T ERMS IN I NTERNATIONAL B USINESS G LOSSARY OF T ERMS: INTERNATIONAL B USINESS absolute advantage floating exchange rates A country has an absolute advantage when it is more A system under which the exchange rate for converting efficient than any other country at producing a product. one currency into another is continuously adjusted balance of payments accounts depending on the laws of supply and demand. National accounts that track both payments to and free trade receipts from foreigners. The absence of barriers to the free flow of goods and bill of lading services between countries. A document issued to an exporter by a common carrier fronting loans transporting merchandise. A loan between a parent company and a foreign subsidiary common market that is channeled through a financial intermediary. A group of countries committed to the pursuit of a General Agreement on Tariffs and Trade (GATT) common external trade policy. International treaty that committed signatories to lower- comparative advantage ing barriers to the free flow of goods across national The theory that countries should specialize in the produc- borders led to the WTO. tion of goods and services they can produce most efficiently. globalization of markets current account deficit Moving away from an economic system in which national The current account of the balance of payments is in markets are distinct entities. surplus when a country exports more goods and services horizontal foreign direct investment that it imports. Foreign direct investment in the same industry abroad as deferral principle a firm operates in at home. Parent companies are not taxed on the income of a import quota foreign subsidiary until they actually receive a dividend A direct restriction on the quantity of a good that can be from that subsidiary. imported into a country. economic risk infant industry argument The likelihood that events, including economic misman- New industries in developing countries must be tem- agement, will cause drastic changes in a country’s porarily protected from international competition to business environment that adversely affect the profit and help them reach a position where they can compete on other goals of a particular business enterprise. world markets with the firms of developed nations. Eurobonds International Accounting Standards Committee (IASC) A bond placed in countries other that the one in whose Organization of representatives of 106 professional currency the bond is denominated. accounting organizations from 79 countries that is Eurocurrency attempting to harmonize accounting standards across Any currency banked outside of its country of origin. countries. European Monetary System (EMS) International Monetary Fund (IMF) EU system designed to create a zone of monetary stability International institution set up to maintain order in the in Europe, control inflation, and coordinate exchange international monetary system. rate policies of EU countries. international strategy European Union (EU) Trying to create value by transferring core competencies An economic group of 15 European nations: Austria, to foreign markets where indigenous competitors lack Belgium, Great Britain, Denmark, Finland, France, Ger- those competencies. many, Greece, the Netherlands, Ireland, Italy, Luxem- law of one price bourg, Portugal, Spain and Sweden. In competitive markets free of transportation cost and exchange rate barriers to trade, identical products sold in different The rate at which one currency is converted into another. countries must sell for the same price when their price is expatriate manager expressed in terms of the same currency. A national of one country appointed to a management lead strategy position in another country. Collecting foreign currency receivables early when a exporting foreign currency is expected to depreciate, and paying Sale of products produced in one country to residents of foreign currency payables before they are due when a cur- another country. rency is expectecd to appreciate. fixed exchange rates local content requirement A system under which the exchange rate for converting A requirement that some specific fraction of a good be one currency into another is fixed. produced domestically. T ERMS IN I NTERNATIONAL B USINESS mercantilism subsidy An economic philosophy advocating that countries Government financial assistance to a domestic producer should simultaneously encourage exports and discourage systematic risk imports. Movements in a stock portfolio’s value attributable to minimum efficient scale macroeconomic forces affecting all firms in an economy, The level of output at which most plant-level scale rather than factors specific to an individual firm. economies are exhausted. tax haven mixed economy A country with exceptionally low, or no, income taxes. Certain sectors of the economy are left to private owner- tax treaty ship and free market mechanisms, while other sectors An agreement specifying what items of income will be have significant government ownership and government taxed by the authorities of the country where the income planning. is earned. multinational enterprise (MNE) temporal method A firm that owns business operations in more than one Translating assets valued in a foreign currency into the country. home currency using the exchange rate that existed when multidomestic strategy the assets were originally purchased. Emphasizing the need to be responsive to the unique transaction exposure conditions prevailing in different national markets. The extent to which income from individual transactions nonconvertible currency is affected by fluctuations in foreign exchange values. A currency is not convertible when both residents and translation exposure nonresidents are prohibited from converting their The extent to which the reported consolidated results holdings of that currency into another currency. and balance sheets of a corporation are affected by North American Free Trade Agreement (NAFTA) fluctuations in foreign exchange values. Free trade area between Canada, Mexico, and the United transnational corporation States. A firm that tries to simultaneously realize gains from political risk experience curve economies, location economies, and The likelihood that political forces will cause drastic global learning, while remaining locally responsive. changes in a country’s business environment that Treaty of Rome adversely affect the profit and other goals of a particular This 1957 treaty established the European Community. business enterprise. turkney project polycentric staffing A project in which a firm agrees to set up an operating A staffing policy in an MNE in which host-country plant for a foreign client and hand over the “key” when nationals are recruited to manage subsidiaries in their the plant is fully operational. own country, while parent-country nationals occupy key vehicle currency positions at corporate headquarters. A currency that plays a central role in the foreign positive sum game exchange market (e.g., the U.S. dollar and Japanese yen). A situation in which all countries can benefit even if some voluntary export restraint (VER) benefit more that others. A quota on trade imposed from the exporting country’s predatory pricing side, instead of the importer’s; usually imposed at the Reducing prices below fair market value as a competitive request of the importing country’s government weapon to drive weaker competitors out of the market . World Bank price discrimination International institution set up to promote general The practice of charging different prices for the same economic development in the world’s poorer nations. product in different markets. World Trade Organization (WTO) price elasticity of demand The organization that succeeded the General Agreement A measure of how responsive demand for a product is to on Tariffs and Trade (GATT) as a result of the successful changes in price. completion of the Uraguay round of GATT negotiations. Smoot-Hawley Tariff zero sum game Enacted in 1930 by the U.S. Congress, this tariff erected a A situation in which an economic gain by one country wall of barriers against imports into the United States. results in an economic loss by another. specific tariff Tariff levied as a fixed charge for each unit of a good imported. Structural Impediments Initiative A 1990 agreement between the United States and Japan aimed at trying to decrease nontariff barriers restricting imports into Japan. Source: International Business: Competing In the Global Marketplace, by Charles W.L. Hill, Irwin/McGraw-Hill, 1997 ©1998 Dow Jones & Company, Inc. All rights reserved. This material may be reproduced for classroom use. F98.