International Business UNIT ONE

Domestic Business
Making, buying, selling goods and services within one’s own country.
International Business
all business activities needed to create, ship, and sell goods and services across national borders.
Trade Agreements
such as the 1993 North American Free Trade Agreement (NAFTA) between Canada, the U.S. and Mexico eliminated taxes on goods between the three countries and eased the movement of these goods
Global Dependency
exists when items that consumers need and want are created in other countries
Imports
For the buyer, products bought from businesses in other countries.
Exports
For the seller, exports are products sold in other countries.
Trade Barriers
restrictions that reduce free trade among countries.
Import Taxes
increase the cost of foreign products
Quotas
restrict the number of imports
What are the four major categories of the international business environment? (short answer question)
1. Geographic Conditions (climate, terrain, seaways, natural resources)
2. Cultural & Social Factors (accepted behaviours, values, and customs; language, education, religion, social relationships)
3. Political and Legal Factors (type of government, political stability, government policies toward business)
4. Economic Conditions (type of economic system, general education level of the population, types of industries, level of technology)
Scarcity
refers to the limited resources available to satisfy the unlimited needs and wants that people have
Economics
The study of how people choose to use limited resources to satisfy their unlimited needs and wants
Decision-making Process
1. Define the problem
2. Identify the alternatives
3. Evaluate the alternatives
4. Make a choice
5. Take action on choice
6. Review the decision
What are the main factors that effect prices?
The main factors that effect prices are supply and demand
Supply
The relationship between the amount a good/service that businesses are willing and able to make available and the price
Demand
The relationship between the amount of a good/service that consumers are willing and able to purchase and the price.
Market Price
The point at which supply and demand cross (equilibrium price)
Inflation
An increase in the average price of goods and services in a country.
What are the two basic causes of Inflation ?
Demand-pull inflation and Cost-pull inflation
Demand-pull Inflation
occurs when demand exceeds supply and prices go up
Cost-pull inflation
occurs when business operating costs increase
Natural Resources
land, raw material that comes from the earth, water or air
Human resources
labour, people who work to produce goods/services
Capital resources
capital, buildings, money, equipment, factories
Command Economy
the government regulates the amount, distribution and price of everything produced and consumers usually have very few choices of what products to buy (communist countries like Cuba)
Market Economy
those in which individual companies and consumers make decisions about what, how, and for whom items will be produced
Mixed Economy
a blend between government involvement in business and private ownership
What are the three levels of economic development? (short answer)
industrialized countries, less-developed countries, and developing countries
Industrialized Country
is a country with strong business activity that is usually the result of advanced technology and a highly educated population (Canada, the U.S)
Less-developed Country
a country with low literacy, limited technology, and an emphasis on agriculture and mining (Bulgaria, Bangladesh)
Developing Country
are evolving from less developed to industrialized with improved literacy and technology, and decreasing dependence on agriculture and mining (Brazil, India, South Korea, Taiwan)
What are the main influences on a country’s economic development? (short answer)
literacy level, technology, and agriculture dependency
Absolute Advantage
when a country can produce a good or service at a lower cost than other countries
Comparative Advantage
a situation where a country specializes in the production of a good or service at which it is relatively more efficient
Gross Domestic Product (GDP)
measures the output of goods that a country produces within its borders
Gross National Product (GNP)
measures that total value of all goods and services produced by the resources of a country
Balance of Trade
the difference between a country’s exports (what it sells) and imports (what it buys)
Trade Surplus
when a country exports more than it imports
Trade Deficit
when a country imports more than it exports
Foreign exchange rate
the value of one country’s money in relation to the value of the money of another country
Foreign debt
the amount a country owes to other countries
Consumer Price Index (CPI)
data on price levels for various products and services in different regions of the country
Culture
culture is a system of learned, shared, unifying, and interrelated beliefs, values and assumptions
Cultural Baggage
the idea that you carry your beliefs, values, and assumptions with you at all times
Subculture
a subset or part of a larger, general culture, such as a business subculture
Nuclear Family
a group that consists of a parent or parents and unmarried children living together
Extended Family
consists of parents, children, and other relatives living together
Class system
a means of dividing the members of a cultural group into various levels based on factors such as education, occupation, heritage, inherited status and income
Contexting
refers to how direct or indirect communication is
Low-context culture
one that communicates very directly by attaching considerable value to words and interpreting them literally (Canada, the U.S. Germany)
High-context culture
is one that communicates indirectly, attaching little value to the literal meaning of words and interpreting them figuratively (Japan, Iraq)
Values
ideas that people cherish and believe to be important – can vary amongst cultures.
