New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Introduction to International Business

by: Brennon Boyer

Introduction to International Business MGT 384

Marketplace > Central Washington University > Business, management > MGT 384 > Introduction to International Business
Brennon Boyer
GPA 3.76


Almost Ready


These notes were just uploaded, and will be ready to view shortly.

Purchase these notes here, or revisit this page.

Either way, we'll remind you when they're ready :)

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Class Notes
25 ?




Popular in Course

Popular in Business, management

This 73 page Class Notes was uploaded by Brennon Boyer on Monday October 5, 2015. The Class Notes belongs to MGT 384 at Central Washington University taught by Staff in Fall. Since its upload, it has received 40 views. For similar materials see /class/218991/mgt-384-central-washington-university in Business, management at Central Washington University.


Reviews for Introduction to International Business


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/05/15
Up to a point a man s life is shaped by environment heredity and movements and changes in the world about him Then there comes a time when it lies within his grasp to shape the clay of his life into the sort of thing he wishes to be Only the weak blame parents their race their times lack of good fortune or the quirks of fate Everyone has it within his powers to say This I am today that I will be tomorrow Louis L Amour The Walking Drum Bantamreprinted in The Reader s Digest June 1995 at 167 168 I ran away from politics It s too bizarre back home Away I flew tuned into Blue Maybe Amsterdam or Rome Awakened by a stewardess With Spain somewhere below On the threshold of adventure God I do love this job so So while I make my move On the big board game Up and down a Spanish highway Some things remain the same Girls meet boys And boys tease girls I m heading out this morning For the far side of the world Jimmy Buffet The Far Side of the World Introduction A What is an international business 1 An international business is any business that intentionallyquot buys sells or invests internationally 2 Methods of buying and selling products internationally exporting and importing i exporting producing the product in one country and selling it in another country ii inportinghbuying the product in one country and selling it in another country Licensing ie granting foreign firns permission to produce your product for a feeie a royalty ex Cellmark Franchising licensing plus controls ex MCDonalds operational 3 methods of investing internationally a Examples Business direct investment owning a production site in a foreign country in another country and using the site to produce goods that are sold there or to some third country portfolio investment ownership interests in foreign business firms or ownership of debt issued by foreign firms or foreign governments of Career Patterns in International What is globalization and what has caused it 1 Globalization is the linking of internal and foreign markets 2 Globalization is the result a decline in the price of imported goods and services relative to the price of domestic goods and services a price of an inported good or service purchase price in the foreign country cost of transporting the good to the The importing country costs of inporting the good tariffs import licenses permits required inspections etc costs of clearing port and entering the stream of commerce in the importing nation Anything that decreases any component on the right hand side of this expression will tend to turn a domestic market into a global market relative decline in the price of imported goods a During the previous 20 years all of the components on the right hand side of the expression in B2a have declined i The various international states have entered into international and regional treaties that reduced barriers to the free flow of goods and services ex GATT The WTO NAFTA MERCOSUR the EU etc However transaction costs would have declined even if trade barriers had not been reduced ii improvements in transportation technology have reduced the costs of transporting goods the jet engine super freighters containerization RORO iii improvements in port productivity have reduced the costs of clearing port iv Improvements in computer technology communication technology and transportation technology have made it possible to produce each of the components of a finished product in the country where it can be produced most cheaply and then to bring them together for assembly the components into in yet another country in time to meet contract deadlines The ability to meet contract deadlines is important If the outsourcing firm cannot assemble the product in time to meet its contract deadlines the outsourcing firm is unreliable and does not get future orders Furthermore the outsourcing firm s failure to meet contract deadlines can result in the purchaser of the outsourced products being unable to meet its contractual deadlines subjecting it to damage claims which which can destroy the supposed cost advantage offered by purchasing outsourced products Improvements in computer technology and declines in transportation costs have also resulted in the globalization of certain service markets a medicine i medical tourism ii radiologists iii surgery b airplane design c economic analysis d accounting services e legal service The linking of domestic and international markets as a result of the decline in transaction costs carries the label of globalization 1 Globalization has resulted in economic restructuring a Resources have flowed out of one industry into another b Jobs have been lost and new jobs are created 2 Some resource owners have been winners and some have been losers Will the current pace of globalization continue 1 possible constraints on further globalization of the market for manufactured goods a infra structure capacity i port capacity ii capacity for processing b utility issues electricity communications water sewer c terrorism 2 possible constraints on further globalization of the market for services a infrastructure electricity communications b regulatory barriers c legal differences about what can be bought and sold International business activities fit into business plans in a variety of ways 1 A US firm might import auto parts to sell to American consumers A US firm Ford might buy auto parts from a foreign firm in order to produce another good such as autos for sale in the US A US firm might import auto parts in order to produce autos for export to another country say China A firm might invest in a factory in another country Mexico to produce auto parts that it inports into the US to sell to US consumers A firm might invest in a plant in another country Mexico to produce goods that it inports into the US to incorporate into automobiles for export to a third country China US firms might invest in a plant in another country Mexico to produce goods autosin Mexico that it exports to China US firms might invest another country to produce goods in a plant in that it sells in that country Ford and Spain Because of the varied activities of international business a trade or investment barrier can have unpredictable and unexpected consequences Why is managing an business different from managing a domestic business 1 In nany respects nanaging an international business is no different front managing a domestic business a In both cases the objective is to make a profit ie to buy low and sell high b In both cases an entrepreneur must manage the various functional areas of business eg accounting marketing finance etc 2 Doing business internationally is different from doing business domestically because doing business internationally subjects the firnl to different transaction costs than doing business domestically a goods and services do not always flow freely across borders b labor capital and entrepreneurship do not always flow freely across borders c supply chain management problems may be different particularly if a country is landlocked d the firm is exposed to different types of legal