希尔《国际商务》课后习题参考答案英文版.pdf 18页

'GlobalbusinesstodayChapter1:Globalization1.Describetheshiftsintheworldeconomyoverthelast30years.WhataretheimplicationsoftheseshiftsforinternationalbusinessesbasedinGreatBritain?NorthAmerica?HongKong?Answer:Theworldeconomyhasshifteddramaticallyoverthepast30years.Aslateasthe1960s,fourstylizedfactsdescribedthedemographicsoftheglobaleconomy.ThefirstwasU.S.dominanceintheworldeconomyandworldtrade.ThesecondwasU.S.dominanceintheworldforeigndirectinvestmentpicture.Relatedtothis,thethirdfactwasthedominanceoflarge,multinationalU.S.firmsintheinternationalbusinessscene.Thefourthwasthatroughlyhalfoftheglobe-thecentrallyplannedeconomiesoftheCommunistworld-wasoff-limitstoWesterninternationalbusinesses.Allofthesedemographicfactshavechanged.AlthoughtheU.S.remainstheworld"sdominanteconomicpower,itsshareofworldoutputandworldexportshavedeclinedsignificantlysincethe1960s.ThistrenddoesnotreflecttroubleintheU.S.economy,butratherreflectsthegrowingindustrializationofdevelopingcountriessuchasChina,India,Indonesia,andSouthKorea.Thistrendisalsoreflectedintheworldforeigndirectinvestmentpicture.AsdepictedinFigure1.2inthetextbook,theshareofworldoutput(orthestockofforeigndirectinvestment)generatedbydevelopingcountrieshasbeenonasteadyincreasesincethe1960s,whiletheshareofworldoutputgeneratedbyrichindustrialcountrieshasbeenonasteadydecline.Shiftsintheworldeconomycanalsobeseenthroughtheshiftingpowerofmultinationalenterprises.Sincethe1960s,therehavebeentwonotabletrendsinthedemographicsofthemultinationalenterprise.Thefirsthasbeentheriseofnon-U.S.multinationals,particularlyJapanesemultinationals.Thesecondhasbeentheemergenceofagrowingnumberofsmallandmedium-sizedmultinationals,calledmini-multinationals.ThefallofCommunisminEasternEuropeandtherepublicsoftheformerSovietUnionhavebroughtaboutthefinalshiftintheworldeconomy.ManyoftheformerCommunistnationsofEuropeandAsiaseemtoshareacommitmenttodemocraticpoliticsandfreemarketeconomies.SimilardevelopmentsarebeingobservedinLatinAmerica.Ifthesetrendscontinue,theopportunitiesforinternationalbusinessmaybeenormous.TheimplicationsoftheseshiftsaresimilarforNorthAmericaandBritain.TheUnitedStatesandBritainoncehadtheluxuryofbeingthedominantplayersintheworldarena,withlittlesubstantivecompetitionfromthedevelopingnationsoftheworld.Thathaschanged.Today,U.S.andBritishmanufacturersmustcompetewithcompetitorsfromacrosstheworldtowinorders.ThechangingdemographicsoftheworldeconomyfavoracitylikeHongKong.HongKong(whichisnowunderChineserule)iswelllocatedwitheasyaccesstomarketsinJapan,SouthKorea,Indonesia,andotherAsianmarkets.HongKonghasavibrantlaborforcethatcancompeteonparwiththeindustrializednationsoftheworld.ThedeclineintheinfluenceoftheU.S.andBritainontheglobaleconomyprovidesopportunitiesforcompaniesinHongKongtoaggressivelypursueexportmarkets.2."Thestudyofinternationalbusinessisfineifyouaregoingtoworkinalargemultinationalenterprise,butithasnorelevanceforindividualswhoaregoingtoworkinsmallerfirms."Evaluatethisstatement.Answer:Peoplewhobelieveinthisview,andthefirmsthattheyworkfor,mayfindthattheydonotachievetheirfullpotential(atbest)andmayultimatelyfailbecauseoftheirmyopia.Asbarrierstotradedecreaseandstateofthearttechnologicaldevelopmentstakeplacethroughouttheworld,newopportunitiesandthreatsexistonaworldwidebasis.Theriseofthemini-multinationalssuggeststhereareglobalopportunitiesevenforsmallfirms.Butstayingattunedtointernationalmarketsisnotonlyimportantfromtheperspectiveofseekingprofitableopportunitiesforsmallfirms;itcanalsobecriticalforlong-termcompetitivesurvival.Firmsfromothercountriesmaybedevelopingproductsthat,ifsoldinternationally,maywipeoutsmalldomesticcompetitors.Scanninginternationalmarketsforthebestsuppliersisalsoimportantforsmallfirms,forifadomesticcompetitorisabletotapintoasuperiorsupplierfromaforeigncountry,itmaybeabletoseriouslyerodeasmallfirm"scompetitivepositionbeforethesmallfirmunderstandsthesourceofitscompetitor"scompetitiveadvantageandcantakeappropriatecounteractions.3.Howhavechangesintechnologycontributedtotheglobalizationofmarketsandofproduction?Wouldtheglobalizationofproductionandmarketshavebeenpossiblewithoutthesetechnologicalchanges?Answer:Changesintechnologyhavecontributedtotheglobalizationofmarketsandofproductioninaverysubstantivemanner.Forinstance,improvementsintransportationtechnologyhavepavedthewayforcompanieslikeCoca-Cola,LeviStrauss,SonyandMcDonaldstomaketheirproductsavailableworldwide.Similarly,improvementsincommunicationstechnologyhavehadamajorimpact.Theabilitytonegotiateacrosscontinentshasbeenfacilitatedbyimprovedcommunicationstechnology,andtherapidlydecreasingcostofcommunicationshasloweredtheexpenseofcoordinatingandcontrollingaglobalcorporation.Finally,theimpactofinformationtechnologyhasbeenfarreaching.Companiescannowgainworldwide