FBLA Global Business Basics

Domestic Business

The making, buying, and selling, of goods within a country

International Business

Refers to business activities needed for creating, shipping, and selling goods and services across national borders, also called foreign or world trade

Absolute Advantage

Exists when a country can produce a good or service at a lower cost than other countries

Imports

Items bought from other countries

Exports

Goods an services sold to other countries

Foreign debt

The amount of money a country owes to other countries

Balance of trade

The difference between a country's total exports and total imports

Trade surplus

If a country exports (sells) mort than it imports (buys), it is favorable

Trade deficit

If a country imports more than it exports, it is unfavorable

Balance of payments

The difference between the amount of money that comes into a country and the amount that goes out of it

Favorable balance of payments

Occurs when a nation receives more money in a year than it pays out, also called positive balance of payments

Unfavorable balance of payments

The result of a country sending more money out than it brings in, also called negative balance if payments

Foreign exchange market

Consists of banks that buy and sell different currencies

Interest rates

The cost of using someone else's money

Infrastructure

Refers to a nation's transportation, communication, and utility systems

Trade barriers

Restrictions to free trade

Formal trade barriers

Trade barriers created by the government

Informal trade barriers

Restrictions based on a country's culture, traditions, and religion

Quota

A limit on the quantity of a product that may be imported or exported within a given period, used to protect one from its industries from too much competition from abroad

Tariff

Tax that a government places on certain imported products, intends to protect from foreign competition

Embargo

Stops the export or import of a product completely, used by government to express its disapproval of the actions or policies of another country

Free trade zone

A selected area where products can be imported duty-free and the stored, assembled, and/or used in manufacturing

Free trade agreement

Members to agree to remove duties, also called import taxes, and trade barriers on products traded among them

Common market

Members do away with duties and other trade barriers, allows companies to work freely across borders, also called an economic community

Multinational company

An organization that does business in several countries

Home country

Parent company with divisions or separate companies in host countries

Host country

The country in which the MNC places business activities

Global strategy

Uses the same product and marketing worldwide, same product is sold essentially in the same manner throughout the world

Multinational strategy

Treats each country market differently, develops products and marketing strategies that adapt to the customs, tastes, and buying habits of a distinct national market

Licensing

The selling rights to use some intangible property (production process, trademark, or brand name) for a fee or royalty, involves a manufacturing process

Franchise

The right to use a company name or business process in a specific way, involves selling a product or service

Joint venture

An agreement between two or more companies to share a business project

Absolute Advantage

when a country is more effective than any other at producing a specific product

Ad Valorem Tariff

a tariff levied as a proportion of the value of an imported good

Administrative Trade Policies

administrative policies that can be used to restrict imports or boost exports

Andean Pact

a 1969 agreement between Bolivia, Chile, Ecuador, Columbia, and Peru to establish a customs union

Antidumping Policies

designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition

Antidumping Regulations

regulations designed to restrict the sale of goods for less than their fair market price

Arbitrage

the purchase of securities in one market for immediate resale in another to profit from a price discrepancy

ASEAN

Formed in 1967, an attempt to establish free trade area between Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand

Balance of Payment Accounts

national accounts that track both payments to and from foreigners

Banking Crisis

a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits

Barriers to Entry

factors that make it difficult or costly for firms to enter an industry or market

Barter

the direct exchange of goods or services between two parties without a cash transaction

Basic Research Centers

Centers for fundamental research located in regions where valuable scientific knowledge is being created; they develop the basic technologies that become new products.

Bilateral Netting

Settlement in which the amount one subsidiary owes another can be cancelled by the debt the second subsidiary owes the first.

Bill of Exchange

An order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.

Bill of Lading

A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title.

Bretton Woods

A 1944 conference in which representatives of 40 countries met to design a new international monetary system.

Bureaucratic Controls

Achieving control through establishment of a system of rules and procedures.

Capital Account

In the balance of payments, records transactions involving the purchase or sale of assets.

Capital Controls

Restrictions on cross-border capital flows that segment different stock markets; limit amount of a firm's stock a foreigner can own; and limit a citizen's ability to invest outside the country.