systems and substantive legal rules e different types of human resource management problems may be present II f a common currency is absent g different risks must be managed h International transactions are taxed differently than domestic transactions j Accounting rules may be different in different countries k cultures are different 3 It is not possible to know everything that is necessary to successfully conduct international business 4 The successful conduct of international business requires one to recognize issues 5 Once the issues have been recognized the necessary facts can be acquired to resolve the issues look them up or hire someone to do it for you 6 The purpose of this course is to alert you to the issues and develop a check list of commonly occurring issues non exhaustive that you can use if you are ever doing business in an international environment The Global Trading System A Mbst countries are members of a regional economic group that allows free trade in manufactured goods among its member countries Current operational regional organizations 1 European Union EU 2 European Free Trade Association EFTA currently Norway Iceland Switzerland and Liechtenstein 3 NAFTA C Regional MErcosur Argentina Uruguay and Venezuela Brazil Paraguay The Andean Pact Bolivia Columbia Ecuador and Peru Central Anerica Free Trade Association US El Salvador Nicarauga Honduras Guatamala the Dominican Republiconce domestic laws have been changed to confonn to the treaty and Costa Ricaif they ratify the treaty organizations in the process of organizing themselves 1 Free Trade Area of the Americas FTAA a is a proposed free trade area b is in the discussion stage and not yet established c 34 countries are participating in the discussions d nay be dead after the Buenos Aires meetings Assn of SE Asian Nations ASEAN a includes Brunei Indonesia Laos Malaysia Myanmar the Philippines Singapore Thailand and Vietnam b is a potential free trade area not an actual free trade area only 5 of intra bloc trade consists of goods on which the participants have removed tariffs Asia Pacific Economic Cooperation APEC a consists of 18 members US Japan and China including the potentially the world s trade area largest free industrialized nations have committed to removing their trade barriers by 2010 and the developing economies have conndtted to removing theirs by 2020 However at present APEC is only a potential free trade area because no barriers have actually been removed and there is no agreement on the details of the removal 4 Caricoeraribbean Community agreed to establish a customs union in 1973 but has made little progress in negotiating integration 5 Central American Common Market est in 1960 but broke down with the Honduran Nicaraguan war and has yet to be revived D Classifications of trading blocks listed by increasing degrees of economic integration 1 free trade area a nembers remove barriers to the free flow of goods and services among themselves but each individual country determines its own trade policies with respect to non members the trans shipment problem i there is an incentive for non members to ship goods to those members who have the lowest barriers and then trans shipping them to members who have higher barriers towards non members ii goods shipped between within the block nmst countries have a certificate of origin showing whether the goods were manufactured by one of the member countries ex of free trade areas i North American Association NAFTA Free Trade ii the European Free Trade Association EFTA customs union a members reduce and or remove trade barriers between each other and have a comon external trade policy eliminates costs associated with the prevention of transshipment results in closer economic integration than in the case of a free trade area because the common external barrier reduces trade with non members and increases trade with members ex of customs unions CARICOM the Andean Pact MERCOSUR has undertaken steps to form a customs union comon market a Members remove trade barriers between each other have a common external policy and allow free movement of the factors of production including labor ie customs union free movement of the factors of production ex EU 25 members Spain Portugal United Kingdom Ireland France Netherlands Belgium Germany Luxembourg I taly Aus tria Slovenia Hungary Slovakia Poland Czech Republic Denmark Sweden Finland Lithuania Estonia Malta Cyprus Latvia Greece MERCOSUR aspires to become a corrmon market but at present the EU is the only example of a common market 4 economic union a members i remove trade barriers ii adopt a external trade policy common iii permit free flow of the factors of production iv adopt a common currency v harmonize of tax rates vi have a common monetary and fiscal policy and vii a coordinating bureaucracy is a customs union common internal economic policies ex none although the EU is moving in this direction and is close to arriving i corrmon external trade policy exists ii free flow of factors of production exists except for labor from the May 2 004 entrants iii a corrmon currency EURO has been introduced but not all members have iv vi adopted it A central European bank exists national budget deficits cannot exceed 35 of GDPif the country has adopted the Euro rule has been breached by France and Germany and others A limit exists debt percentage of GDP on as a tax rates have not been harmonized but harmonization is under discussion the coordinating bureaucracy of the EU is located in Brussels Belgium Council of Ministers which consists of one government minister from each member makes policy decisions some decisions of the Council must be unanimous some require a super majority and some require a majority European Parliament which is elected directly by the citizens of the various countries has budget making authority and input on rule making The representation of each country is not strictly according to a country s population 6 iv Germany is the largest country and has the largest number of representatives but it would have more if representation was strictly according to its population The European Court of Justice determines whether national legislation or the decisions of the Council of Ministers violate the EU s constitution ie the various treaties establishing the EU located in France Strasbourg The treaties override inconsistent national or EU legislation A constitution has been submitted to the member states for ratification the sovereignty issue war transportation policy other issues political union a an economic union requires a coordinating bureaucracy i i someone has to decide how fast the money supply should grow this year someone has to decide whether the harmonized tax rates should be changed or kept the same this year Eventually the issue of some sort of governing body arises i ii iii who has the right to choose the coordinating bureaucracy How do these persons obtain the right to choose the bureaucracy Germans were federation At one point the talking about a although not now E The role of the WTO in the world trade system 1 historical background of the WTO a The General Agreement on Tariffs and Trade GATT i ii GATT was a treaty signed in 1947 by several countries which had the objective of reducing trade barriers Eventually 140 countries signed the treaty Highlights of GATT i MEmbers of GATT favored nation status Country A who is a member reduces trade barriers with country B the exporters in all members of GATT received nmst ie if face the same lowered trade barriers a applies to bilateral treaties b nmltilateral treaties and MEN status ii If a country violated one of the eight GATT agreements the country was subject to sanctions The sanctions could include expulsion from the organization which would deprive it of the automatic most favored nation statusquot granted by the treaty The sanctions present under GATT substantially raises the economic costs of trade barriers that violate the agreements reached during the rounds of negotiations making retreat from the principles of free trade unlikely Eight different rounds of negotiations occurred under GATT sponsorship each with a