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Key words International business - ORG 208 Chapter 1 - Globalizing business International business (IB). 1) A firm that engages in international (cross-border) economic activities and/or 2) the action of doing business abroad. Multinational enterprise (MNE). A firm that engages in foreign direct investment and operates in multiple countries. Foreign direct investment. Investment in, controlling and managing value-added activities in other countries. Emerging economies (emerging markets). Economies that only recently established institutional frameworks that facilitate international trade and investment, typically with lowor middle-level income and above average economic growth. BRIC. Brazil, Russia, India & China Gross domestic product. The sum of value added by resident firms, households and governments operating in an economy. Gross national product. Gross domestic product plus income from non-resident sources abroad. Purchasing power parity (PPP). A conversion that determines the equivalent amount of goods and services different currencies can purchase. This conversion is usually used to capture the differences in cost of living in different countries. Expatriate assignment. A temporary job abroad with a multinational company. Liability of outsidership. The inherent disadvantage that outsiders experience in a new environment because of their lack of familiarity. Industry 4.0 Disruptions of operations and supply chains through advances in digital technologies. Globalization. A process leading to greater interdependence and mutual awareness among economic, political and social units in the world and among actors in general. Liberalization. The removal of regulatory restrictions on business. Waves of globalization. The pattern of globalization arising from a combination and pendulum swings. Triad. Three regions of developed economies (North America, Western Europe and Japan).

Base of the pyramid. The vast majority of humanity, about four billion people, who make less than 1500 a year. Risk management. The identification and assessment of risks and the actions taken to minimize their impact. Ethnocentric perspective. A view of the world through the lens of ones own culture. Not-invented- here syndrome. The tendency to distrust new ideas coming from outside of one´s own organization or community. Cosmopolitans. The people embracing cultural diversity and the opportunities of globalization.

Chapter 2 - Formal institutions: Political, economic and legal systems. Institutions. Formal and informal rules of the game. Institutional framework. Formal and informal institutions governing individual and firm behaviour. Institution-based view. A theoretical perspective suggesting that firm performance is, at least in part, determines by the institutional frameworks governing firms. Transaction costs. The costs of organizing economic transactions. Formal institutions. Institutions represented by laws, regulations and rules. Informal institutions. Rules that are not formalized but exist in for example norms, values and ethics. Regulatory pillar. The coercive power of governments. Normative pillar. The mechanism through which norms influence individual and firm behavior. Cognitive pillar. The internalized, taken-for-granted values and beliefs that guide individual and firm behavior. Opportunistic behaviour. Seeking self-interest with guile. Institutional transition. Fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect organizations as players.

Political system. A system of the rules of the game on how a country is governed politically. Democracy. A political system in which citizens elect representatives to govern the country on their behalf. Proportional representation. Election system that allocates seats in parliament in proportion to the votes received by each party (usually subject to minimum threshold). First-past-the-post system. Election system by which in each constituency the candidate with the relative majority of votes gets the seat. Authoritarianism. A political system in which power is concentrated in the hands of one person or a small elite. Lobbying. Making your views known to decision makers with the aim of influencing political processes. Corruption. The abuse of public power for private benefits. Political risk. Risk associated with political changes that may negatively impact on domestic and foreign firms. Economic system. Rules of the game on how a country is governed economically. Market economy. An economy that is characterized by the invisible hand of market forces. Command economy. An Economy in which all factors or production are government- or state owned and controlled, and all supply, demand and pricing are planned by the government. Varieties of capitalism. A scholarly view suggesting that economies have different inherent logics on how markets and other mechanisms coordinate economic activity. Liberal market economy. A system of coordination primarily through market signals. Coordinated market economy. A system of coordinating through a variety of other means in addition to market signals. Apprenticeship system. Vocational training system for crafts and professions. Legal system. The rules of the game on how a country´s laws are enacted and enforced. Civil law. A legal tradition that used comprehensive statutes and codes as a primary means to form legal judgments. Common law. A legal tradition that is shaped by precedents and traditions from previous judicial decisions.

Case law. Rules of law that have been created by precedents of cases in court. Legal certainty. Clarity over the relevant rules applying to a particular situation. Property rights. The legal rights to use an economic property (resource) and to derive income and benefits from it. Intellectual property rights. Rights associated with the ownership of intellectual property. Patents. Legal rights awarded by government authorities to investors of new technological ideas, who are given exclusive (monopoly) rights to derive income from such inventions. Copyrights. Exclusive legal rights of authors and publishers to publish and disseminate their work. Trademarks. Exclusive legal rights of firms to use specific names, brands, and designs to differentiate their products from others. Corporate governance. Rules by which shareholders and others interested parties control corporate decision-makers. Political risk. Risk associated with political changes that may negatively impact on domestic and foreign firms.

