WGU D080 - Globalization in Business Key Terms (Units 2, 5 & 6 ONLY)

Key Terms for the Globalization, Global Business Practices and Technology Competencies

Globalization

International integration arising from the exchange of world views, products, ideas, and other aspects of culture. Produces economic, political, and cultural effects that are NOT felt equally by every country.

TRIGGER WORDS: 'international integration' / 'exchange of ideas and culture' / 'effects are not uniform'

NGO (Non-Governmental Organization)

An organization that transcends national borders to work on issues affecting people worldwide.

TRIGGER WORDS: 'transcends borders' / 'not a business or government' / 'humanitarian or issue-based'

Multinational Corporation (MNC)

A company (or government agency or NGO) that conducts business across multiple countries.

TRIGGER WORDS: 'operates in multiple countries' / 'parent company with foreign operations'

Four Drivers of Globalization

Market, cost, government, and competition.

TRIGGER WORDS: 'what pushes a company to go global' / 'drivers' — memorize all four, WGU likes 'which is NOT a driver'

Economies of Scale

Cost savings achieved by increasing the size of the market and volume of production.

TRIGGER WORDS: 'cost per unit decreases' / 'larger volume' / 'spread fixed costs'

Waves of Globalization

At least three historical periods of accelerated global integration driven by advances in technology and transportation.

TRIGGER WORDS: 'historical periods' / 'technology and transportation advances'

Political System

The system of politics and government in a country; governs a complete set of rules, regulations, institutions, and attitudes.

TRIGGER WORDS: 'rules, institutions, and attitudes' / 'balance of power in a country'

Traditional Economy

Economic system found mainly in rural countries where the primary occupation is farming; based on custom and barter.

TRIGGER WORDS: 'rural' / 'farming' / 'custom and tradition' / 'barter'

Command Economy

Economic system, typically communist, in which most economic activity is controlled by a centralized power.

TRIGGER WORDS: 'centralized control' / 'communist' / 'government decides production' — MISSED-AREA: don't confuse with planned or mixed

Planned Economy

Typically socialist; the factors of production are directed for the common good. |

TRIGGER WORDS: 'socialist' / 'common good' / 'factors of production directed'

Open Economy

A democratic method is used to determine how the factors of production are used. |

TRIGGER WORDS: 'democratic method' / 'citizens decide use of resources'

Market Economy

Decentralized economy in which firms and households determine how resources are allocated based on how best to satisfy their needs. ||

TRIGGER WORDS: 'decentralized' / 'firms and households decide' / 'supply and demand only'

Mixed Economy

Less government intervention than a command economy; supply and demand control the economy, with government stepping in when needed. Most countries are here.

|| TRIGGER WORDS: 'most countries' / 'government steps in when needed' / 'blend of market and command'

Civil Law

Legal system based on a comprehensive, codified set of detailed laws; the judge's role is to INVESTIGATE whether a law was broken. |

| TRIGGER WORDS: 'codified' / 'comprehensive written code' / 'judge investigates' — MISSED-AREA: judge role is the giveaway

Common Law

Legal system based on tradition and precedent; judge hears both parties and rules, and that ruling becomes precedent. ||

TRIGGER WORDS: 'precedent' / 'tradition' / 'judge hears arguments' / 'not clearly illegal may be acceptable'

Religious Law

Legal system based on religious beliefs (e.g., Sharia prohibits borrowing money, so an asset-based system is used instead). ||

TRIGGER WORDS: 'Sharia' / 'riba' / 'cannot charge interest' / 'asset-based financing'

International Monetary Fund (IMF)

Bretton Woods institution that regulates currency exchange between nations, provides oversight, and offers SHORT-TERM loans to stabilize member economies. ||

TRIGGER WORDS: 'currency exchange' / 'balance of payments' / 'trade deficit' / 'short-term stabilization' — MISSED-AREA: IMF = money/currency, World Bank = development

Special Drawing Right (SDR)

The IMF mechanism that maintains global liquidity by giving nations a straightforward way to borrow from and lend to one another. ||

TRIGGER WORDS: 'liquidity' / 'reserve asset' / 'borrow between nations'

Austerity

IMF loan condition typically requiring cuts to social program funding; a major criticism because it hits citizens living in poverty. ||

TRIGGER WORDS: 'conditionality' / 'cut social spending' / 'criticism of the IMF'

