glossary international business

8/7/2019 Glossary international Business

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Glossary(See related pages)

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A [back to top]absolute advantage A country has an absolute advantage in the production of a

product when it is more efficient than any other country atproducing it.

accounting standards Rules for preparing financial statements.

ad valorem tariff A tariff levied as a proportion of the value of an imported good.

administrative tradepolicies

Administrative policies, typically adopted by governmentbureaucracies, that can be used to restrict imports or boostexports.

Andean Pact A 1969 agreement between Bolivia, Chile, Ecuador, Colombia,and Peru to establish a customs union.

antidumping policies Designed to punish foreign firms that engage in dumping andthus protect domestic producers from unfair foreigncompetition.

antidumping regulations Regulations designed to restrict the sale of goods for less thantheir fair market price.

arbitrage The purchase of securities in one market for immediate resale inanother to profit from a price discrepancy.

ASEAN(Association of South East Asian Nations)

Formed in 1967, an attempt to establish a free trade areabetween Brunei, Indonesia, Malaysia, the Philippines,Singapore, and Thailand.

auditing standards Rules for performing an audit.

B [back to top]backward vertical FDI Investing in an industry abroad that provides inputs for a firms

domestic processes.

balance-of-paymentsaccounts

National accounts that track both payments to and receiptsfrom foreigners.

balance-of-tradeequilibrium

Reached when the income a nations residents earn fromexports equals money paid for imports.

banking crisis A loss of confidence in the banking system that leads to a runon banks, as individuals and companies withdraw their deposits.

barriers to entry Factors that make it difficult or costly for firms to enter an
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industry or market.

barter The direct exchange of goods or services between two partieswithout a cash transaction.

basic research centers Centers for fundamental research located in regions wherevaluable 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 canceled by the debt the second subsidiary owes thefirst.

bill of exchange An order written by an exporter instructing an importer, or animporters agent, to pay a specified amount of money at aspecified time.

bill of lading A document issued to an exporter by a common carriertransporting merchandise. It serves as a receipt, a contract, anda 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 rulesand procedures.

business ethics The accepted principles of right or wrong governing the conductof businesspeople.

buyback Agreement to accept percentage of a plant's output as paymentfor contract to build a plant.

C [back to top]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 differentstock markets; limit amount of a firms stock a foreigner canown; and limit a citizens ability to invest outside the country.

capital flight Residents convert domestic currency into a foreign currency.

CARICOM An association of English-speaking Caribbean states that areattempting to establish a customs union.

caste system A system of social stratification in which social position isdetermined by the family into which a person is born, andchange in that position is usually not possible during anindividuals lifetime.

centralized depository The practice of centralizing corporate cash balances in a singledepository.

channel length The number of intermediaries that a product has to go throughbefore it reaches the final consumer.

civil law system A system of law based on a very detailed set of written laws and
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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 isdetermined by the family into which a person is born and by

subsequent socioeconomic achievements. Mobility betweenclasses is possible.

code of ethics A formal statement of the ethical priorities of a business ororganization.

collectivism An emphasis on collective goals as opposed to individual goals.

COMECON Now-defunct economic association of Eastern EuropeanCommunist states headed by the former Soviet Union.

command economy An economic system where the allocation of resources, includingdetermination 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 regardto these characteristics.

common market A group of countries committed to (1) removing all barriers tothe free flow of goods, services, and factors of productionbetween each other and (2) the pursuit of a common externaltrade policy.

communisttotalitarianism

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

communists Those who believe socialism can be achieved only throughrevolution and totalitarian dictatorship.

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

competition policy Regulations designed to promote competition and restrictmonopoly practices.

Confucian dynamism Theory that Confucian teachings affect attitudes toward time,persistence, ordering by status, protection of face, respect fortradition, and reciprocation of gifts and favors.

constant returns tospecialization

The units of resources required to produce a good are assumedto remain constant no matter where one is on a countrysproduction possibility frontier.

contract Document that specifies conditions of an exchange and detailsrights and obligations of involved parties.

contract law Body of law that governs contract enforcement.

control systems Metrics used to measure performance of subunits.

controlling interest A firm has a controlling interest in another business entity whenit owns more than 50 percent of that entitys voting stock.


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Convention on CombatingBribery of Foreign Public

OECD agreement to make the bribery of foreign public officials acriminal offense.

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

core competence Firm skills that competitors cannot easily match or imitate.corporate culture The organization's norms and value systems.

cost of capital Price of money.

Council of the EuropeanUnion

Represents the interests of EU members and has authority toapprove EU laws.

counterpurchase A reciprocal buying agreement.

