Chapter 2: Global Business

Comprehensive vocabulary flashcards covering key definitions, trade theories, business entry methods, institutions, legal concepts, and critical historical dates from Chapter 2: Global Business.

Globalization

The increasing integration of businesses, economies, and trade across countries.

Import

A good or service purchased from another country (e.g., the U.S. purchasing clothing from China).

Export

A good or service sold to another country (e.g., the U.S. selling soybeans to China).

Absolute Advantage

The ability to produce more of a good using the same resources, or produce the same amount with fewer resources, than another country; can also describe being the only source of a product.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than another country.

Opportunity Cost

The value of the next-best alternative sacrificed when making a decision.

Opportunity Cost Formula

$$\text{Opportunity cost per unit} = \frac{\text{quantity of alternative product sacrificed}}{\text{quantity produced}}$$

Specialization

Focusing on producing goods or services for which a country has a comparative advantage, then trading for others.

Balance of Trade

The difference between a country's exports and imports ($\text{Exports} - \text{Imports}$).

Trade Surplus

A positive or favorable trade balance that occurs when exports exceed imports.

Trade Deficit

A negative or unfavorable trade balance that occurs when imports exceed exports.

Balance of Payments

A comprehensive record of all economic transactions between a country and other nations, including trade, investment, loans, tourism, and foreign aid.

International Licensing

An agreement allowing a foreign company to use intellectual property in exchange for royalty fees.

Licensor

The company that owns intellectual property and grants permission to another entity to use it.

Licensee

The company that receives permission to use another company's intellectual property.

Intellectual Property

Legally protected creations such as patents, trademarks, copyrights, technology, logos, and designs.

Royalty

A payment made to a property owner for permission to use its intellectual property.

International Franchising

An agreement allowing a foreign business to operate using another company's brand and established business model.

Franchisor

The company that grants rights to its brand and business model, often providing training, advertising, and operating procedures.

Franchisee

The person or company purchasing the right to operate using the franchisor's established business model.

Contract Manufacturing

Hiring a foreign manufacturer to produce goods while the original company retains control over product design, specifications, and branding.

Outsourcing

Hiring an outside company to perform specific business functions or produce goods and services.

Offshoring

Moving business operations or manufacturing to another country, typically to reduce operating costs.

Strategic Alliance

An agreement between two businesses, or a business and a government, to share resources and cooperate for mutual benefit.

Joint Venture

A partnership in which businesses jointly establish and fund an operation, often creating a separate business entity.

Foreign Direct Investment (FDI)

Establishing or acquiring business operations in another country, such as factories, offices, or warehouses.

Foreign Subsidiary

A company located in another country that is owned and controlled by a foreign parent company.

Multinational Corporation (MNC)

A company with business operations in multiple countries, often coordinated through offices, factories, or foreign subsidiaries.

Think Globally, Act Locally

Adapting business practices and products to fit local culture, religion, economy, and consumer preferences (e.g., McDonald's offering vegetarian options in India).

Decentralization

Giving local managers greater decision-making authority within an international organization.

Culture

The shared beliefs, values, customs, and behaviors that influence how people interact within a society.

High-Context Culture

A culture where communication relies heavily on relationships, indirect messages, shared understanding, and unspoken context (e.g., Japan, China, Korea).

Low-Context Culture

A culture where communication relies on direct, explicit language and clear instructions (e.g., U.S., Germany, Switzerland).

Intercultural Communication

Communication across cultures that involves navigating differences in language, gestures, body language, eye contact, tone, and personal space.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country's borders during a given period.

Infrastructure

The basic physical and organizational systems supporting economic activity, including transportation, communication, energy, schools, and hospitals.

Exchange Rate

The value of one country's currency relative to another country's currency.

Foreign Corrupt Practices Act (FCPA)

A U.S. law prohibiting covered businesses and individuals from bribing foreign officials to gain or retain business, which also imposes specific accounting requirements.

Bribe

An improper payment, kickback, or favor intended to influence an official's decision.

Corruption

The abuse of entrusted power for private gain.

Trade Controls

Government policies designed to restrict or regulate international trade.

Protectionism

The government's use of trade restrictions to protect domestic businesses and industries from foreign competition.

Tariff

A tax imposed on imported goods that raises their cost, protects domestic producers, and generates government revenue.