World Bank

Institution focused on sustainable economic growth, investing in people, and resilience to shocks; provides LONG-TERM low-interest loans, interest-free credits, and conditional grants to developing countries with a sovereign guarantee. ||

TRIGGER WORDS: 'development projects' / 'infrastructure' / 'poverty reduction' / 'sovereign guarantee' — MISSED-AREA: pairs with IMF

World Bank Group

The World Bank plus its affiliated private lending banks. ||

TRIGGER WORDS: 'group of five institutions' / 'includes private lending arms'

World Trade Organization (WTO)

164-member successor to GATT; protects trade in goods, services, and intellectual property, negotiates, and settles disputes among nations. ||

TRIGGER WORDS: 'dispute settlement' / 'trade rules' / 'successor to GATT' / '164 members'

GATT (General Agreement on Tariffs and Trade)

Predecessor agreement to the WTO, credited with the steady decrease in global tariff rates. ||

TRIGGER WORDS: 'came before the WTO' / 'reduced tariffs over rounds'

Most Favored Nation (MFN)

WTO principle requiring that every member nation be treated equally — a benefit given to one member must be given to all. ||

TRIGGER WORDS: 'treated fairly and equally' / 'no preferential treatment' / 'extend to all members'

Mercantilism / Neo-Mercantilism

Zero-sum theory that a country should maintain a trade surplus, with government action making it happen. One country wins at another's expense. ||

TRIGGER WORDS: 'trade surplus' / 'zero-sum' / 'government intervenes to export more'

Absolute Advantage

Adam Smith: a country should export goods it can produce more efficiently or more cheaply than another country. ||

TRIGGER WORDS: 'Adam Smith' / 'more efficiently than anyone' / 'produces more with same resources'

Comparative Advantage

Ricardo: a country should specialize in what it produces relatively more efficiently, focusing on its LOWEST OPPORTUNITY COST — benefits exist even without an absolute advantage. ||

TRIGGER WORDS: 'Ricardo' / 'opportunity cost' / 'relatively more efficient' / 'still gains even if worse at everything'

Heckscher-Ohlin Theory

Comparative advantage arises from a relative EXCESS of factors of production — labor, land, or capital. ||

TRIGGER WORDS: 'factor endowments' / 'abundant labor/land/capital' / 'natural resources'

Country Similarity Theory

Firm-based theory explaining INTRA-industry trade: consumers in countries at a similar stage of development have similar preferences. ||

TRIGGER WORDS: 'intra-industry trade' / 'similar stage of development' / 'similar consumer preferences'

Global Strategic Rivalry Theory

Firms gain competitive advantage by creating barriers to entry for new firms as they expand globally. ||

TRIGGER WORDS: 'barriers to entry' / 'firm-level competitive advantage' / 'R&D and patents'

Free Trade

Trade with limited or no government restriction; increases variety for consumers and lowers average cost through specialization. ||

TRIGGER WORDS: 'no barriers' / 'increased variety' / 'lower world price'

Tariff

Fee placed on imports to raise the price of foreign goods. Domestic producers and government GAIN; consumers and foreign producers LOSE. ||

TRIGGER WORDS: 'fee on imports' / 'protect domestic producers' / 'who wins and who loses' — know the winner/loser split

Ad Valorem Tariff

A tariff calculated as a PERCENTAGE of the value of the imported good. ||

TRIGGER WORDS: 'percentage of value' / 'based on price, not quantity'

Quota

Restriction on the QUANTITY of a good that may enter a country; effects on producers and consumers are the same as a tariff. ||

TRIGGER WORDS: 'limit on number of units' / 'same effect as a tariff'

Voluntary Export Restraint (VER)

The EXPORTING country agrees to limit the quantity it ships out. ||

TRIGGER WORDS: 'voluntary' / 'exporter self-limits' / 'agreed to avoid a tariff'

Embargo

A government-imposed ban on trade with a particular country. ||

TRIGGER WORDS: 'complete ban' / 'no trade at all'

Subsidy

Government financial support to domestic industries, acting as a barrier to trade. ||

TRIGGER WORDS: 'government payment to domestic producer' / 'artificially lowers cost'

Sanction

A trade restriction used to express a nation's displeasure with another nation's actions. ||

TRIGGER WORDS: 'political displeasure' / 'punishment for behavior'