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

countervailing duties Antidumping duties.

Court of Justice Supreme appeals court for EU law.

cross-cultural literacy Understanding how the culture of a country affects the waybusiness is practiced.

cross-licensingagreement

An arrangement in which a company licenses valuable intangibleproperty to a foreign partner and receives a license for thepartners valuable knowledge; reduces risk of licensing.

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

cultural relativism Belief that ethics are culturally determined, and a firm shouldadopt the ethics of the culture in which it is operating.

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

currency board Means of controlling a countrys currency.

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

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

currency swap Simultaneous purchase and sale of a given amount of foreignexchange for two different value dates.

currency translation Converting the financial statements of foreign subsidiaries intothe currency of the home country.

current account In the balance of payments, records transactions involving theexport or import of goods and services.

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


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exports.

current account surplus The current account of the balance of payments is in surpluswhen a country exports more goods and services than itimports.

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 homecurrency.

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

D [back to top]DAmato Act Act passed in 1996, similar to the Helms-Burton Act, aimed atLibya and Iran.

debt loan Requires a corporation to repay loan at regular intervals.

deferral principle Parent companies are not taxed on the income of a foreignsubsidiary until they actually receive a dividend from thatsubsidiary.

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

deregulation Removal of government restrictions concerning the conduct of abusiness.

diminishing returns tospecialization Applied to international trade theory, the more of a good that acountry produces, the greater the units of resources required toproduce each additional item.

dirty-float system A system under which a countrys currency is nominally allowedto float freely against other currencies, but in which thegovernment will intervene, buying and selling currency, if itbelieves that the currency has deviated too far from its fairvalue.

draft An order written by an exporter telling an importer what andwhen to pay.

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.

E [back to top]eclectic paradigm Argument that combining location-specific assets or resource

endowments and the firms own unique assets often requiresFDI; it requires the firm to establish production facilities where
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those foreign assets or resource endowments are located.

e-commerce Conducting business online through the Internet.

economic exposure The extent to which a firms future international earning poweris affected by changes in exchange rates.

economic risk The likelihood that events, including economic mismanagement,will cause drastic changes in a countrys business environmentthat adversely affect the profit and other goals of a particularbusiness enterprise.

economic union A group of countries committed to (1) removing all barriers tothe free flow of goods, services, and factors of productionbetween each other, (2) the adoption of a common currency,(3) the harmonization of tax rates, and (4) the pursuit of acommon external trade policy.

economies of scale Cost advantages associated with large-scale production.

efficient market A market where prices reflect all available information.

ending rate The spot exchange rate when budget and performance arebeing compared.

equity loan Occurs when a corporation sells stock to an investor.

ethical dilemma Situation in which no available alternative seems ethicallyacceptable.

ethical strategy A course of action that does not violate business ethics.

ethical systems Cultural beliefs about what is proper behavior and conduct.

ethnocentric behavior Behavior that is based on the belief in the superiority of onesown ethnic group or culture; often shows disregard or contemptfor the culture of other countries.

ethnocentric staffing A staffing approach within the MNE in which all keymanagement positions are filled by parent-country nationals.

ethnocentrism Belief in the superiority of ones own ethnic group or culture.

eurobonds A bond placed in countries other than the one in whose currencythe bond is denominated.

eurocurrency Any currency banked outside its country of origin.

eurodollar Dollar banked outside the United States.

European Commission Responsible for proposing EU legislation, implementing it, andmonitoring compliance.

European Council Consists of the heads of state of EU members and the presidentof the European Commission.

European Free TradeAssociation (EFTA)

A free trade association including Norway, Iceland, andSwitzerland.

European MonetarySystem (EMS)

EU system designed to create a zone of monetary stability inEurope, control inflation, and coordinate exchange rate policiesof EU countries.

European Parliament Elected EU body that provides consultation on issues proposed


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by European Commission.

European Union (EU) An economic group of 15 European nations: Austria, Belgium,Denmark, Finland, France, Germany, Great Britain, Greece, theNetherlands, Ireland, Italy, Luxembourg, Portugal, Spain, andSweden. Established as a customs union, it is now movingtoward economic union. (Formerly the European Community.)

exchange rate The rate at which one currency is converted into another.

exchange rate mechanism(ERM)

Mechanism for aligning the exchange rates of EU currenciesagainst each other.

exclusive channels A distribution channel that outsiders find difficult to access.

expatriate A citizen of one country working in another country.

expatriate failure The premature return of an expatriate manager to the homecountry.

expatriate manager A national of one country appointed to a management positionin another country.

experience curve Systematic production cost reductions that occur over the life of a product.

experience curve pricing Aggressive pricing designed to increase volume and help thefirm realize experience curve economies.

export managementcompany

Export specialists who act as an export marketing departmentfor client firms.

