What is importing?
Buying products from another country
What is exporting?
Selling products to another country
What is free trade?
The movement of goods and services among nations without political or economic barriers
What is comparative advantage?
A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently
What is absolute advantage?
A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries
What is balance of trade?
The total value of a nation's exports compared to its imports measured over time.
What is Trade Surplus?
When the value of a country's exports is more than that of its imports
What is Trade Deficit?
When the value of a country's exports is less than that of its exports
What is balance of payments?
The difference between money coming into a country (From exports) and money leaving the country (From imports) plus other money flows (tourism, foreign aid, foreign investment, etc)
What is the goal of balancing payments?
The goal is to have more money flowing into a country than out - a favorable balance
What is an unfavorable balance?
When more money is flowing out of a country
What is Dumping?
Selling products in a foreign country at lower prices than those charged in the producing country; It is illegal
China, Brazil and Russia have been penalized for dumping steel in the U.S.
What is licensing?
When a firm (licensor) provides the right to manufacture its products or use its trademark to a foreign company (licensee) for a fee (royalty)
How can licensing benefit a firm?
-Gaining revenues it wouldn't have otherwise generated
-Spending little or no money to produce or market their products
What is franchising?
A contractual agreement whereby someone with a good idea for a business sells others the right to use the name and sell a product/service in a given area.
What is Contract Manufacturing?
A foreign company produces private-label goods to which a domestic company then attaches its own brand name or trademark. A form of outsourcing.
What can contract manufacturing be used to do?
-Allow a company to experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant
-Temporarily meet an unexpected increase in orders
What are joint ventures?
A partnership in which two or more companies join to undertake a major project
What are the benefits of joint ventures?
Shared technology and risk.
Shared marketing and management expertise.
Entry into markets where foreign companies are often not allowed unless goods are produced locally.
What is Strategic Alliance?
A long-term partnership between two or more companies established to help each company build competitive market advantages.
What is Foreign Direct Investment (FDI)?
The buying of permanent property and businesses in foreign nations.
What is Foreign Subsidiary?
A company owned in a foreign country by another company called the parent company. The most common form of FDI.
What is the primary advantage of foreign subsidiary?
Parent company maintains complete control over its technology or expertise.
What is the primary disadvantage of foreign subsidiary?
Must commit funds and technology within foreign boundaries.
What is multinational corporations?
A company that manufactures and markets products in many different countries and has multinational stock ownership and management.
What are the forces affecting global trade?
-Socioculture
-Economic and Financial
-Legal and Regulatory
-Physical and Environmental
What is the exchange rate?
The value of one nation's currency relative to the currencies of other countries.
What is devaluation?
Lowers the value of a nation's currency relative to others
What is countertrading?
Complex form of bartering in which several countries each trade goods or services for other goods or services.
What are some legal concerns for American companies overseas?
There's no global system of laws.
Laws may be inconsistent.
U.S. businesses must follow U.S. laws while conducting global business.
The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and
What is trade protectionism?
The use of government regulations to limit the import of goods and services.
What are tariffs?
Taxes on imports
What are the two kinds of tariffs?
Protective and revenue
What are protective tariffs?
Raise the retail price of imports so domestic goods are competitively priced.
What are revenue tariffs?
Raise money for governments.
What are import quotas?
Limits the number of products in certain categories a nation can import.
What is an embargo?
A complete ban on the import or export of a certain product or the stopping of all trade with a particular country.
Political disagreements can lead to embargoes like the U.S. embargo against Cuba.
What is the general agreement on tariffs and trade?
A global forum for reducing trade restrictions on goods, services, ideas and cultural problems.
What is the World Trade Organization?
Headquartered in Geneva, the WTO is an independent entity of 152 member nations whose purpose is to oversee cross-border trade issues and global business practices.
What is common market?
A regional group of countries with a common external tariff, no internal tariffs and coordinated laws to facilitate exchange among members.
What is the North American Free Trade Agreement?
Ratified in 1994, created a free-trade area among the United States, Canada and Mexico.
What are NAFTA's objectives?
Eliminate trade barriers and facilitate cross-border movement of goods and services.
Promote conditions of fair competition.
Increase investment opportunities.
Provide effective protection and enforcement of intellectual property rights.
Establish a frame
What is the Central American Free Trade Agreement?
Passed in 2005, created a free-trade zone with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.
What is outsourcing?
Purchasing goods and services from sources outside a firm rather than providing them within the company.