resulting reduction in trade barriersthe final round occurring in Mbntevideo Uruguay results of the Uruguay round i extended the principles of free trade to cover trade in services financial services banks insurance etc telecommunications services others also provided protection for intellectual property such as patents copyrights and trademarks iv also established the WTO Functions of the WTO a arbitrating trade disputes i ii iv a country that thinks it has been wronged can bring its grievance to the WTO WTO issues an arbitration report countries involved in disputes unlike the pre WTO situation cannot block the issuance of arbitration reports countries found to be in violation appeal The arbitration and appellate process unlike the pre WTO process is subject to strict time limits A failure to comply with the recommendations of the arbitration panel subjects the offending country to damages or commensurate trade sanctions Union s failure restrictions on beef has led to Ex European to remove the imported US tariffs nposed on EU ag products such as French cheese smart sanctions sanctions targeted at the political base of the other country s govt Ex the eventual abandonment steel quotas establishment and of US ii nmnitoring the trade policies of members Why is the WTO controversial a It destroys bargains nade between interest groups by taking away the rewards obtained from participating in successful political coalitions b examples of destroyed political bargains i environmental legislation ii labor legislation iii agricultural subsidies unresolved issues a restrictions on foreign direct investment ie restrictions on foreign ownership of a business b dunping selling goods at a loss and significantly injuring an industry in the importing country c whether the WTO provides an effective remedy for countries with small economies i The banana wars ii textiles Current WTO negotiations a MEmbers of the WTO have agreed to enter into negotiations on removing trade barriers to agricultural products and textiles these negotiations are occurring currently d countries are of barriers to additionally the negotiating removal foreign investment However little progress has occurred The Role of the United Nations Convention on the International Sales of Goods CISGin the World Trading System 1 Background a The CISG is a treaty signed in 1980 by 62 states i The states that signed the treaty include the major trading states except for Great Britain ii Interestingly the signing parties included states where the Communist Party held power at the time that the treaty was signed b The CISG incorporates rules from the major legal systems in the world 2 The CISG establishes rules of law that apply to the sale of goods if the buyer and seller have their place of business in different countries unless a the sales contract states that some other rule of law applies to a dispute OR the issue of law is one that is specifically exempted from coverage by the convention 95 one of the countries has not signed the treaty AND the choice of law rules where the litigation is occurring require that some other source of law What constitutes a sale of be chosen to resolve the controversy OR the dispute involves an issue of law that one of the signing countries removed from the agreement when they ratified it a goodI within the meaning of the CISG a b there is no definition of goods instead there are six categories of sales that the convention excluded from coverage i goods bought for personal family or household goods ii auction sales iii sales of property seized by authority of law iv stocks shares investment securities negotiable instruments or money v ships sales hovercraft or aircraft vi electricity mixed sales and service contract i are considered sales of goods unless the preponderant part of seller s obligations consists of labor or other services ii preponderant is undefined but probably means more than half but half of what cost sales price etc Contractual issues excluded from coverage of the convention illegality ie whether one of the required acts under the contract violates the law of the country where one of the parties does business contractual incompetence of one of the parties minority insanity intoxication of one of the parties third party claims under the contract personal injuries caused by the product of the International Chamber of includes arbitrating commercial disputes among private parties establishing INCO terms INCO terms when included in a contract describe who has the responsibility for transporting the goods where the risk of loss passes from buyer to seller of the issue A partial list of the INCO terms and their i ii iii iv G The Role Connerce 1 role 2 a The i ii b ex 3 meaning a ex b at works sellers responsibilities end his premises free on carrier sellers responsibilities for shipment and risk of loss pass when goods are loaded on the first inland carrier c free alongside shipFAS seller s responsibilities for shipment and risk of loss pass when the goods are at the wharf along side the ship d free on board FOB sellers responsibilities to pay shipping and risk of loss pass when the goods pass the ship s rail e CampF costs and freight to a named overseas point seller pays costs and freight through debarkation at the named point of destination f CIFto a named point seller pays costs insurance and freight through debarkation to the named point of destination g delivery duty paid seller delivers goods with inport duties paid including inland transportation to the buyer s premises G Services and the global trading system 1 None of the regional have free trade in services organizations The WTO a Theoretically the Uruguay round of the GATT negotiations resulted in the removal of trade barriers in banking insurance and telecommunications b However banking is still subject to a number of restrictions barriers to trading services on the internet i professional licensing requirements ex radiologists in Massachusetts ii legal uncertainty about what is legal The Yahoo case services that cannot be traded on the internet can be traded through travel by the customer ex medical tourism however trading services through travel by the seller is difficult because of immigration restrictions III Exporting and Importing Goods A Issues 1 How can I locate foreign customers suppliers 2 Can I export inportthis product to from this particular country 3 What type of export import license do I need 4 How can I ensure that I am paid once I ship the goods Or how can I ensure that I receive the goods once I ve paid for them 5 If a dispute arises which set of legal rules will an adjudicator apply to resolve the dispute 6 Which adjudicator will resolve a dispute 7 Where will the dispute be heard 8 Do I have to arrange for shipment of the product 9 What insurance do I need for the goods 10 What terms should be in the contract for sale 11 If I have arrange for transportation a should I use a freight forwarder or b should I arrange for transportation myself i What documentation is necessary to get the product out of one country and into another ii What mode of transportation should I use iii What type of transportation services should I purchase iii how should I package the goods 12 What are the inplications of exporting and importing when my customer uses just in time inventory management B Locating markets 1 locating markets for goods a internet advertising b trade fairs c sales agent 2 locating markets for services a Follow your customers to foreign countries establish a presence serving your customer and then expand C d Licenses Enter markets that are similar to the firm s domestic market ex providing construction design services for similar buildings in a market with similar regulations Offer services to aid in transition between two technologies eg a transition to containerization if the services within your field of expertise offer your services on the internet 1 Export licenses a With certain limited exceptions commercial exports usually require an export license Best approach assune a license is needed until you discover otherwise licenses can be broad or restrictive i ex US export licenses