Export-Import Bank(Eximbank)

Agency of the U.S. government whose mission is to provide aidin financing and facilitate exports and imports.

exporting Sale of products produced in one country to residents of anothercountry.

externalities Knowledge spillovers.

externally convertiblecurrency

Nonresidents can convert their holdings of domestic currencyinto foreign currency, but the ability of residents to convert thecurrency is limited in some way.

external stakeholders All other individuals and groups, other than internalstakeholders, that have some claim on the business.

F [back to top]factor endowments A countrys endowment with resources such as land, labor, and

capital.

factors of production Inputs into the productive process of a firm, including labor,management, land, capital, and technological know-how.

Financial AccountingStandards Board (FASB)

The body that writes the generally accepted accountingprinciples by which the financial statements of U.S. firms mustbe prepared.

financial structure Mix of debt and equity used to finance a business.


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first-mover advantages Advantages accruing to the first to enter a market.

first-moverdisadvantages

Disadvantages associated with entering a foreign market beforeother international businesses.

Fisher Effect Nominal interest rates (i) in each country equal the requiredreal rate of interest (r) and the expected rate of inflation over

the period of time for which the funds are to be lent (I). That is,i 5 r 1 I.

fixed exchange rates A system under which the exchange rate for converting onecurrency into another is fixed.

fixed-rate bond Offers a fixed set of cash payoffs each year until maturity, whenthe investor also receives the face value of the bond in cash.

flexible machine cells Flexible manufacturing technology in which a grouping of various machine types, a common materials handler, and acentralized cell controller produce a family of products.

flexible manufacturingtechnologies

Manufacturing technologies designed to improve job scheduling,reduce setup time, and improve quality control.

floating exchange rates A system under which the exchange rate for converting onecurrency into another is continuously adjusted depending on thelaws of supply and demand.

flow of foreign directinvestment

The amount of foreign direct investment undertaken over agiven time period (normally one year).

folkways Routine conventions of everyday life.

foreign bonds Bonds sold outside the borrowers country and denominated inthe currency of the country in which they are issued.

Foreign Corrupt PracticesAct

U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethicalactions.

foreign debt crisis Situation in which a country cannot service its foreign debtobligations, whether private-sector or government debt.

foreign direct investment(FDI)

Direct investment in business operations in a foreign country.

foreign exchangeexposure

The risk that future changes in a countrys exchange rate willhurt the firm.

foreign exchange market A market for converting the currency of one country into that of another country.

foreign exchange risk The risk that changes in exchange rates will hurt the profitability

of a business deal.

foreign portfolioinvestment (FPI)

Investments by individuals, firms, or public bodies (e.g.,national and local governments) in foreign financial instruments(e.g., government bonds, foreign stocks).

forward exchange When two parties agree to exchange currency and execute adeal at some specific date in the future.

forward exchange rate The exchange rates governing forward exchange transactions.


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forward vertical FDI Investing in an industry abroad that sells outputs of domesticprocesses.

franchising A specialized form of licensing in which the franchiser sellsintangible property to the franchisee and insists on rules toconduct the business.

free trade The absence of barriers to the free flow of goods and servicesbetween countries.

free trade area A group of countries committed to removing all barriers to thefree flow of goods and services between each other, butpursuing independent external trade policies.

freely convertiblecurrency

A countrys currency is freely convertible when the governmentof that country allows both residents and nonresidents topurchase unlimited amounts of foreign currency with thedomestic currency.

fronting loan A loan between a parent company and a foreign subsidiary thatis channeled through a financial intermediary.

fundamental analysis Draws on economic theory to construct sophisticatedeconometric models for predicting exchange rate movements.

G [back to top]gains from trade The economic gains to a country from engaging in international

trade.

