1. Glossary
A
1. 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.
2. Ad valorem tariff A tariff levied as a proportion of the value of an imported
good.
3. Administrative trade policies Administrative policies, typically adopted by
government bureaucracies, that can be used to restrict imports or boost
exports.
4. Andean Pact A 1969 agreement between Bolivia, Chile, Ecuador, Colombia,
and Peru to establish a customs union.
5. Antidumping policies Designed to punish foreign firms that engage in
dumping and thus protect domestic producers from unfair foreign
competition.
6. Antidumping regulations Regulations designed to restrict the sale of goods
for less than their fair market price.
7. Arbitrage The purchase of securities in one market for immediate resale in
another to profit from a price discrepancy.
8. 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.

2. B
1. Balance-of-payments accounts National accounts that track both payments
to and receipts from foreigners.
2. Banking crisis A loss of confidence in the banking system that leads to a run
on banks, as individuals and companies withdraw their deposits.
3. Barriers to entry Factors that make it difficult or costly for firms to enter an
industry or market.
4. Barter The direct exchange of goods or services between two parties
without a cash transaction.
5. 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.
6. Bilateral netting Settlement in which the amount one subsidiary owes
another can be cancelled by the debt the second subsidiary owes the first.
7. 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.

3. 8. 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.
9. Bretton Woods A 1944 conference in which representatives of 40 countries
met to design a new international monetary system.
10. bureaucratic controls Achieving control through establishment of a system
of rules and procedures.
C
1. Capital account In the balance of payments, records transactions involving
the purchase or sale of assets.
2. 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.
3. CARICOM An association of English-speaking Caribbean states that are
attempting to establish a customs union.
4. 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.
5. centralized depository The practice of centralizing corporate cash balances
in a single depository.

4. 6. channel length The number of intermediaries that a product has to go
through before it reaches the final consumer.
7. civil law system A system of law based on a very detailed set of written laws
and codes.
8. class consciousness A tendency for individuals to perceive themselves in
terms of their class background.
9. 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.
10. collectivism An emphasis on collective goals as opposed to individual goals.
11. COMECON Now-defunct economic association of Eastern European
communist states headed by the former Soviet Union.
12. 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.
13. 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.
14. 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.

5. 15. Communist totalitarianism A version of collectivism advocating that
socialism can be achieved only through a totalitarian dictatorship.
16. Communists Those who believe socialism can be achieved only through
revolution and totalitarian dictatorship.
17. 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.
18. Competition policy Regulations designed to promote competition and
restrict monopoly practices.
19. 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.
20. 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.
21. copyright Exclusive legal rights of authors, composers, playwrights, artists,
and publishers to publish and dispose of their work as they see fit.
22. core competence Firm skills that competitors cannot easily match or
imitate.
23. Counter purchase A reciprocal buying agreement.
24. Countertrade The trade of goods and services for other goods and services.

6. 25. cross-cultural literacy Understanding how the culture of a country affects
the way business is practiced.
26. 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.
27. cultural controls Achieving control by persuading subordinates to identify
with the norms and value systems of the organization (self-control).
28. culture The complex whole that includes knowledge, belief, art, morals,
law, custom, and other capabilities acquired by a person as a member of
society.
29. currency board Means of controlling a country's currency.
30. 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.
31. currency speculation Involves short-term movement of funds from one
currency to another in hopes of profiting from shifts in exchange rates.
32. currency swap Simultaneous purchase and sale of a given amount of
foreign exchange for two different value dates.
33. currency translation Converting the financial statements of foreign
subsidiaries into the currency of the home country.

7. 34. current account In the balance of payments, records transactions involving
the export or import of goods and services.
35. 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.
36. 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.
37. current cost accounting Method that adjusts all items in a financial
statement to factor out the effects of inflation.
38. 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.
39. 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
1. D'Amato Act Act passed in 1996, similar to the Helms-Burton Act, aimed at
Libya and Iran.
2. deferral principle Parent companies are not taxed on the income of a
foreign subsidiary until they actually receive a dividend from that
subsidiary.
3. democracy Political system in which government is by the people, exercised
either directly or through elected representatives.

