International Business Final

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Accounting Standards

Rules for preparing financial statements, defines what is useful accounting information

Auditing Standards

Specify the rules for performing an audit

Dutch Auditing Standards

Favored the use of current values for replacement assets

Japanese Auditing Standards

Prohibited revaluation and prescribes historic cost

Internal Forward Rate

Company generated forecast of future spot rates

Lessard-Lorange Model: Initial Rate

The spot exchange rate when the budget is adopted

Lessard-Lorange Model: Projected Rate

The spot exchange rate forecast for the end of the budget period

Lessard-Lorange Model: Ending Rate

The spot exchange rate when the budget and performance are being compared.

Money Management

Decisions that attempt to manage the firm's global cash resources, its working capital, most efficiently.

Bilateral Netting

If a subsidiary owes another subsidiary a certain amount of money and vice versa, it can be made with a single payment to the subsidiary who owed the least amount of money.

Multilateral Netting

Bilateral netting extended to transactions between multiple subsidiaries within an international business.

Tax Credit

Allows an entity to reduce the taxes paid to the home government by the amount of taxes paid to the foreign government

Tax Treaty

An agreement between two countries specifying what items of income will be taxed by the authorities of the country where the income is earned.

Deferral Principle

Specifies that parent companies are not taxed on foreign source income until they actually receive a dividend.

Tax Havens

Countries with an exceptionally low or even no income tax.

Human Resource Management

Activities an organization carries out such as human resource strategy, staffing, performance evaluation, management development, and labor relations.

Expatriate Manager

Citizen of one country who is working abroad in one of the firm's subsidiaries

Staffing

Concerned with the selection of employees for particular jobs.

Corporate Culture

Organization's norms and value systems

Ethnocentric Staffing Policy

When a company fills all key management positions with parent country nationals.

Polycentric Staffing Policy

Requires host-country nationals to be recruited to manage subsidiaries while parent country nationals occupy key positions a corporate headquarters

Geocentric Staffing Policy

Seeks the best people for key jobs throughout the organization regardless of nationality

Expatriate Failure

The premature return of an expatriate manager to his or her home country.

Self-Orientation

Expatriates with high self-esteem, self-confidence, and mental well being were more likely to succeed in foreign postings.

Others-Orientation

The more effectively the expatriate interacts with host country nationals the more likely he or she is to succeed.

Perpetual Ability

The ability to understand why people of other countries behave the way they do.

Cultural Toughness

The relationship between the country of assignment and how well an expatriate adjusts to a particular posting.

Strategy of Organized Labor

Trying to establish international labor organizations, lobbying for national legislation to restrict multinationals, and trying to achieve international regulations on multinationals through organizations like the UN

Marketing Mix

The set of choices the firm offers to its targeted markets. Many firms vary their marketing mix from country to country depending on differences in national culture, economic development, product standards, and distribution channels.

Market Segmentation

The identification of distinct groups of consumers whose purchasing behavior differs from others in important ways.

Concentrated Retail System

In which a few retailers supply most of the market

Fragmented Retail System

In which there are many retailers, no one of which has a major share of the market.

Channel Length

The number of intermediaries between the producer (or manufacturer) and the consumer

Exclusive Distribution Channel

In which relationships between producer and merchant are established and it is difficult for new producers to gain access.

Channel Quality

The expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international business.

Source Effects

Occurs when the receiver of the message evaluates the message on the basis of status or image of the sender. This can be damaging when consumers in the target country have a bias against foreign firms.

Country of Origin Effects

The extent to which the place of manufacturing influences product evaluations. The consumer may use country of origin as a cue when evaluating a product.

Noise

Refers to the amount of other messages competing for a potential consumer's attention.

Push Strategy

Emphasizes personal selling rather than mass media advertising in the promotional mix. This is usually for industrial products or complex new products, when distribution channels are short, and when few print or electronic media are available.

Pull Strategy

Depends more on mass media advertising to communicate with the marketing message to potential consumers. This is usually for consumer goods, when distribution channels are long, and when sufficient print and electronic media are available to carry the marketing message.

Price Elasticity of Demand

Measure of the responsiveness of demand for a product to change in price

Elastic

When a small change in price produces a large change in demand

Inelastic

When a large change in price produces only a small change in demand

Strategic pricing

Predatory pricing, multipoint pricing, and experience curve pricing.

Predatory Pricing

The use of price as a competitive weapon to drive weaker competitors out of a national market. Then the firm can raise prices and enjoy higher profits

Multipoint Pricing

A firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market.