General Agreement onTariffs and Trade (GATT)

International treaty that committed signatories to loweringbarriers to the free flow of goods across national borders andled to the WTO.

geocentric staffing A staffing policy where the best people are sought for key jobsthroughout an MNE, regardless of nationality.

global learning The flow of skills and product offerings from foreign subsidiaryto home country and from foreign subsidiary to foreignsubsidiary.

global matrix structure Horizontal differentiation proceeds along two dimensions:product divisions and areas.

global standardizationstrategy

Strategy focusing on increasing profitability by reaping costreductions from experience curve and location economies.

global web When different stages of value chain are dispersed to thoselocations around the globe where value added is maximized orwhere costs of value creation are minimized.

globalization Trend away from distinct national economic units and towardone huge global market.

globalization of markets Moving away from an economic system in which nationalmarkets are distinct entities, isolated by trade barriers andbarriers of distance, time, and culture, and toward a system inwhich national markets are merging into one global market.

globalization of Trend by individual firms to disperse parts of their productive


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production processes to different locations around the globe to takeadvantage of differences in cost and quality of factors of production.

gold par value The amount of currency needed to purchase one ounce of gold.

gold standard The practice of pegging currencies to gold and guaranteeing

convertibility.green-field investment Establishing a new operation in a foreign country.

gross domestic product(GDP)

The market value of a countrys output attributable to factors of production located in the countrys territory.

gross national income(GNI)

Measures the total annual income received by residents of anation.

gross fixed capitalformation

Summarizes the total amount of capital invested in factories,stores, office buildings, and the like.

gross national product(GNP)

The market value of all the final goods and services produced bya national economy.

group An association of two or more individuals who have a sharedsense of identity and who interact with each other in structuredways on the basis of a common set of expectations about eachothers behavior.

H [back to top]Heckscher-Ohlin theory Countries will export those goods that make intensive use of

locally abundant factors of production and import goods thatmake intensive use of locally scarce factors of production.

hedge fund Investment fund that not only buys financial assets (stocks,bonds, currencies) but also sells them short.

Helms-Burton Act Act passed in 1996 that allowed Americans to sue foreign firmsthat use Cuban property confiscated from them after the 1959revolution.

historic cost principle Accounting principle founded on the assumption that thecurrency unit used to report financial results is not losing itsvalue due to inflation.

home country The source country for foreign direct investment.

horizontal differentiation The division of the firm into subunits.

horizontal foreign directinvestment Foreign direct investment in the same industry abroad as a firmoperates in at home.

host country Recipient country of inward investment by a foreign firm.

Human DevelopmentIndex

An attempt by the United Nations to assess the impact of anumber of factors on the quality of human life in a country.

human resourcemanagement

Activities an organization conducts to use its human resourceseffectively.


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I [back to top]import quota A direct restriction on the quantity of a good that can be

imported into a country.

incentives Devices used to reward managerial behavior.

individualism An emphasis on the importance of guaranteeing individualfreedom and self-expression.

individualism versuscollectivism

Theory focusing on the relationship between the individual andhis or her fellows. In individualistic societies, the ties betweenindividuals are loose and individual achievement is highlyvalued. In societies where collectivism is emphasized, tiesbetween individuals are tight, people are born into collectives,such as extended families, and everyone is supposed to lookafter the interests of his or her collective.

inefficient market One in which prices do not reflect all available information.

infant industry argument New industries in developing countries must be temporarilyprotected from international competition to help them reach aposition where they can compete on world markets with thefirms of developed nations.

inflows of FDI Flow of foreign direct investment into a country.

initial rate The spot exchange rate when a budget is adopted.

innovation Development of new products, processes, organizations,management practices, and strategies.

integrating mechanisms Mechanisms for achieving coordination between subunits withinan organization.

intellectual property Products of the mind, ideas (e.g., books, music, computersoftware, designs, technological know-how). Intellectualproperty can be protected by patents, copyrights, andtrademarks.

internal forward rate A company-generated forecast of future spot rates.

internal stakeholders Individuals or groups who work for or own the business.

internalization theory Marketing imperfection approach to foreign direct investment.

International AccountingStandards Board (IASB)

Organization of representatives of professional accountingorganizations from many countries that is attempting toharmonize accounting standards across countries.

international business Any firm that engages in international trade or investment.

international division Division responsible for a firms international activities.

International FisherEffect

For any two countries, the spot exchange rate should change inan equal amount but in the opposite direction to the differencein nominal interest rates between countries.

International MonetaryFund (IMF)

International institution set up to maintain order in theinternational monetary system.


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international monetarysystem

Institutional arrangements countries adopt to govern exchangerates.

international strategy Trying to create value by transferring core competencies toforeign markets where indigenous competitors lack thosecompetencies.

international trade Occurs when a firm exports goods or services to consumers inanother country.

ISO 9000 Certification process that requires certain quality standards thatmust be met.

J [back to top]joint venture A cooperative undertaking between two or more firms.

just distribution One that is considered fair and equitable.

just-in-time (JIT) Logistics systems designed to deliver parts to a productionprocess as they are needed, not before.

K [back to top]Kantian ethics Belief that people should be treated as ends and never purely as

means to the ends of others.

knowledge network Network for transmitting information within an organization thatis based on informal contacts between managers within anenterprise and on distributed information systems.