8. 4. deregulation Removal of government restrictions concerning the conduct
of a business.
5. 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.
6. 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.
7. draft See bill of lading.
8. drawee The party to whom a bill of lading is presented.
9. dumping Selling goods in a foreign market for less than their cost of
production or below their "fair" market value.
E
1. 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.
2. e-commerce Conducting business on-line through the Internet.
3. economic exposure The extent to which a firm's future international
earning power is affected by changes in exchange rates.

9. 4. 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.
5. 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.
6. economies of scale Cost advantages associated with large-scale production.
7. ecu A basket of EU currencies that serves as the unit of account for the
EMS.
8. efficient market A market where prices reflect all available information.
9. ending rate The spot exchange rate when budget and performance are
being compared.
10. ethical systems Cultural beliefs about what is proper behavior and conduct.
11. 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.
12. ethnocentric staffing A staffing approach within the MNE in which all key
management positions are filled by parent-country nationals.
13. eurobonds A bond placed in countries other than the one in whose
currency the bond is denominated.

10. 14. eurocurrency Any currency banked outside its country of origin.
15. eurodollar Dollar banked outside the United States.
16. European Free Trade Association (EFTA) A free trade association including
Norway, Iceland, and Switzerland.
17. 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.
18. 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.)
19. exchange rate The rate at which one currency is converted into another.
20. exchange rate mechanism (ERM) Mechanism for aligning the exchange
rates of EU currencies against each other.
21. exclusive channels A distribution channel that outsiders find difficult to
access.
22. expatriate failure The premature return of an expatriate manager to the
home country.
23. expatriate manager A national of one country appointed to a management
position in another country.

11. 24. experience curve Systematic production cost reductions that occur over the
life of a product.
25. experience curve pricing Aggressive pricing designed to increase volume
and help the firm realize experience curve economies.
26. export management company Export specialists who act as an export
marketing department for client firms.
27. Export-Import Bank (Eximbank) Agency of the US government whose
mission is to provide aid in financing and facilitate exports and imports.
28. exporting Sale of products produced in one country to residents of another
country.
29. externalities Knowledge spillovers.
30. 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
1. factor endowments A country's endowment with resources such as land,
labor, and capital.
2. factors of production Inputs into the productive process of a firm, including
labor, management, land, capital, and technological know-how.

12. 3. 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.
4. financial structure Mix of debt and equity used to finance a business.
5. first-mover advantages Advantages accruing to the first to enter a market.
6. first-mover disadvantages Disadvantages associated with entering a foreign
market before other international businesses.
7. 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.
8. fixed exchange rates A system under which the exchange rate for
converting one currency into another is fixed.
9. 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.
10. 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.
11. flexible manufacturing technologies Manufacturing technologies designed
to improve job scheduling, reduce setup time, and improve quality control.
12. 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.

13. 13. flow of foreign direct investment The amount of foreign direct investment
undertaken over a given time period (normally one year).
14. folkways Routine conventions of everyday life.
15. foreign bonds Bonds sold outside the borrower's country and denominated
in the currency of the country in which they are issued.
16. Foreign Corrupt Practices Act US law regulating behavior regarding the
conduct of international business in the taking of bribes and other unethical
actions.
17. foreign debt crisis Situation in which a country cannot service its foreign
debt obligations, whether private-sector or government debt.
18. foreign direct investment (FDI) Direct investment in business operations in
a foreign country.
19. foreign exchange exposure The risk that future changes in a country's
exchange rate will hurt the firm.
20. foreign exchange market A market for converting the currency of one
country into that of another country.
21. foreign exchange risk The risk that changes in exchange rates will hurt the
profitability of a business deal.
22. 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).

14. 23. forward exchange When two parties agree to exchange currency and
execute a deal at some specific date in the future.
24. forward exchange rate The exchange rates governing forward exchange
transactions.
25. franchising A specialized form of licensing in which the franchiser sells
intangible property to the franchisee and insists on rules to conduct the
business.
26. free trade The absence of barriers to the free flow of goods and services
between countries.
27. 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.
28. 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.
29. fronting loans A loan between a parent company and a foreign subsidiary
that is channeled through a financial intermediary.
30. fundamental analysis Draws on economic theory to construct sophisticated
econometric models for predicting exchange rate movements.