general for relatively low level technology and goods not subject to control for foreign policy national security or economic reasons individual validated license licenses the export of a specific quantity of a particular commodity to a particular end user subject to special conditions ii goods that can be used for warfare or contain military technology usually have restrictive licenses ex of individual license authorization for the export of 5000 semi automatic 223 caliber rifles to the government of Colombia during the time period January 1 2002 December 31 2002 to be used for drug interdiction only the export of goods to certain countries require individual licenses no matter what the nature of the goods are ex Iran 2 Import Licenses used to enforce quotas dairy products gather statistics on quantity of inports steel productsand to monitor and control products D Payment Options 1 options a cash in advance b open account payment upon delivery of goods or at an agreed upon time thereafter c consignment exporter delivers goods and is paid upon their sale or within an agreed upon time thereafter d documentary collection the usual payment arrangement e documentary collection plus letter of credit 2 Documentary collection a Usually four parties are involved the exporter the exporter s bank the inporter and the inporter s bank The exporter prepares a draft on the importer39s bank account i A draft is a document that orders the importer39s bank to pay the exporter iii The exporter name in the payer s blank and gives the order to his bank The draft can be payable on sight a sight draft or payable x days after acceptance a time draft iv The exporter39s bank sends it to the importer39s bank along with any other documentation required by the sales agreement eg negotiable bill of lading connercial invoice a packing list certificate of insurance etc v The importer s bank sends the draft to the importer vi If inporter writes accepted on the draft the inporter39s bank charges the importer s account transfers funds to the exporter39s bank who credits the exporter39s account 3 documentary collection plus a letter of credit a letter of credit a letter from a bank guaranteeing payment upon fulfillment of certain conditions revocable letter of credit can be revoked at any time irrevocable letter of credit cannot be revoked without the exporter39s consent E If a dispute arises which set of legal rules will a court use to resolve the dispute 1 sale of goods CISG subject to exceptions discussed previously 2 Sale of services a If the contract specifies the rules that will apply to a dispute the court will normally apply those rules b If the contract does not contain a clause specifying the rules the rules are usually the rules in the geographic location where the dispute arose 3 contract of carriage a If the contract specifies the rules that will apply to a dispute the court will normally apply those rules b If the contract does not specify the rules that apply to a dispute usually the law of the flag that the ship flies G How will a dispute be resolved who will hear it and where will it be heard 1 Unless the parties agree otherwise a dispute will have to be resolved through a b C surrender or negotiation and settlement or litigation agreeing on dispute resolution a The parties can agree to i arbitrate instead of litigate or ii to litigate in a particular country or location within a country and iii to have the adjudicator apply a particular set of legal rules to resolve the dispute If the parties think about the issue of solving disputes they usually agree to arbitrate An agreement on resolving a disputes should include i who ie which court system or arbitration body is to resolve the dispute ii which legal rules the court or arbitrator applies and iii the location of proceedings If the parties have not agreed to arbitrate and not agreed on the location of any litigationthe location of the litigation usually will depend on a b which party files first and where the dispute arose G Do I have to arrange for shipment of the product and is insurance necessary 1 The answer to this question is determined by the sales contract a b ex the contract requires the goods to be shipped ex works ex the contract requires the goods to be shipped fob insurance considerations b If I bear the risk of loss should I purchase insurance or self insure i ii Does the sales contract require you to purchase insurance If not what is your financial exposure Interstate Commerce Act holds connwn carriers in the US liable for lost or damaged goods International carriers however have substantially less liability exposure Warsaw convention for example limits liability of air common carriers to 907lb Of cargo Types of insurance policies i ii Against what types of risk do you want to insure The usual coverage is all riskquot coverage All riskquot however does not really cover all risks only the risk that the cargo will be lost because of damage to the ship aircraft etc May have to purchase special coverage to obtain protection for certain types of risks eg loss caused by delay if you are shipping a perishable connwdity Read the definition of all riskquot and its exclusions in your policy Tell the insurance broker what risks you want the policy to cover H The content of the sales agreement 1 at a minimum the agreement should include a quantity b date of payment c payment terms i price ii currency to be used in making payment iii when paynent is due iv credit terms if any d An INCO team if the contract is for the sale of goods e delivery or performance date f place of delivery or performance g method of resolving disputes 2 If the default terms of the CISG or local law are not acceptable be an attempt should made to add additional terms that are acceptable J Arranging transportation if required by the sales contract 1 alternatives a use a freight forwarder 3 b arrange the shipping yourself using a freight forwarder a primary role is to dispatch shipments from the US via common carriers ie a carrier that serves the general public similar firms exist in many foreign countries performs his role by i preparing export declarations and other documentation ii booking and confirming cargo space on a common carrier iii arranging for warehouse storage if necessary and cargo insurance iv clearing shipments through US ports insuring that the shipment complies with govt regulations v preparing notification and documentation papers for distribution to banks shippers and customers and vi handling nmnies advanced by shippers and freight delivered to their care vii handling freight delivered by the shipper to hisher care arrange the shipping yourself a transportation alternatives i ship by mail ii iv ship by courier ship by private carrier ie charter ship by connwn carrier by land sea or air mode considerations i ii often requires the use of sea and air Sea and air transport subjects the cargo to more violent movement than land transportation airfields and ports are limited in the size of aircraft and cargo vessel that can access the facility aircraft are limited by run way length and weight limits ports are limited by depth of water and equipment available for unloading super freighters require 40 meter drafts such depths are available naturally on the West Coast but not the East Coast or in Europe may require a change in transport modes en route to destination some countries have excellent ports of entry but weak internal infrastructures ex Chile and Puerto Montt d minimum documentation i ii document showing evidence of the right to ship this good out of the country and evidence of the right to make Etry into the importing country carrier will not accept the good wo this documentation negotiable bill of lading functions of the bill of lading is a receipt for the cargo is a contract for transportation between the shipper and carrier is a document of title that can transfer ownership of the goods to another person types of bills of lading ocean bill of ladin shipping is by ocean carrier air waybill shipping is by air quotcleanquot bill of lading shipper received the shipment wo damage or shortage commercial invoice a bill