International Business Comprehensive Lecture Review

Vocabulary practice flashcards covering globalization, political systems, trade policies, foreign exchange, global business strategy, and human resource management.

World Trade Organization (WTO)

The international organization primarily responsible for policing the world trading system and ensuring that nation-states adhere to the rules laid down in trade treaties signed by member states.

International Monetary Fund (IMF)

An international institution created in 1944 at Bretton Woods, New Hampshire, responsible for maintaining order in the international monetary system.

Stock of Foreign Direct Investment

The total cumulative value of foreign investments made by firms outside their home country.

Political Economy

The interdependent political, economic, and legal systems of a country that interact with and influence one another, affecting economic well-being.

Collectivism

A political philosophy stressing the primacy of collective goals over individual goals, under which an individual's rights may be restricted for the good of society or the common good.

Individualism

A philosophy asserting that an individual should have freedom in their economic and political pursuits, promoting free market economics, pro-business environments, and democratic political systems.

Right-Wing Totalitarianism

A government system that generally permits some individual economic freedom but severely restricts individual political freedom, often on the grounds that political freedom would lead to the rise of communism.

Theocratic Totalitarianism

A political system in which power is monopolized by a party, group, or individual that governs strictly according to religious principles.

Pure Market Economy

An economic system in which all productive activities are privately owned and resource allocation is determined entirely by the interaction of supply and demand.

Pure Command Economy

An economic system in which the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are all planned and owned by the state.

Common Law

A legal system based on tradition, precedent, and custom, allowing judges flexibility to interpret the law according to individual circumstances.

Civil Law System

A legal system based on a detailed set of written laws organized into codes, giving judges the power only to apply the law as written.

TRIPS (Trade-Related Aspects of Intellectual Property Rights)

A WTO agreement designed to oversee strict enforcement of intellectual property regulations, obliging member nations to grant patents lasting at least 20 years and copyrights lasting 50 years.

Deregulation

The removal of government legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.

Values

Abstract ideas and shared assumptions about what a group believes to be good, right, and desirable.

Norms

Social rules and guidelines that prescribe appropriate behavior in particular situations.

Folkways

The routine conventions of everyday life, such as dress codes, social manners, and eating with the correct utensils.

Mores

Norms that are seen as central to the functioning of a society and to its social life, carrying much greater significance than folkways.

Caste System

A rigid, closed system of social stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during a lifetime.

Class System

A less rigid form of social stratification in which social mobility is possible and individuals can change their social position through personal achievements.

Class Consciousness

A condition where people perceive themselves in terms of their class background, which actively shapes their relationships with members of other classes.

Mudarabah

An Islamic banking method where a bank lends money to a business and takes a share in the profits derived from the investment rather than charging interest.

Murabaha

The most widely used Islamic banking method, in which a bank purchases a required asset and resells it to the firm at a negotiated price markup.

Power Distance

A cultural dimension in Hofstede's framework exploring how a society deals with the fact that people are unequal in physical and intellectual capabilities.

Uncertainty Avoidance

A cultural dimension in Hofstede's framework measuring the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating uncertainty.

Ethnocentrism

A belief in the inherent superiority of one's own culture or ethnic group.

Sullivan Principles

An ethical code formulated to allow General Motors to operate ethically in South Africa provided the company did not obey apartheid laws in its South African operations.

Tragedy of the Commons

A phenomenon that occurs when a resource that is shared by all, but owned by no one, is overused and degraded by individuals acting in self-interest.

Foreign Corrupt Practices Act (FCPA)

A 1977 United States law that outlaws the paying of bribes to foreign government officials to gain business, while permitting facilitating or grease payments.

Facilitating Payments (Grease Payments)

Payments made to foreign officials solely to expedite or secure the performance of routine government actions, permitted under the amended FCPA.

Noblesse Oblige

A concept in business ethics denoting benevolent and honorable behavior that is regarded as the moral responsibility of successful enterprises.

Cultural Relativism

An ethical philosophy asserting that ethics are nothing more than the reflection of a culture, meaning a firm should adopt the ethics of whatever culture it is operating in.

Righteous Moralist

An ethical approach claiming that a multinational company's home-country ethical standards are the appropriate ones to follow in all foreign host countries.

