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International Business Midterm

Terms in this set (96)

1. Research to gather knowledge and intelligence.
Understand the extent and nature of trade and investment barriers abroad. Scan the business environment to identify the nature of government intervention.

2. Choose the most appropriate entry strategies.
Most firms choose exporting as their initial entry strategy, however, if high tariffs are present, managers should consider other strategies, such as FDI, licensing, and JVs that allow the firm to produce directly in the target market.

3. Take advantage of foreign trade zones.
FTZs (or free ports) create jobs and stimulate local economic development. FTZs are areas where imports receive preferential tariff treatment.
Example - A successful experiment with FTZs has been the maquiladoras—export-assembly plants in northern Mexico. They produce components typically destined for the U.S. Maquiladoras enable firms from the U.S., Asia, and Europe to tap low-cost labor, favorable taxes and duties, and government incentives, while serving the U.S. market.

4. Seek favorable customs classifications for exported products.
Reduce exposure to trade barriers by appropriately classifying products according to the harmonized product code.

5. Take advantage of investment incentives and other government support programs.
Government assistance in the form of subsidies and incentives helps reduce the impact of protectionism.

6. Lobby for freer trade and investment.
Increasingly, nations are liberalizing markets in order to create jobs and increase tax revenues:
Mid-2000s -the Doha round of WTO negotiations sought to make trade more equitable for developing countries.

To increase the effectiveness of their lobbying efforts, foreign firms may hire former government officials.

In the long run, firms should take a seat with public-sector decision makers who negotiate interventionist activities with foreign governments.

Regional economic integration - agreements between countries in a geographic region to reduce tariff and non-tariff barriers to increase the free flow of goods, services, and factors of production between each other
Political Stability
-The absence of reliable government authorities adds to business costs, increases risks, and reduces managers' ability to forecast business conditions.
-Political instability is associated with corruption and weak legal frameworks that discourage investment.

Weak Intellectual Property Protection
-Even if they exist, laws that safeguard intellectual property rights may not be enforced, or the judicial process may be painfully slow.
-Argentina- enforcement of copyrights on recorded music, videos, books, and computer software is inconsistent- laws against Internet piracy are weak and ineffective.
-China Indonesia, and Russia - counterfeiting is common, especially with software, DVDs, and CDs.
-India- weak patent laws discourage investment by foreign firms.

Bureaucracy and Lack of Transparency
-Burdensome administrative rules, as well as excessive requirements for licenses, approvals, and paperwork, delay business activities.
-Example- American International Group (AIG) formed a joint venture with the giant Indian conglomerate Tata, to enter India's underserved $8 billion insurance market, and it still took six years before the Indian government granted AIG permission to sell property and life insurance.
-Excessive bureaucracy means lack of transparency, i.e. legal and political systems are not open and accountable. Where anti-corruption laws are weak, bribery, kickbacks and extortion are common.
-In Transparency International's rankings, emerging markets such as Argentina, Indonesia, and Venezuela experience substantial corruption.

Partner Availability and Qualifications
-Foreign firms need to seek alliances with local partners in countries characterized by inadequate legal and political frameworks gaining access to local market knowledge, supplier and distributor networks, and key government contacts.
-Qualified business partners in emerging markets are not readily available. Often in emerging markets, one has to contend with second-best or third-best partner candidate, and provide much technical and managerial assistance to upgrade the partner's capacity.

Dominance of Family Conglomerates

Alternative Exchange Rate Systems (ERS)

Generally ERS can be sorted into one of these categories:
Freely Floating
Managed Float
Target Zone
Fixed Rate

Under a floating rate system, exchange rates are set by demand and supply.
The model of supply and demand is extremely useful in explaining exchange rates under a floating system