Chapter 3: Doing Business in Global Markets Vocabulary

Vocabulary flashcards covering key terms and definitions from Chapter 3 on doing business in global markets.

Importing

Buying products from another country.

Exporting

Selling products to another country.

Free Trade

The movement of goods and services among nations without political or economic barriers.

Comparative Advantage

Theory stating that a country should sell to other countries those products that it produces most efficiently and buy from other countries those products that it cannot produce as effectively or efficiently.

Absolute Advantage

The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Balance of Trade

The total value of a nation's exports compared to its imports over a particular period.

Trade Surplus

A favorable balance of trade that occurs when the value of a country's exports exceeds that of its imports.

Trade Deficit

An unfavorable balance of trade that occurs when the value of a country's imports exceeds that of its exports.

Balance of Payments

The difference between money coming into a country from exports and money leaving the country from imports, plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

Dumping

Selling products in a foreign country at lower prices than those charged in the producing country.

Licensing

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

Export Assistance Centers (EACs)

Centers that help small- and medium-sized businesses with direct exporting by providing exporting assistance and trade-finance support.

Export-Trading Companies

Entities that help companies with indirect exporting by negotiating and establishing trading relationships.

Franchising

A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product or service in a given territory in a specified manner.

Contract Manufacturing

A foreign company's production of private-label goods to which a domestic company then attaches its own brand name or trademark; part of the broad category of outsourcing.

Joint Venture

A partnership in which two or more companies, often from different countries, join to undertake a major project.

Strategic Alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages, typically without sharing costs, risks, management, or profits.

Foreign Direct Investment (FDI)

The buying of permanent property and businesses in foreign nations.

Foreign Subsidiary

A company owned in a foreign country by another company, called the parent company.

Multinational Corporation

An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.

Sovereign Wealth Funds (SWFs)

Investment funds controlled by governments holding large stakes in foreign companies.

Culture

A set of values, beliefs, rules, and institutions held by a specific group of people.

Ethnocentricity

An attitude that your own culture is superior to other cultures.

Exchange Rate

The value of one nation's currency relative to the currencies of other countries.

Floating Exchange Rates

A system where currencies float in value depending on the supply and demand for them in the global market.

Devaluation

Lowering the value of a nation's currency relative to other currencies.

Countertrading

A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

Foreign Corrupt Practices Act of 1978

A U.S. law that prohibits questionable or dubious payments to foreign officials to secure business contracts.

Trade Protectionism

The use of government regulations to limit the import of goods and services.

Tariffs

Taxes imposed on imports.

Protective Tariffs

Import taxes meant to protect domestic or infant industries.

Revenue Tariffs

Import taxes meant to raise money for the government.

Import Quota

A limit on the number of products in certain categories that a nation can import.

Embargo

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

General Agreement on Tariffs and Trade (GATT)

A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

World Trade Organization (WTO)

An independent entity of 164 member nations headquartered in Geneva whose purpose is to oversee cross-border trade issues and global business practices.

Common Market

A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc.

North American Free Trade Agreement (NAFTA)

An agreement passed in 1993 that created a free-trade area among the United States, Canada, and Mexico.

United States-Mexico-Canada Agreement (USMCA)

The agreement ratified in 2020 that replaced NAFTA to modernize rules and strengthen trade in North America.

Central American Free Trade Agreement (CAFTA)

An agreement that created a free-trade zone among Costa Rica, Dominican Republic, El Salvador, Guatemala, Nicaragua, and Honduras.

Offshore Outsourcing

The process whereby one firm contracts with other companies abroad to do some or all of its functions.