L [back to top]lag strategy Delaying the collection of foreign currency receivables if that

currency is expected to appreciate, and delaying payables if thatcurrency is expected to depreciate.

late-mover advantages Benefits enjoyed by a company that is late to enter a newmarket, such as consumer familiarity with the product orknowledge gained about a market.

late-mover disadvantages Handicap that late entrants to a market suffer.

law of one price In competitive markets free of transportation costs and barriersto trade, identical products sold in different countries must sellfor the same price when their price is expressed in the samecurrency.

lead market Market where products are first introduced.

lead strategy Collecting foreign currency receivables early when a foreigncurrency is expected to depreciate, and paying foreign currencypayables before they are due when a currency is expected to
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appreciate.

lean production systems Flexible manufacturing technologies pioneered at Toyota andnow used in much of the automobile industry.

learning effects Cost savings from learning by doing.

legal risk The likelihood that a trading partner will opportunistically breaka contract or expropriate intellectual property rights.

legal system System of rules that regulate behavior and the processes bywhich the laws of a country are enforced and through whichredress of grievances is obtained.

Leontief paradox The empirical finding that, in contrast to the predictions of theHeckscher-Ohlin theory, U.S. exports are less capital intensivethan U.S. imports.

letter of credit Issued by a bank, indicating that the bank will make paymentsunder specific circumstances.

licensing Occurs when a firm (the licensor) licenses the right to produce

its product, use its production processes, or use its brand nameor trademark to another firm (the licensee). In return for givingthe licensee these rights, the licensor collects a royalty fee onevery unit the licensee sells.

licensing agreement Arrangement in which a licensor grants the rights to intangibleproperty to a licensee for a specified period and receives aroyalty fee in return.

local content requirement A requirement that some specific fraction of a good be produceddomestically.

localization strategy Plan focusing on increasing profitability by customizing thegoods or services to match tastes in national markets.

location economies Cost advantages from performing a value creation activity atthe optimal location for that activity.

location-specificadvantages

Advantages that arise from using resource endowments orassets that are tied to a particular foreign location and that afirm finds valuable to combine with its own unique assets (suchas the firms technological, marketing, or management know-how).

logistics The procurement and physical transmission of material throughthe supply chain, from suppliers to customers.

M[back to top]

Maastricht Treaty Treaty agreed to in 1991, but not ratified until January 1, 1994,that committed the 12 member states of the EuropeanCommunity to a closer economic and political union.

make-or-buy decisions Decisions a company makes about whether to perform a valuecreation activity itself or to outsource it to another entity.

maker Person or business initiating a bill of lading (draft).


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managed-float system System under which some currencies are allowed to float freely,but the majority are either managed by governmentintervention or pegged to another currency.

management network A network of informal contact between individual managers.

market economy The allocation of resources is determined by the invisible hand

of the price system.market imperfections Imperfections in the operation of the market mechanism.

market makers Financial service companies that connect investors andborrowers, either directly or indirectly.

market power Ability of a firm to exercise control over industry prices oroutput.

market segmentation Identifying groups of consumers whose purchasing behaviordiffers from others in important ways.

marketing mix Choices about product attributes, distribution strategy,communication strategy, and pricing strategy that a firm offers

its targeted markets.masculinity versusfemininity

Theory of the relationship between gender and work roles. Inmasculine cultures, sex roles are sharply differentiated andtraditional masculine values such as achievement and theeffective exercise of power determine cultural ideals. Infeminine cultures, sex roles are less sharply distinguished, andlittle differentiation is made between men and women in thesame job.

mass customization The production of a wide variety of end products at a unit costthat could once be achieved only through mass production of astandardized output.

materials management The activity that controls the transmission of physical materials

through the value chain, from procurement through productionand into distribution.

mercantilism An economic philosophy advocating that countries shouldsimultaneously encourage exports and discourage imports.

MERCOSUR Pact between Argentina, Brazil, Paraguay, and Uruguay toestablish a free trade area.

minimum efficient scale The level of output at which most plant-level scale economiesare exhausted.

MITI Japans Ministry of International Trade and Industry.

mixed economy Certain sectors of the economy are left to private ownership and

free market mechanisms, while other sectors have significantgovernment ownership and government planning.

money management Managing a firms global cash resources efficiently.

Moores Law The power of microprocessor technology doubles and its costs of production fall in half every 18 months.

moral hazard Arises when people behave recklessly because they know theywill be saved if things go wrong.


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mores Norms seen as central to the functioning of a society and to itssocial life.

multidomestic strategy Emphasizing the need to be responsive to the unique conditionsprevailing in different national markets.

