The Global Economy

Globalization

The increasing connectivity and interdependence of the world's economies, societies, and cultures.

Key factors driving globalization

Advances in communication, technology, trade, international investment, currency movement, and migration.

Positive effects of the global economy

Increased free trade leading to economic growth and greater access to a worldwide market.

Negative effects of the global economy

Outsourcing of domestic jobs and the potential for corporations to exploit international tax havens.

Absolute advantage

Exists when one country can produce a product more cheaply or efficiently than any other.

Comparative advantage

Exists when a country sells products and services to other countries that it produces most cheaply or efficiently.

Balance of trade

The value of a country's exports compared to its imports over a specific period.

Trade surplus

Occurs when exports exceed imports.

Trade deficit

Occurs when imports exceed exports.

Political risks in foreign operations

Instability, such as riots or civil disorders, and expropriation.

Expropriation

Occurs when a foreign government seizes a company's assets.

Infrastructure

The set of physical facilities like telecommunications, roads, schools, and hospitals that form the basis for a country's level of economic development.

Trade protectionism

A policy used by countries to protect their domestic industries from foreign competition.

Forms of trade protectionism

Tariffs (taxes on imports), import quotas (limits on the quantity of imported goods), and embargos (a complete ban on certain imports or exports).

World Bank

Provides low-interest loans to developing nations for improving infrastructure such as health, education, and transportation.

International Monetary Fund (IMF)

An organization that aims to promote global economic stability and growth.

Currency devaluation

A government action to reduce the value of its nation's currency.

Options for entering a foreign market

Includes joint ventures, franchising, exporting, licensing, and foreign direct investment, each with varying levels of risk.

IMF

Designed to assist in smoothing the flow of money between nations, acting as a last-resort lender for countries with an unfavorable balance of payments.

Devaluation

A government will devalue its currency to make its domestic products cheaper abroad and increase the price of imports.

Importing and Exporting

Two options for entering a foreign market, which has the lowest level of risk.

Joint Venture

An option for entering a foreign market that is associated with a high level of risk.

Franchising

An option for entering a foreign market that carries moderate risk.

Global Outsourcing

An option for entering a foreign market that carries moderate risk.

Foreign Subsidiaries

An option for entering a foreign market that has the highest risk.

APEC

The Asia-Pacific Economic Cooperation; a common market of 21 Pacific Rim countries whose purpose is to improve economic and political ties.

Common Market

A group of nations within a geographical region that have agreed to remove trade barriers with one another.

Countertrading

Bartering goods for goods (or services).

Culture

The shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people.

Culture Shock

Feelings of discomfort and disorientation associated with being in an unfamiliar culture.

Currency Exchange Rate

The rate at which one country's currency can be exchanged for the currency of another country.

Developed Countries

Countries that have a high level of economic development and where citizens' average income level is generally high.

Developing/Less-Developed Countries

Countries that have low economic development and where citizens' average incomes are generally low.

Dumping

Occurs when a foreign company sells its products abroad for less—even less than the cost of manufacture—than the price of the domestic product.

Embargo

A complete ban on the import or export of certain products.

European Union (EU)

A common market that has enabled the removal of all trade barriers, including the flow of labor between countries, making it a union of economically borderless neighbors.

Exporting

When a company produces goods domestically and sells them outside the country.

Foreign Corrupt Practices Act

A law that makes it illegal for employees of U.S. companies to make 'questionable' or 'dubious' contributions to political decision makers in foreign nations.

Franchising and Foreign Licensing

A method of entering a foreign market that has a moderate level of risk.

Free Trade

The movement of goods and services among nations without political or economic restrictions.

Import Quotas

A limit on the quantity of a product that can be imported.

Importing

When a company buys goods outside the country and resells them domestically.

Joint Ventures

A method of entering a foreign market that is associated with a high level of risk.

Mercosur

A common market of South American nations striving for full economic integration and reduction of tariffs.

Multinational Corporations

Organizations with multinational management and ownership that manufacture and market products in many different countries.

Political Risk

The risk that political changes will cause the loss of a company's assets or impair its foreign operations.

Protectionism

The use of government regulations (such as tariffs, import quotas, and embargos) to limit the import of goods and services.

Tariffs

Trade barriers in the form of a tax levied on imports.

United States-Mexico-Canada Agreement (USMCA)

A common market whose primary objective is to provide duty-free trade and economic integration among North American trading partners.

World Trade Organization (WTO)

An organization consisting of 164 member countries, designed to monitor and enforce trade agreements.