for the goods frmu the seller to the buyer K used to determine whether the goods are subject to tariff in the importing country and if so how much entry manifest a document prepared by the transporter frmn the bills of lading that summarizes all cargo on board by point of loading and discharge when the carrier entered port packing list iii Additional documents could be required iv consequences of inadequate documentation importer cannot obtain possession of the goods and has no duty to pay the exporter The import process 1 Usually only the owner of the goods or a consignee can bring a good into the country a Must have documents showing you fall into that category i Bill of lading ii ocean bill iii Air bill b Many importers give a power of attorney to a customs broker who does the paperwork K In the US the importer or his agent has 5 working days after the goods arrive to produce the necessary documentation to clear customs to the Customs Service Customs duty if any is based on the invoice The goods may or may not be physically inspected a inspection for required markings such as the country of origin if required b inspection to ascertain that the goods are the goods described by the invoice Customs must be paid At some point the goods are released to the importer and the goods can be shipped to the ultimate customer a When the goods are released the Customs Service sends its paper work to headquarters who determines a final duty and informs the importer b The duty is paid from the bond or deposit with any excess being refunded and any deficiency paid by the importer c the release of the goods and the payment of the duty is called liquidation the just in time inventory challenge 1 contracts that require delivery for just in time inventory systems may contain significant penalty clauses for late delivery In order to meet deadlines and to better serve customers a firm should attempt to develop a b Ex EDI electronic data interchange early supplier involvement for better planning of goods development and movement efficient customer response systems tracking consumer response on the retail level The Li amp Fung Limited Inc clothing transaction a Li amp Fung Headquarters is organized into divisions with one division for each of its major customers i Within each division the staff is organized into teams for areas such as design tech support raw material purchasing quality assurance shipping etc ii Each division has a computer with a direct software link to their customers and to each branch office eliminating telephone tag which is deadly if you have the Bankapi switch problem iii The divisions use the branch offices for raw materials purchasing shipping etc management information systems coordinate manage and control the globally dispersed design production and shipping process to minimize the time between order and delivery i A customer places an order for a certain product with a fixed delivery date with the division of ii iv Li amp Fung that services it The Division through its branch offices searches through its network of 7000 independent suppliers in 26 countries to find the most attractive combination of price and quality that can meet the delivery date The Division after gathering information from the branch offices decides to order yarn in Korea zippers in China from a Japanese owned company weave and dye the yarn in Taiwan assemble the clothing in Thailand because of trade restrictions between China and Taiwan Five different Thai firns are given contracts to manufacture the clothing in Thailand Mbnitoring international events The division directs the branch offices branch offices to purchase the items and arrange for delivery by a certain date The computer linkages makes it possible to monitor the process of procurement delivery manufacture and distribution and to redirect shipments quickly if delays develop Timberland Corp characteristics of the firm s supply chain prior to reform of the chain i ii outsourced its footwear and apparel manufacturing to dozens of low wage enterprises in Europe Asia and Latin America numerous warehouses world wide 12 in Asia 3 in Europe and several in the US distributed its product to more than 50 countries average shipment of footwear was for less than 12 different types of shoes which made for an enormous volume of individual shipments to track no common information system linked suppliers warehouses Timberland shippers and retailers could not track product from the production site to its final destination thus could not direct a freight forwarder to send the product by air or ocean freight depending on the urgency of the shipment could not skip a distribution center and ship directly to a customer to meet a contract date consolidation of shipments was difficult iii after the mid 1990 s consolidated its warehouses into 3 regional warehouses one in Asia one in US and one in Europe consolidation of the warehouses simplified the problem of adopting a common information system adopted a common information system linking itself to suppliers warehouses shippers and customers consolidation simplified tracking warehouse consolidation plus tracking permitted consolidation freight shipments and obtain better freight rates IV Operating a Business In Another Country A Issues 1 does a b Ex the law of the hone country permit this type of investment Iran Halliburton article If there is a prohibition against the contemplated investment type of foreign is there a legitimate way to avoid the prohibition does local law allow foreigners to engage in this business a In some countries foreigners are What should I do prohibited from engaging in certain types of businesses ex US airlines providing domestic service cannot be foreign owned If there is a prohibition against the contemplated type of foreign investment is there a legitimate way to avoid the prohibition Ex USforeigners can own up to 25 of an airline providing domestic service if anything to ndnimize the expropriation and confiscation risk What licenses and are permits necessary a b d What constraints import licenses operating licenses Are the licenses readily available or is it time consuming to obtain them Where does the country lie on the index of economic freedom if any will I face in acquiring resources a real property i what types of real property rights can I acquire ii How do I know that the person claiming to own the rights that he is selling actually owns them Europe property register Latin America other geographical areas iii the problem of sub surface rights US Civil Law countries other countries personal property i What items do you want to import into the country What licenses tariffs bonds deposits or other fees are necessary to import items ii Does your product have a local content requirement labor resources i Must locals constitute a certain percentage of your work force ii Must locals constitute a certain percentage of your management or professionals iii What are the wage and hour rules iv What non wage costs must I pay v How easy is it to fire someone vi What requirements are necessary for foreigners to enter the country for business purposes passports visas and residency permits difficulty of obtaining the required permits vii What staffing policy is best ethnocentric polycentric geocentric viiiWhat compensation policy should be used expatriate highest wage country etc ix What cultural differences if any must I manage raising capital i a foreign subsidiary can raise equity capital from its parent a joint venture partner from a third country market eg the Euro equity market ii a foreign subsidiary can raise debt capital from its parent a bank a host country bond issue from a 3d country bank loan or 3d party bond issue eg Euro bond issue iii oftentimes regulations in the host country forbid foreign owned firms from borrowing locally iv What is the desired debt equity ratio for the foreign subsidiary v advantages of debt financing 10 strict repayment schedule takes away management discretion in declaring dividends this reduces conflict with the host govt who might want mgt to make lower dividends and to reinvest a higher percentage of profits in the