Glossary

A

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.

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.

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.

B

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

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 cancelled 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 (or draft) 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.

C

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.

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.

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.

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 subsequent socioeconomic achievements. Mobility between classes is possible.

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.

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.

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.

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.

counterpurchase A reciprocal buying agreement.

countertrade The trade of goods and services for other goods and services.

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).

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

D'Amato Act Act passed in 1996, similar to the Helms-Burton Act, aimed at Libya and Iran.

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 See bill of lading.

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

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 on-line 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.

ecu A basket of EU currencies that serves as the unit of account for the EMS.

efficient market A market where prices reflect all available information.

ending rate The spot exchange rate when budget and performance are being compared.

ethical systems Cultural beliefs about what is proper behavior and conduct.

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.

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 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 Union (EU) An economic group of 15 European nations: Austria, Belgium, Great Britain, Denmark, Finland, France, Germany, 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 channels A distribution channel that outsiders find difficult to access.

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 US 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.

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

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 US 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 US 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.

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 loans 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.

G

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

global web When different stages of 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.

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 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

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.

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 resource effectively.

I

import quota A direct restriction on the quantity of a good that can be imported into a country.

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.

internalization theory Marketing imperfection approach to foreign direct investment.

International Accounting Standards Committee (IASC) Organization of representatives of 106 professional accounting organizations from 79 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 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

joint venture A cooperative undertaking between two or more firms.

just-in-time (JIT) Logistics systems designed to deliver parts to a production process as they are needed, not before.

L

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 advantage 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.

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, US exports are less capital intensive than US 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.

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

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

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.

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 networks 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.

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

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.

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

oligopoly An industry composed of a limited number of large firms.

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.

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

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.

performance ambiguity Occurs when the causes of good or bad performance are not clearly identifiable.

personal controls Achieving control by personal contact with subordinates.

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.

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.

privatization The sale of state-owned enterprises to private investors.

product life-cycle theory The optimal location in the world to produce a product changes as the market for the product matures.

production Activities involved in creating a product.

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.

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.

R

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.

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.

royalties Remuneration paid to the owners of technology, patents, or trade names for the use of same.

S

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.

Smoot-Hawley Tariff Enacted in 1930 by the US Congress, this tariff erected a wall of 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 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.

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.

swaps The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

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

tariff A tax levied on imports.

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 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 are replaced by higher-cost foreign suppliers in a free trade area.

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

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.

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

V

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 US 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

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 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

zero-sum game A situation in which an economic gain by one country results in an economic loss by another.