Chapter 2 International business
product differentiation
Unique differences producers build into their products with the intent of positively influencing demand
overlapping demand
the existence of similar preferences and demand for products and demand for products and services among nations with similar levels of per capita income
resource endowment
the land, labor, capital, and related production factors a nation possesses.
economies of scale
the predictable decline in the average cost of producing each unit of output as a production facility gets larger and output increases
exchange rate
the price of one currency stated in terms of another
cross border acquisition
the purchase of an existing business in another nation
portfolio investment
the purchase of stocks and bonds to obtain a return on the funds invested
direct investment
the purchase of sufficient stock in a firm to obtain significant management control
experience curve
the rising scale on which efficiency improves as a result of cumulative experience and learning
eclectic theory of international production
theory proposing that for a firm to invest in facilities over seas, it must have three kinds of advantages: ownership specific, location specific, and internalization
strategic behavior theory
theory suggesting that strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each others international investments in order to keep a competitor from gaining an advantage
monopolistic advantage theory
theory that foreign direct investment is made by firms in industries with relatively few competitors due to their possession of technical and other advantages over indigenous firms
internationalization theory
theory that to obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary that it controls rather than sell it in the open market
merchantilism
an economic philosophy based on the belief that a nations wealth depends on accumulated treasure , usually precious metals such as gold and silver, and to increase wealth, government, policies should promote exports and discourage imports
oligopolistic industry
an industry with a limited number of competing firms
comparative advantage
when one nation is less efficient than another nation in the production of each of two goods, the less efficient nation has a comparative advantage in the production of that good for which its absolute advantage is less
dynamic capability theory
for a firm to successfully invest overseas, it must have not only ownership of unique knowledge or resources but also the ability to dynamically create, sustain and exploit these capabilities over time
greenfield investment
the establishment of new facilities from the ground up
perfect competition
a market situation in which there is a sufficiently large number of well-informed buyers and sellers of a product, such that no individual participant has enough power to determine the price of the product, resulting in a marketplace that is efficient in production and allocation of products
absolute advantage
a nations ability to produce more of a good or service than another country for the same or lower cost of inputs
national competitiveness
a nations relative ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources
currency devaluation
a reduction in the value of a country's currency relative to other currencies
international product life cycle
a theory explaining why a product that begins as a nations export eventually becomes its import
trade surplus
the amount by which the value of exports exceeds the value of its imports
trade deficit
the amount by which the value of imports into a nation exceeds the value of its exports
