in 1995.
World Trade Organization (WTO)
The successor to GATT; the only international organization dealing with the global rules of trade between nations; its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.
World Trade Organization (WTO)
Today, the WTO and its member countries are negotiating what’s known as the?
Doha Round
_____ seeks to advance trade opportunities for developing countries in area ranging from agriculture to services to intellectual property rights.
Doha Round
The WTO, headquartered in Geneva, Switzerland…..
-adminsters trade agreements
-provides a forum for trade negations
-handles trade disputes
-monitors national trade policies
-offers technical assistance and training for developing countries
The WTO has ____ member countries.
The second major development that has reduced trade barriers has been the creation of _______, or zones in which tariff and non tariff barriers are reduced or eliminated for countries within the trade zone.
regional trading zones
What are the largest and most important trading zones?
(the Maastricht Treaty)

-North America
(The North American Free trade agreement)

-Central America
(Dominican republic central america free trade agreement)

-South America
(union of south american nations)

(the association of southeast asia nations)

In 1992, Belgium, Denmark, france, germany, greece, ireland, italy, luxembourg, the netherlands, portugal, spain, and the UK adopted the_________.
Maastricht treaty of europe
The purpose of the_______ was too transform their twelve different economies and twelve currencies into one common economic market, called the European Union (EU), with one common currency.
Maastricht Treaty of Europe
Prior to the treaty of europe
companies often had to file twelve different sets of paperwork

pay twelve different tariffs

produce twelve different version of their basic product to meet various government specification

exchange money in twelve different countries

______ between the United States, Canada, and Mexico, went into effect on January 1, 1994.
NAFTA; North American Free Trade Agreement
_____ has liberalized trade between countries so that businesses can plan for one market rather than for three separate markets.
What is one of NAFTA’s most important achievements?
to eliminate most product tariffs and prevent the three countries from increasing existing tariffs or introducing new ones.
A regional trade agreement between Costa Rica, the Dominican republic, El Salvador, Guatemala, Honduras, Nicaragua, and the US.
Dominican Republic-Central America Free Trade Agreement (CAFTA-DR)
Regional trade agreement between Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia, Colombia, Ecuador, Peru, Guyana, Suriname, and Chile
Union of South American Nations (UNASUR)
A regional trade agreement between Brunei, Darussalam, Cambodia, Indonesia, laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietname
Association of Southeast Asian Nations (ASEAN)
A regional trade agreement between Australia, Canada, Chile, the People’s Republic of China, Hong Kong, Japa, Mexica, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the US, and all the members of ASEAN expect cambodia, Laos, and myanmar.
Asia-Pacific Economic Cooperation (APEC)
What keeps prices higher in countries that have not been as open to foreign companies and products.
-lack of choice
-low level of competition
Why are free-trade agreements important?
they increase choices, competition, and purchasing power and thus decrease what people pay for food, clothing, necessities, and luxuries
Why do trade barriers and free-trade agreements matter to managers?
while they create new business opportunities, they also intensify competition, and addressing that competition is a managers job.
__________ means that a multinational company with offices, manufacturing plants, and distribution facilities in different countries used the same rules, guidelines, policies, and procedures to run all of those offices, plants and facilities.
Global consistency
Managers at company headquarters value global consistency because?
it simplifies decisions.
A company following a policy of ______ modifies its standard operating procedures to adapt to differences in foreign customers, governments, and regulatory agencies.
local adaptation
_______ is typically preferred by local managers who are charged with making the international business successful in their countries.
local adaptation
If companies lean too much toward ______, they run the risk of using management procedures poorly suited to particular countries’ markets, cultures and employees
global consistency
If companies focus too much on local adaptation they?
run the risk of losing the cost effectiveness and productivity that result from using standardized rules and procedures throughout the world.
Besides determining whether to adapt organizational policies and procedures, a company must also determine ?
how to organize itself for successful entry into foreign markets
When companies produce products in their home countries and sell those products to customers in foreign countries, they are ?
What advantages does Exporting as a form of global business offer?
-makes the company less dependent on sales in its home market
-provides a greater degree of control over research, design, and production decisions.
What are the disadvantages of exporting as a form of global business?
-many exported goods are subject to tariff and non tariff barriers that can substantially increase their final cost to consumers
-transportation costs can significantly increase the price of an exported product
When an organization wants to expand its business globally without making a large financial commitment to do so, it may signal a __________ with a foreign business owner who pays the company a fee for the right to conduct that business in his or her country.
cooperative contract
What are the 2 kinds of cooperative contracts?
Under a _______ agreement, a domestic company, the licensor, receives royalty payments for allowing another company, the licensee, to produce its products, sell its service, or use its brand name in a particular foreign market.
One of the most important advantages of licensing is that?
it allows companies to earn additional profits without investing more money.
What happens when foreign sales increase?
the royalties paid to the licensor by the foreign licensee increase
Licensing also helps companies avoid what?
tariffs and non tariff barriers
What is the biggest disadvantage associated with licensing?
the licensor gives up control over the quality of the product or service sold by the foreign licensee.
What are other disadvantages of licensing?
-licensees can eventually become competitors, especially when a licensing agreement includes access to important technology or proprietary business knowledge
A_____ is a collection of networked firms in which the manufacturer or marketer of a product of service licenses the entire business to another person or organization.
For the price of an initial franchise fee plus royalties, franchisors provide?
-franchisees with training
-assistance with marketing and advertising
-an exclusive right to conduct business in a particular location
Despite franchising’s many advantages, franchisors face________ when they sell businesses to franchisees who are thousands of miles away.
loss of control
Companies forming ______ combine key resources, costs, risks, technology, and people
strategic alliances
(Garmin makes satellite navigation devices
Volvo makes leisure and commercial boat engines
together they develop and market marine instrumentation, and navigation equipment)
The most common strategic is a __________?
joint venture
When does a joint venture occur?
when two existing companies collaborate to form a third company.