15. G
1. Gains from trade The economic gains to a country from engaging in
international trade.
2. 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.
3. Geocentric staffing A staffing policy where the best people are sought for
key jobs throughout an MNE, regardless of nationality.
4. Global learning The flow of skills and product offerings from foreign
subsidiary to home country and from foreign subsidiary to foreign
subsidiary.
5. global matrix structure Horizontal differentiation proceeds along two
dimensions: product divisions and areas.
6. global strategy Strategy focusing on increasing profitability by reaping cost
reductions from experience curve and location economies.
7. 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.
8. 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

16. trade barriers and barriers of distance, time, and culture, and toward a
system in which national markets are merging into one global market.
9. 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.
10. gold par value The amount of currency needed to purchase one ounce of
gold.
11. gold standard The practice of pegging currencies to gold and guaranteeing
convertibility.
12. gross domestic product (GDP) The market value of a country's output
attributable to factors of production located in the country's territory.
13. gross fixed capital formation Summarizes the total amount of capital
invested in factories, stores, office buildings, and the like.
14. gross national product (GNP) The market value of all the final goods and
services produced by a national economy.
15. 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
1. Huckster-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.

17. 2. hedge fund Investment fund that not only buys financial assets (stocks,
bonds, currencies) but also sells them short.
3. 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.
4. 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.
5. home country The source country for foreign direct investment.
6. horizontal differentiation The division of the firm into subunits.
7. horizontal foreign direct investment Foreign direct investment in the same
industry abroad as a firm operates in at home.
8. host country Recipient country of inward investment by a foreign firm.
9. 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.
10. human resource management Activities an organization conducts to use its
human resource effectively.
I
1. Import quota A direct restriction on the quantity of a good that can be
imported into a country.

18. 2. individualism An emphasis on the importance of guaranteeing individual
freedom and self-expression.
3. 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.
4. inefficient market One in which prices do not reflect all available
information.
5. 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.
6. inflows of FDI Flow of foreign direct investment into a country.
7. initial rate The spot exchange rate when a budget is adopted.
8. innovation Development of new products, processes, organizations,
management practices, and strategies.
9. integrating mechanisms Mechanisms for achieving coordination between
subunits within an organization.

19. 10. 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.
11. internal forward rate A company-generated forecast of future spot rates.
12. internalization theory Marketing imperfection approach to foreign direct
investment.
13. 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.
14. international business Any firm that engages in international trade or
investment.
15. international division Division responsible for a firm's international
activities.
16. 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.
17. International Monetary Fund (IMF) International institution set up to
maintain order in the international monetary system.
18. international strategy Trying to create value by transferring core
competencies to foreign markets where indigenous competitors lack those
competencies.

20. 19. international trade Occurs when a firm exports goods or services to
consumers in another country.
20. ISO 9000 Certification process that requires certain quality standards that
must be met.
J
1. joint venture A cooperative undertaking between two or more firms.
2. just-in-time (JIT) Logistics systems designed to deliver parts to a production
process as they are needed, not before.
L
1. 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.
2. 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.
3. 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.
4. lead market Market where products are first introduced.

21. 5. 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.
6. lean production systems Flexible manufacturing technologies pioneered at
Toyota and now used in much of the automobile industry.
7. learning effects Cost savings from learning by doing.
8. legal risk The likelihood that a trading partner will opportunistically break a
contract or expropriate intellectual property rights.
9. 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.
10. 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.
11. letter of credit Issued by a bank, indicating that the bank will make
payments under specific circumstances.
12. 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.
13. local content requirement A requirement that some specific fraction of a
good be produced domestically.

22. 14. location economies Cost advantages from performing a value creation
activity at the optimal location for that activity.
15. 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).
16. logistics The procurement and physical transmission of material through
the supply chain, from suppliers to customers.
M
1. 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.
2. maker Person or business initiating a bill of lading (draft).
3. 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.
4. management networks A network of informal contact between individual
managers.
5. market economy The allocation of resources is determined by the invisible
hand of the price system.
6. market imperfections Imperfections in the operation of the market
mechanism.

23. 7. market makers Financial service companies that connect investors and
borrowers, either directly or indirectly.
8. market power Ability of a firm to exercise control over industry prices or
output.
9. market segmentation Identifying groups of consumers whose purchasing
behavior differs from others in important ways.
10. marketing mix Choices about product attributes, distribution strategy,
communication strategy, and pricing strategy that a firm offers its targeted
markets.
11. 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.
12. 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.
13. materials management The activity that controls the transmission of
physical materials through the value chain, from procurement through
production and into distribution.