Multilateral Agreement on

Investment (MAI)

An agreement that would make it illegal for signatory states to

discriminate against foreign investors; would have liberalizedrules governing FDI between OECD states.

multilateral netting A technique used to reduce the number of transactions betweensubsidiaries of the firm, thereby reducing the total transactioncosts arising from foreign exchange dealings and transfer fees.

multinational enterprise(MNE)

A firm that owns business operations in more than one country.

multipoint competition Arises when two or more enterprises encounter each other indifferent regional markets, national markets, or industries.

multipoint pricing Occurs when a pricing strategy in one market may have animpact on a rivals pricing strategy in another market.

N [back to top]naive immoralist Approach that accepts ignoring ethical norms if others do so

too.

new trade theory The observed pattern of trade in the world economy may be duein part to the ability of firms in a given market to capture first-mover advantages.

nonconvertible currency A currency is not convertible when both residents andnonresidents are prohibited from converting their holdings of

that currency into another currency.

norms Social rules and guidelines that prescribe appropriate behaviorin particular situations.

North American Free TradeAgreement (NAFTA)

Free trade area between Canada, Mexico, and the UnitedStates.

O [back to top]offset Agreement to purchase goods and services with a specified

percentage of proceeds from an original sale in that countryfrom any firm in the country.

offshore production FDI undertaken to serve the home market.

oligopoly An industry composed of a limited number of large firms.

optimal currency area Region in which similarities in economic activity make a singlecurrency and exchange rate feasible instruments of macroeconomic policy.

organization culture Norms and values shared by employees.


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Organization for EconomicCooperation andDevelopment (OECD)

A Paris-based intergovernmental organization of "wealthy"nations whose purpose is to provide its 29 member states witha forum in which governments can compare their experiences,discuss the problems they share, and seek solutions that canthen be applied within their own national contexts.

organizationalarchitecture Totality of a f irm's organization.

organizational structure Determined by the formal division into subunits, the location of decision making, and the coordination of activities of subunits.

outflows of FDI Flow of foreign direct investment out of a country.

output controls Achieving control by setting goals for subordinates, expressingthese goals in terms of objective criteria, and then judgingperformance by a subordinates ability to meet these goals.

P[back to top]

Paris Convention for theProtection of IndustrialProperty

International agreement to protect intellectual property; signedby 96 countries.

patent Grants the inventor of a new product or process exclusive rightsto the manufacture, use, or sale of that invention.

pegged exchange rate Currency value is fixed relative to a reference currency.

people Part of the organizational architecture that includes strategyused to recruit, compensate, and retain employees.

performance ambiguity Occurs when the causes of good or bad performance are not

clearly identifiable.personal controls Achieving control by personal contact with subordinates.

pioneering costs Costs an early entrant bears that later entrants avoid, such asthe time and effort in learning the rules, failure due toignorance, and the liability of being a foreigner.

political economy The study of how political factors influence the functioning of aneconomic system.

political risk The likelihood that political forces will cause drastic changes in acountrys business environment that will adversely affect theprofit and other goals of a particular business enterprise.

political system System of government in a nation.political union A central political apparatus coordinates economic, social, and

foreign policy.

polycentric staffing A staffing policy in an MNE in which host-country nationals arerecruited to manage subsidiaries in their own country, whileparent-country nationals occupy key positions at corporateheadquarters.

positive-sum game A situation in which all countries can benefit even if some


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benefit more than others.

power distance Theory of how a society deals with the fact that people areunequal in physical and intellectual capabilities. High powerdistance cultures are found in countries that let inequalitiesgrow over time into inequalities of power and wealth. Lowpower distance cultures are found in societies that try to play

down such inequalities as much as possible.

predatory pricing Reducing prices below fair market value as a competitiveweapon to drive weaker competitors out of the market (fair being cost plus some reasonable profit margin).

price discrimination The practice of charging different prices for the same product indifferent markets.

price elasticity of demand A measure of how responsive demand for a product is tochanges in price.

private action Violation of property rights through theft, piracy, blackmail, andthe like by private individuals or groups.

privatization The sale of state-owned enterprises to private investors.processes Manner in which decisions are made and work is performed.

product liability Involves holding a firm and its officers responsible when aproduct causes injury, death, or damage.

product life-cycle theory The optimal location in the world to produce a product changeas the market for the product matures.

product safety laws Set certain safety standards to which a product must adhere.

production Activities involved in creating a product.

profit Difference between revenues and costs.

profit growth The percentage increase in net profits over time.

profitability A rate of return concept.

projected rate The spot exchange rate forecast for the end of the budgetperiod.

property rights Bundle of legal rights over the use to which a resource is putand over the use made of any income that may be derived fromthat resource.

public action Violation of property rights when public officials extort income,resources, or the property itself from property holders.

pull strategy A marketing strategy emphasizing mass media advertising asopposed to personal selling.

purchasing power parity(PPP)

An adjustment in gross domestic product per capita to reflectdifferences in the cost of living.

push strategy A marketing strategy emphasizing personal selling rather thanmass media advertising.


