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  • Absolute Advantage

    Condition whereby a company is the only source of a product or is able to make more of a product using the same amount of or fewer resources than other countries

    Comparative Advantage

    Condition whereby one nation is able to produce a product at a lower opportunity cost compared to another nation

    Opportunity Cost

    The products that a country must decline to make in order to produce something else

    Balance of Trade

    Difference between value of a nation's imports and its exports during a specified period

    Trade Surplus

    When a country sells more products than it buys

    Trade Deficit

    When a country buys more products than it sells

    Balance of Payments

    Difference, over a period of time, between the total flow coming into a country and the total flow going out


    Buying products overseas and reselling them in one's own country


    Selling domestic products to foreign customers

    International Licensing Agreement

    Allows a foreign company (licensee) to sell the products of a producer (licensor) or to use its intellectual property (such as patents, trademarks, copyrights) in exchange for royalty fees

    International Franchise

    -Agreement in which a domestic company (franchiser) gives a foreign company (franchisee) the right to use its brand and sell its products
    -The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser
    -In turn, the franchisor usually provides advertising, training, and new-product assistance

    International Contract Manufacturing

    Practice by which a company produces goods through an independent contractor in a foreign country


    Practice of using outside vendors to manufacture all or part of a company's products

    Strategic Alliance

    Agreement between 2 companies to pool resources in order to achieve business goals that benefit both partners

    Joint Ventures

    Alliances in which the partners fund a separate entity (maybe a partnership or corporation) to manage their joint operation

    Foreign Direct Investment (FDI)

    Formal establishment of business operations on foreign soil - the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company's home country


    Occurs when facilities set up in a foreign country replace U.S. manufacturing facilities and are used to produce goods that will be sent back to the U.S. for sale

    Foreign Subsidiary

    -An independent company owned by a foreign firm
    -This approach to going international not only gives the parent company full access to local markets but also exempts it from any laws or regulations that may hamper the activities of foreign firms
    -Parent company has tight control over the operations of a subsidiary, but while senior managers from the parent company often oversee operations, many managers and employees are citizens of the host country

    Multinational Corporation (MNC)

    Large company that operates in many countries

    High-Context Cultures

    Cultures in which personal and family connections have an effect on most interactions, including those in business

    Low-Context Cultures

    Cultures in which personal and work relationships are compartmentalized; you don't necessarily need to know much about the personal context of a person's life to deal with him or her in the business arena (U.S., Germany)

    Exchange Rate

    Value of one currency relative to another

    Foreign Corrupt Practices Act

    Prohibits distribution of bribes and other favors in the conduct of business


    Government payments given to certain industries to help offset some of their costs of production

    Trade Controls

    Government policies that restrict free trade


    Use of trade controls to reduce foreign competition in order to protect domestic industries


    Taxes on imports, raise the price of foreign-made goods, making them less competitive. Used to raise revenue for a government


    -Government imposed restrictions on the quantity of a good that can be imported over a period of time
    -Used to protect specific industries, usually new ones or those facing strong competitive pressure from foreign firms

    Absolute Quota

    Limit the quantity of goods that may enter the commerce of the United States in a specific period. When filled, further entries are prohibited during the remainder of the quota period

    Tariff-Rate Quota

    Permit a specific quantity of imported merchandise to be entered at a reduced rate of customs duty during the quota period. There is no limitation of the amount of the quota product that may be imported into the U.S. at any time, but quantities entered during the quota period in excess of the quota quantity for that period are subject to higher duty rates


    -Occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production -Purpose is sometimes to increase market share in a foreign market or to drive out competition.

    General Agreement on Tariffs and Trade (GATT)

    Encouraged free trade by regulating and reducing tariffs and by providing a forum for resolving trade disputes

    World Trade Organization (WTO)

    International organization that monitors trade policies and whose members work together to enforce rules of trade and resolve trade disputes

    International Monetary Fund (IMF)

    -International organization set up to loan money to countries with troubled economies
    -In exchange for relief in times of financial crisis, borrower countries must institute sometimes painful financial and economic reforms

    World Bank

    -International financial institution that provides economic assistance to poor and developing countries
    -Loans are made to help countries improve the lives of the poor through community-support programs designed to provide health, nutrition, education, infrastructure, and other social services

    Trading Blocs

    Groups of countries that have joined together to allow goods and services to flow without restrictions across their mutual borders

    North American Free Trade Association (NAFTA)

    Agreement among governments of the U.S., Canada, and Mexico to open their borders to unrestricted trade

    European Union (EU)

    Association of European countries that joined together to eliminate trade barriers among themselves

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