Individualism
the belief in the individual and her or his ability to function independently.
Ethnocentrism
the belief that one’s culture is better than other cultures
Culture Shock
a normal reaction to all the differences of another culture
Reverse culture shock
your normal reaction to becoming reacquainted with your own native culture
Five things that affect cultural distinction (short answer)
Family, education, gender roles, mobility, class
Democracy
all citizens take part in making the rules that govern them. People have equal rights and freedoms.
Totalitarianism
most people are excluded from making the rules by which they live. Political control is held by one person or a small group.
Mixed systems
characteristics of both systems and fall somewhere in between totalitarianism and democracy
Host country
the country in which a multinational enterprise is a guest
Social responsibility
the process whereby people function as good citizens and are sensitive to their surroundings and is key to the success of or failure of multinational enterprises
Home country
home country is the country in which a multinational enterprise is headquartered
Trade barriers
government actions or policies that make it difficult to trade across borders
Protectionism
Protectionism is a government policy of protecting local or domestic industries from foreign competition
How do governments discourage international business? (short answer)
Tariffs, quotas, boycotts and licensing requirements
Tariffs
can be placed on products that are traded internationally. Duties raise the cost of the product to the importer which discourages consumers from buying the imported product
Quotas
a limit on the quantity or monetary amount of the product that can be imported from a given country
Boycotts
government issues an absolute restriction on the import of certain products from certain countries
Licensing requirements
equires that companies have a government import license that grants permission to import a product, and that can be withdrawn at any time
Types of political risk (short answer)
Trade sanctions, expropriation, growth of economic nationalism, civil unrest
Political Risk
Government actions or political policies can change at any time, adversely affecting foreign companies
Trade sanctions
governments can impose trade restrictions ranging from tariffs to boycotts against another country to protest that country’s behaviour.
Expropriation
government takes control and ownership of foreign-owned assets and companies
Growth of Economic nationalism
restricting foreign ownership of companies and establishing laws to protect against foreign imports
Civil unrest
social disorder, revolutions, uprisings
Customs Duty
an import tax assessed on imported products
Sales tax
tax on the sale of products such as our goods and services taxes
Excise tax
levied on the sale or consumption of specific products such as tobacco, alcoholic beverages, and gasoline
Pay-roll related tax
taxes automatically deducted from an employees’ pay for things such as employment insurance and social security
Value-added tax
ax assessed in most European countries on the increase in value of goods from each stage of production to final consumption
Income taxes
tax on the amount a person or a corporation earns minus allowable deductions or credits.
Free trade zones
designated areas where products imported duty-free and then stored, assembled and used in manufacturing.
Most-favoured nation status
allows a country to export into the granting country under the lowest customs duty rates.
Free trade agreements
member countries agree to eliminate duties and trade barriers on products traded among members.
Common markets
members eliminate duties and other trade barriers, allow companies to invest freely in each members country, and allow workers to move freely across borders
Tax incentives
tax deductions or credits on foreign income
double taxation avoidance treaties
a tax incentive foreign governments use to attract Canadian companies to invest in their countries and create local jobs
Tax holidays
corporation does not pay corporate income taxes if they invest in their country
Sole proprietorship
a business owned by one person.
Partnership
partnership is a business that is owned by two or more people, but is not incorporated
Corporation
a business that operates as a legal entity separate from any of the owners
Stock certificate
a document that represents ownership in a corporation
Dividends
a share of the company’s profits
Limited liability
stockholders are only responsible for the debts of the corporation up to the amount they invested
Municipal corporation
in an incorporated town or city organized to provide services for citizens rather than to make a profit
Non-profict corporation
created to provide a service and are not concerned with making a profit.
Cooperative
a business owned by its members and operated for their benefit
Multinational company or corporation
an organization that has business operations in different countries
Low risk methods for getting involved in an international business (short answer)
1. Indirect exporting – company sells its products in a foreign market without any special activity for that purpose (lowest risk). Uses agents and brokers to bring buyers and sellers of products together; casual or accidental exporting
2. Direct exporting – company actively seeks and conducts exporting
3. Management contracting – company sells only its management skills
4. Licensing – selling the rights to use a production process, trademark, or brand name
5. Franchising – allowing the right to use a company name or business process in a specific way
High risk methods for getting involved in an intentional business (short answer)
6. Joint ventures – an agreement between two or more companies from different countries to share a business project. Strategic partnership allowing companies to cooperate for a common business purpose and to share costs, risks and profits
7. Foreign direct investment (FDI) – a company buys land or other resources in another country.
8. Wholly-owned subsidiary – a type of FDI whereby an independent company in one country is owned by a foreign parent company (highest risk)