Experience Curve Pricing

Strategy on an international scale that will price low worldwide in an attempt to build global sales volume as rapidly as possible, even if it means initial losses.

Production Logistics

How it might be performed internationally to lower the costs of value creation and to add value by better serving customer needs.

Total Quality Management (TQM)

Argues that management should embrace the philosophy that mistakes, defects, and poor-quality materials are not acceptable and should be eliminated. Management should create an environment in which employees would not fear reporting problems or recommending improvements.

Six Sigma

Successor to TQM that is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout the company. The smaller the number of sigmas, the smaller the waste.

ISO 9000

A quality standard for the quality of a firm's manufacturing process and products before they are allowed in the EU.

Minimum Efficient Scale

The scale of output a plant must operate to realize all major plant level scale economies. The larger the minimum efficient scale of a plant relative to total global demand, the greater the argument for centralizing production in a single location or a limited number of locations.

Flexible Manufacturing Technology

Covers a range of manufacturing technologies designed to reduce setup times for complex equipment, increase the utilization of individual machines through better scheduling, and improve quality control at all stages of the manufacturing process.

Mass Customization

The ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible--low cost and product customization.

Flexible Machine Cells

A grouping of various types of machinery, a common materials handler, and a centralized cell controller.

Concentration of Production

Differences between countries in factor costs, political economy, and culture impact the costs of manufacturing. Trade barriers are low, externalities from the concentration of like enterprises, important exchange rates are expected to be stable, high fixed costs and high minimum efficient scale relative to global demand, product serves universal needs.

Decentralization of Production

Differences between countries in factor costs, political economy, and culture do not impact the costs of manufacturing. Trade barriers are high, location externalities are not important volatility in important exchange rates, production technology has low fixed costs and low minimum efficient scale, the product does not serve universal needs.

Global Learning

The idea that valuable knowledge does not reside just in a firm's domestic operations, it may also be found in its foreign subsidiaries.

Make or Buy Decisions

Decisions about whether a company should perform a certain value creation activity themselves or outsource it to another entity.

Specialized Asset

An asset whose value is contingent upon a particular relationship persisting.

Dynamic Capabilities

Used to describe skills that become more valuable over time through learning.

Just in time

Systems to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before.

Letter of Credit

States that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular documents.

Bill of Exchange

The instrument normally used in international commerce to effect payment.

Draft

An order written by an exporter instructing an importer to pay a specified amount of money at a specified time.

Slight Draft

Payable on presentation to the drawee.

Time Draft

Allows for a delay in payment-- normally 30, 60, 90, or 120 days. It is presented to the drawee, who signifies acceptance of it by writing or stamping a notice of acceptance on its face.

Bill of Lading

Issued by the exporter by the common carrier transporting the merchandise.

Export-Import Bank

An independent agency of the United States government whose mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.

Countertrade

Denotes a whole ranger of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money.

Barter

The direct exchange of goods and services between two parties without a cash transaction. It is simple but not common.

Counterpurchase

Occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

Offset

Similar to a counterpurchase but the difference is that this party can fulfill the obligation with any firm in the country to which the sale is being made.

Switch Trading

Refers to the use of a specialized third-party trading house in a countertrade agreement.

Buyback

When a firm builds a plant in a country or supplies technology, equipment, or other services to a country and agrees to take a certain percentage of the plant's output as partial payment for the contract.

Strategic Alliances

Cooperative agreements between potential or actual competitors.

Timing of Entry

Entry is early when an international business enters a foreign market before other foreign firms and late when it enters after other international business have already established themselves.

First-Mover Advantages

The advantages associated with entering a market early. Ability to preempt rivals and capture demand by establishing a strong brand name.

Pioneering Costs

Costs when an early entrant has to bear that a later entrant can avoid.

Advantages of Exporting

It avoids the often substantial costs of establishing manufacturing operations in the host country and exporting may help a firm achieve experience curve and location economies.

Disadvantages of Exporting

Exporting from the firm's home base may not be appropriate if lower-cost locations for manufacturing the product can be found abroad. Also, high transport costs can make exporting uneconomical especially for bulk products.

Turnkey Project

When the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel.

Turnkey Advantages

Useful when FDI is limited by host-government regulations. Less risky in a country with unstable political and economic environments.

Turnkey Disadvantages

The firm that enters into a turnkey deal will have no long-term interest in the foreign country, the firm may inadvertently create a competitor, and if the firm's process technology is a source of competitive advantage then it is selling its comparative advantage to potential competitors.

