International Business: Foundations, Trade Theories, and Market Entry Strategies

Comprehensive practice flashcards defining core terminology, theories, trade policy instruments, integration levels, cultural dimensions, and market entry modes from international business lectures.

International Business

Any firm that engages in international trade or foreign direct investment.

Globalization

The shift toward a more integrated and interdependent world economy, encompassing both the globalization of markets and the globalization of production.

Globalization of Markets

The merging of historically distinct and separate national markets into one huge global marketplace, driven by declining trade barriers and converging consumer tastes.

Globalization of Production

The sourcing of goods and services from different locations around the globe to capitalize on national differences in the cost and quality of factors of production.

Factors of Production

Inputs into the productive process of a firm, specifically including labor, energy, land, and capital.

Foreign Direct Investment (FDI)

Direct investment in business operations in a foreign country where a firm or individual invests resources in business activities outside their home country.

Multinational Enterprise (MNE)

Any business that has productive activities in two or more countries.

Mini-Multinationals

Small and medium-sized businesses that build international operations and participate in the global marketplace, often facilitated by the Internet.

World Trade Organization (WTO)

The global institution responsible for policing and regulating the world trading system and facilitating the reduction of international trade barriers.

International Monetary Fund (IMF)

An international institution established to maintain order in the international monetary system and provide loans to countries experiencing economic crises.

Mercantilism

An early economic philosophy advocating that a nation's wealth depends on accumulating gold and silver by maximizing exports and minimizing imports through strict tariffs.

Zero-Sum Game

A situation in which an economic gain by one country inevitably results in an equivalent economic loss by another country.

Neomercantilism

A modern trade strategy in which a country runs trade surpluses specifically to attain desired social or political objectives rather than purely accumulating gold.

Free Trade

A market environment where a government does not attempt to influence through quotas, taxes, or duties what its citizens can buy from or sell to other nations.

Absolute Advantage

A country's ability to produce a greater quantity of a good or service more efficiently than any other country, using the same amount of inputs.

Comparative Advantage

The principle that a country should specialize in producing and exporting goods that it can produce relatively more efficiently based on opportunity cost, while importing other goods.

Heckscher-Ohlin Theory

A trade theory arguing that comparative advantage arises from differences in national factor endowments, predicting countries will export goods using locally abundant factors and import goods using locally scarce factors.

New Trade Theory

An economic theory stating that countries specialize in certain products due to economies of scale and first-mover advantages in industries where the world market can support only a limited number of firms.

First-Mover Advantages

Economic and strategic advantages accruing to the earliest firms to enter an industry, allowing them to gain scale-based cost advantages that later entrants find difficult to match.

Porter's Diamond Model

A model identifying four national attributes—factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry—that shape a nation's competitive advantage in a particular industry.

Infant Industry Argument

An economic rationale proposing that governments should temporarily support new manufacturing industries with tariffs, quotas, or subsidies until they become strong enough to compete internationally.

Strategic Trade Policy

Government policy aimed at assisting domestic firms to overcome barriers to entry and secure first-mover advantages in global industries characterized by substantial economies of scale.

Tariff

A tax levied by a government on imports or exports designed to protect domestic producers and generate government revenue.

Specific Tariff

A tariff levied as a fixed monetary charge for each physical unit of an imported good.

Ad Valorem Tariff

A tariff levied as a fixed proportion or percentage of the monetary value of an imported good.

Subsidy

A government financial payment to a domestic producer, taking forms such as cash grants, low-interest loans, tax breaks, or government equity participation.

Import Quota

A direct administrative limit on the total physical quantity of a specific good that may be imported into a country during a specified period.

Voluntary Export Restraint (VER)

A quota on trade imposed from the exporting country's side, typically established to avoid harsher tariffs or quotas from the importing country.

Quota Rent

The extra profit that producers earn when domestic supply is artificially constrained by an import quota.

Local Content Requirement (LCR)

A trade policy rule mandating that a specific fraction of a physical product or its value must be produced domestically.

Administrative Trade Policies

Bureaucratic rules and procedures deliberately designed to make it difficult for foreign goods to enter a domestic market.

