Glossary

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

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absolute advantage

A country has an absolute advantage in the production of a product when it is more efficient than any other country at producing 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 trade policies

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

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 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.

Asia–Pacific Economic Cooperation (APEC)

Made up of 21 member states whose goal is to increase multilateral cooperation in view of the economic rise of the Pacific nations.

ASEAN
(Association of
South East Asian Nations)

Formed in 1967, an attempt to establish a free trade area between 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 firm's domestic processes.

balance-of-payments accounts

National accounts that track both payments to and receipts from foreigners.

balance-of-trade equilibrium

Reached when the income a nation's residents earn from exports equals money paid for imports.

bandwagon effect

When traders move like a herd, all in the same direction and at the same time, in response to each others' perceived actions.

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 canceled 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.

business ethics

The accepted principles of right or wrong governing the conduct of businesspeople.

buyback

Agreement to accept percentage of a plant's output as payment for 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 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.

capital flight

Residents convert domestic currency into a foreign currency.

Caribbean Single Market and Economy (CSME)

Unites six CARICOM members in agreeing to lower trade barriers and harmonize macroeconomic and monetary policies.

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.

Central America Free Trade Agreement (CAFTA)

The agreement of the member states of the Central American Common Market joined by the Dominican Republic to trade freely with the United States.

Central American Common Market

A trade pact between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war.

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.

channel quality

The expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses.

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 by subsequent socioeconomic achievements. Mobility between classes is possible.

code of ethics

A formal statement of the ethical priorities of a business or organization.

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.

Confucian dynamism

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

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.

contract

Document that specifies conditions of an exchange and details rights 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 when it owns more than 50 percent of that entity's voting stock.

controls

The metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.

Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions

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

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.

corporate culture

The organization's norms and value systems.

cost of capital

Price of money.

Council of the European Union

Represents the interests of EU members and has authority to approve 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 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).

cultural relativism

Belief that ethics are culturally determined, and a firm should adopt 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 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	[back to top]

D'Amato Act

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

draft

An order written by an exporter telling an importer what and when 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 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 online through the Internet.

economic exposure

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

economic risk

The likelihood that events, including economic mismanagement, will cause drastic changes in a country's business environment that adversely affect the profit and other goals of a particular business enterprise.

economic union

A group of countries committed to (1) removing all barriers to the free flow of goods, services, and factors of production between each other, (2) the adoption of a common currency, (3) the harmonization of tax rates, and (4) the pursuit of a common 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 are being compared.

equity loan

Occurs when a corporation sells stock to an investor.

ethical dilemma

Situation in which no available alternative seems ethically acceptable.

ethical strategy

A course of action that does not violate business ethics.

ethical systems

Cultural beliefs about what is proper behavior and conduct.

ethics officer

An individual hired by a company to be responsible for making sure that all employees are trained to be ethically aware, that ethical considerations enter the decision-making process, and that employees follow the company's code of ethics.

ethnocentric behavior

Behavior that is based on the belief in the superiority of one's own ethnic group or culture; often shows disregard or contempt for the culture of other countries.

ethnocentric staffing

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

ethnocentrism

Belief in the superiority of one's own ethnic group or culture.

eurobonds

A bond placed in countries other than the one in whose currency the 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, and monitoring compliance.

European Council

Consists of the heads of state of EU members and the president of the European Commission.

European Free Trade Association (EFTA)

A free trade association including Norway, Iceland, and Switzerland.

European Monetary System (EMS)

EU system designed to create a zone of monetary stability in Europe, control inflation, and coordinate exchange rate policies of EU countries.

European Parliament

Elected EU body that provides consultation on issues proposed by European Commission.

European Union (EU)

An economic group of 15 European nations: Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, the Netherlands, Ireland, Italy, Luxembourg, Portugal, Spain, and Sweden. Established as a customs union, it is now moving toward 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 currencies against each other.

exclusive channel

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 home country.

expatriate manager

A national of one country appointed to a management position in 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 the firm realize experience curve economies.

export management company

Export specialists who act as an export marketing department for client firms.

Export-Import Bank (Eximbank)

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

exporting

Sale of products produced in one country to residents of another country.

external stakeholders

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

externalities

Knowledge spillovers.

externally convertible currency

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

F	[back to top]

factor endowments

A country's 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 Accounting Standards Board (FASB)

The body that writes the generally accepted accounting principles by which the financial statements of U.S. firms must be prepared.

financial structure

Mix of debt and equity used to finance a business.

first-mover advantages

Advantages accruing to the first to enter a market.

first-mover disadvantages

Disadvantages associated with entering a foreign market before other international businesses.