Quota

A government-imposed restriction on the quantity of a specific product that may be imported.

Absolute Quota

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

Tariff-Rate Quota

A trade policy that allows a specified quantity of an imported good at a lower tariff rate, while quantities imported above that limit face a higher tariff rate.

Embargo

A complete government ban on trade involving specified products or countries, typically enacted for political, economic, or national security reasons.

Subsidy

Government financial assistance granted to domestic businesses to lower production costs and enhance market competitiveness.

Dumping

The practice of selling exported goods below their normal home-market price, or below actual production costs, potentially undercutting foreign competitors.

Antidumping Duties

Additional import taxes imposed under trade rules to offset and address unfair pricing from dumping.

Free Trade

International trade conducted with few or no government restrictions, tariffs, or quotas.

Infant Industry

A newly emerging domestic industry that may require temporary government trade protection while developing efficiency and competitiveness.

Trade War

An economic conflict in which countries impose retaliatory tariffs or other trade restrictions against one another.

General Agreement on Tariffs and Trade (GATT)

An international trade agreement established in 1947 by 23 countries to reduce trade barriers and encourage free trade.

World Trade Organization (WTO)

An international organization established in 1995, headquartered in Geneva, that oversees multilateral trade rules, negotiations, and dispute settlement procedures.

International Monetary Fund (IMF)

An international organization that provides loans to countries experiencing financial crises and works to promote international financial stability.

World Bank

An international development institution that finances long-term development projects in developing countries, including infrastructure, education, healthcare, and poverty reduction.

Trading Bloc

A regional group of countries cooperating to reduce or eliminate trade barriers and encourage commerce among member states.

United States–Mexico–Canada Agreement (USMCA)

A trade agreement among the U.S., Mexico, and Canada that officially replaced NAFTA in 2020 to promote regional trade.

European Union (EU)

An economic and political union of European nations that enables deep integration and the free movement of goods, services, capital, and people among members.

Brexit

The formal withdrawal of the United Kingdom from the European Union, which officially took effect on January 31, 2020.

Euro

The common currency adopted by many member countries of the European Union; introduced in 1999, with physical currency circulated in 2002.

MERCOSUR

A South American economic bloc established to promote regional trade; founding members include Argentina, Brazil, Paraguay, and Uruguay.

Association of Southeast Asian Nations (ASEAN)

A regional organization in Southeast Asia promoting economic growth and political cooperation among members such as Indonesia, Malaysia, Singapore, Thailand, and the Philippines.

Domestic Law

The legal rules and statutes that govern people, organizations, and activities within a single sovereign country.

International Law

The legal principles and rules governing relationships and interactions between sovereign countries and other authorized international actors.

Sovereign State

An independent country possessing the legal authority to govern its own territory and population without external intervention.

Vertical Legal Structure

The legal structure characteristic of domestic law, where a centralized government exercises binding legal authority over individuals and businesses.

Horizontal Legal Structure

The legal structure characteristic of international law, where sovereign states are considered legally equal with no single overarching world government to enforce rules.

Treaty

A formal agreement governed by international law between sovereign countries or authorized international entities.

Article II Treaty Ratification Requirement

The requirement under the U.S. Constitution that treaties negotiated by the President receive approval by $\frac{2}{3}$ of senators present before ratification.

International Court of Justice (ICJ)

The principal judicial organ of the United Nations that adjudicates legal disputes submitted by countries that fall within its jurisdiction.

Choice of Law Clause

A contractual provision that specifies which jurisdiction's laws will govern any legal dispute arising from the contract.

Arbitration

A private dispute-resolution process in which an impartial neutral third party hears evidence and renders a binding decision.

Arbitration Clause

A contract clause specifying that disputes must be resolved through private arbitration rather than public litigation, often designating rules, language, and venue.

New York Convention

An international convention that facilitates the recognition and legal enforcement of foreign arbitral awards across participating nations.

Alien Tort Statute (ATS)

A U.S. federal statute allowing certain foreign plaintiffs to bring civil lawsuits in U.S. federal courts for a narrow category of international-law violations.

Jesner v. Arab Bank (2018)

A Supreme Court decision holding that foreign corporations cannot be sued under the Alien Tort Statute without express congressional authorization.