Chapter 3. Informal institutions: Culture, religion, and languages Informal institutions. Rules that are nor formalized but exist in for example norms, values and ethics. Artefacts of culture. Physical objects that represents the visible surface of culture. Culture. The collective programming of the mind that distinguishes the members of one group or category of people from another. Cluster. Countries that share similar cultures together. Civilization. The highest cultural grouping of people and the broadest level of cultural identity people have. Western culture. An aggregate term for European, North American, Australian and New Zealand cultures. Power distance. The extent to which less powerful members within a country expect and accept that power is distributed unequally. Individualism. The perspective that the identity of an individual is fundamentally his or her own.

Collectivism. The idea that the identity of an individual is primarily based on the identity of his or her collective group. Masculinity. Values traditionally associated with male role, such as assertive decisive and aggressive. Feminity. Values traditionally associated with female role, such as compassion, care and quality of life. Uncertainty avoidance. The extent to which members in different cuotures accdpt ambigious situations and tolerate uncertainty. Long-term orientation. A perspective that emphasizes perseverance and savings for future betterment. Low-context culture. A culture in which communication is usually taken at face value without much reliance on unspoken context. High-context culture. A culture in which communication relies a lot on the underlying unspoken context, which is as important as the words used. Stereotype. A set of simplistic often inaccurate generalizations about a group that allows others to categorize them. Language. A system of shared meanings that enables people to effectively communicate. Language barriers. Communication barriers between people who speak different mother tongues and lack a shared language in which all are fluent. Corporate language. The language used for communications between entities of the same MNE in different countries. Lingua franca. The dominance of one language as a global business language. Holy. An item or activity that is treated with particular respect by a religion. Taboo. An item of activity considered unclean by a religion. Secular societies. Societies where religions do not dominate public life. Ethics. The principles, standards and norms of conduct governing individual and firm behaviour. Code of conduct. Written policies and standards for corporate conduct and ethics. Ethical relativism. A perspective that suggests that all ethical standards are relative.

Ethical imperialism. The absolute belief that there is only one set of Ethics (with the capital E), and we have it. Corruption. The abuse of public power for private benefits. Subcultures. Groups within a nation sharing a culture that substantially varies from the national average. Cultural convergence. The idea that cultures around the world are becoming more similar. Organizational culture. Culture shared by people working in the organization. In-group. Individuals and firms regarded as part of us. Out-group. Individuals and firms not regarded as part of us. Cultural intelligence. An individual´s ability to understand and adjust to new cultures.

Chapter 4 - Firm resources: Competitiveness and growth Resource-based view. A leading perspective in global business that posits that firm performance is fundamentally driven by firm-specific resources. Competitive advantage. The ability of a firm to outperform its rivals. Primary resources. The tangible and intangible assets as well as human resources that a firm uses to choose and implement its strategies. Capability. Firm specific abilities to use resources to achieve organizational objectives. Tangible assets. Assets that are observable and easily quantified. Intangible assets. Assets that are hard to observe and difficult (or sometimes impossible) to quantify. Goodwill. The value of a firms abilities to develop and leverage its reputation. Human resources. Resources embedded in individuals working in an organization. Organizational culture. Employees shared values, traditions and social norms within an organization. Value chain. A chain of activities vertically related in the production of goofs and services.

VRIO framework. The resource based framework that focuses on the value creation rarity, imitability, and organizational aspects of resources. Temporary competitive advantage. The ability to outperform rivals for a limited time. Causal ambiguity. The difficulty of identifying the causal determinants of successful firm performance. Social complexity. The socially complex ways of organizing typical of many firms. Sustainable competitive advantage. The ability to deliver persistently above-average performance. Appropriability. The ability of the firm to appropriate the values for itself. Benchmarking. An examination of resources to perform a particular activity compared with competitors. Outsourcing. Turning over an activity to an outside supplier that will perform it on behalf of the firm. Business process outsourcing. The outsourcing of business services such as IT, HR or logistics. Offshoring. Moving an activity to a location abroad. Nearshoring. Offshoring to a nearby location, i.e. within Europe. Reshoring. Bringing activities back to a firm´s home country. Offshore outsourcing. Outsourcing to another firm doing the activity abroad. Domestic outsourcing. Outsourcing to a firm in the same country. Captive offshoring. Setting up subsidiaries abroad - the work done is in-house but the location is foreign. Original equipment manufacturer (OEM). A firm that executes the design blueprints provided by other firms and manufactures such products. Original design manufacturer. A firm that both designs and manufactures products. Original brand manufacturer. A firm that designs, manufactures and markets branded products. Dynamic capabilities. Higher level capabilities that enable an organization to continuously adapt to new technologies and changes in the external environment.