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Q [back to top]quota rent Extra profit producers make when supply is artificially limited by

an import quota.

R [back to top]regional economicintegration

Agreements among countries in a geographic region to reduceand ultimately remove tariff and nontariff barriers to the freeflow of goods, services, and factors of production between eachother.

relatively efficient market One in which few impediments to international trade andinvestment exist.

religion A system of shared beliefs and rituals concerned with thesacred.

representativedemocracy

A political system in which citizens periodically elect individualsto represent them in government.

righteous moralist Approach that one's own ethics are appropriate in all cultures.

rights theories Ethical approaches that recognize that humans havefundamental rights that transcend national boundaries.

right-wing totalitarianism A political system in which political power is monopolized by aparty, group, or individual that generally permits individualeconomic freedom but restricts individual political freedom,including free speech, often on the grounds that it would lead tothe rise of communism.

royalties Remuneration paid to the owners of technology, patents, ortrade names for the use of same.

S [back to top]short selling Occurs when an investor places a speculative bet that the value

of a financial asset will decline, and profits from that decline.

sight draft A draft payable on presentation to the drawee.

Single European Act A 1997 act, adopted by members of the European Community,that committed member countries to establishing an economicunion.

six sigma Statistically based philosophy to reduce defects, boostproductivity, eliminate waste, and cut costs.

Smoot-Hawley Act Enacted in 1930 by the U.S. Congress, this tariff erected a wallof barriers against imports into the United States.

social democrats Those committed to achieving socialism by democratic means.
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social mobility The extent to which individuals can move out of the social stratainto which they are born.

social responsibility Concept that businesspeople should consider the socialconsequences of economic actions when making businessdecisions.

social strata Hierarchical social categories.social structure The basic social organization of a society.

socialism A political philosophy advocating substantial public involvement,through government ownership, in the means of production anddistribution.

society Group of people who share a common set of values and norms.

sogo shosha Japanese trading companies; a key part of the keiretsu , thelarge Japanese industrial groups.

sourcing decisions Whether a firm should make or buy component parts.

specialized asset An asset designed to perform a specific task, whose value issignificantly reduced in its next-best use.

specific tariff Tariff levied as a fixed charge for each unit of good imported.

spot exchange rate The exchange rate at which a foreign exchange dealer willconvert one currency into another that particular day.

staffing policy Strategy concerned with selecting employees for particular jobs.

stakeholders Individuals or groups that have an interest, claim, or stake inthe company, in what it does, and in how well it performs.

state-directed economy An economy in which the state plays a proactive role ininfluencing the direction and magnitude of private-sectorinvestments.

stock of foreign directinvestment

The total accumulated value of foreign-owned assets at a giventime.

strategic alliances Cooperative agreements between two or more firms.

strategic commitment A decision that has a long-term impact and is difficult toreverse, such as entering a foreign market on a large scale.

strategic trade policy Government policy aimed at improving the competitive positionof a domestic industry and/or domestic firm in the worldmarket.

strategy Actions managers take to attain the firms goals.

Structural ImpedimentsInitiative

A 1990 agreement between the United States and Japan aimedat trying to decrease nontariff barriers restricting imports intoJapan.

subsidy Government financial assistance to a domestic producer.

swaps The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

switch trading Use of a specialized third-party trading house in a countertradearrangement.


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systematic risk Movements in a stock portfolios value that are attributable tomacroeconomic forces affecting all firms in an economy, ratherthan factors specific to an individual firm (unsystematic risk).