(the two founding companies remain intact and unchanged except that together they now own the newly created joint venture)

Advantages of global joint ventures?
-help companies avoid tariff and non tariff barriers to entry
-companies participating bear only part of the costs and the risks of that business
Global joint ventures can be especially advantageous to who?
smaller local partners who link up with larger, more experienced foreign firms
What do companies share in a joint venture?
Managing global joint ventures can be difficult because they represent a merging of four cultures. What are the 4 cultures?
-the country and the organizational culture of the first partner
-the country and the organizational culture of the second partner
To be fair to all involved, each partner in the global joint venture will have?
equal ownership and power
What are problems with global joint venture?
-power struggles
-lack of leadership
how can you prevent problems with global joint venture?
-carefully develop detailed contracts that specify the obligations of each party
Approximately one-third of multinational companies enter foreign markets through __________?
wholly owned affiliates
Unlike licensing arrangements, franchises, or joint venture, wholly owned affiliates are ?
100 percent owned by the parent company
What is the primary advantage of wholly owned businesses?
the parent company receives all of the profits and has complete control over the foreign facilities
What is the biggest disadvantage of wholly owned businesses?
the expense of building new operations or buying existing businesses.
What 3 things have allowed companies to skip the phase model when going global?
1- quick, reliable air travel
2-low-cost communication technologies
3- there is now critical mass of businesspeople with extensive person experience in all aspects of global business
With sales, employees, and financing in different countries, _______ are companies that are founded with an active global strategy.
global new ventures
What are the two common factor all global new ventures share?
-company founders successfully develop and communicate the company’s global vision from inception
-rather than going global one country at a time, new global ventures bring a product or service to market in several foreign markets at the same time
What is the most important factor in a an attractive business climate?
access to a growing market
What are the 2 facts that help companies determine the growth potential of foreign markets?
-purchasing power
-foreign competitors
________ is measured by comparing the relative cost of a standard set of good and services in different countries.
purchasing power
Countries with __________ of purchasing power are good choices for companies looking for attractive global markets.
high and growing levels
The second part of assessing the growth potential of global markets involves?
analyzing the degree of global competition
how can you analyze the degree of global competition?
determined by the number and quality of companies that already compete in a foreign market
Companies do not have to _______ in each country they enter
establish an office or manufacturing location
the criteria for choosing an office/manufacturing location are different from the criteria for entering a foreign market.
Rather than focusing on costs alone, companies should consider?
both qualitative factors, and quantitative factors
What are the 2 key qualitative factors
-workforce quality
-company strategy
What are quantitative factors?
-kind of facility being built
-tariff and non tariff barriers
-exchange rates
-transportation and labor costs
When conducting global business, companies should attempt to identify two types of political risk:
-political uncertainty
-Policy uncertainty
_______ is associated with the risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest, or other influential events.
Political uncertainty
_________ refers to the risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business.
Policy uncertainty
_______ is the most common, and perhaps the most frustrating, form of political risk in global business.
policy uncertainty
What strategies can be used to minimize or adapt to the political risk inherent in global business
-avoidance strategy
A _______ is used when the political risks associated with a foreign country or region are viewed as too great.
avoidance strategy
What factors indicate greater political risk?
-government instability
-poor socioeconomic conditions
-internal or external conflict
-military involvement in politic
-religious and ethnic tensions
-high foreign debt as a percentage of gross domestic product
-exchange rate instability
-high inflation
Firms using a _______ strategy lobby foreign governments or international trade agencies to change laws, regulations, or trade barriers that hurt their business in that country.
Another method for dealing with political risk is _________ , which involves using joint ventures and collaborative contracts, such as franchising and licensing.
_______ is the set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country.
National culture
What is the first step in dealing with culture?
to recognize that there are meaningful differences.
What are the 5 consistent cultural dimensions across countries?
-power distance
-masculinity and femininity
-uncertainty avoidance
-short-term vs long-term orientation
____ is the extent to which people in a country accept that power is distributed unequally in society and organizations.
power distance
______is the degree to which societies believe that individuals should be self-sufficient.
______ capture the difference between highly assertive and highly nurturing cultures.
masculinity and feminiity
Masculine cultures emphasize?
-material success and achievement
Feminine cultures emphasize?
– the importance of relationships
-caring for the weak
-quality of life
The cultural difference of uncertainty avoidance is the degree to which people in a country are?
uncomfortable with unstructured, ambiguous, unpredictable situations
In countries with strong uncertainty avoidance people tend to be?
aggressive and emotional and seek security rather than uncertainty
The cultural dimension of ________ addresses whether cultures are oriented to the present and seek immediate gratification or to the future an defer gratification.
short-term/long-term orientation
Countries with short-term orientations are?
Countries with long-term orientations are?
Cultural difference affect?
recognizing______ is critical to succeeding in global business.
cultural differences
If you become an ______, someone who lives and works outside his or her native country, chances are you’ll run into cultural surprises.
What are the primary reasons to expatriate failure overseas?
-difficulty adjusting to language, culture, and social differences
______ and ______ can reduce the uncertainty that expatriates feel, the misunderstandings that take place between expatriates and natives, and the inappropriate behaviors that expatriates unknowingly commit when they travel
pre departure language and cross-cultural training
Expatriates who receive pre departure language and cross-cultural training….
make faster adjustments to foreign cultures and perform better on their international assignments
What are the 3 methods that can be used to prepare workers for international assignments?
-documentary training
-cultural simulations
-field experiences
______ focuses on identifying specific critical differences between cultures.
documentary training
practicing adapting to cultural differences
cultural simulations
______, a technique made popular by the US peace corps, places trainers in an ethnic neighborhood for three to four hours to talk to residents about cultural differences
field simulation
what is the most important factor in determining the success or failure of an international assignment?
how well an expatriate’s spouse and family adjust to the foreign culture
_____ and _______ for families can lead to more successful overseas adjustment
adaptability screenings; intercultural training
______ is used to asses how well managers and their families are likely to adjust to foreign cultures.
adaptability screening
What are the 2 trade barriers?
-non tariff barriers
what is included in non tariff barriers
-voluntary export restraints
-government import standards
-customs classification
What is GATT?
General Agreement on Tariffs and Trade