Licensing Agreement

An agreement whereby a licensor grants the rights to intangible property to another entity for a specified period, and in return, the licensor receives a royalty fee from the license.

Franchising

A specialized form of licensing in which the franchiser not only sells intangible property to the franchisee but also insists the franchisee agree to abide by strict rules as to how it does business.

Franchising Advantages

The firm is relieved of many of the costs and risks of opening a foreign market on its own. Creates good incentive for the franchisee to build a profitable operation as quickly as possible.

Franchising Disadvantages

May not be as concerned about quality, may inhibit the firm's ability to take profits out of one country to support competitive advantage in another.

Joint Venture

Establishing a firm that is jointly owned by two or more otherwise independent firms.

Joint Venture Advantages

A firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, and business system. Also, when development costs are high a firm may gain by sharing these costs and or risks with a local partner. Also political considerations may make joint venture the only plausible mode of entry

Joint Venture Disadvantages

A firm that enters into a joint venture risks giving control of its technology to its partner, and a joint venture does not give a firm the tight control over subsidiaries. Also, the shared ownership arrangement can lead to conflicts and battles for control between the investing firms.

Wholly Owned Subsidiary

When the firm owns 100 percent of the stock. The firm can either set up a new operation in that country (greenfield venture) or it can acquire an established firm in that host nation.

Wholly Owned Subsidiary Advantage

Protection of technology, ability to engage in global strategic trade coordination, ability to realize location and experience economies.

Wholly Owned Subsidiary Disadvantage

High costs and risks

Organizational Architecture

The totality of a firm's organization, including formal organization structure, control systems, and incentives, processes, organizational culture, and people.

Organizational Structure

The formal division of the organization into subunits such as product divisions, national operations, and functions, the location of decision-making responsibilities within that structure, and the establishment of integrating mechanisms to coordinate the activities of subunits.

Incentives

The devices used to reward appropriate managerial behavior. Closely tied to performance metrics.

Processes

The manner in which decisions are made and work is performed within the organization.

Organizational Culture

The norms and value systems that are shared among the employees of an organization.

People

Not just employees but also the strategy used to recruit, compensate, and retain those individuals and the type of people that they are in terms of their skills, values, and orientation.

Vertical Differentiation

The location of decision-making responsibilities within a structure. Where in its hierarchy the decision making power is concentrated.

Horizontal Differentiation

The formal division of the organization into subunits.

Integration Mechanisms

Mechanisms for coordinating the subunits of a country.

International Division

Grouping all international activities together.

Worldwide Area Structure

Favored by firms with a low degree of diversification and a domestic structure based on functions. The world is divided into geographic areas. Each are is self-contained with its own set of value creation activities.

Global Matrix Structure

Horizontal differentiation proceeds long product division and geographic area. The responsibility for operating decisions pertaining to a particular product should be shared by the product division and the various areas of the firm.

Knowledge Network

Network for transmitting information within an organization that is based not on formal organization structure, but on informal contacts between managers within an enterprise and on distributed information systems.

Personal Control

Control by personal contact with subordinates. Tends to be most used in small firms, where there is direct supervision of subordinates actions'.

Bureaucratic Control

Control through a system of rules and procedures that directs the actions of subunits.

Output Controls

Involve setting goals for subunits to achieve and expressing those goals in terms of relatively objective performance metrics such as profitability, productivity, growth, market share, and quality.

Cultural Controls

Exist when employees "buy into" the norms and value systems of the firm. Employees tend to control their own behavior, which reduces the need for direct supervision.

Performance Ambiguity

Exists when the causes of a subunit's poor performance are not clear.

Strategy

The actions that managers take to attain the goals of the firm.

Profitability

The rate of return that the firms makes on its invested capital which is calculated by dividing the net profits over time.

Profit Growth

Measured by the percentage increase in net profits over time.

Value Creation

Measured by the value of a product to an average consumer minus the average unit cost of producing that product

Operations

The different value creation activities a firm undertakes.

Global Web

Web of value creation activities with different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized.

Experience Curve

Systematic Reductions in production costs that have been observed to occur over the life of a product

Learning Effects

Cost savings that come from learning by doing.

Economies of Scale

The reductions in unit cost achieved by producing a large volume of a product.

Universal Needs

Exist when the tastes and preferences of consumers in different nations are similar if not identical.

Global Standardization Strategy

Focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

Localization Strategy

Focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.

Transnational Strategy

Trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects. Differentiate their product offering across geographic markets to account for local differences.

International Strategy

Taking products first produced for their domestic markets and selling them internationally with only slight local customization.

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