Naive Immoralist

An ethical approach asserting that if a manager sees that firms from other nations are not following ethical norms in a host country, that manager is justified in not following them either.

Kantian Ethics

An ethical approach suggesting that people should always be treated as ends in themselves and never purely as means to the ends of others.

Difference Principle

John Rawls' philosophical principle that inequalities in economic distribution are justified only if they benefit the position of the least-advantaged person.

Moral Imagination

The practice of standing in the shoes of a stakeholder and asking how a proposed business decision might impact that stakeholder.

Specific Tariff

A tax on imports levied as a fixed monetary charge for each unit of a good imported.

Ad Valorem Tariff

A tax on imports levied as a proportion or percentage of the value of the imported good.

Import Quota

A direct legal restriction on the quantity of a specific good that may be imported into a country.

Voluntary Export Restraint (VER)

A quota on trade imposed by the exporting country, typically at the request of the importing country's government, to avoid punitive tariffs or quotas.

Quota Rent

The extra profit that domestic producers or import license holders make when supply is artificially limited by an import quota.

Local Content Requirement

A trade policy rule specifying that a certain fraction of a good must be produced domestically.

Administrative Trade Policies

Bureaucratic rules and procedures designed to make it difficult for imported goods to enter a country.

Dumping

Selling goods in a foreign market at below their costs of production or at below their fair market value.

Infant Industry Argument

An economic rationale arguing that governments should temporarily support and protect new domestic industries until they are strong enough to withstand international competition.

Smoot-Hawley Act

A 1930 United States law that raised import duties to protect domestic industries during the Great Depression, which severely damaged the world trading system.

Regional Economic Integration

Agreements between countries in a geographic region to reduce and remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

Free Trade Area

A regional integration grouping where all barriers to the trade of goods and services among member nations are removed, but each member determines its own trade policies toward nonmembers.

Customs Union

A group of countries committed to removing all barriers to trade between each other and adopting a common external trade policy toward nonmembers.

Common Market

A regional grouping that eliminates trade barriers between member countries, maintains a common external trade policy, and permits factors of production to move freely between members.

Economic Union

An economic grouping involving the free flow of products and factors of production, a common external trade policy, a common currency, harmonization of tax rates, and a shared monetary and fiscal policy.

Trade Creation

An outcome that occurs when low-cost producers within a free trade area replace high-cost domestic producers.

Trade Diversion

An outcome that occurs when higher-cost suppliers within a free trade area replace lower-cost external suppliers.

European Commission

The EU institution responsible for proposing EU legislation, implementing adopted policies, and monitoring member states' compliance with EU laws.

European Council

The EU institution that represents the interests of member states and acts as the ultimate controlling authority within the European Union.

Spot Exchange Rate

The exchange rate governing a transaction where two parties agree to convert currency and execute the deal immediately.

Forward Exchange Rate

The exchange rate governing a foreign exchange transaction agreed to today for execution on a specific future date.

Currency Swap

The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

Arbitrage

The process of buying a currency low in one market and simultaneously selling it high in another market to make a riskless profit.

Law of One Price

The principle stating that in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when expressed in the same currency.

Fisher Effect

The economic theorem stating that a country's nominal interest rate is the sum of the required real interest rate and the expected rate of inflation over a given period.

Bandwagon Effect

A phenomenon that occurs when currency traders move as a herd in the same direction at the same time, amplifying movements in exchange rates.

Countertrade

A range of barter-like agreements by which goods and services are traded directly for other goods and services, often utilized when currencies are nonconvertible.

Transaction Exposure

The extent to which the income from individual business transactions is affected by unexpected fluctuations in foreign exchange values.

Translation Exposure

The impact of currency exchange rate changes on the reported consolidated financial statements and balance sheets of a multinational firm.

Economic Exposure

The extent to which a firm's future international earning power is affected by long-term changes in exchange rates.

Lead Strategy

A strategy involving collecting foreign currency receivables early when a currency is expected to depreciate, and paying payables before they are due when a currency is expected to appreciate.

Lag Strategy

A strategy involving delaying the collection of foreign currency receivables if that currency is expected to appreciate, and delaying payables if the currency is expected to depreciate.

