BUSA4000 Global Business Midterm Review PDF

BUSA4000 Global Business – Midterm Exam Review Challenges 1 – 5: A list of key concepts, terms, and definitions. Challenge 1. The Context of International Business  Globalization of Markets: Ongoing economic integration and growing interdependency of c...

BUSA4000 Global Business – Midterm Exam Review Challenges 1 – 5: A list of key concepts, terms, and definitions. Challenge 1. The Context of International Business  Globalization of Markets: Ongoing economic integration and growing interdependency of countries worldwide.  International Trade: Exchange of products and services across national borders through exporting and importing. Can lead to surplus and deficit. Example: India exporting inorganic chemicals, oilseeds, raw ores to a country like China.  Exporting: The sale of products or services to customers located abroad, from a base in the home country or a third country.  Importing or Global Sourcing: Procurement of products or services from suppliers located abroad for consumption in the home country or a third country.  International Investment: Transfer of assets to another country or the acquisition of assets in that country. Also known as ‘foreign direct investment’ (FDI)  International Portfolio Investment: Passive owner-ship of foreign securities such as stocks and bonds, in order to generate returns.  Drivers of market globalization: Worldwide reduction of barriers to trade and investment. Transition to market-based economies and adoption of free trade in China, former Soviet Union countries, and elsewhere. Industrialization, economic development, and modernization. Integration of world financial markets. Advances in technology  Dimensions of market globalization: Integration and interdependence of national economies. Rise of regional economic integration blocs. Growth of global investment and financial flows. Convergence of buyer lifestyles and preferences. Globalization of production activities. Globalization of services  Societal consequences: Contagion; Rapid spread of financial or monetary crises from one country to another. Loss of national sovereignty. Offshoring and the flight of jobs. Effect on the poor. Effect on the natural environment. Effect on national culture.  Firm- Level Consequences: Countless new business opportunities for internationalizing firms. New risks and intense rivalry from foreign competitors. More demanding buyers who source from suppliers worldwide. Greater emphasis on proactive internationalization. Internationalization of firm’s value chain  Culture: The values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a given society.   Cross-cultural risk: A situation or event where a cultural miscommunication puts some human value at stake. It arises in environments comprised of unfamiliar languages, and unique values, beliefs, and behaviors.  Socialization: The process of learning the rules and behavioral patterns appropriate to one's society.  Acculturation: The process of adjusting and adapting to a culture other than one's own; commonly experienced by expatriate workers.  High and low context cultures: High context cultures such as Chinese, Korean, and Japanese establish social trust first, negotiations are slow and ritualistic, and agreements emphasize trust. Low context cultures such as German, Swiss, and North American get down to business first, negotiations are as efficient as possible, and agreements emphasize specific, legalistic contract. Challenge 2. Building & Sustaining a Competitive Advantage  Efficiency – Lower the cost of the firm’s operations and activities on a global scale.  Flexibility – The agility to manage diverse country-specific risks and opportunities by tapping resources in individual countries and exploiting local opportunities.  Learning – Develop the firm’s products, technologies, capabilities, and skills by internalizing knowledge gained from international ventures.  Global team - An internationally distributed group of employees charged with a specific problem-solving or best practice mandate that affects the entire firm.  Global information systems - Global IT infrastructure, together with tools like intranets and electronic data interchange, provides virtual interconnectedness within the international firm.  Multi-Domestic Industry - An industry in which competition takes place on a country-by- country basis.  Global Industry - An industry in which competition is on a regional or worldwide scale.  Global Integration - Coordination of the firm’s value-chain activities across multiple countries to achieve worldwide efficiency, synergy, and cross-fertilization, to take advantage of similarities between countries.  Seek cost reduction thru economies of scale - Concentrating manufacturing in a few advantageous locations achieves economies of mass production.   Capitalize on converging consumer trends and universal needs - Offer products that appeal to customers everywhere.  Provide uniform service to global customers - Services are easiest to standardize when firms centralize their creation and delivery.  Home Replication Strategy - The firm views international business as separate from, and secondary to, its domestic business. Expansion abroad is an opportunity to generate incremental sales for domestic product lines.  Multi domestic Strategy - The firm develops subsidiaries or affiliates in each of its foreign markets and appoints local managers to operate independently and be locally responsive.  Global Strategy - Headquarters seeks substantial control over all country operations in order to minimize redundancy, and achieve maximum efficiency, learning, and integration worldwide.  Transnational Strategy - A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning. Challenge 3. Assessing International Business Opportunities  Simple trend analysis examines aggregate production for the industry as a whole.  Monitoring key industry-specific indicators examines unique industry drivers of market demand.  Monitoring key competitors to estimate their sales levels provide an estimate of market potential.  Following key customers around the world can provide an estimate of likely sales in an industry that the firm supplies.  Tapping into supplier networks can offer valuable information for assessing sales and competitor activity.  Attending international trade fairs facilitates learning about market characteristics and sales potential.  Licensing partners are independent businesses that apply intellectual property to produce products in their own country.  Franchising partners are franchisees – independent businesses abroad that acquires rights and skills from the focal firm to conduct local operations.   