Chapter 7-13

Question 1

The absence of barriers to the free flow of goods and services between countries.

Answer 1

free trade

Question 2

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.

Answer 2

General Agreement on Tariffs and Trade (GATT)

Question 3

Tariff levied as a fixed charge for each unit of good imported.

Answer 3

specific tariff

Question 4

a tariff levied as a proportion of the value of an imported good

Answer 4

ad valorem tariff

Question 5

A direct restriction on the quantity of a good that can be imported into a country.

Answer 5

import quota

Question 6

Lower tariff rates applied to imports within the quota than those over the quota.

Answer 6

tariff rate quota

Question 7

A quota on trade imposed from the exporting coun- try’s side, instead of the importer’s; usually imposed at the request of the import- ing country’s government.

Answer 7

voluntary export restraint (VER)

Question 8

Extra profit producers make when supply is artificially limited by an import quota.

Answer 8

quota rent

Question 9

A requirement that some specific fraction of a good be produced domestically.

Answer 9

local content requirement (LCR)

Question 10

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

Answer 10

administrative trade policies

Question 11

Selling goods in a foreign market for less than their cost of production or below their “fair” market value.

Answer 11

dumping

Question 12

Designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition.

Answer 12

antidumping policies

Question 13

New industries in develop- ing 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.

Answer 13

infant industry argument

Question 14

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market.

Answer 14

strategic trade policy

Question 15

Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States.

Answer 15

Smoot–Hawley Act

Question 16

Reciprocal trade agreements between two or more partners.

Answer 16

multilateral or bilateral trade agreements

Question 17

Agreements among countries in a geographic region to reduce and ultimately remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other.

Answer 17

regional economic integration

Question 18

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.

Answer 18

free trade area

Question 19

A free trade association including Norway, Iceland, Liechtenstein, and Switzerand

Answer 19

European Free Trade Association (EFTA)

Question 20

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.

Answer 20

customs union

Question 21

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.

Answer 21

common market

Question 22

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 harmonisation of tax rates; and (4) the pursuit of a common external trade policy.

Answer 22

economic union

Question 23

A central political apparatus coordinates economic, social, and foreign policy.

Answer 23

political union

Question 24

Trade created due to regional economic integration; occurs when high-cost domestic producers are replaced by low-cost foreign producers within a free trade area.

Answer 24

trade creation

Question 25

Trade diverted due to regional economic integration; occurs when low-cost foreign suppliers outside a free trade area are replaced by higher-cost suppliers within a free trade area.

Answer 25

trade diversion

Question 26

The 1957 treaty that established the European Community.

Answer 26

treaty of Rome

Question 27

Responsible for proposing EU legislation, implement- ing it, and monitoring compliance.

Answer 27

European Commission

Question 28

The heads of state of EU members and the president of the European Commis- sion.

Answer 28

European Council

Question 29

Elected EU body that pro- vides consultation on issues proposed by the European Commission.

Answer 29

European Parliament

Question 30

A European Union–sanctioned treaty that will allow the European Parliament to become the co-equal legislator for almost all European laws.

Answer 30

Treaty of Lisbon

Question 31

Treaty agreed to in 1992, but not ratified until January 1, 1994, that committed the 12 member states of the European Community to a closer economic and political union.

Answer 31

Maastricht Treaty

Question 32

Region in which similarities in economic activity make a single currency and exchange rate feasible instruments of macroeconomic policy.

Answer 32

optimal currency area

Question 33

A 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.

Answer 33

Andean Community

Question 34

Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

Answer 34

Mercosur

Question 35

Formed in 1967, an attempt to establish a free trade area among Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Vietnam, and Thailand.

Answer 35

Association of Southeast Asian Nations (ASEAN)

Question 36

Performing activities that increase the value of goods or services to consumers.

Answer 36

value creation

Question 37

The totality of a firm’s organisation, including formal organisational structure, control systems and incentives, organisational culture, processes, and people.

Answer 37

organisation architecture

Question 38

Firm skills that competitors cannot easily match or imitate.

Answer 38

core competence

Question 39

Cost advantages from per- forming a value creation activity at the optimal location for that activity.

Answer 39

location economies

Question 40

When different stages of value chain are dispersed to those locations around the globe where value added is maximised or where costs of value creation are minimised.

Answer 40

global web

Question 41

Systematic production cost reductions that occur over the life of a product.

Answer 41

experience curve

Question 42

Cost savings from learning by doing.

Answer 42

learning effects

Question 43

A firm focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

Answer 43

global standardisation strategy

Question 44

Increasing profitability by customising the firm’s goods and services so that they provide a good match to tastes and preferences in different national markets.

Answer 44

localisation strategy

Question 45

Attempt to simultaneously achieve low costs through location economies, economies of scale, and learning effects while also differentiating product offerings across geographic markets to account for local differences and fostering multidirectional flows of skills between different subsidiaries in the firm’s global network of operations.

Answer 45

transnational strategy

Question 46

Trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies.

Answer 46

international strategy

Question 47

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.

Answer 47

pioneering costs

Question 48

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.

Answer 48

turnkey project

Question 49

Arrangement in which a licensor grants the rights to intangible property to a licensee for a specified period and receives a royalty fee in return.

Answer 49

licensing agreement

Question 50

A specialised form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business.

Answer 50

franchising

Question 51

A cooperative undertaking between two or more firms.

Answer 51

joint venture

Question 52

A subsidiary in which the firm owns 100 percent of the stock.

Answer 52

wholly owned subsidiary

Question 53

Ability to realise location and experience curve economies Increased speed and flexibility of engaging target markets

Answer 53

Adv of Exporting

Question 54

High transport costs Trade barriers Problems with local marketing agents

Answer 54

Disadv of Exporting

Question 55

Ability to earn returns from process technology skills in countries where FDI is restricted

Answer 55

Adv of Turnkey

Question 56

Creation of efficient competitors Lack of long-term market presence

Answer 56

Disadv of Turneky

Question 57

Lack of control over technology Inability to realise location and experience curve economies Inability to engage in global strategic coordination

Answer 57

Adv of Licensing

Question 58

Low development costs and risks Moderate involvement and commitment

Answer 58

Disadv of Licensing

Question 59

Low development costs and risks Possible circumvention of import barriers, and strong sales potential

Answer 59

Avd of Franchsising

Question 60

Lack of control over quality Inability to engage in global strategic coordination

Answer 60

Disadv of Franchising

Question 61

Access to local partner’s knowledge Shared development costs and risks Politically acceptable Typically no ownership restrictions

Answer 61

Adv of JV

Question 62

Lack of control over technology Inability to engage in global strategic coordination Inability to realise location and experience economies

Answer 62

Disadv of JV

Question 63

Protection of technology Ability to engage in global strategic coordination Ability to realise location and experience economies

Answer 63

Adv of Wholly owned subsidiaries

Question 64

High costs and risks Need for more human and nonhuman resources, and interaction and integration with local employees

Answer 64

Disadv of Wholly owned subsidiaries