International Business and Trade Exam 3 Study Guide

Comprehensive vocabulary flashcards covering international trade theories, government policies, and global business strategies for Exam 3.

Mercantilism

An economic philosophy from the 16th century advocating that countries should maintain a trade surplus by encouraging exports and discouraging imports, viewing trade as a zero-sum game.

Zero-Sum Game

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

Absolute Advantage

A theory by Adam Smith arguing that a country has an advantage when it is more efficient than any other country at producing a product; countries should specialize in these and trade for others.

Positive-Sum Game

A situation in which all countries can benefit from trade, associated with the theories of absolute and comparative advantage.

Comparative Advantage

David Ricardo's theory that a country should specialize in producing goods it produces relatively most efficiently and buy others, even if it could produce those other goods more efficiently itself.

Heckscher-Ohlin Theory

A theory predicting that trade patterns are based on factor endowments; countries export goods using locally abundant factors and import those using scarce factors.

Factor Endowments

A country's position in factors of production, such as land, labor, and capital.

Leontief Paradox

Empirical research finding that U.S. exports were less capital-intensive than U.S. imports, despite the U.S. being capital-abundant.

Product Life-Cycle Theory

Suggests that trade patterns are influenced by where a product is introduced, and over time, production moves from advanced nations to lower-cost developing nations.

New Trade Theory

Focuses on economies of scale and first-mover advantages, suggesting that global markets can only support a few firms in certain industries.

First-Mover Advantages

Economic and strategic advantages that accrue to early entrants into an industry.

Economies of Scale

Unit cost reductions associated with a large scale of output.

Porter’s Diamond

Four attributes that shape national competitive advantage: Factor Endowments, Demand Conditions, Related and Supporting Industries, and Firm Strategy, Structure, and Rivalry.

Globalization

The increasing interaction of people and integration of economies through the flow of money, ideas, and culture.

Free Trade

A situation where a government does not attempt to influence through quotas or tariffs what its citizens can buy from or sell to another country.

Dumping

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

Anti-Dumping

Policies designed to punish foreign firms that engage in dumping to protect domestic producers from unfair competition.

Protectionism

Government actions and policies that restrict international trade, often to protect local businesses and jobs from foreign competition.

Tariff

A tax levied on imports or exports.

Ad Valorem Tariff

A tariff levied as a proportion of the value of the imported good.

Subsidy

Government financial support to a domestic producer in the form of cash grants, low-interest loans, or other assistance.

Import Quota

A direct 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, usually at the request of the importing country's government.

Local Content Requirement (LCR)

A requirement that a specific fraction of a good be produced domestically.

Strategic Trade Policy

Government policy aimed at improving the competitive position of a domestic industry or firm in the world market, often through subsidies.

Paul Krugman’s Critique

Argues that strategic trade policy is dangerous because it invites retaliation (trade wars) and can be captured by special-interest groups.

Strategy

Actions taken by managers to attain firm goals, primarily maximizing shareholder value by increasing profitability and profit growth.

Value Created Formula

The difference between the value ($V$) and the cost ($C$), calculated as $V - C$.

Core Competence

Unique skills of a firm that rivals cannot easily match or imitate, serving as the bedrock of competitive advantage.

Location Economies

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

Global Web

The dispersal of different stages of the value chain to locations around the globe where value added is maximized or costs are minimized.

Experience Curve

Systematic reductions in production costs that occur over the life of a product due to learning effects and economies of scale.

Learning Effects

Cost savings that come from learning by doing through repetition.

Global Standardization Strategy

Used when cost pressures are high and local responsiveness pressures are low; focuses on standardized products and economies of scale.

Localization Strategy

Used when cost pressures are low and local responsiveness pressures are high; customizes products and marketing to match national tastes.

Transnational Strategy

Used when both cost and local responsiveness pressures are high; focuses on low costs, local tailoring, and multidirectional skill transfer.

International Strategy

Used when both cost and local responsiveness pressures are low; transfers core competencies to foreign markets with minimal customization.

Primary Activities

Value chain activities involving the design, creation, and delivery of the product, including R&D, Production, Marketing, and Customer Service.

Support Activities

Value chain activities that provide inputs for primary activities, such as Information Systems, Logistics, and Human Resources.

Pressures for Local Responsiveness

Arise from differences in consumer tastes, distribution channels, host-government demands, and infrastructure, such as the difference between $110\,v$ and $240\,v$ electricity.