MGMT Chapter 8 Global Management

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Global Business

The buying and selling of goods and services by people from different countries.

Multinational Corporation

A corporation that owns businesses in two or more countries.

Direct Foreign Investment

A method of investment in which a company builds a new business or buys an existing business in a foreign country.

Trade Barriers

Government-imposed regulations that increase the cost and restrict the number of imported goods.

Protectionism

A government's use of trade barriers to shield domestic companies and their workers from foreign competition.

Tariff

A direct tax on imported goods.

Non-tariff barriers

Non-tax methods of increasing the cost or reducing the volume of imported goods.

Quota

A limit on the number or volume of imported products.

Voluntary Export Restraints

Voluntarily imposed limits on the number or volume of products exported to a particular country.

Subsidies

Government loans, grants, and tax deferments given to domestic companies to protect them from foreign competition.

Customs Classification

A classification assigned to imported products by government officials that affects the size of the tariff and imposition of import quotas.

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.

World Trade Organization (WTO)

As the successor to GATT, the only international organization dealing with the global rules of tradfe between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.

Regional Trading Zones

Areas in which tariff and non-tariff barriers on trade between countries are reduced or eliminated.

Association of Southeast Asian Nations (ASEAN)

A regional trade agreement between Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

Maastricht Treaty of Europe

A regional trade agreement between most European countries.

North American Free Trade Agreement (NAFTA)

A regional trade agreement between the USA, Canada, and Mexico.

Global Consistency

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.

Local Adaption

When a multinational company modifies its rules, guidelines, policies and procedures to adapt to differences in foreign customers, governments, and regulatory agencies.

Four types of global business

Exporting, cooperative contracts, strategic alliances, wholly owned affiliates.

Exporting

Selling domestically produced products to customers in foreign countries.

Advantages of exporting

It makes the company less dependent on sales in its home market, and it provides a greater degree of control over research, design, and production decisions.

Disadvantages of exporting

Exported goods are subject to tariff and non-tariff barriers, transport costs can increase the price, and the company relies on foreign importers.

Cooperative Contracts

An agreement in which a foreign business owner pays a company a fee for the right to conduct that business in his or her country.

Two types of cooperative contracts

Licensing, Franchising

Licensing

An agreement in which a domestic company, the licensor, receives royalty payments for allowing another company, the licensee, to produce the licensor's product, sell its service or use its brand name in a specified foreign market.

Advantages of licensing

It allows companies to earn additional profits without investing more money, it avoids tariff and non-tariff barriers.

Disadvantages of licensing

The licensor has less control over the quality of the product or service, and licensees can eventually become competitors.

Franchise

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.

Strategic Alliance

An agreement in which companies combine key resources, costs, risk, technology, and people.

Joint Venture

A strategic alliance in which two existing companies collaborate to form a third, independent company.

Advantages of joint ventures

They help companies avoid tariff and non-tariff barriers, the risk is shared by both companies, they can share helpful knowledge and resources.

Disadvantages of joint ventures

The profits are shared, they can be difficult to manage due to a mix of cultures, it can create power struggles and a lack of leadership.

Wholly Owned Affiliates

Foreign offices, facilities and manufacturing plants that are 100% owned by the parent company.

Advantages of wholly owned affiliates

Parent company receives all the profits and has total control over the foreign facilities.

Disadvantages of wholly owned affiliates

Hugely expensive to start up, pose a large risk to companies.

Global New Ventures

New companies that are founded with an active global strategy and have sales, employees, and financing in different countries.

Aspects of attractive global business climates:

Attractive global business climates position the company for easy access to growing markets, are effective but cost-efficient places to build offices or manufacturing facilities, and minimize the political risk to the company.

Purchasing Power

A comparison of the relative cost of a standard set of goods and services in different countries.

Political Uncertainty

The risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest or other political events.

Policy Uncertainty

The risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business.

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