CARICOM

An association of English-speaking Caribbean states that are attempting to establish a customs union.

Caste System

A system of social stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime.

Centralized Depository

The practice of centralizing corporate cash balances in a single depository.

Channel Length

The number of intermediaries that a product has to go through before it reaches the final consumer.

Civil Law System

A system of law based on a very detailed set of written laws and codes.

Class Consciousness

A tendency for individuals to perceive themselves in terms of their class background.

Class System

A system of social stratification in which social status is determined by the family into which a person is born and subsequent socioeconomic achievements. Mobility between classes is possible.

Collectivism

An emphasis on collective goals as opposed to individual goals.

COMECON

Now-defunct economic association of Eastern European communist states headed by the former Soviet Union.

Command Economy

An economic system where the allocation of resources, including determination of what goods and services should be produced, and in what quantity, is planned by the government.

Common Law System

A system of law based on tradition, precedent, and custom. When law courts interpret common law, they do so with regard to these characteristics.

Common Market

A group of countries committed to (1) removing all barriers to the free flow of goods, services, and factors of production between each other and (2) the pursuit of a common external trade policy.

Communist Totalitarianism

A version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship.

Communists

Those who believe socialism can be achieved only through revolution and totalitarian dictatorship.

Comparative Advantage

The theory that countries should specialize in the production of goods and services they can produce most efficiently. A country is said to have a comparative advantage in the production of such goods and services.

Competition Policy

Regulations designed to promote competition and restrict monopoly practices.

Constant Returns to Specialization

The units of resources required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier.

Controlling Interest

A firm has a controlling interest in another business entity when it owns more than 50 percent of that entity's voting stock.

Copyright

Exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit.

Core Competence

Firm skills that competitors cannot easily match or imitate.

Counterpurchase

A reciprocal buying agreement.

Countertrade

The trade of goods and services for other goods and services.

Cross Cultural Literacy

Understanding how the culture of a country affects the way business is practiced.

Cross Licensing Agreement

An arrangement in which a company licenses valuable intangible property to a foreign partner and receives a license for the partner's valuable knowledge; reduces risk of licensing.

Cultural Controls

Achieving control by persuading subordinates to identify with the norms and value systems of the organization (self-control).

Culture

The complex whole that includes knowledge, belief, art, morals, law, custom, and other capabilities acquired by a person as a member of society.

Currency Board

Means of controlling a country's currency

Currency Crisis

Occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate.

Currency Speculation

Involves short-term movement of funds from one currency to another in hopes of profiting from shifts in exchange rates.

Currency Swap

Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

Currency Translation

Converting the financial statements of foreign subsidiaries into the currency of the home country.

Current Account

In the balance of payments, records transactions involving the export or import of goods and services.

Current Account Deficit

The current account of the balance of payments is in deficit when a country imports more goods and services than it exports.

Current Account Surplus

The current account of the balance of payments is in surplus when a country exports more goods and services than it imports.

Current Cost Accounting

Method that adjusts all items in a financial statement to factor out the effects of inflation.

Current Rate Method

Using the exchange rate at the balance sheet date to translate the financial statements of a foreign subsidiary into the home currency.

Customs Union

A group of countries committed to (1) removing all barriers to the free flow of goods and services between each other and (2) the pursuit of a common external trade policy.

D'Amato Act

Act passed in 1996, similar to the Helms-Burton Act, aimed at Libya and Iran.

Deferral Principle

Parent companies are not taxed on the income of a foreign subsidiary until they actually receive a dividend from that subsidiary.

Democracy

Political system in which government is by the people, exercised either directly or through elected representatives.

Deregulation

Removal of government restrictions concerning the conduct of a business.

Diminishing Returns to Specialization

Applied to international trade theory, the more of a good that a country produces, the greater the units of resources required to produce each additional item.

Dirty Float System

A system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

Drawee

The party to whom a bill of lading is presented.

Dumping

Selling goods in a foreign market for less than their cost of production or below their "fair" market value.

Eclectic Paradigm

Argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located.

E-Commerce

Conducting business on-line through the Internet.

Economic Exposure

The extent to which a firm's future international earning power is affected by changes in exchange rates.