exposuresimplybysettingupahomepageontheInternet.Thistechnologywasnotavailablejustafewshortyearsago.Theglobalizationofproductionandmarketsmayhavebeenpossiblewithoutimprovementsintechnology,butthepaceofglobalizationwouldhavebeenmuchslower.Thefallingcostoftechnologyhasmadeitaffordableformanydevelopingnations,whichhasbeeninstrumentalinhelpingthesenationsimprovetheirshareofworldoutputandworldexports.Theinclusionofthesenations,suchasChina,India,Thailand,andSouthKorea,hasbeeninstrumentalintheglobalizationofmarketsandproduction.Inaddition,improvementsinglobaltransportationandcommunicationhavemadeitrelativelyeasyforbusinessexecutivesfromdifferentcountriestoconversewithoneanother.Iftheseformsoftechnology,includingair-travel,faxcapability,e-mail,andovernightdeliveryofpackageswerenotavailable,itwouldbemuchmoredifficultforbusinessestoconductinternationaltrade.4."Ultimately,thestudyofinternationalbusinessisnodifferentfromthestudyofdomesticbusiness.Thus,thereisnopointinhavingaseparatecourseoninternationalbusiness."Evaluatethisstatement.Answer:Thisstatementreflectsapoorunderstandingoftheuniquechallengesinvolvedininternationalbusiness.Managinganinternationalbusinessisdifferentfrommanagingapurelydomesticbusinessforatleastfourreasons.Theseare:(1)countriesaredifferent;(2)therangeofproblemsconfrontedbyamanagerinaninternationalbusinessiswiderandtheproblemsthemselvesmorecomplexthanthoseconfrontedbyamanagerinadomesticbusiness;(3)aninternationalbusinessmustfindwaystoworkwithinthelimitsimposedbygovernmentinterventionintheinternationaltradeandinvestmentsystem;and(4)internationaltransactionsinvolveconvertingmoneyintodifferentcurrencies.Asaresultofthesedifferences,thereareamplereasonsforstudyinginternationalbusinessasaspecificfieldofstudyordiscipline.5.HowmighttheInternetandtheassociatedWorldWideWebimpactinternationalbusinessactivityandtheglobalizationoftheworldeconomy?Answer:Accordingtothetext,theInternetandWorldWideWeb(WWW)promisetodevelopintotheinformationbackgroundoftomorrow"sglobaleconomy.Thisimprovedtechnologywillnotonlymakeiteasierforindividualsandcompaniesindifferentcountriestoconductbusinesswithoneanother,butwillalsofurtherdecreasethecostofcommunications.Theseimprovementswillundoubtedlyhastenthealreadyrapidpaceofglobalization.AnotherdistinctattributeoftheInternetandtheWWWisthattheyactasanequalizerbetweenlarge(resourcerich)andsmall(resourcepoor)firms.Forinstance,itdoesnotcostanymoreforasmallsoftwarefirmtogainvisibilityviatheWWWthanitdoesforalargesoftwarecompanylikeMicrosoft.Asaresult,theWWWhelpssmallcompaniesreachthesizeofaudiencethatwaspreviouslyonlywithinthereachoflarge,resourcerichfirms.6.Ifcurrenttrendscontinue,Chinamayemergeastheworld"slargesteconomyby2020.Discussthepossibleimplicationsofsuchadevelopmentfor(1)Theworldtradingsystem.(2)Theworldmonetarysystem.(3)Thebusinessstrategyoftoday"sEuropeanandU.S.basedglobalcorporations.(4)Globalcommodityprices.Answer:Theworldtradingsystemwouldclearlybeaffectedbysuchadevelopment.CurrentlyChinaenjoysasomewhatprivilegedstatuswithintheWorldTradeOrganizationasa―developing‖country.Sucharisetoeminence,however,wouldclearlyforceittobecomeafullandequalmember,withalltherightsandresponsibilities.Chinawouldalsobeinapositiontoactivelyaffectthetermsoftradebetweenmanycountries.Onthemonetaryfront,onewouldexpectthatChinawouldhavetohavefullyconvertibleandtradingcurrency,anditcouldbecomeoneofthe―benchmark‖currenciesoftheworld.FromtheperspectiveofWesternglobalfirms,Chinawouldrepresentbothahugemarket,andpotentiallythehomebaseofsomeverycapablecompetitors.Finally,commoditypriceswouldprobablyfall.7.ReadtheCountryFocusinthischapterontheEcuadorianroseindustry,theanswerthefollowingquestions:a)HowhasparticipationintheinternationalrosetradehelpedEcuador’seconomyanditspeople?HowhastheriseofEcuadorasacenterforrosegrowingbenefitedconsumersindevelopednationswhopurchasetheroses?Whatdotheanswerstothesequestionstellyouaboutthebenefitsofinternationaltrade?b)WhydoyouthinkthatEcuador’sroseindustryonlybegantotakeof20yearsago?Whydoyouthinkithasgrownsorapidly?c)TowhatextentcantheallegedhealthproblemsamongworkersinEcuador’sroseindustrybelaidatthefeetofconsumersinthedevelopedworldandtheirdesireforperfectValentine’sDayroses?d)DoyouthinkgovernmentsinthedevelopedworldshouldplacetradesanctionsonEcuadorrosesifreportsofhealthissuesamongEcuadorianroseworkersareverified?WhatelsemighttheydotoimprovethesituationinEcuador?a)Ecuadoristheworld’sfourthlargestproducerofroses.Infact,rosesrepresentthecountry’sfifth largestexport.TheindustryisvitaltoEcuador’seconomy,creatingtensofthousandsofjobs,jobsthatpaysignificantlyabovethecountry’sminimumwage.Taxesandrevenuesfromtherosegrowershavealsohelpedtopaveroads,buildschools,andconstructsophisticatedirrigationsystems.ForEcuador’sconsumers,thesuccessoftheindustrymeansbigger,morevibrantflowersthanwerepreviouslyavailable.MoststudentswillrecognizethattheconditionsinEcuadorgivethecountryadistinctadvantageinrosegrowing,andthatbyfocusingontheindustry,Ecuadorhasbeenabletobenefitfrominternationaltrade.ConsumersinothercountriesalsobenefitfromEcuador’sflowerexportswithbetterproducts.b)Ecuador’sroseindustrybegansome20yearsago,andhasbeenexpandingrapidlyeversincethen.Moststudentswillprobablyfocusadvancesintechnologyasakeytotheindustry’ssuccess.Rosesareaveryfragile,perishableproduct.Moderntechnologyenablesgrowerstousedrefrigeratedairtransporttogettheproducttomarketsaroundtheglobe.Withoutthatability,thegrowerswouldbelimitedtothemarketimmediatelysurroundingthecountry.c)Studentswillprobablybedividedonthisissuewithsomestudentsarguingthatconsumersaretoblamefortheproblems,andothersplacingtheblameonthegrowers.Studentstakingthefirstperspectivewillprobablysuggestthatmostconsumerspurchasetheirroseswithlittleconsiderationforhowtheyaregrown.Rather,mostconsumerssimplyfocusontheirbeautyandprice.Studentsblamingthegrowersmightarguethatgrowers,becausetheyfeeltheeffectofless-than-perfectrosesintheformofsmallerprofits,willbemotivatedtofindwaystoproduceevermoreperfectflowers.Certainly,theuseofpesticidesandotherproductscanproduceabettercrop.Intheend,thereisprobablyblameonbothsides.Ifmoreconsumerswereawareofthehealthproblemsresultingfromtheimproperuseofpesticides,theywouldprobablydemandsomechanges.Similarly,ifpressurewereputonthegrowerstousepesticidessafely,healthproblemscouldbereduced.d)Tradesanctionsareatoolthatisoftenemployedbygovernmentsthataremakingastatementagainstaspecificactionoractions.InthecaseofEcuador,tradesanctionscertainlywouldbeanoption,aswouldpublicizingthesituationsothatmoreconsumerswereawareoftheconditions.Intheendthough,itisimportanttoconsidertheeffectofthesanctionsorothermeasuresonpeoplelikeMariawhomightlosetheirlivelihoodasaresult.Chapter2:NationalDifferences1.Freemarketeconomiesstimulategreatereconomicgrowth,whereasstate-directedeconomiesstiflegrowth!Discuss.Answer:Inamarketeconomy,privateindividualsandcorporationsareallowedtoownpropertyandotherassets.Thisrightofownershipprovidesapowerfulincentiveforpeopletoworkhard,introducenewproducts,developbetteradvertisingcampaigns,inventnewproducts,etc.,allinthehopesofaccumulatingadditionalpersonalcapitalandwealth.Inturn,theconstantsearchonthepartofindividualsandcorporationtoaccumulatewealthenrichestheentireeconomyandcreateseconomicgrowth.Incontrast,inacommandeconomy,privateindividualsandcorporationsarenotallowedtoownsubstantialquantitiesofpropertyandotherassets.Theobjectiveofacommandeconomyisforeveryonetoworkfor―thegoodofthesociety.‖Althoughthissoundslikeanobleideal,asystemthatasksindividualstoworkforthegoodofsocietyratherthanallowingindividualstobuildpersonalwealthdoesnotprovideagreatincentiveforpeopletoinventnewproducts,developbetteradvertisingcampaigns,findwaystobemoreefficient,etc.Asaresult,commandeconomiestypicallygeneratelessinnovationandarelessefficientthanmarketeconomies.2.Ademocraticpoliticalsystemisanessentialconditionforsustainedeconomicprogress.Discuss.Answer:Thisquestionhasnoclear-cutanswer.IntheWest,wetendtoarguethatdemocracyisgoodforeconomicprogress.Thisargumentislargelypredictedupontheideathatinnovationistheengineofeconomicgrowth,andademocraticpoliticalsystemencouragesratherthanstiflesinnovation.However,thereareexamplesoftotalitarianregimesthathavefosteredamarketeconomyandstrongpropertyrightsprotectionandexperiencedrapideconomicgrowth.Theexamplesincludefourofthefastestgrowingeconomiesofthepast30years–SouthKorea,Taiwan,Singapore,andHongKong–allofwhichhavegrownfasterthanWesterneconomies.However,whileitispossibletoarguethatdemocracyisnotanecessarypreconditionfortheestablishmentofafreemarketeconomy,itseemsevidentthatsubsequenteconomicgrowthleadstoestablishmentofdemocraticregimes.Severalofthefastest-growingAsianeconomieshaverecentlyadoptedmoredemocraticgovernments.3.Whatistherelationshipbetweencorruption(i.e.,bribetakingbygovernmentofficials)inacountryandeconomicgrowth?Iscorruptionalwaysbad?Answer:Economicevidencesuggeststhathighlevelsofcorruptionsignificantlyreducetheeconomicgrowthrateinacountry.Bysiphoningoffprofits,corruptpoliticiansandbureaucratsreducethereturnstobusinessinvestment,andhence,reducetheincentivethatbothdomesticandforeignbusinesseshavetoinvestinthatcountry.Thelowerlevelofinvestmentthatresultshasanegativeimpactoneconomicgrowth.However, whilemoststudentswillprobablyagreethatcorruptionisbad,somemaypointoutthattheU.S.,despiteitsForeignCorruptPracticesAct,doesallow―greasepayments‖toexpediteorsecuretheperformanceofaroutinegovernmentalaction.AccordingtoCongress,―greasepayments‖whiletechnicallybribesarenotbeingusedtoobtainormaintainbusiness,butratheraresimplymadetofacilitateperformanceofdutiesthattherecipientsarealreadyobligatedtoperform.4.TheNobelprize-winningeconomistAmartyaSenarguesthattheconceptofdevelopmentshouldbebroadenedtoincludemorethanjusteconomicdevelopment.WhatotherfactorsdoesSenthinkshouldbeincludedinanassessmentofdevelopment?HowmightadoptionofSen’sviewsinfluencegovernmentpolicy?DoyouthinkSeniscorrectthatdevelopmentisaboutmorethanjusteconomicdevelopment?Explain.Answer:SenhasarguedthatdevelopmentbeassessedlessbymaterialoutputmeasuressuchasGNPpercapita,andmorebythecapabilitiesandopportunitiesthatpeopleenjoy.Sensuggeststhatdevelopmentbeseenasaprocessofexpandingrealfreedomsthatpeopleexperience,andassuch,thatdevelopmentrequirestheremovalofmajorimpedimentstofreedom.GovernmentsinfluencedbySenmightensurethatbasichealthcareandeducationprogramsareavailableespeciallyforwomen.ManystudentswillagreewithSenandthenotionthatdevelopmentisnotjustaneconomicprocess,butapoliticalonetoo,andthattosucceedcitizensmustbegivenavoiceintheimportantdecisionsmadeforthecountry.5.YouaretheCEOofacompanythathastochoosebetweenmakinga$100millioninvestmentineitherRussiaortheCzechRepublic.Bothinvestmentspromisethesamelong-runreturn,soyourchoiceofwhichinvestmenttomakeisdrivenbyconsiderationsofrisk.Assessthevariousrisksofdoingbusinessineachofthesenations.Whichinvestmentwouldyoufavorandwhy?Answer:Whenassessingtherisksofinvestment,oneshouldconsiderthepolitical,economic,andlegalrisksofdoingbusinessineitherRussiaortheCzechRepublic.Atthistime(Fall2002),theriskinRussiawouldprobablybeconsideredhigherthantheriskintheCzechRepublic.TheCzechRepublichasjustbeenacceptedasafuturememberoftheEU,andassuchgainsthebenefitsandstabilityofferedbytheEU.Russia,bycontrast,isstillmanyyearsawayfromevenbeinginapositiontobeconsideredbytheEUformembership.Dependinguponwhenyouareusingthebook,thissituationcouldbedifferent.