Infant Industry

Protection given to a developing nation's new industries so they can grow before facing established international competition. ||

TRIGGER WORDS: 'new/emerging industry' / 'needs temporary protection' / 'developing nation'

Dumping

Selling goods BELOW production cost in a foreign market to undercut competitors or unload excess inventory. ||

TRIGGER WORDS: 'below cost' / 'undercut competitors' / 'excess inventory'

Foreign Direct Investment (FDI)

An investment by a firm or individual in one country INTO BUSINESS INTERESTS located in another country (ownership and control). ||

TRIGGER WORDS: 'ownership and control' / 'build or buy operations abroad'

Foreign Portfolio Investment

Investment in foreign financial assets (stocks, bonds) WITHOUT control of the business — contrast with FDI. ||

TRIGGER WORDS: 'stocks and bonds' / 'no managerial control' / 'passive'

Horizontal FDI

Investment made when a company opens up a NEW MARKET abroad, doing the same activity it does at home. ||

TRIGGER WORDS: 'same activity in a new country' / 'expand market'

Vertical FDI

Investment to support core operations: BACKWARD = securing inputs/suppliers; FORWARD = acquiring a local distributor. ||

TRIGGER WORDS: 'supply chain' / 'backward = inputs' / 'forward = distributor'

Greenfield FDI

A multinational BUILDS NEW factories or stores from scratch in a foreign country. ||

TRIGGER WORDS: 'build new' / 'from the ground up' / 'new facility'

Brownfield FDI

A company PURCHASES OR LEASES EXISTING production facilities to launch new production activity. ||

TRIGGER WORDS: 'buy or lease existing' / 'acquire a facility already there'

Regional Economic Integration

Agreement among nations in a geographic region to reduce or eliminate trade barriers, up to a shared political, economic, and trade policy identity. ||

TRIGGER WORDS: 'geographic region' / 'reduce barriers among members'

Free Trade Area (FTA)

LEVEL 1: members remove trade barriers among themselves but each keeps its OWN external tariffs. (NAFTA/USMCA) ||

TRIGGER WORDS: 'own external tariff policy' — MISSED-AREA: level 1 of 5, memorize the ladder in order

Customs Union

LEVEL 2: free trade among members PLUS a COMMON EXTERNAL TARIFF toward non-members. ||

TRIGGER WORDS: 'common external tariff' — MISSED-AREA: the CET is the giveaway

Common Market

LEVEL 3: customs union PLUS free movement of LABOR AND CAPITAL (factors of production). ||

TRIGGER WORDS: 'free movement of people and capital' — MISSED-AREA: labor mobility is the giveaway

Economic Union

LEVEL 4: common market PLUS coordinated monetary and fiscal policy and often a common currency. (EU) ||

TRIGGER WORDS: 'common currency' / 'shared monetary and fiscal policy'

Political Union

LEVEL 5: full integration under a central political authority. ||

TRIGGER WORDS: 'central government' / 'full integration'

Trading Bloc

Group of geographically close countries that removes barriers among members — increases internal trade but DIVERTS trade away from non-members. ||

TRIGGER WORDS: 'trade creation vs. trade diversion' / 'non-members lose out'

NAFTA

Agreement among Canada, the U.S., and Mexico to reduce tariffs and barriers and create a free-trade zone. ||

TRIGGER WORDS: 'Canada, U.S., Mexico'

CAFTA-DR

Free trade agreement among the U.S., Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. ||

TRIGGER WORDS: 'Central America and the Dominican Republic'

Mercosur

Economic AND political agreement among Southern Cone nations to keep regional peace and promote growth. ||

TRIGGER WORDS: 'South America' / 'Southern Cone' / 'Brazil and Argentina'

European Union (EU)

Bloc originally established to prevent future European wars; unified by long history and shared governance. ||

TRIGGER WORDS: 'originally to prevent war' / 'shared governance' / 'euro'

ASEAN

Southeast Asian association focused on economic, social, cultural, and technical cooperation and regional peace; early mission was preventing domination by outside powers. ||

TRIGGER WORDS: 'Southeast Asia' / 'cooperation and stability' / 'Malaysia, Thailand, Indonesia, Singapore…'

Foreign Exchange

The strategic process of exchanging one nation's currency for another, shaped by government policy and investor timing. ||