24. 14. mercantilism An economic philosophy advocating that countries should
simultaneously encourage exports and discourage imports.
15. MERCOSUR Pact between Argentina, Brazil, Paraguay, and Uruguay to
establish a free trade area.
16. minimum efficient scale The level of output at which most plant-level scale
economies are exhausted.
17. MITI Japan's Ministry of International Trade and Industry.
18. 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.
19. money management Managing a firm's global cash resources efficiently.
20. Moore's Law The power of microprocessor technology doubles and its costs
of production fall in half every 18 months.
21. moral hazard Arises when people behave recklessly because they know
they will be saved if things go wrong.
22. mores Norms seen as central to the functioning of a society and to its social
life.
23. multidomestic strategy Emphasizing the need to be responsive to the
unique conditions prevailing in different national markets.

25. 24. 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.
25. 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.
26. multinational enterprise (MNE) A firm that owns business operations in
more than one country.
27. multipoint competition Arises when two or more enterprises encounter
each other in different regional markets, national markets, or industries.
28. multipoint pricing Occurs when a pricing strategy in one market may have
an impact on a rival's pricing strategy in another market.
N
1. 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.
2. nonconvertible currency A currency is not convertible when both residents
and nonresidents are prohibited from converting their holdings of that
currency into another currency.
3. norms Social rules and guidelines that prescribe appropriate behavior in
particular situations.

26. 4. North American Free Trade Agreement (NAFTA) Free trade area between
Canada, Mexico, and the United States.
O
1. Oligopoly An industry composed of a limited number of large firms.
2. 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.
3. outflows of FDI Flow of foreign direct investment out of a country.
4. 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
1. Paris Convention for the Protection of Industrial Property International
agreement to protect intellectual property; signed by 96 countries.
2. patent Grants the inventor of a new product or process exclusive rights to
the manufacture, use, or sale of that invention.
3. performance ambiguity Occurs when the causes of good or bad
performance are not clearly identifiable.
4. personal controls Achieving control by personal contact with subordinates.

27. 5. 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.
6. political economy The study of how political factors influence the
functioning of an economic system.
7. 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.
8. political system System of government in a nation.
9. 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.
10. positive-sum game A situation in which all countries can benefit even if
some benefit more than others.
11. 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.
12. 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).

28. 13. price discrimination The practice of charging different prices for the same
product in different markets.
14. price elasticity of demand A measure of how responsive demand for a
product is to changes in price.
15. privatization The sale of state-owned enterprises to private investors.
16. product life-cycle theory The optimal location in the world to produce a
product changes as the market for the product matures.
17. production Activities involved in creating a product.
18. projected rate The spot exchange rate forecast for the end of the budget
period.
19. 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.
20. pull strategy A marketing strategy emphasizing mass media advertising as
opposed to personal selling.
21. purchasing power parity (PPP) An adjustment in gross domestic product per
capita to reflect differences in the cost of living.
22. push strategy A marketing strategy emphasizing personal selling rather
than mass media advertising.

29. R
1. 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.
2. relatively efficient market One in which few impediments to international
trade and investment exist.
3. representative democracy A political system in which citizens periodically
elect individuals to represent them in government.
4. 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.
5. royalties Remuneration paid to the owners of technology, patents, or trade
names for the use of same.
S
1. Short selling Occurs when an investor places a speculative bet that the
value of a financial asset will decline, and profits from that decline.
2. sight draft A draft payable on presentation to the drawee.

30. 3. Single European Act A 1997 act, adopted by members of the European
Community, that committed member countries to establishing an economic
union.
4. Smoot-Hawley Tariff Enacted in 1930 by the US Congress, this tariff erected
a wall of barriers against imports into the United States.
5. social democrats Those committed to achieving socialism by democratic
means.
6. social mobility The extent to which individuals can move out of the social
strata into which they are born.
7. social strata Hierarchical social categories.
8. social structure The basic social organization of a society.
9. socialism A political philosophy advocating substantial public involvement,
through government ownership, in the means of production and
distribution.
10.society Group of people who share a common set of values and norms.
11.sogo shosha Japanese trading companies; a key part of the keiretsu, the
large Japanese industrial groups.
12.sourcing decisions Whether a firm should make or buy component parts.
13. specialized asset An asset designed to perform a specific task, whose value
is significantly reduced in its next-best use.
14.specific tariff Tariff levied as a fixed charge for each unit of good imported.

