Term
|
Definition
| A classical, country-based international trade theory that states that a country's wealth is determined by its holdings of gold and silver |
|
|
Term
|
Definition
| When the value of exports is greater than the value of imports |
|
|
Term
|
Definition
| When the value of imports is greater than the value of exports |
|
|
Term
|
Definition
| The practice of imposing restrictions on imports and protecting domestic industry |
|
|
Term
|
Definition
| The ability of a country to produce a good more efficiently than another nation |
|
|
Term
| Factor proportions theory |
|
Definition
| Also called the Heckscher-Ohlin theory; the classical, country-based international theory states that countries would gain comparative advantage if they produced and exported goods that required resources or factors that they had in great supply and therefore were cheaper production factors. In contrast, countries would import goods that required resources that were in short supply in their country but were in higher demand. |
|
|
Term
|
Definition
| A paradox identified by Russian economist Wassily W. Leontief that states, in the real world, the reverse of the factor proportions theory exists in some countries. For example, even though a country may be abundant in capital, it may still import more capital-intensive goods |
|
|
Term
|
Definition
| Trade between two countries of goods produced in the same industry |
|
|
Term
| Country similarity theory |
|
Definition
| A modern, firm based international trade theory that explains intraindustry trade by stating that countries with the most similarities in factors such as incomes, consumer habits, market preferences, stage of technology, communications, and degree of industrialization will be more likely to engage in trade between countries and intraindustry trade will be common. |
|
|
Term
| Product life cycle theory |
|
Definition
| A modern, firm-based international trade theory that states that a product life cycle has three distinct stages (1) new product, (2) maturing product, and (3) standardized product |
|
|
Term
|
Definition
| The obstacles a new firm may face when trying to enter into an industry or new market |
|
|
Term
|
Definition
A modern, firm-based international trade theory that states that a nation’s or firm’s competitiveness in an industry depends on the capacity of the industry and firm to innovate and upgrade. In addition to the roles of government and chance, this theory identifies four key determinants of national competitiveness:
(1) local market resources and capabilities,
(2) local market demand conditions,
(3) local suppliers and complementary industries, and
(4) local firm characteristics. |
|
|
Term
|
Definition
| The system of politics and government in a country; it governs a complete set of rules, regulations, institutions, and attitudes |
|
|
Term
|
Definition
| A political ideology that contends that individuals should control political activities and public government is both unnecessary and unwanted. |
|
|
Term
|
Definition
| A political ideology that contends that every aspect of an individual's life should be controlled and dictated by a strong central government |
|
|
Term
|
Definition
| A political ideology that asserts that both public and private groups are important in a well-functioning political system |
|
|
Term
|
Definition
| A form of government that derives its power from the people |
|
|
Term
|
Definition
| An economic system in which the means of production are owned and controlled privately |
|
|
Term
|
Definition
| An economic system in which the government or state directs and controls the economy, including the means and decision making for production |
|
|
Term
|
Definition
| A legal system based on a detailed set of laws that constitute a code and on how the law is applied to the facts |
|
|
Term
|
Definition
| A legal system based on traditions and precedence. In this system, judges interpret the law and judicial rulings can set precedent. |
|
|
Term
|
Definition
| Also known as theocratic law, this legal system is based on religious guidelines |
|
|
Term
|
Definition
| Islamic religious law that addresses all aspect of daily life; in terms of business and financing, the law prohibits charging interest on money and other common investment activities, including hedging and short selling |
|
|
Term
|
Definition
| Taxes or tariffs that are levied as a fixed charge, regardless of the value of the profuct or service |
|
|
Term
|
Definition
| Tariffs that are calculated as a percentage of the value of the product or service |
|
|
Term
|
Definition
| Tariffs are taxes imposed on imports. Two kinds of tariffs exist—specific tariffsTaxes or tariffs that are levied as a fixed charge, regardless of the value of the product or service., which are levied as a fixed charge, and ad valorem tariffsTariffs that are calculated as a percentage of the value of the product or service., which are calculated as a percentage of the value. Many governments still charge ad valorem tariffs as a way to regulate imports and raise revenues for their coffers. |
|
|
Term
|
Definition
| A subsidy is a form of government payment to a producer. Types of subsidies include tax breaks or low-interest loans, both of which are common. Subsidies can also be cash grants and government-equity participation, which are less common because they require a direct use of government resources. producer. |
|
|
Term
|
Definition
| Import quotas and voluntary export restraints (VER) are two strategies to limit the amount of imports into a country. The importing government directs import quotas, while VER are imposed at the discretion of the exporting nation in conjunction with the importing one. |
|
|
Term
|
Definition
| Governments may limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports. Additionally, some governments will manage the exchange rate at a high level to create an import disincentive. |
|
|
Term
| Local content requirements |
|
Definition
| Many countries continue to require that a certain percentage of a product or an item be manufactured or “assembled” locally. Some countries specify that a local firm must be used as the domestic partner to conduct business. |
|
|
Term
|
Definition
| Dumping occurs when a company sells product below market price often in order to win market share and weaken a competitor. |
|
|
Term
|
Definition
| Governments provide financing to domestic companies to promote exports. |
|
|
Term
|
Definition
| Many countries designate certain geographic areas as free-trade zones. These areas enjoy reduced tariffs, taxes, customs, procedures, or restrictions in an effort to promote trade with other countries. |
|
|
Term
|
Definition
| These are the bureaucratic policies and procedures governments may use to deter imports by making entry or operations more difficult and time consuming. |
|
|
Term
|
Definition
| The investment in a company's stocks, bonds, or assets, but not for the purpose of controlling or directing the firm's operations or management |
|
|
Term
| Foreign direct investment (FDI) |
|
Definition
| The acquisition of foreign assets with the intent to control and manage them |
|
|
Term
|
Definition
| An investment into a country by a company from another country |
|
|
Term
|
Definition
| An investment made by a domestic company into companies in other countries |
|
|
Term
| How companies choose to invest in foreign markets |
|
Definition
-
Cost. Is it cheaper to produce in the local market than elsewhere?