TRIGGER WORDS: 'currency conversion' / 'exchange rate decision'

Free-Floating Exchange Rate

An exchange rate that fluctuates purely on supply and demand; automatically adjusts to economic circumstances. ||

TRIGGER WORDS: 'fluctuates with supply and demand' / 'automatically adjusts'

Managed Float

A free-floating rate where the central bank intervenes by buying or selling currency to keep value in a target range. ||

TRIGGER WORDS: 'central bank intervenes' / 'keeps within a range' / 'dirty float'

Fixed (Pegged) Exchange Rate

Rate pegged to gold or to the currency of a major trading partner. ||

TRIGGER WORDS: 'pegged' / 'tied to the dollar' / 'fixed against gold'

Strong vs. Weak Dollar (who benefits)

STRONGER dollar benefits a FOREIGN firm exporting to the U.S. (earns dollars, converts to more home currency). WEAKER dollar benefits a U.S. INVESTOR ABROAD (converts back to more dollars). ||

TRIGGER WORDS: 'which actor benefits' — appeared verbatim on practice questions; walk through the conversion direction

Organizational Structure

How a company groups employees and assigns responsibility for business activities. ||

TRIGGER WORDS: 'how employees are grouped' / 'reporting relationships'

Organizational Chart

A map of the relationships within an organizational structure. ||

TRIGGER WORDS: 'visual map' / 'who reports to whom'

Departmentalization

Grouping jobs by function, division (product/market/geography), matrix, or teams. Aids specialization but creates communication SILOS. ||

TRIGGER WORDS: 'specialization vs. silos' / 'grouping into departments'

Functional/Departmental Structure

Groups employees by the business function they perform (marketing, finance, HR). ||

TRIGGER WORDS: 'grouped by function' / 'by what they do'

Divisional Structure

Groups employees by product, market, or geography. ||

TRIGGER WORDS: 'by product line' / 'by region' / 'by customer type'

Matrix Structure

Combines functional and divisional reporting lines — employees have two bosses. ||

TRIGGER WORDS: 'dual reporting' / 'two managers' / 'crosses function and division'

Centralized Structure

Decision-making authority is condensed among executives HIGHER UP in the organization. ||

TRIGGER WORDS: 'decisions at the top' / 'headquarters decides'

Decentralized Structure

Decision-making power is distributed to people LOWER in the hierarchy but closer to the problems. ||

TRIGGER WORDS: 'closer to the problem' / 'local managers decide'

Local Adaptation (Local Responsiveness)

Pressure to adapt processes, resources, and products to meet local market needs and expectations. ||

TRIGGER WORDS: 'customize for local market' / 'local tastes'

Global Integration

Pressure to pursue global production, distribution, and marketing efficiency for the bottom line. ||

TRIGGER WORDS: 'standardize worldwide' / 'cost efficiency' / 'economies of scale'

International Export Strategy

Bartlett & Ghoshal: LOW local adaptation, LOW global integration. Sell home products abroad with little change. ||

TRIGGER WORDS: 'low-low' / 'export what we already make'

Global Standardization Strategy

Bartlett & Ghoshal: HIGH global integration, LOW local adaptation. Same product everywhere for maximum efficiency. ||

TRIGGER WORDS: 'same everywhere' / 'cost pressure high, local pressure low'

Multidomestic Localization Strategy

Bartlett & Ghoshal: HIGH local adaptation, LOW global integration. Customize heavily per country. ||

TRIGGER WORDS: 'customize per country' / 'local pressure high, cost pressure low'

Transnational Strategy

Bartlett & Ghoshal: HIGH local adaptation AND HIGH global integration. Hardest to execute. ||

TRIGGER WORDS: 'both high' / 'hybrid' / 'hardest to pull off'

Standardization (marketing)

Keep the product the same everywhere with strict quality control to stay true to the brand; creates economies of scale. ||

TRIGGER WORDS: 'same product globally' / 'brand consistency'

Adaptation (marketing)

Any modification of the domestic product — including packaging — for the foreign market. ||

TRIGGER WORDS: 'change the packaging' / 'modify the product'

Glocalization

Adapting to local markets WHILE maintaining a global identity. ||

TRIGGER WORDS: 'think global, act local' / 'global brand, local flavor'