country Do I need an evacuation plan a Where is the country on the index of political stability b evacuation plans for i personnel ii personal property iii intellectual property Where is the country on the corruption spectrum How reliable is the legal system What types of cultural differences am I likely to face that can decrease Hy revenues or increase my costs a how should I deal with these differences b how easy is it to fire someone What form of business entity should I use a sone countries require joint ventures for particular types of activity eg mining oil high tech b alternatives i wholly owned corporate subsidiary ii joint venture iii strategic alliance 11 How can I protect nyself if I operate with a partner or as a rmanber of a strategic alliance 12 How easy is it to exit business a labor laws b laws on the liquidation of a business c bankruptcy laws Sources of data helpful in resolving these issues Protecting your investment front expropriation or confiscation 1 Expropriation and confiscation both involve seizing property without paying fair market value for it a expropriation ie the transfer of ownership of assets in the foreign country from the foreign firm to a domestic firm without adequate compensation b confiscation ie the transfer of ownership of assets front the foreign firm to the government without adequate compensation Expropriation can be direct or indirect a legislation b indirect expropriation i failure to enforce trespass laws Argentine ex ii failure to enforce law and order Argentine ex iii refusal to grant necessary permits or licenses iv confiscatory taxation Protecting your investment from expropriation or confiscation a If possible lease the property that is required to conduct the business if possible include a clause in the lease that terminates the lease in the event of nationalization expropriation or confiscation of the leased property or when political unrest exceeds a certain level b locate any tangible personal property that you own outright such as equipment near a border or a port so it can be removed quickly from the country i ex the Ukraine and Flextronics ii This can be complex because removing equipment from the country constitutes an export and may be subject to licensing c acquire nationalization insurance if available d use of joint ventures and strategic alliances i reduces the value of capital assets that are at risk ii night give you sufficient political influence to avoid the problem D Human Resource Issues 1 What is the n nimmn wage that a business must pay its workers a Some countries have laws establishing minimum wages and some do not i ii The laws of Austria Denmark Finland Germany Sweden and Italy do not set a minimum wage these set by The minimum countries is collective bargaining wage in If a job is not covered by a collective bargaining agreement the minimum wagequot is the wage that workers with a given type of skills must be paid so they will work for you and not someone else 2 What labor costs must an employer pay in addition to wages a issue who is responsible for providing insurance against unemployment sickness and the adequacy of savings for old age pensions b US vs Europe 3 What is the naximmn number of hours that an employer can require an employee to work a The incentive to require workers to work long hours b some countries limit the number of hours that a worker can work each week and some do not i Some place an absolute maximum on the number of hours that a worker can work ii Some eg the United States allow the naximmn to be exceeded if the employer pays higher wages for hours that are in excess of the maximum iii Some indirectly limit hours by limiting the number of hours a business establishment can be open for business Is there a minimum amount of hours that an employer must offer an employee a b The incentive to offer time employment part some countries limit part time work or make part time work so expensive for employers that employers will not hire part time workers Restrictions on hiring a restrictions on foreign countries hiring citizens of i citizenship In US citizenship is determined by parental citizenship if parents weren t citizens by place of birth by whether the person has b ii iv been naturalized as a citizen In some countries citizenship depends on the nationality of the parents rather than place of birth A person who is not a citizen can sometimes obtain permission from the government to reside in a country if heshe has special skills computer programmers Ichiro or nurses Rakes a n nimwn investment in a business in the country of residence Depending on the length of work a residency permit may be necessary permission to reside usually requires the following documents passport front the country of citizenship passport is basically the permission to travel visa permission to enter a country for a particular purpose residency permit permission to reside in the country restrictions on hiring citizens i ii laws restricting the women and children hiring of affirmative action discrimination positive Restrictions on firing workers i US ii Canada iii Spain How nmny foreign nanagers should I hire The Staffing Issue a staffing approaches i ethnocentric approach ii polycentric approach iii geocentric approach b ethnocentric approach i consists of filling management positions with parent country nationals ii This approach is necessary when the host country lacks qualified personnel the best way to maintain a unified corporate culture the best way to transfer managerial core competencies to a foreign operation Managerial knowledge cannot be transferred easily by writing it in a manual It resides in the heads of domestic nanagers who acquire it as a result of experience with the company iii disadvantages Thus the transfer of competencies requires transfer of managers core the The Chrysler Daimler merger staffing c The of ethnocentric resentment by local national employees who believe that their opportunities for advancement are limited cultural myopia the inability to understand the host country culture leading to costly blunders The Toyota van the Chrysler Daimler merger expense compensation for expatriates is usually higher than compensation for local nationals disruption of operations if managerial employees are forced to leave the country departure for security reasons host visas of because renew permits departure fails to residency employees govt or key exposes firnl to extortion by corrupt govts ie revocation of visas if payments are not made polycentric approach i Host country nationals nanage subsidiaries in the host country and parent country nationals staff corporate headquarters in the parent country ii advantages avoids cultural myopia can be less expensive than other alternatives local nationals can be paid local wage rates iii disadvantages Host country nationals have limited opportunities to acquire experience outside their own country and thus have limited opportunities for advancement Language barriers national loyalties an cultural differences may isolate subsidiaries from headquarters and create a series of little kingdoms The coordination required to transfer core competencies learning curves and location economies may be difficult to achieve d The geocentric approach i places the best people in key jobs throughout the company regardless of nationality ii advantages to the approach makes the best use of human resources builds a cadre of executives who feel comfortable working in a variety of cultures nwst important advantage reduced cultural myopia enhanced local responsiveness to customers iii difficulties immigration laws nay limit the ability to employ non host country nationals in host country subsidiaries Ex Chrysler exec in Graz The approach is costly increased training costs relocation costs standardized pay scales necessary that may exceed the pay scales that exist in some of the host countries resentment by those that do not receive the pay scales of the local manager placed on the international pay scale The Expatriate Problem a The stereotype of the American nanager from the foreign viewpoint b The expatriate failure rate i causes of expatriate