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direct foreign investment

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

multinational corporation

A corporation that owns businesses in two or more countries

quotas, voluntary export restraints, government import standards, government subsidies, and customs valuation/classification

What are the 5 types of non-tariff barriers?


use of trade barriers to protect local companies and their workers from foreign competition


direct tax on imported goods


specific limits on the number or volume of imported products

voluntary export restrains

like a quota but the exporting country imposes the limit; offer to limit imports usually occurs because of the implicit threat of forced trade quotas by the importing country


non-tariff barrier that develops and protects companies in special industries

customs classification

assigned to imported products by government officials that affects the size of a tariff and the imposition of import goods

Administering trade agreements, Forum for trade negotiations, Handling trade disputes, Monitoring national trade policies, Technical assistance and training for developing countries, & Cooperation with other international organizations

What are the functions of the World Trade Organization?

The U.S. marketplace is easiest for foreign companies to enter
Competitive market between domestic and foreign companies keeps prices low

What are the 2 reasons American consumers get more for their money?

choices, competition, & purchasing power

What do free trade agreements increase?

food, clothing, necessities, & luxuries

What do free trade agreements decrease?

global consistency

When a multinational company has offices/plants indifferent countries and uses the same rules, guidelines, policies, and procedures

local adaptation

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


When companies produce products in their home countries and sell those products to customers in foreign countries

exporting, cooperative contracts, strategic alliance, & wholly owned affiliates

What are the 4 forms for global business?

licensing and franchising

What are the 2 kinds of cooperative contracts?


domestic company receives royalty payments for allowing another company to produce its product, sell its service, or use its brand name in a particular foreign market


collection of networked firms in which the manufacturer or marketer of a product or service licenses the entire business to another person or organization

key resources, costs, risks, technology, and people

What do companies forming strategic alliances combine?

joint venture

What is the most common strategic alliance?

joint venture

two existing companies collaborate to form a third company

Less dependence on home market sales ; Greater degree of control over research, design, and production decisions

What are the 2 advantages of exporting?

Many exports are subject to tariff and nontariff barriers; Transportation costs can increase price ; & Companies may depend on foreign importers for product distribution

What are the 3 disadvantages of exporting?

Allows companies to earn profits without investing more money ; The licensor invests in production equipment and facilities ; & Helps companies avoid tariff and nontariff barriers

What are the advantages of licensing?

Licensor gives up control over quality of the product or service sold by the foreign licensee; Licensees can eventually become competitors

What are the 2 disadvantages of licensing?

Fast way to enter foreign markets ; Good strategy when a company's domestic sales have slowed

What are the 2 advantages of franchising?

Franchisors face a loss of control; Franchising success may be culture-bound

What are the 2 disadvantages of franchising?

strategic alliance

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

Help companies avoid tariff and nontariff barriers to entry ; Participating companies bear only part of the costs and risks ; & Advantageous to smaller local partners

What are the 3 advantages of joint ventures?

Companies must share profits; Joint venture represent a merging of four cultures ; & With equal ownership, power struggles and a lack of leadership may occur

What are the 3 disadvantages to joint ventures?

Parent company receives all of the profits and has complete control

What is the 1 advantage of wholly owned affiliates?

Expense of building new operations or buying existing business; Losses can be immense if the venture fails

What are the 2 disadvantages of wholly owned affiliates?

First, the company founders successfully develop and communicate the company's global vision. Second, rather than going global one country at a time, new global ventures bring a product or service to market in several foreign markets at the same time.

What are the 2 common factors of global new ventures?

access to growing markets, location to build, and minimal political risk

What are the 3 best business climates for an attractive global business?

purchasing power

measured by comparing the relative cost of a standard set of goods and services in different countries

purchasing power and foreign competitors

What two factors help companies determine the growth potential of foreign markets?

degree of global competition

the number and quality of companies already in the market

avoidance, control, & cooperation

What are the 3 strategies for minimizing political risk?

political uncertainty

associated with the risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest, or other influential events

policy uncertainty

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


strategy used when the political risks associated with a foreign country or region are viewed as too great


active strategy to prevent or reduce political risks by lobbying foreign governments or international trade agencies to change laws, regulations, or trade barriers that hurt their business in that country.

national culture

The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country

power distance, individualism, masculinity & femininity, uncertainty avoidance, & short-term/long-term orientation

What are the 5 consistent cultural dimensions?

consumer driven

countries with short-term orientations are _________________

savings driven

countries with long-term orientations are _________________


Someone who lives and works outside his or her native country

language and cross-cultural training and consideration of spouse, family, and dual-career issues.

What are the 2 ways in which chances for success in an international assignment be increased?

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