PF Intro to Business Ch3 Vocab

Question 1

Global business

Answer 1

Any activity that seeks to provide goods and services to others across national borders while operating at a profit

Question 2

Thomas Friedman

Answer 2

In his book The World is Flat discusses how the competitive field is leveling for all countries, including those which are still developing.

discusses technology as being one of the main drivers of the phenomenon that he calls the “flattening of the world

Question 3

Why trade globally?

Answer 3

first, no nation, not even a technologically advanced one, can produce all of the products that its people want and need

Second, even if a country did become self-sufficient, other nations would seek to trade with that country in order to meet the needs of their own people

Third, some nations have an abundance of natural resources and a lack of technological know-how, while others have sophisticated technology but few natural resources.

Question 4

Exporting

Answer 4

is selling products to another country

Question 5

Importing

Answer 5

Buying products from another country

Question 6

Free Trade

Answer 6

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

Question 7

Global trade

Answer 7

The exchange of goods and services across national borders

Question 8

Comparative Advantage Theory

Answer 8

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

suggested in the early 19th century by English economist David Ricardo

Question 9

Absolute Advantage

Answer 9

A country has an absolute advantage if it has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries

Most absolute advantage situations involve natural resources that one country has and others do not have

Absolute advantage can also be difficult to sustain if conditions change or resources are discovered elsewhere

Question 10

Two key indicators in measuring effectiveness of global trade

Answer 10

Balance of trade

Balance of payments

Question 11

Balance of Trade

Answer 11

is a nation’s ratio of exports to import

Question 12

Favorable balance of trade or Trade Surplus

Answer 12

occurs when the value of the country’s exports exceeds or trade surplus

Question 13

Unfavorable balance or Trade Deficit

Answer 13

occurs when the value of the country’s imports exceeds that of its exports

Question 14

Balance of Payments

Answer 14

is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus or minus money flowing coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment

The goal is always to have more money flowing into the country than flowing out of the country - favorable balance of payments

Question 15

Unfair trade practices

Answer 15

Dumping

Gray Market

Question 16

Dumping

Answer 16

The practice of selling products in a foreign country at lower prices than those charged in the producing country

dumping can also include selling products in a country below what it cost to produce the product

promises to remain a difficult trade issue in the coming years because it can hinder a country from selling its own products domestically at a fair price.

Question 17

Gray Market

Answer 17

The flow of goods in a distribution channel other than those intended by the manufacturer

Question 18

Trade Protectionism

Answer 18

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

Advocates of trade protectionism believe it allows domestic producers to survive and grow, thus producing more Jobs.

Question 19

Tariff

Answer 19

A tax on imported goods

Question 20

two different kinds of tariffs

Answer 20

protective

revenue

Question 21

protective tariff

Answer 21

(import taxes) - designed to raise the retail price of imported products so that domestic goods will be more competitively priced

these tariffs meant to save jobs for domestic workers and to keep industry from closing down

Question 22

revenue tariff

Answer 22

designed to raise money for the gov’t

commonly used by developing countries to help infant industries compete in global markets

Question 23

Harmonized Tariff Schedule

Answer 23

a publication by US gov’t that lists the tariffs and quotas for every imported good

Question 24

Import Quota

Answer 24

limits the number of products in certain categories that a nation can import

goal is to prevent other countries from flooding the market with products, thereby driving down the price (according to law of supply and demand

Question 25

Embargo

Answer 25

complete ban on goods to or from a country

goal is to get a country to change its policies

Question 26

Nontariff Barriers

Answer 26

restrictive standards that detail exactly how a product must be sold in a country
not as specific as formal tariffs, import quotas, and embargoes…but can be quite detrimental to free trade

Question 27

General Agreement on Tariffs & Trade (GATT) and the WTO

Answer 27

an agreement signed by many countries to reduce the restrictions on trade with one another…overseen by the WTO

Question 28

World Trade Organization (WTO)

Answer 28

established by the Uruguay Round in 1995

it is an organization that mediates trade disputes between countries and also sets policies in place to encourage trade

Question 29

Common Markets (aka Trading Bloc)

Answer 29

regional group of countries that have a common external tariff, no internal tariffs, and the coordination of laws to facilitate exchange among member countries

Question 30

Examples of common markets

Answer 30

European Union (EU)
South American Common Market (Mercosur

Question 31

European Union (EU

Answer 31

an agreement among european member countries to eventually reduce all barriers to trade and become unified both economically and politically
objective was to make Europe the world’s second largest economy

Question 32

South American Common Market (Mercosur)

Answer 32

made up of brazil, argentina, paraguay, and uraguay and associate members of chile and bolivia
formed using an agreement called the Treaty of Asuncion
common markets reflect nations’ desire to be an economic union (using the same currency) as well as to have a means for focusing efforts on free trade

Question 33

Organization of the Petroleum Exporting Countries (OPEC

Answer 33

an organization consisting of 12 oil producing countries to work collectively for oil interests.

