GEB 1101 Chapter 3

trade surplus

Favorable balance of trade

trade deficit

an unfavorable balance of trade; occurs when a country's imports exceed its exports.

sovereign wealth funds (SWFs)

investment funds controlled by governments holding invesment stakes in foreign companies.

Cons of Offshore outsourcing

jobs may be lost to low-cost competition offshore. May reduce product quality and damage company's reputation. Communication becomes more difficult.

Comparative advantage theory

states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy products that it cannot produce as efficiently.

Absolute advantage

the advantage that exists when a country produces a specific product more efficiently than all other countries.

Foreign Direct Investment (FDI)

the buying of permanent property and businesses in foreign nations.

Franchising

A contractual agreement whereby a business sells others the rights to use the business name and sell a product or a service in a given territory and in a specified manner.

Joint venture

A partnership in which two or more companies join to undertake a major project.

Importing

Buying products from another country.

Exporting

Selling products to another country.

foreign subsidiary

a company owned in a foreign country by another company, called the parent company.

embargo

a complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

Countertrading

a complex form of bartering in which several countries may be involved, each trading for goods and services.

Licensing

a global strategy in which a firm allows a foreign company to produce its product in exchange for a fee. (a royalty)

Import quota

a limit on the number of products in certain categories that a nation can import.

Tariffs

a tax imposed on foreign goods.

Trade protectionism

a type of policy that limits unfair competition from foreign industries.

Pros of Offshore outsourcing

less-strategic tasks can be outsourced so that companies can focus on areas in which they excel and grow. Allows companies to create efficiencies which let them hire more people. Costumers benefit from lower prices. Cheap labor.