(Youalsomaywanttosubstituteothercountriesintothisquestiondependingoncurrenteventsandthecountrieswithwhichyoufeelyourstudentswillbemostfamiliar.)6.ReadtheCountryFocusonIndiainthischapterandanswerthefollowingquestions:a.WhatkindofeconomicsystemdidIndiaoperateduring1947-1990?Whatkindofsystemisitmovingtowardstoday?Whataretheimpedimentstocompletingthistransformation?b.Howmightwidespreadpublicownershipofbusinessesandextensivegovernmentregulationshaveimpacted(i)theefficiencyofstateandprivatebusinesses,and(ii)therateofnewbusinessformationinIndiaduringthe1947-1990timeframe?HowdoyouthinkthesefactorsaffectedtherateofeconomicgrowthinIndiaduringthistimeframe?c.Howwouldprivatization,deregulation,andtheremovalofbarrierstoforeigndirectinvestmentaffecttheefficiencyofbusiness,newbusinessformation,andtherateofeconomicgrowthinIndiaduringthepost-1990timeperiod?d.Indianowhaspocketsofstrengthsinkeyhightechnologyindustriessuchassoftwareandpharmaceuticals.WhydoyouthinkIndiaisdevelopingstrengthintheseareas?HowmightsuccessintheseindustrieshelptogenerategrowthinothersectorsoftheIndianeconomy?e.GivenwhatisnowoccurringintheIndianeconomy,doyouthinkthatthecountryrepresentsanattractivetargetforinwardinvestmentbyforeignmultinationalssellingconsumerproducts?Why?Answer:a.TheeconomicsystemthatdevelopedinIndiaafter1947wasamixedeconomycharacterizedbyalargenumberofstate-ownedenterprises,centralizedplanning,andsubsidies.In1991,India’sgovernmentembarkedonanambitiouseconomicreformprogram.Muchoftheindustriallicensingsystemwasdismantled,andseveralareasonceclosedtotheprivatesectorwereopened.Inaddition,investmentbyforeigncompanieswaswelcomed,andplanstostartprivatizingstate-ownedbusinesseswereannounced.Indiahaspostedimpressivegainssince1991,howevertherearestillimpedimentstofurthertransformation.Attemptstoreduceimporttariffshavebeenstalledbypoliticaloppositionfromemployers,employees,andpoliticians.Moreover,theprivatizationprogramhasbeenslowedthankstoactionstakenbytheSupremeCourt.Finally,extremepovertycontinuestoplaguethecountry.b.ThemixedeconomythatdevelopedinIndiaafter1947wascharacterizedbyalargenumberofstate-ownedenterprises,centralizedplanning,andsubsidies.Thissystemnotonlyconstrainedthegrowthoftheprivatesector,butitalsoconsequentlylimitedtheeffectsofcompetitionthattypicallypromoteefficiencyandproductivityinafreemarketsystem.Thesystemevenlimitedtheactionsofprivatecompanies,requiringthemtogetgovernmentapprovalforroutinebusinessactivities.Productionquotas andhighimporttariffsalsostuntedthedevelopmentofahealthyprivatesector,asdidrestrictivelaborlawsthatmadeitdifficulttofireemployees.Foreignexchangerestrictions,limitationsonforeigninvestment,controlsonlanduse,andmanagedpricesfurtherexacerbatedthesituation.ItwouldappearthatIndia’srateofeconomicgrowthwasnegativelyaffectedduringthistimeframe.By1994,India’seconomywasstillsmallerthanBelgium’sdespitehavingalargepopulation.BothGDPandliteracyrateswereverylow,andsome40percentofthepopulationlivedinpoverty.c.In1991,India’sgovernmentembarkedonanambitiouseconomicreformprogram.Sofar,theresponsetotheprogramhasbeenimpressive.Theeconomyexpandedatanannualrateofabout6.3percentfrom1994to2004.Foreigninvestmentisupfrom$150millionin1990to$6billionin2005.Certainsectorsoftheeconomyincludinginformationtechnologyandpharmaceuticalshavedoneparticularlywell.Still,problemspersist.Actionstakenbythegovernmentcontinuetolimitefficiencygainsforprivatecompaniesandthecountry’shighrateofpovertyisstillamajorproblem.d.India’sgainsininformationtechnologyandpharmaceuticalsareimpressive.Thecountryhasemergedasavibrantglobalcenterforsoftwaredevelopment,andIndia’spharmaceuticalcompanieshavetakenastrongglobalpositionbysellinglowcostgenericversionsofdrugsthathavecomeofpatentinthedevelopedworld.Astheseindustriescontinuetoprosper,othersectorsoftheeconomyshouldalsoseethebenefitofspillovereffects.e.ForeigninvestmentisupinIndia.Infact,foreigninvestmentrosefrom$150millionin1990to$6billionin2005.However,whetherIndiaisanattractivedestinationforforeignmultinationalssellingconsumerproductsremainstobeseen.Certainly,thelargepopulationwillservetoattractsomecompanies,butthefactthatsome40percentofthepopulationislivinginabjectpovertywillscareothercompaniesaway.Moreover,itisstillnoteasytorunacompanyinIndiathankstolawslimitingeverythingfromwhocanbefiredtowhocanwhichproducts.Chapter3:DifferencesinCulture1.Outlinewhythecultureofacountryinfluencesthecostsofdoingbusinessinthatcountry.Illustrateyouranswerwithexamples.Answer:Sinceinasensetheentirechapterisaboutthisquestion,therecanbenumerousreasonsandexamplesofhowcultureinfluencesthecostsofdoingbusiness.Severalarehighlightedinthefollowingsentences,buttherecouldbenumerousothers.Whentherearesimplydifferentnormsbetweenhowindividualsfromdifferentcountriesinteract,thecostsofdoingbusinessriseaspeoplegrapplewithunfamiliarwaysofdoingbusiness.Forexample,whileintheUSwemaygetdowntobusinessfirst,andthengettoknoweachothersociallylater,inmanySouthAmericancountriesitisimportantdevelopagoodsocialrelationshipbeforetryingtodiscussbusinessissues.Differentclassstructuresandsocialmobilityalsoraisethecostsofdoingbusiness,forifthereareinhibitionsagainstworkingwithpeoplefromdifferentclasses,thentheefficiencywithwhichinformationcanflowmaybelimitedandthecostofrunningabusinessincreased.Acountry"sreligioncanalsoaffectthecostsofbusiness,asreligiousvaluescanaffectattitudestowardswork,entrepreneurship,honesty,fairness,andsocialresponsibility.InHindusocietieswherethepursuitofmaterialwell-beingcanbeviewedasmakingspiritualwellbeinglesslikely,workerproductivitymaybelowerthaninnationswithotherreligiousbeliefs.Finally,acountry"seducationsystemcanhaveimportantimplicationsforthecostsofbusiness.Incountrieswhereworkersreceiveexcellenttrainingandarehighlyliterate,theneedforspecificworkertrainingprogramsaredecreasedandthehiringofadditionalemployeesisfacilitated.2.DoyouthinkbusinesspracticesinanIslamiccountryarelikelytodifferfrombusinesspracticesintheUnitedStates?Ifso,how?Answer:AnumberofaspectsoftheculturaldifferencesbetweenanIslamiccountryandtheUSAwillcausebusinesspracticestodiffer.Therolewomencantake,appropriateetiquette(includingsimplethingslikenotpassingpaperswiththelefthand),holidays,andwininganddiningalldifferfromintheUSA.Butbeyondthese,theunderlyingphilosophyandroleofbusinessdiffersfromintheUSA.SinceMuslimsarestewardsofpropertyforGod,ratherthanowners,theyaremorelikelytousetheirresourcescarefullyandmaybelesslikelytogiveuporsellsomethingtoapersonwhomaynotpracticethesamestewardship.Theimportanceoffairnesstoallpartiesinrelationsmeansthatover-aggressivenessinself-interestmaynotbewellreceived,andbreakinganagreement,eveniftechnically/legallypermissiblemaybeviewedasveryinappropriate.Finally,theprohibitionsoninterestpaymentsinsomeIslamiccountriesmeansthatthewordingofthetermsofanagreementmustbedonecarefullysothat"fairprofits"arenotconstruedasbeing"interestpayments."3.Whataretheimplicationsforinternationalbusinessofdifferencesinthedominantreligionofacountry?Answer:Differencesinthedominantreligionofacountryaffectrelationships,attitudestowardbusiness,andoveralleconomicdevelopment.Firstly,differencesinreligionrequireinter-culturalsensitivity.This sensitivityrequiresthingslikesimplyknowingthereligiousholidays,acceptingthatsomeunexpectedthingsmayhappen"becauseofAllah"swill,"orunderstandinghowinterpersonalrelationshipsmaybedifferentbetween"believers"and"non-believers."(Hencenon-believersmaybetreateddifferently.)Secondly,religiousbeliefscansignificantlyaffectacountriesattitudetowardbusiness,work,andentrepreneurship.Inonecountrysuccessfullybeatingacompetitormaybeconsideredagreatachievementwhileinanotheritmaybethoughtofasshowingalackofcompassionanddisruptivetothesocietyandpersonsinvolved,bothattitudesthatmaybederivedfromunderlyingreligiousbeliefs.Likewise,hardworkmaybeeitherrewardedpositivelyorviewedassomethingofsecondaryimportancetospiritualpeaceandharmony.Thirdly,differentdominantreligionsmayaffecttheoverallcompetitivenessandpotentialforeconomicgrowthofanation,andhenceattractivenessofacountryforinternationalbusiness.4.Choosetwocountriesthatappeartobeculturallydiverse.Comparethecultureofthosecountriesandthenindicatehowculturaldifferencesinfluence(1)thecostsofdoingbusinessineachcountry(2)thelikelyfutureeconomicdevelopmentofthatcountry(3)businesspractices(4)businessethicsAnswer:Responsestothisquestionwillobviouslyvarybasedonthecountrieschosenbythestudents,andtheirknowledgeofthecountries.Hopefullythestudentcanpresentsomeinformationonthedimensionsofcultureincludingvalues,norms,socialstructure,religion,language,andeducationofthecountriesandalsodescribethekeydifferencesandsimilaritiesofthecountriesalongthesedimensions.Relatingthedifferencesbetweenthecountriesalongthesedimensionstodifferencesinthecostsofdoingbusiness,thepotentialforeconomicdevelopment,andbusinesspracticeswouldfullyanswerthequestion.(Whileitmaybemoredifficultforstudentstocomeupwithreallygoodexamplesrelativetobusinesspractices,thecostsandprospectsforeconomicdevelopmentshouldbequitefeasible.)Chapter4:EthicsinInternationalBusiness1.ReviewtheManagementFocusontestingdrugsinthedevelopingworldanddiscussthefollowingquestions:(a)DidPfizerbehaveunethicallybyrushingtotakeadvantageofanepidemicinNigeriainordertotestanexperimentaldrugonsickchildren?Shouldthecompanyhaveproceededmorecarefully?(b)Isitethicaltotestanexperimentaldrugonchildreninemergencysettingsinthedevelopingworldwheretheoverallstandardofhealthcareismuchlowerthaninthedevelopedworld,andwhereproperprotocolsmightnotbefollowed?Answer:SomestudentsmightarguethatPfizerwasbetweenarockandahardplace.ThecompanyneededtotestitsdrugonchildrenpriortogettingFDAapproval,yetthecompanycouldnotfindenoughsickchildrentoproperlytestthedrug.MoststudentswillprobablyagreethatthecompanyactedirresponsiblywithitstestinginNigeria,andthatthecompanyshouldhaveproceededmorecarefully,butsomestudentsmayalsosuggestthathadthedrugprovedtobeextremelysuccessfulintreatingbacterialmeningitis,Pfizermighthavebeenseenasahero,despiteitsquestionableethics.2.AvisitingAmericanexecutivefindsthataforeignsubsidiaryinapoornationhashireda12-yearoldgirltoworkonafactoryfloor,inviolationofthecompany’sprohibitiononchildlabor.Hetellsthelocalmanagertoreplacethechildandtellhertogobacktoschool.ThelocalmanagertellstheAmericanexecutivethatthechildisanorphanwithnoothermeansofsupport,andshewillprobablybecomeastreetchildifsheisdeniedwork.WhatshouldtheAmericanexecutivedo?Answer:Thisquestion,illustratingapotentiallyveryrealethicaldilemmafacingmanagersworkinginforeignsubsidiaries,isdesignedtostimulateclassdiscussion.Studentsshouldrecognizethatneitheralternative—violatingthecompany’spositiononchildlabor,norputtingthechildoutonthestreets—seemsacceptable.Intheend,manystudentsmayagreethatallowingthechildtocontinuetoworkinthefactoryisthelesserofthetwoevils.3.DrawinguponJohnRawls’concept,theveilofignorance,developanethicalcodethatwill(a)guidethedecisionsofalargeoilmultinationaltowardsenvironmentalprotection,and(b)influencethepoliciesofaclothingcompanytooutsourceitsmanufacturingprocess?Answer:AccordingtoJohnRawls,adecisionisjustandethicalifpeoplewouldallowforitwhendesigningasocialsystemunderaveilofignorance.Rawls’veilofignoranceisaconceptualtoolthatcancontributetowardsthemoralcompassthatmanagerscanusetohelpthemnavigatethroughdifficultethicaldilemmas.Thisquestioncanproducesomeinterestingresponsesparticularlyinaclasswithadiversegroupofnationalities.4.Underwhatconditionsisitethicallydefensibletooutsourceproductiontoproducersinthe developingworldwhohavemuchlowerlaborcostswhensuchactionsalsoinvolvelayingofflongtermemployeesinthefirm’shomecountry?Answer:Thisquestionislikelytostimulatesomelivelydiscussion,particularlyifstudentshavepersonallyfelttheimpactofthispractice.ManyAmericancompaniesareoutsourcingnotonlybluecollarwork,butwhitecollarpositionstothedevelopingworld.Studentsarefacingatenuousjobmarketwherepositionsthattheymayhavesoughtwhentheybegantheircollegedegreesarebeing―shippedabroad.‖Somestudentswillarguethatcompanieshavetodowhatisbestforallstakeholders,andifthatmeanstakingadvantageofcheaperlaborcostselsewhere,thenthatistheappropriatestrategy.Othershowever,willprobablyarguethatcompaniesoweasocialdebttotheirhomecountries,andthatloyaltyfromlongtermemployeesshouldberewarded.5.Arefacilitatingpaymentsethical?Answer:Studentswillprobablybedividedonthisquestion,andalivelydebateshouldensue.Certainly,thenotionofwheninRome,doastheRomansdo.However,thosetakingthisperspectiveshouldrecognizethatitmaybedifficulttodrawthelineonexactlywhatisacceptableunderthisguise,andwhenbriberygoestoofar.Chapter5:InternationalTradeTheory1.“Mercantilismisabankrupttheorythathasnoplaceinthemodernworld.”Discuss.Answer:Mercantilism,initspurestsense,isabankrupttheorythathasnoplaceinthemodernworld.Theprincipletenantofmercantilismisthatacountryshouldmaintainatradesurplus,evenifthatmeansthatimportsarelimitedbygovernmentintervention.Thispolicyisbankruptforatleasttworeasons.First,itisinconsistentwiththegeneralnotionofglobalization,whichisbecomingmoreandmoreprevalentintheworld.Apolicyofmercantilismwillangerpotentialtradepartnersbecauseitwillexcludetheirgoodsfromfreeaccesstothemercantilistcountry’smarkets.Eventually,acountrywillfinditdifficulttoexportifitimposesoppressivequotasandtariffsonitsimports.Second,mercantilismisbankruptbecauseithurtstheconsumersinthemercantilistcountry.Bydenyingitsconsumersaccesstoeither―cheaper‖goodsfromothercountriesormore―sophisticated‖goodsfromothercountries,themercantilistcountry’sordinaryconsumerssuffer.2.Isfreetradefair?Discuss!Answer:Thisquestionisdesignedtostimulateclassdiscussion.Tradetheorytellssuggeststhatspecializationandfreetradebenefitsallcountries.However,acasecanbemadeinsomesituationsforimposingtradebarriers.Forexample,ifadevelopingcountryistryingtoestablishanindustry,tradebarriersmaybeneededintheshorttermuntiltheindustrycanbecomecompetitive.Whileitcouldbearguedthatanothercountrycouldmaketheproductmoreefficientlyalready,isitfairtolimitacountry’sabilitytodevelopitsindustrialbase?3.Unionsindevelopednationsoftenopposeimportsfromlow-wagecountriesandadvocatetradebarrierstoprotectjobsfromwhattheyoftencharacterizeas“unfair”importcompetition.Issuchcompetition“unfair?”Doyouthinkthatthisargumentisinthebestinterestsof(1)theunions(2)thepeopletheyrepresent(3)thecountryasawholeAnswer:Thetheoryofcomparativeadvantagesuggeststhatacountryshouldspecializeinproducingthosegoodsthatitcanproducemostefficiently,whilebuyinggoodsthatitcanproducerelativelylessefficientlyfromothercountries.Furthermore,thetheorysuggeststhatopeningacountrytofreetradestimulateseconomicgrowth,whichcreatesdynamicgainsfromtrade.Therefore,itwouldfollowthatiflow-wagecountriescanmakecertainproductsmoreefficientlythanhighwagecountries,thelowwagecountriesshouldproduceandexportthoseproducts.Whiletradebarriersmayprotectworkersandcompanies,theyareashort-termfixatbest.Moreover,byprotectingindustries,thegovernmentisnotencouragingcompaniestobecomemoreefficient.Instead,theyarepromotinginefficiency.Consumersloseoutbecausetheyhavehigherpricesandlesschoice.4.Whatarethepotentialcostsofadoptingafreetraderegime?Doyouthinkgovernmentsshoulddoanythingtoreducethesecosts?What?Answer:Studentswillprobablybedividedonthisquestion,andalivelydebateshouldensue.Forexample,certainly,studentswillprobablyrecognizethatbyadoptingafreetraderegime,jobswillbelostinsomeindustries,howevertheymaynotagreeonexactlywhatshouldbedoneaboutthejobslosses.Somestudentsmightsuggestthatthegovernmentprovideretrainingprogramswhileothersmayarguethatpeoplelosetheirjobseverydayanddon’tgetgovernmentassistancetofindnewones. 