Agreement to regulate trade among more than 120 countries

“Substantial reduction of tariffs and other trade barriers and the elimination of tariffs”

regional trading zones
-Maastricht treaty of europe
Trade agreements….
increase choices, competitions, and purchase power

decrease prices

Free trade agreements create_____ but also intensify _______
new business opportunities ; competition
When a multinational company has offices, manufacturing plants, and distribution facilities in different countries and runs them all using the same rules, guidelines, policies, and procedures.
global consistency
when a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies.
local adaptation
what are the forms for global business?
-cooperative contracts
-strategic alliances
-wholly owned affiliates
Selling domestically made products to foreign markets
Advantages of exporting
-makes company less dependent on domestic sales
-gives company more control
disadvantages of export
-goods subject to trade barriers
-transportation costs
A domestic company, the licensor, receives royalty payments for allowing another company the licensee, to produce its product, sell its service, or use its brand name in a particular foreign market.
advantages of licensing?
-companies earn money without investing more money
-companies can avoid trade barriers
disadvantages of licensing?
-licensor gives up control over product quality
-licensees can become competitors
A collection of networked firms in which the manufacturer or marketer of a product or service, the franchisor, licenses the entire business to another person or organization, the franchisee.
advantages of franchise?
-fast way to enter foreign markets
-gives franchisor additional cash flow
disadvantages of franchise?
-loss of control
-culture bound
When companies combine key resources, costs, risks, technology, and people. Most common form is joint ventures.
strategic alliances
advantages of strategic alliances?
-companies avoid trade barriers
-companies only bear part of the costs
-partners can learn from each other
disadvantages of strategic alliances?
-profits have to be shared
-merging of cultures
foreign offices, facilities, and manufacturing plants that are 100 percent owned by the parent company
wholly owned affiliates
advantages of wholly owned affiliates?
-parent company receives all of the profits and has complete control
disadvantages of wholly owned affiliates?
-losses for parent company can be enormous
companies founded with an action global strategy
global new ventures
2 factors in growing markets?
-purchasing power
-growth potential
What are the qualitative factors in choosing a location?
-workforce quality
-company strategy
what are the quantitative factors in choosing a location?
-kind of facility being built
-trade barriers
-exchange rates
-transportation and labor costs
2 ways to minimize political risk
-political uncertainty
-policy uncertainty
strategies for dealing with political risk
(strategies for dealing with political risk)


divesting or selling business to avoid risk
(strategies for dealing with political risk)


active strategy to prevent or reduce political risks
(strategies for dealing with political risk)


using joint ventures and collaborative contracts
What are the 5 dimensions of culture?
-power distance
-uncertainty avoidance
-short-term/long-term orientation
What is included in language and cross-cultural training?
-documentary training
-cultural simulations
-field simulation training
assesses how well managers and families are likely to adjust to a foreign culture
adaptability screening
Language and cross-cultural training for______ is just as or more important than
family; training for employees

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