T[back to top]

tariff A tax levied on imports.

tariff rate quota Lower tariff rates applied to imports within the quota than thoseover the quota.

tax credit Allows a firm to reduce the taxes paid to the home governmentby the amount of taxes paid to the foreign government.

tax haven A country with exceptionally low, or even no, income taxes.

tax treaty Agreement between two countries specifying what items of income will be taxed by the authorities of the country where the

income is earned.technical analysis Uses price and volume data to determine past trends, which are

expected to continue into the future.

temporal method Translating assets valued in a foreign currency into the homecurrency using the exchange rate that existed when the assetswere originally purchased.

theocratic law system A system of law based on religious teachings.

theocratic totalitarianism A political system in which political power is monopolized by aparty, group, or individual that governs according to religiousprinciples.

time draft A promise to pay by the accepting party at some future date.

time-based competition Competing on the basis of speed in responding to customerdemands and developing new products.

timing of entry Entry is early when a firm enters a foreign market before otherforeign firms and late when a firm enters after otherinternational businesses have established themselves.

total quality management Management philosophy that takes as its central focus the needto improve the quality of a companys products and services.

totalitarianism Form of government in which one person or political partyexercises absolute control over all spheres of human life andopposing political parties are prohibited.

trade creation Trade created due to regional economic integration; occurswhen high-cost domestic producers are replaced by low-costforeign producers in a free trade area.

trade deficit See current account deficit.

trade diversion Trade diverted due to regional economic integration; occurswhen low-cost foreign suppliers outside a free trade area arereplaced by higher-cost foreign suppliers in a free trade area.


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Trade Related Aspects of Intellectual PropertyRights

WTO agreement overseeing stricter intellectual propertyregulations.

trade surplus See current account surplus.

trademark Designs and names, often officially registered, by which

merchants or manufacturers designate and differentiate theirproducts.

transaction costs The costs of exchange.

transaction exposure The extent to which income from individual transactions isaffected by fluctuations in foreign exchange values.

transfer fee A bank charge for moving cash from one location to another.

transfer price The price at which goods and services are transferred betweensubsidiary companies of a corporation.

translation exposure The extent to which the reported consolidated results andbalance sheets of a corporation are affected by fluctuations in

foreign exchange values.transnational corporation A firm that tries to simultaneously realize gains from experience

curve economies, location economies, and global learning, whileremaining locally responsive.

transnational financialreporting

The need for a firm headquartered in one country to report itsresults to citizens of another country.

transnational strategy Plan to exploit experience-based cost and location economies,transfer core competencies with the firm, and pay attention tolocal responsiveness.

Treaty of Rome The 1957 treaty that established the European Community.

tribal totalitarianism A political system in which a party, group, or individual thatrepresents the interests of a particular tribe (ethnic group)monopolizes political power.

turnkey project A project in which a firm agrees to set up an operating plant fora foreign client and hand over the "key" when the plant is fullyoperational.

U [back to top]unbundling Relying on more than one financial technique to transfer funds

across borders.

uncertainty avoidance Extent to which cultures socialize members to accept ambiguoussituations and to tolerate uncertainty.

United Nations International institution with 191 member countries created topreserve peace.

United Nations Conventionon Contracts for theInternational Sale of Goods (CIGS)

Agreement establishing a uniform set of rules governingcontracts between businesses in different nations.


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Universal Declaration of Human Rights

An agreement that establishes basic principles that should beadhered to irrespective of the culture.

universal needs Needs that are the same all over the world, such as steel, bulkchemicals, and industrial electronics.

utilitarian approach Ethical approach that holds that the moral worth of actions isdetermined by their consequences.

V [back to top]value creation Performing activities that increase the value of goods or

services to consumers.

values Abstract ideas about what a society believes to be good, right,and desirable.

vehicle currency A currency that plays a central role in the foreign exchange

market (e.g., the U.S. dollar and Japanese yen).vertical differentiation The centralization and decentralization of decision-making

responsibilities.

vertical foreign directinvestment

Foreign direct investment in an industry abroad that providesinput into a firms domestic operations, or foreign directinvestment into an industry abroad that sells the outputs of afirms domestic operations.

vertical integration Extension of a firms activities into adjacent stages of productions (i.e., those providing the firms inputs or those thatpurchase the firms outputs).

voluntary export restraint

(VER)

A quota on trade imposed from the exporting countrys side,

instead of the importers; usually imposed at the request of theimporting countrys government.

W [back to top]wholly owned subsidiary A subsidiary in which the firm owns 100 percent of the stock.

World Bank International institution set up to promote general economicdevelopment in the worlds poorer nations.

World IntellectualProperty Organization

Group of 188 countries that have signed international treatiesdesigned to protect intellectual property.

World Trade Organization(WTO)

The organization that succeeded the General Agreement onTariffs and Trade (GATT) as a result of the successfulcompletion of the Uruguay round of GATT negotiations.

worldwide area structure Business organizational structure under which the world isdivided into areas.

worldwide product divisionstructure

Business organizational structure based on product divisionsthat have worldwide responsibility.


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Z [back to top]zero-sum game A situation in which an economic gain by one country results in

an economic loss by another.

glossary international business

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