Fisher Effect

Nominal interest rates (i) in each country equal the required real 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 = r + I.

fixed exchange rates

A system under which the exchange rate for converting one currency into another is fixed.

fixed-rate bond

Offers a fixed set of cash payoffs each year until maturity, when the 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 a centralized cell controller produce a family of products.

flexible manufacturing technologies

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 one currency into another is continuously adjusted depending on the laws of supply and demand.

flow of foreign direct investment

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

folkways

Routine conventions of everyday life.

foreign bonds

Bonds sold outside the borrower's country and denominated in the currency of the country in which they are issued.

Foreign Corrupt Practices Act

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

foreign debt crisis

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

foreign direct investment (FDI)

Direct investment in business operations in a foreign country.

foreign exchange exposure

The risk that future changes in a country's exchange rate will hurt 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 portfolio investment (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 a deal at some specific date in the future.

forward exchange rate

The exchange rates governing forward exchange transactions.

forward vertical FDI

Investing in an industry abroad that sells outputs of domestic processes.

franchising

A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business.

free trade

The absence of barriers to the free flow of goods and services between countries.

free trade area

A group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies.

freely convertible currency

A country's currency is freely convertible when the government of that country allows both residents and nonresidents to purchase unlimited amounts of foreign currency with the domestic currency.

fronting loan

A loan between a parent company and a foreign subsidiary that is channeled through a financial intermediary.

fundamental analysis

Draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

fundamental rights of stakeholders

Basic rights of stakeholders, such as the right to information about products and working conditions, that should be considered when business decisions are made.

G	[back to top]

gains from trade

The economic gains to a country from engaging in international trade.

General Agreement on
Tariffs and Trade (GATT)

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.

geocentric staffing

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

global learning

The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary.

global matrix structure

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

global standardization strategy

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

global web

When different stages of the value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized.

globalization

Trend away from distinct national economic units and toward one huge global market.

globalization of markets

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

globalization of production

Trend by individual firms to disperse parts of their productive processes to different locations around the globe to take advantage 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 country's output attributable to factors of production located in the country's territory.

gross fixed capital formation

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

gross national income (GNI)

Measures the total annual income received by residents of a nation.

gross national product (GNP)

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

group

An association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other's 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 that make 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.

hedging

The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps.

Helms-Burton Act

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

historic cost principle

Accounting principle founded on the assumption that the currency unit used to report financial results is not losing its value due to inflation.

home country

The source country for foreign direct investment.

horizontal differentiation

The division of the firm into subunits.

horizontal foreign direct investment

Foreign direct investment in the same industry abroad as a firm operates in at home.

host country

Recipient country of inward investment by a foreign firm.

Human Development Index

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

human resource management

Activities an organization conducts to use its human resources effectively.

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 individual freedom and self-expression.

individualism versus collectivism

Theory focusing on the relationship between the individual and his or her fellows. In individualistic societies, the ties between individuals are loose and individual achievement is highly valued. In societies where collectivism is emphasized, ties between individuals are tight, people are born into collectives, such as extended families, and everyone is supposed to look after 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 temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms 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 within an organization.

intellectual property

Products of the mind, ideas (e.g., books, music, computer software, designs, technological know-how). Intellectual property can be protected by patents, copyrights, and trademarks.

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 Accounting Standards Board (IASB)

Organization of representatives of professional accounting organizations from many countries that is attempting to harmonize accounting standards across countries.

international business

Any firm that engages in international trade or investment.

international division

Division responsible for a firm's international activities.

International Fisher Effect

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

International Monetary Fund (IMF)

International institution set up to maintain order in the international monetary system.

international monetary system

Institutional arrangements countries adopt to govern exchange rates.

international strategy

Trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies.

international trade

Occurs when a firm exports goods or services to consumers in another country.

ISO 9000

Certification process that requires certain quality standards that must 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 production process as they are needed, not before.

justice theories

Ethical approaches that focus on the attainment of a just distribution of economic goods and services.

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 that is based on informal contacts between managers within an enterprise 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 that currency is expected to depreciate.

late-mover advantages

Benefits enjoyed by a company that is late to enter a new market, such as consumer familiarity with the product or knowledge 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 barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency.

lead market

Market where products are first introduced.

lead strategy

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

lean production systems

Flexible manufacturing technologies pioneered at Toyota and now 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 break a contract or expropriate intellectual property rights.

legal system

System of rules that regulate behavior and the processes by which the laws of a country are enforced and through which redress of grievances is obtained.