Chapter 5 - Trading internationally Exporting. Selling abroad Importing. Buying from abroad. Trade deficit. An economic condition in which a nation imports more than it exports. Trade surplus. An economic condition in which a nation exports more than it imports. Balance of trade. The aggregation of importing and exporting that leads to the country-level trade surplus or deficit. Classic trade theories. The major theories of international trade advanced before the mid20th century: mercantilism, absolute advantage, comparative advantage and factor endowments. Modern trade theories. The major theories of international trade advanced in the second half of the 20th century: product life cycle, strategic trade and national competitive advantage. Theory of mercantilism. A theory that holds that the wealth of the world measured in gold and silver is fixed and that nation that exports more and imports let would enjoy the net inflows of gold and silver and thus become richer. Free trade. Trade unhibited by trade barriers. Theory of absolute advantage. A theory that suggests that under free trade, each nation gains by specializing in economic activities in which it has absolute advantage. Absolute advantage. The economic advantage one nation enjoys due to higher productivity in an economic activity. Theory of comparative advantage. A theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations. Comparative advantage. Relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations. Opportunity cost. Given the alternatives (opportunities), the cost of pursuing one activity at the expense of another activity. Resource (factor) endowments. The extent to which different countries possess various resources (factors), such as labour, land and technology.

Factor endowment theory (Or Heckscher-Ohlin theory). A theory that’s suggest nations will develop comparative advantage based on their locally abundant factors. Product life cycle theory. A theory that accounts for changes in the patterns of trade over time by focusing on product life cycles. Strategic trade theory. A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success. First-mover advantage. Advantage that first entrants enjoy and do not share with late entrants. Strategic trade policy. Government subsidies inspired by strategic trade theory. Theory of national competitive advantage of industries (or diamond model). A theory that suggest that the competitive advantage of certain industries in different nations depends on four aspects that form a “diamond”. Resource mobility. The ability to move resources from one part of a business to another. Protectionism. Government policies designed to protect a domestic industry from a foreign competition. Tariff barrier. Trade barriers that rely on tariffs to discourage imports. Non-tariff barrier (NTB). Trade barriers that rely on non-tariff means to discourage imports. Import tariff. A tax imposed on imports. Deadweight loss. Net losses that occur in an economy as the result of tariffs. Subsidy. Government payments to (domestic) firms. Import quota. Restrictions on the quantity of imports. Voluntary export restraint (VER). An international agreement in which exporting countries voluntarily agree to restrict their exports. Administrative procedures. Bureaucratic rules that make it harder to import foreign goods. Anti-dumping duty. Costs levied on imports that have been “dumped” (selling below costs to “unfairly” drive domestic forms out of business. Infant industry argument. The argument that temporary protection of young industries may help them to attain international competitiveness in the long run. Trade embargo. Politically motivated trade sanctions against foreign countries to signal

displeasure.

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Globe clusters. Possible exam question. Link: https://www.tlu.ee/~sirvir/IKM/Leadership %20Dimensions/leadership_behavior_and_culture_clusters.html

Chapter 6 - Investing abroad directly Foreign portfolio investment. Investment in a portfolio of foreign securities such as stocks and bonds. Joint venture. An operation with shared ownership by several domestic or foreign companies. Horizontal FDI. FDI that creates operations abroad at the same position in the value chain as the operation in the home country. Vertical FDI. A type of FDI in which a firm moves upstream or downstream in different value chain stages in a host country. Upstream vertical FDI. A type of vertical FDI in which a firm engages in an upstream stage of the value chain. Downstream vertical FDI. A. type of vertical FDI in which a firm engages in a downstream stage of the value chain in two different countries. FDI flow. The amount of FDI moving in a given period (usually a year) in a certain direction. FDI stock. The total accumulation of inbound FDI in a country or outbound FDI from a country across a given period of time (usually several years) OLI paradigm. A theoretical framework positing that ownership (O), location (L) and internalization (I) advantages combine to induce firms to engage in FDI. Ownership advantages. Resources of the firm that are transferable across borders and enable the firm to attain competitive advantages abroad. Locational advantages. Advantages enjoyed by firms operating in certain locations. Internalization advantages. Advantages of organizing activities within an MNE rather than using market transactions.

Location-bound resources. Resources that cannot be transferred abroad. Agglomeration. The location advantages that arise from the clustering of economic activities in certain locations. Knowledge spillover. Knowledge diffused from one firm to others among closely located firms. Transaction costs. The costs of organizing a transaction. Market failure. Imperfections of the market mechanism that make some transactions prohibitively costly. Asset specificity. An investment that is specific to a business relationship. Intra-firm trade. International trade between two subsidiaries in two countries controlled by the same MNE. Licensing. Firm A´s agreement to give Firm B the right to use A´s proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B. Dissemination risk. The risk associated with unauthorized diffusion of firm-specific knowhow. Tacit knowledge. Knowledge that is non-codifiable and whose acquisition and transfer require hands-on practice. Local content requirements. Requirement that a certain proportion of the value of the goods made in a country originates from that country. Tax avoidance. Reducing tax liability by legally moving profits to jurisdictions where tax rates are lower. Bargaining power. The ability to extract a favorable outcome from negotiations due to one party´s strength. Obsolescing bargain. Refers to the deal struck by MNE´s and host governments which change their requirements after the initial FDI entry. Sunk costs. Up-front investments that are non-recoverable if the project is abandoned. Expropriation. Government´s confiscation of private (foreign-owned) assets.

Chapter 7 - Exchange rates Exchange rate. The price of one currency in another currency. Appreciation. An increase in the value of a currency. Depreciation. A decrease in the value of a currency. Currency exch...