International collaborative ventures include joint venture and strategic alliance partners.  Intensity of the competitive environment. Existing competitors may react strongly against entrants.  Pricing and financing of sales. Attractiveness of pricing and financing to buyers, channel members.  Human and financial resources. Major factor in the proficiency and speed of company success.  Partner capabilities. Partner skills and resources determine speed and effectiveness of entry.  Access to distribution channels. Ability to set up and use intermediaries and channel infrastructure.  Market penetration timetable. Fast or slow? Each has advantages and disadvantages.  Risk tolerance of senior managers.  Special links, contacts, capabilities of the firm. The firm’s network in the market.  Reputation. Success may be faster if customers are already familiar with the firm’s brands and reputation. Challenge 4. IB Entry Modes  Indirect exporting: Contracting with an intermediary in the firm’s home country to perform all export functions, often an Export management company or a trading company. Common among new firms to exporting.  Direct exporting: contracting with intermediaries in the foreign market to perform export functions, such as distributors or agents. The perform downstream value-chain activities in the target market  Company-owned foreign subsidiary: similar to direct exporting, except the exporter owns the foreign intermediation operation; the most advanced option  Pro forma invoice: issued on request to advise a potential buyer about the price and description of the exporter’s product or service.  Commercial invoice: actual demand for payment issued by the exporter when a sale is concluded  Bill of lading: basic contract between exporter and shipper. Authorizes the shipping company to transport the goods to the buyer’s destination  Shippers export declaration: Lists the contact information of the exporter and buyer, full description, declared value, and destination of the products being shipped. Used by governments to collect statistics.  Certificate of origin: the “birth certificate” of the goods, showing country where the product originated  Insurance certificate: protects the exported goods against damage, loss, pilferage and, sometimes, delay.  EXW: delivery takes place at the seller’s premises, or another named place  CIF (Cost, insurance, and freight): seller pays the cargo insurance and delivery of goods to the named port of destination. From the destination port, buyer is responsible for customs clearance and other costs and risks.  Compensation deal: Payment of countertrade in goods and cash  Counter purchase: entails two distinct contracts. In the first the seller agrees to a set price for goods and receives cash from the buyer, contingent on a second contract in which the seller agrees to purchase goods from the buyer.  Buy-back agreement: seller agrees to supply technology or equipment to construct a facility and receives payment in the form of goods produced by it.  Manufacturer’s representative: contracted by the exporter to represent and sell its merchandise or services in a designated country or territory.  Reshoring: refers to the return of a business process or entire manufacturing facility to the home country  Nearshoring: refers to the offshoring or relocation of processes or manufacturing to a nearby country, often sharing a border with the home country  Foreign direct investment (FDI): strategy in which the firm establishes a physical presence abroad by acquiring productive assets such as capital, technology, labor, land, plant, and equipment.  International collaborative venture: a cross-border business alliance in which partnering firms pool their resources and share costs and risks of a venture.  Joint venture (JV): a form of collaboration between two or more firms to create a jointly owned enterprise  Greenfield investment: the firm invests to build a new manufacturing, marketing or administrative facility, as opposed to acquiring existing facilities.  Vertical integration: the firm owns, or seeks to own, multiple stages of a value chain for producing, selling, and delivering a product.   Horizontal integration: arrangement whereby the firm owns, or seeks to own, the activities involved in a single stage of its value chain.  Turnkey contracting: a firm plan, finances, organizes, manages, and implements all phases of a project abroad, and hands it over to a foreign country after training local personnel.  Management contract: a contractor supplies managerial know-how to operate a hotel, resort, airport, hospital, or other facility, in exchange for compensation  International leasing: the lesser rents out machinery or equipment to clients abroad, often for several years at a time. Challenge 5. Government Intervention in International Business  Protectionism – National economic policies that restrict free trade. Usually intended to raise revenue or protect domestic industries from foreign competition.  Customs – The checkpoint at national ports of entry where officials inspect imported goods and levy tariffs.  Nontariff trade barrier - Government policy, regulation, or procedure that impedes trade.  Investment barriers - Rules or laws that hinder foreign direct investment.  Ad Valorem - are assessed as a percentage of the value of the imported product.  Prohibitive tariff - so high that no one can import any of the items.  Voluntary export restraints - Governments can impose voluntary quotas, under which firms agree to limit exports of certain products.  Local content requirements - require manufacturers to include a minimum of local value-added—that is, the production that takes place locally.  Rules of origin requirement - specifies that a certain proportion of products and supplies, or of intermediate goods used in local manufacturing, must be produced within the bloc.  Harmonized code - Standardized worldwide system that determines tariff amount.  Subsidies - government grants (monetary or other resources) to firm(s), intended to ensure their survival or success by facilitating production at reduced prices, or encouraging exports.  Antidumping duty—a tax imposed on products deemed to be dumped and thereby causing injury to producers of competing products in the importing country.  Economic freedom - the absence of government coercion so that people can work, produce, consume, and invest however they want to.  Foreign trade zone (FTZ) - an area within a country that receives imported goods for assembly or other processing and subsequent re-export.  Economic Bloc - A geographic area consisting of two or more countries that agree to pursue economic integration by reducing tariffs and other barriers to the cross-border