Business Chapter 5 Review

Globalization of business

The growing connection and interdependence of the world’s economies.

International trade

The exchange of goods and services between countries.

Importer

A country or company that buys goods and services from other countries.

Exporter

A country or company that sells goods and services to other countries.

Absolute advantage

When a country is the only source of a product or can produce more of it using the same or fewer resources than another country.

Comparative advantage

When a country can produce a product at a lower opportunity cost than another country.

Opportunity cost

The products or opportunities a country gives up when choosing to produce something else.

Specialization

Focusing on producing goods or services a country can make most efficiently.

Balance of trade

The value of a country’s exports minus the value of its imports.

Trade surplus

When a country exports more than it imports.

Trade deficit

When a country imports more than it exports.

Balance of payments

The difference between the total money flowing into and out of a country over a period of time.

Importing

Buying products from other countries and reselling them domestically.

Exporting

Selling domestic products to customers in foreign countries.

Licensing agreement

An agreement allowing a foreign company to use another company’s products or intellectual property in exchange for royalty fees.

Licensor

The company that grants another company permission to use its products or intellectual property.

Licensee

The foreign company that receives permission to use another company’s products or intellectual property.

Royalty fee

A payment made for the right to use another company’s products, brand, or intellectual property.

Franchise agreement

An agreement allowing a foreign company to use a company’s brand and sell its products or services.

Franchiser

The company that grants another company the right to use its brand and business model.

Franchisee

The company that operates a business using another company’s brand and business model.

Contract manufacturing

Hiring a foreign company to manufacture products while retaining control over product design and branding.

Outsourcing

Hiring another company, often in another country, to perform business activities or services.

Strategic alliance

An agreement between companies or a company and a nation to share resources and achieve mutual business goals.

Joint venture

A strategic alliance in which partners create and fund a separate business entity to manage their shared operations.

Foreign direct investment (FDI)

Establishing business operations in another country, such as factories, sales offices, or distribution networks.

Offshoring

Moving production to foreign facilities that replace domestic facilities and produce goods to be sold back in the home country.

Foreign subsidiary

An independent company in another country that is owned by a foreign parent company.

Multinational corporation (MNC)

A company that operates in multiple countries.

Think globally, act locally

Adjusting products, marketing, and business practices to fit the cultures and needs of local markets.

Cultural environment

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

Intercultural communication

Communication between people from different cultures.

High

context culture

Economic development

The growth and improvement of a country’s economy and standard of living.

Infrastructure

Systems such as transportation, communication, energy, schools, and hospitals that support an economy.

Exchange rate

The value of one currency compared with another currency.

Legal and regulatory environment

The laws and regulations that businesses must follow in a particular country.

Foreign Corrupt Practices Act

A U.S. law that prohibits American businesses from offering bribes or improper payments in foreign business dealings.

Corruption

The abuse of entrusted power for private gain.

Trade controls

Government policies that restrict the flow of foreign goods and investments.

Protectionism

The use of trade restrictions to protect domestic industries from foreign competition.

Subsidy

Government financial assistance that helps businesses or producers reduce their costs.

Tariff

A tax placed on imported goods.

Quota

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

Absolute quota

A fixed maximum amount of a product that can be imported.

Tariff

rate quota

Embargo

A ban on importing or exporting certain goods to or from a specific country.

Dumping

Selling exported goods below the normal home

Free trade

International trade with few or no government restrictions.

General Agreement on Tariffs and Trade (GATT)

An agreement created to reduce tariffs, encourage free trade, and help resolve trade disputes.