Question 34

North American Free Trade Agreement (NAFTA)

Answer 34

an organization consisting of 12 oil producing countries to work collectively for oil interests.
an agreement signed by the US, Mexico and Canada to reduce or eliminate tariffs on goods and to encourage trade between the countries

Objectives to…

a) eliminate trade barriers and facilitate cross-borer movement of goods and services among the three countries
b) promote conditions of fair competition in this free trade area
c) increase investment opps in the territories of the three nations
d) provide effective protection and enforcement of intellectual property rights in each nation’s territory
e) establish a framework for further regional trade cooperation

Question 35

Strategies or reaching global markets

Answer 35

licensing
exporting
franchising
contract manufacturing

Question 36

Licensing

Answer 36

selling the right to manufacture a product or use a trademark to a foreign company (licensee) for a fee (royalty)
through licensing a firm can gain additional revenues from a product that it would normally have not generated in its home market

Question 37

Exporting

Answer 37

US gov’t has created Export Assistance Centers (EACs) to provide hands-on exporting assistance and trade-finance support for small and medium sized businesses that choose to directly export goods and services
EACs represent a strong source of future federal export promotion efforts

Question 38

Franchising

Franchising Agreement

Answer 38

an arrangement whereby someone with a good idea for a business sells the rights to use the business name an sell a product or a service to others in a given territory
franchisors have to be careful to adapt their products or service to the countries they serve

Question 39

Contract Manufacturing

Answer 39

when one country produces goods with another country’s company label on it
involves a foreign company’s production of private label goods to which a domestic company then attaches its own brand name or trademark (outsourcing)
enables a company to experiment in a new market without incurring heavy start-up costs such as a manufacturing plant

Question 40

Joint Venture

Answer 40

a partnership in which two or more companies (often from different countries) undertake a major project

Benefits:

• shared technology
• shared marketing and management expertise
• enter into markets where foreign companies are often not allowed unless their goods are produced locally
• shared risk

Question 41

Greenfield Investment

Answer 41

alternative to joint venture
means that a company will enter into a country and build factories and offices on its own
disadvantage may be lack of knowledge of country’s ways of doing business
form of foreign direct investment

Question 42

Strategic Alliance

Answer 42

long-term partnership between two or more companies established to help each company build competitive market advantages
can be flexible and they can be effective between firms of vastly different size

Question 43

Foreign Direct Investment (FDI

Answer 43

buying of permanent property and businesses in foreign nations

Question 44

Foreign Subsidiary

Answer 44

a company that is owned in a foreign country by another company (parent company)

advantage of subsidiary is that the home company maintains complete control over any technology or expertise it may possess disadvantage of subsidiary is that parent company is expending large amount of funds and technology within foreign boundaries

Question 45

Expropriation

Answer 45

when a host gov’t takes over a foreign subsidiary in a country

Question 46

Multinational Corporation

Answer 46

an organization that manufactures and markets products in many different countries; it has multinational stock ownership and multinational management

Question 47

Forces affecting trade in global market

Answer 47

Sociocultural Forces
Economic & Financial Forces
Legal & Regulatory Forces
Physical & Environmental Forces

Question 48

Sociocultural Forces

Answer 48

Culture
Ethnocentricity
Global Marketing

Question 49

Culture

Answer 49

refers to set of values, beliefs, rules and institutions held by a specific group of people

primary components of a culture can include…
social structures
religion (may be the most important of sociocultural forces)
manners & customs
values & attitudes

Question 50

Ethnocentricity

Answer 50

attitude that one’s own culture is superior to all others

Question 51

Global Marketing

Answer 51

used to describe selling the same product in essentially the same way everywhere in the world

Question 52

Economic & Financial Forces

Answer 52

Exchange Rate
Bartering
Countertrading

Question 53

Exchange Rate

Answer 53

value of one nation’s currency relative to the currencies of other countries

Question 54

Bartering

Answer 54

exchange of merchandise for merchandise or service for service with no money involved

Question 55

Countertrading

Answer 55

a complex form of bartering in which several countries may be involved, each trading goods for goods or services for services with the others