failure failure to recognize that the family is the unit of expatriation not the manager failure of spouse to adjust spouse is isolated at home wo family and friends and language barrier makes it difficult to make friends difficulties education with children s manager s inability to adjust personally or emotionally unsuited for overseas assignment inability to cope with increased responsibilities ii Family problems aside the risk of expatriate failure depends on the self orientation of the expatriate manager managers with high self esteem self confidence and Rental well being are more likely to succeed the others orientation of the expatriate manager is he a people person if not can he work at being one the perceptual ability of the manager hisher ability to understand why persons of another culture behave the way they do and not being judgmental cultural toughness of the country of assignment Ex The Kyrgyzstan business trip and dinner rural Tranyslvania 9 Preparing a manager for a foreign assignment a manager training v manager development i Manager training provides the skills needed for a foreign posting ii Manager development provides skills needed over a manager s entire career with the firm b Expatriate training should include i cultural training ii language training iii practical training training to help the expatriate and his family ease themselves into the daily life of the host country arrival in country at the airport or train station shopping transportation introductions to other persons so they will not be isolated iv ex Pecs report v command post exercises 10 Performance Appraisal of the overseas manager 11 must be careful of cultural bias when a person frmn one culture appraises the importance of a person from another culture i ex Participatory nanagement is a sign of incompetence where the culture is hierarchical and authoritarian ii In such a society a supervisor from the host country might give an expatriate who uses such a management style a poor rating because of perceived incompetence or a perceived lack of self confidence methods of controlling or reducing cultural bias in cross cultural performance appraisals i have an executive from the same culture as the person being appraised review the appraisal ii use objective criteria such as profits productivity or market share for appraisal Such criteria avoid cultural bias but have their own limitation They nay reflect factors outside of the manager s control such as exchange rate or economic fluctuations Compensation Issues i How should compensation be adjusted to reflect national differences in economic circumstances and compensation practices ii How should expatriate nanagers be paid The compensation policy depends on the staffing policy pursued by the firm i ethnocentric policy depends on what an expatriate would be paid ii polycentric pay should be country specific iii geocentric If the goal is to build a cadre of management the pay should depend on the job not on the country of origin This approach results in matching the pay of managers frmn the highest paying country Paying different sums based on nationality can result in resentment instead of a loyal cadre of managers determining expatriate pay i balance sheet approach is most common approach objective is to pay the expatriate so that he enjoys the same standard of living that he enjoys at home plus a premium to induce the expatriate to accept the overseas assignment compensation base salary 12 ii A foreign service premium allowances for hardship or to offset higher living costs if any additional taxes if any suns necessary to purchase nedical pension and other benefits equivalent to the benefits the expatriate would have in his country of origin hardship housing medical benefits educational benefits US note on taxation of expatriate income Up to 76000 of wages and salary can be excluded from US income taxation a housing allowance equal to the difference between the United States and the foreign country also is excludable The supra national issue a b The Unocal case The relationship between EU human rights law and the laws of the nember states i direct effect direct effect means that any provision of EU law that grants a clear precise and unconditional rights right to an individual can be invoked and relied upon before a national court by a person who has such a right All treaties and regulations have direct effect directives that have been implemented by member states also have direct effect directives that have not been implemented by memberstates can be invoked against the member state once the time limit for implementation has passed despite the lack of implementation However such directives may not be invoked against individuals ie no horizontal effect ii Indirect effect national law must be interpreted so that it is consistent with EU law once the time limit for implementing EU directives have passed Indirectly this might result in one of the parties getting a right under EU law despite the failure of a member to implement a directive This is where the name indirect effectquot comes from b rights conferred by EU law i right to be free discrimination based on race ethnic or national origin does not apply to the 2004 entrants until 2009 except in Britain Ireland and Sweden ii other rights under EU law equal wages for men and women who do the same work If differences in pay for similar type of work are observed the employer has the burden of proving the differences are permitted differences equal treatment for men and women Equal treatment means Equal access to employment Equal access to vocational education Equal working conditions an Equal promotion opportunities Discrimination based on marital or family status is considered sex discrimination The equal treatment rules contain some exceptions Bona fide occupational exception for example the opportunity to play the role of a girl in a nmvie can be restricted to women Protection measures for pregnant women and new mothers Positive action measures aff action social security Discrimination is prohibited in Sickness benefits Disability benefits Old age benefits Work accident benefits Occupational disease benefits Unemployment benefits Ex woman in UK who quit work to care for disabled nmther was denied a disability allowance A man who quit work to care for his disabled mother would have received such an allowance The different treatment violated EU law Discrimination under EU law i discrimination can be direct or indirect direct discrimination UK firm refuses to hire persons who are not UK citizens indirect discrimination UK firnl refuses to hire persons who do not have UK university degrees This probably amounts to indirect discrimination because most non UK applicants will not have UK degrees indirect discrimination based on race sex ethnic origin or nationality nay be allowed if race sex ethnic origin or nationality is a bona fide job requirement D Culture 1 Culture can be viewed a system of beliefs ie valuesand rules ie norms that are shared among a group of people and that when taken together constitute a design for living a values beliefs about concepts such as individual freedom democracy truth sex honesty role of women etc i Values are the foundation of culture ii Values have emotional significance b norms social rules that govern human interaction i folkways norms that constitute routine conventions of everyday life eg dress codes table manners time consciousness etc ii mores norms that are central to the functioning of a society eg adultery cannibalism iii violations of folkways usually do not bring serious retribution but violations of mores do Ex eating pork schnitzel in Iran vs taking an Iranian mistress Cultures develop because they provide ways of meeting life s challenges ex Jewish and Muslim prohibition re eating pork Cultures differ with respect to a attitudes regarding control over one s life i life follows a pre ordained course ii an individual can influence the course of his life b the role of individual effort vs quotluckquot in individual success c the role of time i time is money and persons should be prompt ii there is always time and