31. 15.spot exchange rate The exchange rate at which a foreign exchange dealer
will convert one currency into another that particular day.
16.staffing policy Strategy concerned with selecting employees for particular
jobs.
17.state-directed economy An economy in which the state plays a proactive
role in influencing the direction and magnitude of private sector
investments.
18.stock of foreign direct investment The total accumulated value of foreign-
owned assets at a given time.
19.strategic alliances Cooperative agreements between two or more firms.
20.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.
21.strategic trade policy Government policy aimed at improving the
competitive position of a domestic industry and/or domestic firm in the
world market.
22.strategy Actions managers take to attain the firm's goals.
23.Structural Impediments Initiative A 1990 agreement between the United
States and Japan aimed at trying to decrease nontariff barriers restricting
imports into Japan.
24.subsidy Government financial assistance to a domestic producer.

32. 25.swaps The simultaneous purchase and sale of a given amount of foreign
exchange for two different value dates.
26.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
1. Tariff A tax levied on imports.
2. tax credit Allows a firm to reduce the taxes paid to the home government
by the amount of taxes paid to the foreign government.
3. tax haven A country with exceptionally low, or even no, income taxes.
4. 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.
5. technical analysis Uses price and volume data to determine past trends,
which are expected to continue into the future.
6. 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.
7. theocratic totalitarianism A political system in which political power is
monopolized by a party, group, or individual that governs according to
religious principles.

33. 8. time draft A promise to pay by the accepting party at some future date.
9. time-based competition Competing on the basis of speed in responding to
customer demands and developing new products.
10.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.
11.total quality management Management philosophy that takes as its central
focus the need to improve the quality of a company's products and
services.
12.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.
13.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.
14.trade deficit See current account deficit.
15.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.
16.trade surplus See current account surplus.
17.trademark Designs and names, often officially registered, by which
merchants or manufacturers designate and differentiate their products.

34. 18.transaction costs The costs of exchange.
19.transaction exposure The extent to which income from individual
transactions is affected by fluctuations in foreign exchange values.
20.transfer fee A bank charge for moving cash from one location to another.
21.transfer price The price at which goods and services are transferred
between subsidiary companies of a corporation.
22.translation exposure The extent to which the reported consolidated results
and balance sheets of a corporation are affected by fluctuations in foreign
exchange values.
23.transnational corporation A firm that tries to simultaneously realize gains
from experience curve economies, location economies, and global learning,
while remaining locally responsive.
24.transnational financial reporting The need for a firm headquartered in one
country to report its results to citizens of another country.
25.transnational strategy Plan to exploit experience-based cost and location
economies, transfer core competencies with the firm, and pay attention to
local responsiveness.
26. Treaty of Rome The 1957 treaty that established the European Community.
27.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.

35. 28.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
1. Unbundling Relying on more than one financial technique to transfer funds
across borders.
2. uncertainty avoidance Extent to which cultures socialize members to accept
ambiguous situations and to tolerate uncertainty.
3. universal needs Needs that are the same all over the world, such as steel,
bulk chemicals, and industrial electronics.
V
1. Value creation Performing activities that increase the value of goods or
services to consumers.
2. values Abstract ideas about what a society believes to be good, right, and
desirable.
3. vehicle currency A currency that plays a central role in the foreign exchange
market (e.g., the US dollar and Japanese yen).
4. vertical differentiation The centralization and decentralization of decision-
making responsibilities.
5. vertical foreign direct investment Foreign direct investment in an industry
abroad that provides input into a firm's domestic operations, or

36. foreigndirect investment into an industry abroad that sells the outputs of a
firm's domestic operations.
6. 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).
7. 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
1. Wholly owned subsidiary A subsidiary in which the firm owns 100 percent
of the stock.
2. World Bank International institution set up to promote general economic
development in the world's poorer nations.
3. 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.
4. worldwide area structure Business organizational structure under which
the world is divided into areas.
5. worldwide product division structure Business organizational structure
based on product divisions that have worldwide responsibility.

37. Z
1. Zero-sum game A situation in which an economic gain by one country
results in an economic loss by another.