Chapter 7-13 Flashcards
The absence of barriers to the free flow of goods and services between countries.
free trade
International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.
General Agreement on Tariffs and Trade (GATT)
Tariff levied as a fixed charge for each unit of good imported.
specific tariff
a tariff levied as a proportion of the value of an imported good
ad valorem tariff
A direct restriction on the quantity of a good that can be imported into a country.
import quota
Lower tariff rates applied to imports within the quota than those over the quota.
tariff rate quota
A quota on trade imposed from the exporting coun- try’s side, instead of the importer’s; usually imposed at the request of the import- ing country’s government.
voluntary export restraint (VER)
Extra profit producers make when supply is artificially limited by an import quota.
quota rent
A requirement that some specific fraction of a good be produced domestically.
local content requirement (LCR)
Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.
administrative trade policies
Selling goods in a foreign market for less than their cost of production or below their “fair” market value.
dumping
Designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition.
antidumping policies
New industries in develop- ing 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.
infant industry argument
Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market.
strategic trade policy
Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States.
Smoot–Hawley Act
Reciprocal trade agreements between two or more partners.
multilateral or bilateral trade agreements
Agreements among countries in a geographic region to reduce and ultimately remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other.
regional economic integration
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.
free trade area
A free trade association including Norway, Iceland, Liechtenstein, and Switzerand
European Free Trade Association (EFTA)
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.
customs 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 and (2) the pursuit of a common external trade policy.
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; (2) the adoption of a common currency; (3) the harmonisation of tax rates; and (4) the pursuit of a common external trade policy.
economic union
A central political apparatus coordinates economic, social, and foreign policy.
political union
Trade created due to regional economic integration; occurs when high-cost domestic producers are replaced by low-cost foreign producers within a free trade area.
trade creation
Trade diverted due to regional economic integration; occurs when low-cost foreign suppliers outside a free trade area are replaced by higher-cost suppliers within a free trade area.
trade diversion
The 1957 treaty that established the European Community.
treaty of Rome
Responsible for proposing EU legislation, implement- ing it, and monitoring compliance.
European Commission
The heads of state of EU members and the president of the European Commis- sion.
European Council
Elected EU body that pro- vides consultation on issues proposed by the European Commission.
European Parliament
A European Union–sanctioned treaty that will allow the European Parliament to become the co-equal legislator for almost all European laws.
Treaty of Lisbon
Treaty agreed to in 1992, but not ratified until January 1, 1994, that committed the 12 member states of the European Community to a closer economic and political union.
Maastricht Treaty
Region in which similarities in economic activity make a single currency and exchange rate feasible instruments of macroeconomic policy.
optimal currency area
A 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.
Andean Community
Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.
Mercosur
Formed in 1967, an attempt to establish a free trade area among Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Vietnam, and Thailand.
Association of Southeast Asian Nations (ASEAN)
Performing activities that increase the value of goods or services to consumers.
value creation
The totality of a firm’s organisation, including formal organisational structure, control systems and incentives, organisational culture, processes, and people.
organisation architecture
Firm skills that competitors cannot easily match or imitate.
core competence
Cost advantages from per- forming a value creation activity at the optimal location for that activity.
location economies
When different stages of value chain are dispersed to those locations around the globe where value added is maximised or where costs of value creation are minimised.
global web
Systematic production cost reductions that occur over the life of a product.
experience curve
Cost savings from learning by doing.
learning effects
A firm focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
global standardisation strategy
Increasing profitability by customising the firm’s goods and services so that they provide a good match to tastes and preferences in different national markets.
localisation strategy
Attempt to simultaneously achieve low costs through location economies, economies of scale, and learning effects while also differentiating product offerings across geographic markets to account for local differences and fostering multidirectional flows of skills between different subsidiaries in the firm’s global network of operations.
transnational strategy
Trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies.
international strategy
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.
pioneering costs
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.
turnkey project
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.
licensing agreement
A specialised form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business.
franchising
A cooperative undertaking between two or more firms.
joint venture
A subsidiary in which the firm owns 100 percent of the stock.
wholly owned subsidiary
Ability to realise location and experience curve economies
Increased speed and flexibility of engaging target markets
Adv of Exporting
High transport costs
Trade barriers
Problems with local marketing agents
Disadv of Exporting
Ability to earn returns from process technology skills in countries where FDI is restricted
Adv of Turnkey
Creation of efficient competitors Lack of long-term market presence
Disadv of Turneky
Lack of control over technology
Inability to realise location and experience curve economies
Inability to engage in global strategic coordination
Adv of Licensing
Low development costs and risks
Moderate involvement and commitment
Disadv of Licensing
Low development costs and risks
Possible circumvention of import barriers, and strong sales potential
Avd of Franchsising
Lack of control over quality
Inability to engage in global strategic coordination
Disadv of Franchising
Access to local partner’s knowledge Shared development costs and risks Politically acceptable
Typically no ownership restrictions
Adv of JV
Lack of control over technology
Inability to engage in global strategic coordination Inability to realise location and experience economies
Disadv of JV
Protection of technology
Ability to engage in global
strategic coordination
Ability to realise location and experience economies
Adv of Wholly owned subsidiaries
High costs and risks
Need for more human and nonhuman resources, and interaction and integration with local employees
Disadv of Wholly owned subsidiaries