Exporting

Selling domestically produced goods abroad, often via a distributor or export management company. Lowest risk, lowest commitment — usually the FIRST step. ||

TRIGGER WORDS: 'first step into international' / 'lowest risk' / 'uses a distributor'

Licensing

A foreign entity pays for the right to use another company's idea, product, or process. Low risk, fast, but loss of control and lower ROI. ||

TRIGGER WORDS: 'pay for the right to use' / 'patent or process' / 'low risk, low control'

Franchising

A foreign entity pays for the right to operate under another company's BUSINESS MODEL and brand. ||

TRIGGER WORDS: 'business model and brand' / 'fast food model' / 'ongoing standards'

International Joint Venture

Company works with a partner in the target country, creating a shared entity, to pursue a common goal. ||

TRIGGER WORDS: 'shared ownership entity' / 'partner in-country'

Strategic Alliance

Cooperative agreement between companies, SHORT of forming a jointly owned entity, to pursue a shared goal. ||

TRIGGER WORDS: 'cooperate without new entity' / 'partnership without ownership'

Acquisition

Purchasing all or most of an existing company in the target market. High risk, high reward, high control. ||

TRIGGER WORDS: 'buy an existing company' / 'most risk, most control'

Subsidiary (Wholly Owned)

A company owned or controlled by a parent company; gives TOTAL control over operations. ||

TRIGGER WORDS: 'wholly owned' / 'total control' / 'parent company'

Supply Chain Management

Obtaining raw goods from a supplier, converting them into products, shipping them, and placing them in front of customers. ||

TRIGGER WORDS: 'end to end' / 'supplier to customer'

Operations Management

The PRODUCTION side of supply chain management — location selection, staffing, production issues. ||

TRIGGER WORDS: 'production side' / 'location and staffing'

Push Model

Traditional supply chain approach driven by the needs of the PRODUCT; build inventory in advance of demand. ||

TRIGGER WORDS: 'build to stock' / 'forecast-driven' / 'large inventory ready'

Pull Model

Modern lean approach driven by CUSTOMER demand; produce only what is being ordered. ||

TRIGGER WORDS: 'demand-driven' / 'lean' / 'produce only what's ordered'

Just in Time (JIT)

Pull-model strategy producing only the amounts customers are currently ordering. Less inventory and customization, but MORE disruption risk. ||

TRIGGER WORDS: 'minimal inventory' / 'lean' / 'vulnerable to disruption' — know the tradeoff

Production Site Selection Factors

Production method, shipping costs and logistics, available raw materials, workforce quality, taxes, local costs, business culture, and community incentives. ||

TRIGGER WORDS: 'what to consider when choosing a factory location' / 'which is NOT a factor'

Outsourcing

Hiring ANOTHER company to handle business activities normally done in-house — for expertise or lower cost. ||

TRIGGER WORDS: 'hire an outside firm' / 'third party handles it' / 'lower cost or more expertise'

Insourcing

Keeping or RETURNING responsibility for an activity to in-house staff — used when outsourcing doesn't work (e.g., HR, customer relations). ||

TRIGGER WORDS: 'bring it back in-house' / 'keep internal' / 'outsourcing failed'

Direct Distribution

Producer sells straight to the consumer with NO intermediaries. Closer customer relationship and bigger profit share, but no outside help penetrating markets.

|| TRIGGER WORDS: 'no middleman' / 'e-commerce' / 'producer to consumer' — MISSED-AREA: know the exact category name

Indirect Distribution

Uses INTERMEDIARIES — wholesalers, dealers, retailers. Pools outside distribution expertise for efficiency but reduces profit share. ||

TRIGGER WORDS: 'wholesaler, dealer, retailer' / 'intermediaries' / 'channel members'

Debt Financing

Raising capital through loans and bonds that must be REPAID, typically with interest. Has a maturity date. ||

TRIGGER WORDS: 'must be repaid' / 'interest' / 'maturity date' / 'bonds and loans'

Equity Financing

Raising capital by selling SHARES of ownership. No repayment obligation and NO maturity date. ||

TRIGGER WORDS: 'shares' / 'ownership stake' / 'no maturity' / 'no repayment required'

Venture Capitalist (VC)

Professional investor funding startups and early-stage companies in exchange for equity, usually in larger amounts and later than angels. ||

TRIGGER WORDS: 'professional firm' / 'funds startups for equity'