Chaper 3 Doing Business in Global Markets

absolute advantage

The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

balance of payments

The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

balance of trade

The total value of a nation’s exports compared to its imports over a particular period.

common market

A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. An example is the European Union.

comparative advantage theory

Theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently.

contract manufacturing

A foreign company’s production of private-label goods to which a domestic company then attaches its brand name or trademark; part of the broad category of outsourcing.

countertrading

A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

devaluation

Lowering the value of a nation’s currency relative to other currencies.

dumping

Selling products in a foreign country at lower prices than those charged in the producing country.

embargo

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

exchange rate

The value of one nation’s currency relative to the currencies of other countries.

exporting

Selling products to another country.

foreign subsidiary

A company owned in a foreign country by another company, called the parent company.

foreign direct investment (FDI)

The buying of permanent property and businesses in foreign nations.

free trade

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

General Agreement on Tariffs and Trade (GATT)

A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

importing

Buying products from another country.

import quota

A limit on the number of products in certain categories that a nation can import.

joint venture

A partnership in which two or more companies (often from different countries) join to undertake a major project.

licensing

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

multinational corporation

An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico.

offshore outsourcing

Contracting with other companies abroad to do some or all of the functions of a firm, like its production or accounting tasks.

sovereign wealth funds (SWFs)

Investment funds controlled by governments holding large stakes in foreign companies, real estate, and other investments.

strategic alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages.

tariff

A tax imposed on imports.

trade deficit

An unfavorable balance of trade; occurs when the value of a country’s imports exceeds that of its exports.

trade protectionism

The use of government regulations to limit the import of goods and services.

trade surplus

A favorable balance of trade; occurs when the value of a country’s exports exceeds that of its imports.

United States–Mexico–Canada Agreement (USMCA)

Free-trade agreement among the United States, Mexico, and Canada that replaced NAFTA in an effort to create more balanced and reciprocal trade

World Trade Organization (WTO)

The international organization that replaced the General Agreement on Tariffs and Trade, and was assigned the duty to mediate trade disputes among nations.