Leontief paradox

The empirical finding that, in contrast to the predictions of the Heckscher-Ohlin theory, U.S. exports are less capital intensive than U.S. imports.

letter of credit

Issued by a bank, indicating that the bank will make payments under specific circumstances.

licensing

Occurs when a firm (the licensor) licenses the right to produce its product, use its production processes, or use its brand name or trademark to another firm (the licensee). In return for giving the licensee these rights, the licensor collects a royalty fee on every unit the licensee sells.

licensing agreement

Arrangement in which a licensor grants the rights to intangible property to a licensee for a specified period and receives a royalty fee in return.

local content requirement

A requirement that some specific fraction of a good be produced domestically.

localization strategy

Plan focusing on increasing profitability by customizing the goods or services to match tastes in national markets.

location economies

Cost advantages from performing a value creation activity at the optimal location for that activity.

location-specific advantages

Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management know-how).

logistics

The procurement and physical transmission of material through the 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 European Community to a closer economic and political union.

make-or-buy decisions

Decisions a company makes about whether to perform a value creation activity itself or to outsource it to another entity.

maker

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

managed-float system

System under which some currencies are allowed to float freely, but the majority are either managed by government intervention 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 and borrowers, either directly or indirectly.

market power

Ability of a firm to exercise control over industry prices or output.

market segmentation

Identifying groups of consumers whose purchasing behavior differs 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 versus femininity

Theory of the relationship between gender and work roles. In masculine cultures, sex roles are sharply differentiated and traditional "masculine values" such as achievement and the effective exercise of power determine cultural ideals. In feminine cultures, sex roles are less sharply distinguished, and little differentiation is made between men and women in the same job.

mass customization

The production of a wide variety of end products at a unit cost that could once be achieved only through mass production of a standardized output.

materials management

The activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution.

mercantilism

An economic philosophy advocating that countries should simultaneously encourage exports and discourage imports.

MERCOSUR

Pact between Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

minimum efficient scale

The level of output at which most plant-level scale economies are exhausted.

MITI

Japan's 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 significant government ownership and government planning.

money management

Managing a firm's global cash resources efficiently.

Moore's 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 they will be saved if things go wrong.

moral imagination

Standing in the shoes of a stakeholder and asking how a proposed decision will affect that stakeholder.

mores

Norms seen as central to the functioning of a society and to its social life.

multidomestic strategy

Emphasizing the need to be responsive to the unique conditions prevailing 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 liberalized rules governing FDI between OECD states.

multilateral netting

A technique used to reduce the number of transactions between subsidiaries of the firm, thereby reducing the total transaction costs 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 in different regional markets, national markets, or industries.

multipoint pricing

Occurs when a pricing strategy in one market may have an impact on a rival's 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 due in part to the ability of firms in a given market to capture first-mover advantages.

noblesse oblige

A French term referring to the honorable and benevolent behavior required of persons with noble birth.

nonconvertible currency

A currency is not convertible when both residents and nonresidents are prohibited from converting their holdings of that currency into another currency.

norms

Social rules and guidelines that prescribe appropriate behavior in particular situations.

North American Free Trade Agreement (NAFTA)

Free trade area between Canada, Mexico, and the United States.

O	[back to top]

offset

Agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from 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.

operations

The various value-creation activities a firm undertakes.

optimal currency area

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

organizational architecture

Totality of a firm's organization.

organization culture

Norms and values shared by employees.

Organization for Economic Cooperation and Development (OECD)

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

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, expressing these goals in terms of objective criteria, and then judging performance by a subordinate's ability to meet these goals.

P	[back to top]

Paris Convention for the Protection of Industrial Property

International agreement to protect intellectual property; signed by 96 countries.

patent

Grants the inventor of a new product or process exclusive rights to 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 strategy used 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.

personal ethics

The generally accepted principles of right and wrong governing the conduct of individuals.

pioneering costs

Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner.

political economy

The study of how political factors influence the functioning of an economic system.

political risk

The likelihood that political forces will cause drastic changes in a country's business environment that will adversely affect the profit 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 are recruited to manage subsidiaries in their own country, while parent-country nationals occupy key positions at corporate headquarters.

positive-sum game

A situation in which all countries can benefit even if some benefit more than others.

power distance

Theory of how a society deals with the fact that people are unequal in physical and intellectual capabilities. High power distance cultures are found in countries that let inequalities grow over time into inequalities of power and wealth. Low power 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 competitive weapon 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 in different markets.

price elasticity of demand

A measure of how responsive demand for a product is to changes in price.

private action

Violation of property rights through theft, piracy, blackmail, and the 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 a product causes injury, death, or damage.

product life-cycle theory

The optimal location in the world to produce a product change as 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 budget period.

property rights

Bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that 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 as opposed to personal selling.

purchasing power parity (PPP)

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

push strategy

A marketing strategy emphasizing personal selling rather than mass media advertising.

Q	[back to top]

quota rent

Extra profit producers make when supply is artificially limited by an import quota.

