Business in a Global Economy - Chapter 4

Better Business by Michael Solomon, Mary Poatsy, Kendall Martin

absolute advantage

is the ability to produce more of a good or a service than any other country

balance of payments (BOP)

is a system that shows the difference in total value between the payments into and out of a country over a period of time

capital flight

the transfer of domestic funds into a foreign currency held outside the country

comparative advantage

means that a country can produce a good or service relatively more efficiently compared to other countries

competitive advantage

is a company's ability to gain access to and use resources to give them an edge over their competition

contract manufacturing

occurs when a firm subcontracts part or all of its goods to an outside firm as an alternative to owning and operating its own production facility

currency appreciation

is an increase in the exchange rate value of a nation's currency

currency depreciation

is a decrease in the exchange rate value of a nation's currency

devalue

is to deliberately reduce the value of a currency in relation to another

dumping

refers to selling a product at a price below the price charged in the producing country; it is illegal and can be difficult to prove

economic nationalism

to support policies that tend to isolate the United States from international trade, engaging only in relationships that are designed to give an advantage to the United States

embargo

are a total restriction on an import or an export

ethnocentrism

is a belief that one's own culture is superior to all other cultures

exchange rate

are the rates at which currencies are converted into another currency

exporting

is the sale of domestically produced products to other countries

foreign direct investment

is the purchasing of property and businesses in a foreign nation

franchising

involves selling a well-known brand name or a proven method of doing business to an investor in exchange for a fee and a percentage of sales or profits

free trade

refers to the unencumbered flow of goods and services across national borders

freely floating (or flexible) exchange system

is an exchange rate system where a currency's value is based on supply and demand in the foreign exchange market.

General Agreement on Tariffs and Trade (GATT)

is an international organization that held eight rounds of negotiated agreements or treaties to reduce tariffs and other obstacles to free trade on goods

global strategy

is a strategy of selling a standardized (or homogeneous) product across the globe

globalization

is a movement toward a more interconnected and interdependent world economy

globalization of markets

refers to the movement away from thinking of the market as being the local market or the national market to thinking of the market as being the entire world

globalization of production

refers to the trend of individual firms moving production to different locations around the globe to take advantage of lower costs or to enhance quality

importing

is buying products from other countries

infrastructure

a term for public capital the government invests in

joint venture

involve shared ownership in a subsidiary firm

licensing

is an agreement in which the licensor's intangible property—patents, trademarks, service marks, copyrights, trade secrets, or other intellectual property—may be sold or made available to a licensee in exchange for a royalty fee

local content requirement

are a requirement that some portion of a good be produced domestically

multidomestic strategy

is a strategy in which domestic products are customized to meet the unique local needs, tastes, or preferences of customers abroad

multinational enterprises

are businesses that manufacture and market products in two or more countries

nonconvertible currency

currency that can't be exchanged for another currency

North American Free Trade Agreement (NAFTA)

is an ongoing agreement to move the United States, Mexico, and Canada closer to true free trade

offshore outsourcing

when businesses relocate their production facilities overseas or subcontract at least some of the components of their products to foreign companies around the world to achieve lower manufacturing costs

offshoring

when businesses relocate their production facilities overseas or subcontract at least some of the components of their products to foreign companies around the world to achieve lower manufacturing costs

outsourcing

is the assignment of certain tasks, such as production or accounting, to an outside company or organization

quota

are a limitation on the amount of an import allowed to enter a country

regional free trade agreement

are compacts abolishing trade barriers among member countries

sovereign wealth funds (SWFs)

are government investment funds that take the pool of money that exists in the year of a trade surplus and invest it

strategic alliances

are cooperative arrangements between actual or potential competitors

subsidy

are when governments make payments to domestic producers

tariff

are a tax imposed on an imported good or service

theory of comparative advantage

states that specialization and trade between countries benefit all who are involved

trade deficit

exist when the value of a country's imports exceeds the value of its exports

trade surplus

occurs when the value of a country's exports exceeds the value of its imports

trade war

is a situation where countries try to damage each other by implementing tariffs or restrictions on the import/export of goods

transnational strategy

offers a customized product while simultaneously selling it at the lowest possible price

turnkey projects

occur when firms export their technological know-how in exchange for a fee

United States-Mexico-Canada Agreement (USMCA)

is an ongoing agreement to move the United States, Mexico, and Canada closer to true free trade

wholly owned subsidiary

is a firm owned entirely by another firm rather than individual shareholders

World Trade Organization (WTO)

is an international organization that promotes more free trade by extending GATT rules to services, by increasing protection for intellectual property rights, by arbitrating trade disputes, and by monitoring the trade policies of member countries