-
Logistics. Is it cheaper to produce locally if the transportation costs are significant?
-
Market. Has the company identified a significant local market?
-
Natural resources. Is the company interested in obtaining access to local resources or commodities?
-
Know-how. Does the company want access to local technology or business process knowledge?
-
Customers and competitors. Do the company’s clients or competitors operate in the country?
-
Policy. Are there local incentives (cash and noncash) for investing in one country versus another?
-
Ease. Is it relatively straightforward to invest and/or set up operations in the country, or is there another country in which setup might be easier?
-
Culture. Is the workforce or labor pool already skilled for the company’s needs or will extensive training be required?
-
Impact. How will this investment impact the company’s revenue and profitability?
-
Expatriation of funds. Can the company easily take profits out of the country, or are there local restrictions?
-
Exit. Can the company easily and orderly exit from a local investment, or are local laws and regulations cumbersome and expensive?
|
|
|
Term
|
Definition
| When a company is trying to open up a new market that is similar to its domestic markets |
|
|
Term
|
Definition
| When a company invests internationally to provide input into its core operations usually in its home country. A firm may invest in production facilities in another country. If the firm brings the goods or components back to its home country (acting as a supplier), then it is called backward vertical FDI. If the firm sells the goods into the local or regional market (acting more as a distributor) then it is referred to as forward vertical FDI |
|
|
Term
|
Definition
| An FDI strategy in which a company builds new facilities from scratch |
|
|
Term
|
Definition
| An FDI strategy in which a company or government entity purchases or leases existing production facilities to launch a new production activity |
|
|
Term
How Governments Discourage or Restrict FDI |
|
Definition
In most instances, governments seek to limit or control foreign direct investment to protect local industries and key resources (oil, minerals, etc.), preserve the national and local culture, protect segments of their domestic population, maintain political and economic independence, and manage or control economic growth. Governments use various policies and rules:
-
Ownership restrictions. Host governments can specify ownership restrictions if they want to keep the control of local markets or industries in their citizens’ hands. Some countries, such as Malaysia, go even further and encourage that ownership be maintained by a person of Malay origin, known locally as bumiputra. Although the country’s Foreign Investment Committee guidelines are being relaxed, most foreign businesses understand that having a bumiputrapartner will improve their chances of obtaining favorable contracts, especially with the government, in Malaysia.
-
Tax rates and sanctions. A company’s home government usually imposes these restrictions in an effort to persuade companies to invest in the domestic market rather than a foreign one.
|
|
|
Term
How Governments Encourage FDI |
|
Definition
Governments seek to promote FDI when they are eager to expand their domestic economy and attract new technologies, business know-how, and capital to their country. In these instances, many governments still try to manage and control the type, quantity, and even the nationality of the FDI to achieve their domestic, economic, political, and social goals.
-
Financial incentives. Host countries offer businesses a combination of tax incentives and loans to invest. Home-country governments may also offer a combination of insurance, loans, and tax breaks in an effort to promote their companies’ overseas investments. The opening case on China in Africa illustrated these types of incentives.
-
Infrastructure. Host governments improve or enhance local infrastructure—in energy, transportation, and communications—to encourage specific industries to invest. This also serves to improve the local conditions for domestic firms.
-
Administrative processes and regulatory environment. Host-country governments streamline the process of establishing offices or production in their countries. By reducing bureaucracy and regulatory environments, these countries appear more attractive to foreign firms.
-
Invest in education. Countries seek to improve their workforce through education and job training. An educated and skilled workforce is an important investment criterion for many global businesses.
-
Political, economic, and legal stability. Host-country governments seek to reassure businesses that the local operating conditions are stable, transparent (i.e., policies are clearly stated and in the public domain), and unlikely to change.
|
|
|