R	[back to top]

regional economic integration

Agreements among countries in a geographic region to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

relatively efficient market

One in which few impediments to international trade and investment exist.

religion

A system of shared beliefs and rituals concerned with the sacred.

representative democracy

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

right-wing totalitarianism

A political system in which political power is monopolized by a party, group, or individual that generally permits individual economic freedom but restricts individual political freedom, including free speech, often on the grounds that it would lead to the rise of communism.

righteous moralism

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

rights theories

Ethical approaches that recognize that humans have fundamental rights that transcend national boundaries.

royalties

Remuneration paid to the owners of technology, patents, or trade 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 economic union.

six sigma

Statistically based philosophy to reduce defects, boost productivity, eliminate waste, and cut costs.

Smoot-Hawley Act

Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States.

social democrats

Those committed to achieving socialism by democratic means.

social mobility

The extent to which individuals can move out of the social strata into which they are born.

social responsibility

Concept that businesspeople should consider the social consequences of economic actions when making business decisions.

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 and distribution.

society

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

sogo shosha

Japanese trading companies; a key part of the keiretsu, the large 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 is significantly 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 will convert 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 in the company, in what it does, and in how well it performs.

state-directed economy

An economy in which the state plays a proactive role in influencing the direction and magnitude of private-sector investments.

stock of foreign direct investment

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

strategic alliances

Cooperative agreements between two or more firms.

strategic commitment

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

strategic trade policy

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market.

strategy

Actions managers take to attain the firm's goals.

Structural Impediments Initiative

A 1990 agreement between the United States and Japan aimed at trying to decrease nontariff barriers restricting imports into Japan.

subsidy

Government financial assistance to a domestic producer.

Sullivan principles

A twofold approach to doing business in apartheid South Africa, comprising passive resistance to apartheid laws and attempts to influence the abolition of apartheid laws.

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 countertrade arrangement.

systematic risk

Movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy, rather than 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 those over the quota.

tax credit

Allows a firm to reduce the taxes paid to the home government by 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 home currency using the exchange rate that existed when the assets were 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 a party, group, or individual that governs according to religious principles.

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 customer demands and developing new products.

timing of entry

Entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves.

total quality management

Management philosophy that takes as its central focus the need to improve the quality of a company's products and services.

totalitarianism

Form of government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited.

trade creation

Trade created due to regional economic integration; occurs when high-cost domestic producers are replaced by low-cost foreign producers in a free trade area.

trade deficit

See current account deficit.

trade diversion

Trade diverted due to regional economic integration; occurs when low-cost foreign suppliers outside a free trade area replace higher-cost suppliers within a free trade area.

Trade Related Aspects of Intellectual Property Rights

WTO agreement overseeing stricter intellectual property regulations.

trade surplus

See current account surplus.

trademark

Designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products.

transaction costs

The costs of exchange.

transaction exposure

The extent to which income from individual transactions is affected 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 between subsidiary companies of a corporation.

translation exposure

The extent to which the reported consolidated results and balance 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, while remaining locally responsive.

transnational financial reporting

The need for a firm headquartered in one country to report its results 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 to local responsiveness.

Treaty of Rome

The 1957 treaty that established the European Community.

tribal totalitarianism

A political system in which a party, group, or individual that represents 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 for a foreign client and hand over the "key" when the plant is fully operational.

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 ambiguous situations and to tolerate uncertainty.

United Nations

International institution with 191 member countries created to preserve peace.

United Nations Convention on Contracts for the International Sale of Goods (CIGS)

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

Universal Declaration of Human Rights

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

universal needs

Needs that are the same all over the world, such as steel, bulk chemicals, and industrial electronics.

utilitarian approach

Ethical approach that holds that the moral worth of actions is determined 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 direct investment

Foreign direct investment in an industry abroad that provides input into a firm's domestic operations, or foreign direct investment into an industry abroad that sells the outputs of a firm's domestic operations.

vertical integration

Extension of a firm's activities into adjacent stages of productions (i.e., those providing the firm's inputs or those that purchase the firm's outputs).

voluntary export restraint (VER)

A quota on trade imposed from the exporting country's side, instead of the importer's; usually imposed at the request of the importing country's 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 economic development in the world's poorer nations.

World Intellectual Property Organization

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

World Trade Organization (WTO)

The organization that succeeded the General Agreement on Tariffs and Trade (GATT) as a result of the successful completion of the Uruguay round of GATT negotiations.

worldwide area structure

Business organizational structure under which the world is divided into areas.

worldwide product division structure

Business organizational structure based on product divisions that have worldwide responsibility.

Z	[back to top]

zero-sum game

A situation in which an economic gain by one country results in an economic loss by another.

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