Consumer Surplus

The difference between the value of a product to an average consumer ($V$) and the price the firm charges ($P$), represented by the equation $V - P$.

Efficiency Frontier

A curve showing all the positions a firm can adopt with regard to product differentiation and low unit cost assuming internal operations are configured efficiently.

Location Economies

Economies that arise from performing a value creation activity in the optimal geographic location for that specific activity.

Global Web

The network that results when companies disperse different stages of their value chain to worldwide locations where perceived value is maximized or costs are minimized.

Global Standardization Strategy

A business strategy pursuing low-cost advantages by producing standardized goods and marketing worldwide, suitable when cost pressures are high and local responsiveness demands are low.

Localization Strategy

A business strategy focusing on increasing profitability by customizing a firm's goods, services, and marketing to match the specific tastes and preferences of different national markets.

Transnational Strategy

A business strategy that simultaneously attempts to achieve low costs through location economies and learning effects, differentiate product offerings across markets, and foster a multidirectional flow of skills between subsidiaries.

Organizational Architecture

The totality of a firm's organization, including formal structure, control systems and incentives, processes, organizational culture, and people.

Vertical Differentiation

The dimension of organizational structure that determines where in the management hierarchy decision-making power is concentrated.

Horizontal Differentiation

The formal division of an organization into subunits, such as functional departments, product divisions, or geographic areas.

Bureaucratic Controls

A system of control achieved through explicit rules, regulations, and standard operating procedures, such as budgets and capital spending limits.

Output Controls

A control system in which headquarters achieves control by comparing a subunit's actual performance against predetermined numeric targets and intervening selectively.

Pioneering Costs

Costs that an early entrant to a foreign market must bear that a later entrant can avoid, including the costs of business failure and educating consumers.

Turnkey Project

An arrangement where a contractor handles every detail of a facility's design and construction for a foreign client, handing over a plant that is ready for immediate operation.

Licensing Agreement

An arrangement whereby a firm grants the rights to intangible property to another entity for a specified period in exchange for royalties.

Franchising

A specialized form of licensing where the franchisor sells intangible property to the franchisee and insists that the franchisee abide by strict operational and management rules.

Wholly Owned Subsidiary

A foreign subsidiary in which the parent firm owns 100 percent of the stock, offering maximum strategic control but requiring the parent firm to bear all capital costs and risks.

Hubris Hypothesis

The theory postulating that corporate managers frequently overestimate their ability to create value from an acquisition due to unwarranted confidence or pride.

Six Sigma

A statistically based quality control philosophy that aims to eliminate manufacturing defects, achieving $99.99966\%$ accuracy ($3.4$ defects per million units).

ISO 9000

A certification quality standard that manufacturing processes and products must satisfy before a firm is allowed access to the European marketplace.

Mass Customization

The ability of companies to use flexible manufacturing technology to reconcile the dual goals of low production costs and individualized product customization.

Just-in-Time (JIT) Inventory

An inventory system designed to deliver materials to a manufacturing facility exactly when needed, speeding up inventory turnover while eliminating buffer stocks.

Concentrated Retail System

A retail system in which a small number of major retailers supply most of the national market, typical of developed nations with high car and refrigerator ownership.

Fragmented Retail System

A retail system characterized by many small independent retailers, none of which has a significant share of the market.

Channel Length

The number of intermediaries between the original manufacturer of a product and the final consumer.

Source Effects

A communication phenomenon that occurs when the receiver of a message evaluates that message based on the status, image, or reputation of the sender.

Push Strategy

A marketing communication strategy that emphasizes personal selling rather than mass media advertising to sell goods.

Pull Strategy

A marketing communication strategy that depends primarily on mass media advertising to stimulate consumer demand and pull products through the channel.

Predatory Pricing

The practice of using profits from one market to subsidize aggressive pricing below costs in another market to drive out competitors.

Ethnocentric Staffing Policy

A staffing policy where all key management positions in foreign operations are filled by parent-country nationals to maintain a unified corporate culture.

Polycentric Staffing Policy

A staffing policy where host-country nationals manage foreign subsidiaries while parent-country nationals occupy key positions at corporate headquarters.