5.Rereadthecountryfocusfeatureonoutsourcingservicejobs.Isthereisadifferencebetweenthetransferenceofhighpayingwhitecollarjobs,suchascomputerprogrammingandaccounting,todevelopingnations,andlowpayingbluecollarjobs?Ifso,whatisthedifference,andshouldgovernmentdoanythingtostoptheflowofwhite-collarjobsoutofthecountrytocountrieslikeIndia?Answer:Thisquestionislikelytogeneratealivelydebate.Manystudentswillsuggestthattheoutwardflowofwhite-collarjobsisindeedaseriousissue,onethatshouldbethefocusofgovernmentattention.Studentstakingthisperspectivearelikelytosuggestthatwhite-collarjobsaremoreimportanttothenation’sfuture,andthattheyshouldremainathome.Otherstudentshowever,mayarguethatcompaniescannotaffordtopaythehigherwagescommandedbywhite-collarjobsandstillremainprofitable.Therefore,theargumentmightbethatbytakingthesejobsoutsidethecountry,thecompanyisabletoremainviable,andkeepotherpeopleemployed.6.DrawinguponthenewtradetheoryandPorter’stheoryofnationalcompetitiveadvantage,outlinethecaseforgovernmentpoliciesthatwouldbuildnationalcompetitiveadvantageinaparticularindustry.Whatkindofpolicieswouldyourecommendthatthegovernmentadopt?Arethesepoliciesatvariancewiththebasicfreetradephilosophy?Answer:Porter’stheoryofnationalcompetitiveadvantagearguesthatfourbroadattributesofanationshapetheenvironmentinwhichlocalfirmscompete,andthattheseattributespromoteorimpedethecreationofcompetitiveadvantage.Theseattributesare:factorendowments,demandconditions,relatedandsupportingindustries,andfirmstrategy,structure,andrivalry.Portergoesontoarguethatfirmsaremostlikelytosucceedinindustriesinwhichthediamond(whicharethefourattributescollectively)isfavorable.Porteraddstwofactorstothelistofattributesdescribedabove:chanceandgovernmentpolicy.TheNewTradetheoryaddressesaseparateissue.Thistheoryarguesthatduetothepresenceofsubstantialscaleeconomies,worlddemandwillsupportonlyafewfirmsinmanyindustries.Underpinningthisargumentisthenotionoffirst-moveradvantages,whicharetheeconomicandstrategicadvantagesthataccruetoearlyentrantsintoanindustry.Onecouldarguethatwhentheattributesofanationareconductivetotheproductionofaproduct,andwhenthemanufacturersofthatproducthaveexperiencedsome―chance‖eventsthathaveprovidedthemfirst-moveradvantages,thegovernmentalpoliciesofthatnationshouldpromotethebuildingofnationalcompetitiveadvantageinthatparticulararea.ThiscouldbeaccomplishedthroughgovernmentR&Dgrants,policiesthatfavortheindustryincapitalmarkets,policiestowardseducation,thecreationofafavorableregulatoryatmosphere,taxabatements,andthelike.Askyourstudentswhethertheythinkthispolicyisatvariancewiththebasicfreetradephilosophy.Onecouldarguethatitis,becausethegovernmentinterventioniscreatingthebasisforcomparativeadvantage.Conversely,onecouldarguethatifacountryestablishesacomparativeadvantageinaparticularareathatisbasedonauniquesetofattributes(suchasSwissproductionofwatches),worldoutputwillbefavorablyimpactedbylettingthatcountrypursueitsareaofcomparativeadvantage.7.Theworld’spoorestcountriesareatacompetitivedisadvantageineverysectoroftheireconomies.Theyhavelittletoexport.Theyhavenocapital;theirlandisofpoorquality;theyoftenhavetoomanypeoplegivenavailableworkopportunities;andtheyarepoorlyeducated.Freetradecannotpossiblybeintheinterestsofsuchnations!Discuss.Answer:Thisisadifficultquestion.Certainly,moststudentswillrecognizethatthesecountriesareindirestraightsandneedassistancefromrichercountries.Moststudentswillprobablybesympathetictotheircauseandsuggestvariousaidprogramsincludingeducationandmonetarysupporttohelpthecountriesdevelop.However,othersmaybemorecautiousandpromotethenotionthatassistancewouldhavetocomeinanorganizedformwithmultiplenationsworkingtogether.Thequestionisaninterestingonethatshouldprovidestudentswithaneye-openingexperience.Chapter6:ThePoliticalEconomyofInternationalTrade1.DoyouthinktheU.S.governmentshouldconsiderhumanrightswhengrantingpreferentialtradingrightstocountries?Whataretheargumentsforandagainsttakingsuchaposition?Answer:Chinaisfrequentlycitedasaviolatorofhumanrights,andcanformthebasisforadiscussionofthisquestion.Whiletheanswertothefirstquestionclearlyisamatterofpersonalopinion,instatingtheiropinions,studentsshouldconsiderthefollowingpoints.TradewiththeU.S.isveryimportanttoChina,asChinaviewstheU.S.asanimportantmarket.TheU.S.isalsoanimportantsourceofcertainproducts.Thus,theU.S.hassomeleveragewithtradewhentryingtoinfluenceChina’shumanrightspolicies.Forthispolicytohavemucheffect,however,othernationsimportanttoChinamustadoptsimilarpolicies.OtherwiseChinawillsimplychoosetoworkwithothercountries,andU.S.consumersandproducersmaybemorenegativelyimpactthantheChinese.AnotherconcernwithtyingMFNstatustohumanrightsisthatdenyingMFNmaymakethehumanrightssituationworseratherthanbetter.Byengagingintrade,the