appointments are mere guidelines d the relative role of data and intuition in decision making e to whom one owes his primary obligation employer vs family f whether or not some tasks are inappropriate for members of certain groups the role of qualifications vs status and family ties in filling jobs the role of deference to authority and dissent tolerance for competition tolerance for conflict tolerance for change aesthetics i In Germany can have television advertisements containing nudity ii In US nudity would be considered in bad taste and not accepted on TV or in general circulation magazines Manners and customs eg is silence a sign of that the recipient of a proposal does not approve of it or is it a sign that it is being considered Extra legal sanctions for violating the rules Culture should be considered by businesses because cultural differences can impact all of the functional areas of business a What is believed about whether the course of life is pre ordained affects how planning is performed i If individuals can influence the future individuals should collect accurate data and plan for the future ii If life is pre ordained decisions based on intuition are equal or superior to decisions based on Thus need to be more closely monitored accurate data the planning process may in countries that believe that pre ordination plays a large role in determining the future whether an employee owes his primary duty to the organization or to his family and friends affects i ii iii iv V vi motivation commitment to the company hiring practices contracting how company information is used if primary loyalty is to the company information is shared freely If primary loyalty is not to the company information is guarded and used for personal gain or the gain of associates and friends In a culture where an employee owes his primary duty to family or friends tighter controls and monitoring may be needed to prevent nepotism in hiring and contracting in these societies than in societies with different beliefs increased use of news letters and other intra company communications to spread info within the company may be necessary c Deference should be given to persons in authority and disagreements with persons in authority should not be expressed affects i the planning process ii reporting of operational results ex Korean Airlines iii perceived competence of managers who practice participatory management iv How would you handle with this type of attitude d intolerance for uncertainty i employees require detailed rules before making decisions e tolerance for conflict Managing cultural differences a Cultural differences can impact all of the functional areas of a business i ii marketing and aesthetics i German TV ads in the US ii marketing problems can be controlled by cross cultural staffing finance and the tolerance for uncertainty What is an appropriate investment for cash that is not needed immediately iii human resources management and beliefs about minority groups b some cultural clashes can be controlled more easily than others eg advertising aesthetics c some cultural clashes require persons to act against beliefs that they hold strongly eg hire members of unpopular groups or require them to do things that make them uncomfortable eg act without detailed instructions in uncertain situations in these circumstances management controls are necessary to obtain the desired behavior 6 Tailoring controls to the culture a a control system should i prevent actions that depart from established plans or cause a departure from established plans an ii have methods to detect actions that depart from established plans and iii methods to correct actions that depart from established plans iv Question Is there a relationship between management controls and the indices of doing business b designing a control system i decide what is to be controlled ii decide on a standard of performance iii decide on control mechanisms iv compare results to the standard of performance v reward or punish as appropriate What should be controlled i options outputs inputs behavior ii Usually a mix of all three are used setting standards of behavior i requires identifying best practice ie a practice that can be applied throughout the company ex French subsidiary s in house training of its sales staff regarding the company s new products resulted in a more rapid successful introduction of new products than other subsidiaries that did not provide such training The experience resulted in a 3 day hands on training session to train the sales staff in new products in each subsidiary Materials were distributed prior to the session and employees were tested on the materials when they arrived Those that remained were evaluated again at the end of the course and performance reports were sent to their managers ii requires establishing a system for sharing best practices a system for sharing requires an organizational memory ex an electronic library which indexes best practices also requires a way to update best practice and adjust it to new circumstances also requires legitimization of best practice ie a shared understanding that sharing knowledge across the organization is valued e types of control mechanisms i bureaucraticformalized control mechanisns targets based on best practice pricing authority budgets Budgets control by allocating resources serve as a planning and coordination document by communicating info among corp HQ subsidiaries and product organizations ii ex permit evaluation of subsidiary performance spending authority Who gets to spend budgeted funds Are one or two signatures required functional reports audits policy manuals US organizations tend to rely more on policy manuals than non US organizations cultural controls refers to the corporate culture not the national culture why cultural controls can work requires an extensive socialization process into the company also requires low employee turnover to be effective Therefore are more likely to be used by established firns with new operations are relied upon more heavily in non US organizations than in US organizations of a control system based on bureaucratic controls i sales goals or targets based on best practice ii pricing authority iii a budget iv spending authority v required formal reporting of results vi compare the reported results to best practice vii audit the reported results viiireward or take other action based on the results g ex of a behavior control system i policy manuals require behavior to conform to the standard sets by best practice set deadlines ii internal audits to ensure the accuracy of formal reports and compliance with policy manuals iii reward actions that contribute to fulfillment of the firm s plans and goals and punish those that cause a departure from the firm s plans and goals E Advantages and disadvantages of using wholly owned corporate subsidiaries to conduct business in a foreign country 1 What is a subsidiary a A foreign subsidiary is a separate entity with separate legal personality that is organized under the laws of the foreign country but is owned or controlled by the parent firm which is organized in a different country b ex X corporation a business organized under the laws of the state of Washington in the United States forms a corporation in Hungary under the laws of that country named Y corporation and issues all of the corp stock of Y to itself ie it owns Y s stock i Under both Hungarian and US law X and Y corporations are separate persons even though X Corp owns Y Corp ii Because X owns Y X corp is the parent Corp and Y Corp is the subsidiary corp If one conducts business in a foreign country it is important to establish a business organization with separate personality that has limited liability if that is legally possible Advantages of conducting international business through foreign subsidiaries a naximwn attainable protection for the firm s intellectual property i Unlike a licensing arrangement the owner of the intellectual property has control over security and is better able to protect access to the property can dictate who has access and


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.