Dumping

The practice of selling goods in a foreign market at prices below their actual production costs or below their fair market value.

Antidumping Policies

Regulations and countervailing duties imposed by an importing government to punish foreign firms that sell products below cost and protect domestic producers.

Free Trade Area

A level of economic integration in which all trade barriers among member nations are removed, but each country retains full autonomy to set its own external tariffs with nonmembers.

Customs Union

A level of economic integration that eliminates internal trade barriers among member nations and establishes a unified, common external trade policy toward nonmembers.

Common Market

A customs union that additionally permits the unrestricted free movement of factors of production, such as labor and capital, across member borders.

Economic Union

A stage of integration combining a common market with a common currency, harmonized tax structures, and unified fiscal and monetary policies.

Political Union

The most integrated form of regional cooperation, in which a central political apparatus coordinates the economic, social, and foreign policies of member states.

Trade Creation

An economic benefit occurring when regional integration enables high-cost domestic production to be replaced by lower-cost production from a partner nation within the trade group.

Trade Diversion

An economic cost occurring when lower-cost external imports from nonmembers are displaced by higher-cost imports from member countries due to preferential trade rules.

Cross-Cultural Literacy

An understanding of how cultural differences across and within countries can affect the way business is conducted internationally.

Culture

A system of values and norms shared among a group of people that, taken together, constitute a design for living.

Values

Abstract ideas and shared beliefs about what a group regards as good, right, and desirable.

Norms

Social rules and behavioral guidelines that prescribe appropriate conduct in specific situations.

CAGE Distance Framework

A strategic framework assessing the comparative distance between countries across four distinct dimensions: Cultural, Administrative, Geographic, and Economic.

Political Risk

The potential financial or operational loss an international enterprise faces arising from unexpected changes in a host government's policies or political stability.

Representative Democracy

A democratic political system originating in a constitution where citizens periodically elect individuals who have the authority to debate and legislate policy on their behalf.

Totalitarianism

A form of governance where a single individual or political party exercises absolute control over all human spheres, actively forbidding rival political organizations.

Corruption Index

A comparative metric measuring the perceived level of public sector corruption by country on a scale where $0$ represents totally corrupt and $100$ represents completely clean.

Market Economy

An economic structure where all productive activities are privately owned and the price and output of goods and services are strictly determined by supply and demand.

Command Economy

An economic system in which the central government owns all businesses and directly plans production quantities, prices, and resource allocation for the good of society.

Mixed Economy

An economic system where certain sectors are privately owned and subject to market forces, while other essential industries are owned and controlled by the state.

Exporting

The market entry method involving the production of goods in one domestic market and their subsequent direct sale to customers residing in another country.

Turnkey Project

An entry mode in which a contractor manages every phase of an international project through completion, including personnel training, before turning the fully operational facility over to the client.

Licensing

A contractual arrangement where a firm grants an overseas entity the right to use its intangible assets—such as patents, trademarks, or technology—in exchange for royalty payments.

Franchising

A specialized form of licensing wherein the franchiser provides intangible assets (such as trademarks and operating systems) to a franchisee, requiring adherence to strict operational standards.

Strategic Alliance

A formal collaborative agreement between two or more actual or potential competitors to pool resources, share risks and fixed costs, or establish common industry standards.

Joint Venture

An equity-based foreign entry mode where two or more independent firms establish a jointly owned third commercial entity, commonly based on a $50\text{–}50$ ownership split.

Wholly Owned Subsidiary

A foreign enterprise in which the parent corporation owns $100\%$ of the stock, securing total managerial control over proprietary processes and operations abroad.

Greenfield Venture

A direct investment strategy that entails establishing a completely new, built-from-scratch subsidiary operation in a foreign target market.

Acquisition

An equity entry mode where an investing company buys out an established, incumbent enterprise in the target foreign market to quickly secure assets and market share.

Entry-Mode Strategies Framework

A strategic model mapping foreign market entry choices along the dimensions of Extent of Investment and Risk against Degree of Ownership and Control.

Foreign Entry Decision Framework

A decision tree evaluating transportation costs, tariffs, amenability of know-how to licensing, need for operational control, and contractual IP protection to choose between exporting, licensing, and FDI.