Chapter 8 Management50 cards

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Multinational corporation

a corporation that owns businesses in two or more countries


Direct foreign investment

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


Trade barriers

government-imposed regulations that increase cost and restrict number of imported goods


What does global business require?

A balance between global consistency and local adaptation. Every business may need different combination of these two factors.


Global consistency

Using the same rules, guidelines, policies, and procedures in each location. Managers like this because it simplifies decisions


Local adaptation

Adapting standard procedures to differences in markets. Local managers prefer policy of local adaptation b/c it gives them more control.


To what financial extent is US involved in global business?

U.S. direct foreign investment throughout world is $2 trillion a year. Direct foreign investment by foreign companies in U.S. amounts to $1.6 trillion a year.


What tarrifs and nontariff trade barriers have been implemented to make it harder/more expensive to buy foreign goods relative to domestic goods?

quotas, voluntary export restraints, government import standards, government subsidies, and customs classifications.


How have companies and consumers responded to reduced trade barriers in international trade?

Companies have responded by investing in growing markets of Asia, Eastern Europe, and Latin America. Consumers responded by purchasing products based on value rather than geography.


Regional Trading Zones

Areas in which tariff and nontariff barriers on trade between countries are reduced or eliminated


Maastricht Treaty of Europe

a regional trade agreement between most European countries


North American Free Trade Agreement (NAFTA)

regional trade agreement between US, Canada, and Mexico


Central America Free Trade Agreement (CAFTA)

regional trade agreement between COsta RIca, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and US


Union of South American Nations (USAN)

regional trade agreement between Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia, Columbia, Ecuador, Peru, Guyana, Suriname, and Chile


Association of Southeast Asian Nations (ASEAN)

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


Asia-Pacific Economic Cooperation (APEC)

regional trade agreement between Australia, Canada, Chile, People's Republic of China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the United States, and all members of ASEAN, except Cambodia, Lao PDR,


Global consistency

when multinational company has offices, manufacturing plants, and distribution facilities in different countries and runs them all using the same rules, guidelines, policies, and procedures.


Global business

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


Trade barriers

government-imposed regulations that increase cost and restrict # of imported goods



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



direct tax on imported goods


Nontariff Barriers

nontax methods of increasing cost or reducing volume of imported goods.



limit on how much you can import.


Voluntary export restraintsrestraints

voluntarily imposed limits on # or volume of products exported to particular country


Government import standard

a standard established to protect health and safety of citizens. However, realistically used to restrict imports.



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


Customs classification

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


General Agreement on Tariffs and Trade (GATT)

worldwide trade agreement that reduced and eliminated tariffs, limited government subsidies, and established protections for intellectual property


World Trade Organization (WTO)

successor to GATT, only international organization dealing with global rules of trade b/w nations. Main function is to ensure trade flows as smoothly, predictably, and freely as possible.


Local Adaptation

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



selling domestically produced products to customers in foreign countries


Cooperative contract

agreement where foreign business owner pays company a fee for right to conduct their business in his or her country



agreement in which 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 specified foreign market.



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


Strategic Aliance

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


Joint venture

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


Wholly owned affiliates

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


Global new ventures

new companies founded with active global strategy and have sales, employees, and financing in different countries.


Purchasing power

comparing relative cost of goods and services in different countries.


Political uncertainty

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


National culture

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



someone who lives and works outside his/her native company.


What does the phase model of globalization say?

As companies move from domestic to global orientation, they use these organizational forms in sequence: exporting, cooperative contracts (licensing/franchising), strategic alliances, wholly owned affiliate.


What type of companies do not follow the phase model of globalization?

Global new ventures b/c they are global from the start.


What is the first step in deciding where to take your company global?

finding an attractive business climate. look for growing market where consumers have strong purchasing power and foreign competitors are weak.


What other factors should be considered for taking a company global?

When locating office/manufacture facility, consider both qualitative and quantitative factors. For political risk, examine both political uncertainty/policy uncertainty. If location has high political risk, you can avoid it, try to control the risk,


What is the first step in dealing with a foreign culture?

recognize meaningful differences such as power distance, individualism, masculinity, uncertainty avoidance, and short-term/long-term oreintation. These differences msut be carefully interpreted b/c based on generalizations rather than specific indivi


What factors may make adapting managerial practices to cultural differences difficult?

Policies and practices can be perceived differently in different cultures. Also, cultural values are dynamic in many parts of the world; must make sure company is not using outdated assumptions about a country's culture.


How can a company prepare its employees for an international assignment?

Employees are more likely to perform well in other countries if they receive linguistic and cross-cultural training such as documentary training, cultural simulations, or field experiences, before hand.


What is the most important determinant of success in international assignments?

Adjustment of expatriates' spouses and families, can be improved through screening and intercultural training.