International Business Concepts: Risk, Trade, and Development

Country Risk

Country Risk: Refers to the economic, social, and political conditions and events in a foreign country that may adversely affect operating profits or the value of assets when investing or lending in a country.

Political Risk

Political Risk: The political climate of a country in which a business operates is as important as the country's topography, natural resources, etc. A hospitable, stable government encourages business investment and growth.

Expropriation

Expropriation: Government seizure of property within its borders owned by foreigners, followed by prompt, adequate, and effective compensation paid to the former owners.

Confiscation

Confiscation: Government seizure of property within its borders owned by foreigners without payment to them.

Privatization

Privatization: Transfer of public sector assets to the private sector.

Tariff Barriers

• Ad Valorem: An import duty as a percentage of the invoice value of imported goods, e.g., 15% of CIF.

• Specific: A fixed sum on a physical unit of an imported good, e.g., $20 MXN per kilogram.

• Compound: A combination of duties, e.g., 3% of CIF and $35 MXN per kg.

• Variable Levy: An import duty set at the difference between world market prices and local government-supported prices.

Levels of Economic Development

Developed: Classification for all industrialized nations, which are the most technically developed.

Developing: Classification for the world's lower-income nations, which are less technically developed.

Currency Conversion

• ICP: UN International Comparison Program.

• PPP: Purchasing Power Parity: The number of units of a currency required to buy the same amounts of goods and services in the domestic market that one dollar would buy in the United States.

Gini Index

Gini Index: A measure of statistical dispersion intended to represent income inequality, wealth inequality, or consumption inequality within a nation or a social group.

Risk Management

Risk Management: Means “looking over the hill and around the corner.” The essence of risk management lies in maximizing the areas where we can have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome.

Balance of Payments (BOP)

Balance of Payments (BOP): Also known as the balance of international payments, it is a statement of all transactions made between entities in one country and the rest of the world over a defined period.

Economic Dimensions

• Unit Labor Costs: Total direct labor costs divided by units produced.

• Vertically Integrated: Descriptive term for a firm that produces inputs for its subsequent manufacturing processes.

• Human Needs Approach: View that defines economic development as reduction of poverty and unemployment as well as an increase in income.

• Import Substitution: The local production of goods to replace imports.