CHAPTER 3 DOING BUSINES IN GLOBAL MARKETS Importing buying products from another country Exporting selling products to another country Free trade the movement of goods and services among nations without political or economic barriers Comparative advantage theory theory that states that a country should sell to other countries those products that it produces most effectively and efficiently and buy from other countries those products that it cannot produce as effectively or efficiently Absolute advantage the advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries Balance of trade the total value of a nation s exports compared to its imports measured Trade surplus a favorable balance of trade occurs when the value of a country s Trade deficit an unfavorable balance of trade occurs when the value of a country s over a particular period exports exceeds that of its imports imports exceeds that of its exports Balance of payments the difference between money coming into a country from exports and money leaving the country for imports plus money flows from other factors such as tourism foreign aid military expenditures and foreign investment Dumping selling products in a foreign country at lower prices than those charged in the producing country used to reduce surplus products in foreign markets or to gain foothold in a new market Licensing a global strategy in which a firm the licensor allows a foreign company the licensee to produce its product in exchange for a fee a royalty Strategies for reaching global markets from least to most amt of commitment control risk and profit potential o Licensing exporting franchising contract manufacturing international joint ventures and strategic alliances foreign direct investment Contract manufacturing a foreign country s production of private label goods to which a domestic company then attaches its brand name or trademark part of the broad category of outsourcing also falls under the broad category of outsourcing Joint venture a partnership in which two or more companies often from different countries join to undertake a major project o Benefits of international joint ventures are clear 1 Shared technology and risk 2 Shared marketing and management expertise 3 Entry into markets where foreign companies are often not allowed unless goods are produced locally Strategic alliance a long term partnership between two or more companies established to help each company build competitive market advantages Foreign direct investment FDI the buying of permanent property and business in Foreign subsidiary a company owned in a foreign country by another company called foreign nations the parent company countries money traded services o The subsidiary also must observe the legal requirements of both the country where the parent firm is located called the home country and the foreign country where the subsidiary is located called the host country Should relationships with a host country falter the firm s assets could be expropriated taken over by the foreign government Multinational corporation an organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management o Only firms that have manufacturing capacity or some other physical presence in different nations can truly be called multinational Sovereign wealth funds SWFs investment funds controlled by governments holding The word culture refers to the set of values beliefs rules and institutions held by a U S businesspeople are often accused of ethnocentricity an attitude that your own large stakes in foreign companies specific group of people culture is superior to other cultures Exchange rate the value of one nation s currency relative to the currencies of other Devaluation lowering the value of a nation s currency relative to other countries Bartering is the exchange of merchandise for merchandise or service for service with no Countertrading a complex form of bartering in which several countries may be involved each trading goods for goods or services for services Trade protectionism the use of government regulations to limit the import of goods and Tariff a tax imposed on imports Protective tariffs import taxes raise the retail price of imported products so that domestic goods are more competitively priced meant to save jobs for domestic workers and keep industries from closing down b c of foreign competition Revenue tariffs are designed to raise money for the government Mercantilism the idea in the 17th and 18th centuries was for a nation to sell more goods to other nations than it bought from them that is to have favorable balance of trade Import quota a limit on the number of products in certain categories that a nation can import Embargo a complete ban on the import or export of a certain product or the stopping of Nontariff barriers are not as specific or formal as tariffs import quotas and embargoes all trade with a particular country but can be as detrimental to free trade General Agreement on Tariffs and Trade GATT a 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions World Trade Organization WTO the international organization that replaced the General Agreement on Tariffs and Trade and was assigned the duty to mediate trade disputes among nations Common market a regional group of countries that have a common external tariff no internal tariffs and a coordination of laws to facilitate exchange also called a trading bloc and example is the European Union North American Free Trade Agreement NAFTA agreement that created free trade area among the United States Canada and Mexico o Its objectives were to 1 eliminate trade barriers and facilitate cross border movement of goods and services 2 promote conditions of fair competition 3 increase investment opportunities 4 provide effective protection and enforcement of intellectual property rights patents and copyrights and 6 improve working conditions in North America Manufacturers use the term China Price to indicate the lowest price possible
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