incomelevelsinChinawillincrease,andwithgreaterwealththepeoplewillbeabletodemandandreceivebettertreatment.2.Whoseinterestsshouldbetheparamountconcernofgovernmenttradepolicy-theinterestsofproducers(businessesandtheiremployees)orthoseofconsumers?Answer:Thelongruninterestsofconsumersshouldbetheprimaryconcernofgovernments.Unfortunatelyconsumers,eachofwhommaybenegativelyimpactedbyonlyafewdollars,arelessmotivatedandeffectivelobbyiststhanafewproducersthathaveagreatdealatstake.Whileinsomeinstancesitcouldbearguedthatdomesticconsumerswillbebetteroffifworld-classdomesticproducersarenurturedandallowedtogainfirstmoveradvantagesininternationalmarkets,itisdoubtfulthatthegovernmentwillbebetterthaninternationalcapitalmarketsat"pickingwinners",andwillmorelikelypickthefirmswiththegreatestpoliticalclout.Whileemployeesmaywelllosejobsiftherearemoreefficientforeigncompetitors,somewouldarguethatthisisjustthenatureofcompetition,andthattheroleofgovernmentshouldbetohelptheseemployeesgetjobswheretheycanbeefficientlyemployedratherthantoprotectthemfromrealityininefficientfirms.3.Giventheargumentsrelatingtothenewtradetheoryandstrategictradepolicy,whatkindoftradepolicyshouldbusinessbepressuringgovernmenttoadopt?Answer:Accordingtothetextbook,businessesshouldurgegovernmentstotargettechnologiesthatmaybeimportantinthefutureandusesubsidiestosupportdevelopmentworkaimedatcommercializingthosetechnologies.Governmentshouldprovideexportsubsidiesuntilthedomesticfirmshaveestablishedfirstmoveradvantagesintheworldmarket.Governmentsupportmayalsobejustifiedifitcanhelpdomesticfirmsovercomethefirst-moveradvantagesenjoyedbyforeigncompetitorsandemergeasviablecompetitorsintheworldmarket.Inthiscase,acombinationofhomemarketprotectionandexport-promotingsubsidiesmaybecalledfor.4.YouareanemployeeofanU.S.firmthatproducespersonalcomputersinThailandandthenexportsthemtotheU.S.andothercountriesforsale.ThepersonalcomputerswereoriginallyproducedinThailandtotakeadvantageofrelativelylowlaborcostsandaskilledworkforce.OtherpossiblelocationsconsideredatthattimewereMalaysiaandHongKong.TheU.S.governmentdecidestoimposepunitive100percentadvaloremtariffsonimportsofcomputersfromThailandtopunishthecountryforadministrativetradebarriersthatrestrictU.S.exportstoThailand.Howshouldyourfirmrespond?Whatdoesthistellyouabouttheuseoftargetedtradebarriers?Answer:Aslongasthemanufacturingrequirementshaven"tchangedsignificantly,lookingatMalaysiaorHongKongagainforproductionwouldappearobvious.BytheU.S.governmentintroducingaspecificadvaloremtariffonThaicomputerimports,itwouldbeeasytogetaroundthesebylookingatotherlocations.HencesuchtargetedtradebarrierscanoftenbeeasilycircumventedwithouthavingtolocateproductionfacilitiesinanexpensivecountryliketheU.S.Chapter7:ForeignDirectInvestment1.In2004,inwardFDIaccountedforsome24percentofgrosscapitalformationinIreland,butonly0.6percentinJapan.WhatdoyouthinkexplainsthisdifferenceinFDIinflowsintothetwocountries?Answer:Grosscapitalformationsummarizesthetotalamountofcapitalinvestedinfactories,stores,officebuildings,andsoon.Whencapitalinvestmentishigh,acountryhasmorefavorablegrowthprospects.ThedifferencebetweentheratesofgrosscapitalformationinIrelandandJapanwouldindicatethatFDIisanimportantsourceofinvestmentcapitalandeconomicgrowthinIreland,butnotinJapan.Thereareseveralreasonsforthis.CompaniesmayperceivethatIrelandismoreattractiveasadestinationfortheirinvestments,orthatitiseasiertoestablishoperationinIrelandthaninJapan.InvestorsmaybecautiousaboutJapanbecauseofitsreputationforburdensomeregulations.2.CompareandcontrasttheseexplanationsofhorizontalFDI:themarketimperfectionsapproach,Vernon’sproductlifecycletheory,andKnickerbocker’stheoryofFDI.WhichtheorydoyouthinkoffersthebestexplanationofthehistoricalpatternofhorizontalFDI?Why?Answer:Internalizationtheoryseekstoexplainwhyfirmsoftenpreferforeigndirectinvestmenttolicensingasastrategyforenteringforeignmarkets.Accordingtointernationalizationtheory,licensinghasthreemajordrawbacksasastrategyforexploitingforeignmarketopportunities:licensingmayresultinafirmgivingawayproprietarytechnology,licensingdoesnotpermitafirmtomaintaintightcontroloveritsactivities,andlicensingisnotappropriatewhenafirm’scompetitiveadvantageisbasednotsomuchonitsproductsasonthemanagement,marketing,andmanufacturingcapabilitiesthatproducethoseproducts.Vernon’sproductlifecycletheoryarguesthatfirmsundertakeFDIatparticularstagesinthelifecycleofa producttheyhavepioneered.Theyinvestinotheradvancedcountrieswhenlocaldemandinthosecountriesgrowslargeenoughtosupportlocalproduction.Theysubsequentlyshiftproductiontodevelopingcountrieswhenproductstandardizationandmarketsaturationgiverisetopricecompetitionandcostpressures.Investmentindevelopingcountries,wherelaborcostsarelower,isseenasthebestwaytoreducecosts.Finally,Knickerbocker’stheoryofFDIsuggeststhatfirmsfollowtheirdomesticcompetitorsoverseas.Thistheoryhadbeendevelopedwithregardtooligopolisticindustries.Imitativebehaviorcantakemanyformsinanoligopoly,includingFDI.Thesecondpartofthisquestionisdesignedtostimulateclassroomdiscussionand/orforcestudentstothinkthroughthesetheoriesandselecttheonethattheyfeelprovidesthebestexplanationforthehistoricpatternofFDI.3.ReadtheopeningcaseonStarbucks,thenanswerthefollowingquestions:InitiallyStarbucksexpandedinternationallybylicensingitsformattoforeignoperators.Itsoonbecamedisenchantedwiththisstrategy.Why?WhydoyouthinkStarbuckshasnowelectedtoexpandinternationallyprimarilythroughlocaljointventures,towhomitlicensesitsformat,asopposedtoapurelicensingstrategy?WhataretheadvantagesofajointventureentrymodeforStarbucksoverenteringthroughwhollyownedsubsidiaries?Onoccasion,Starbuckshaschosenawhollyownedsubsidiarytocontrolitsforeignexpansion(e.g.inBritainandThailand).Why?WhichtheoryofFDIbestexplainstheinternationalexpansionstrategyadoptedbyStarbucks?Answer:StarbucksbeganitsinternationalexpansioninJapanwhereitlicenseditsformulatoajointventureformedwithalocalcompany.Starbucksfearedthatapurelicensingagreementwouldnotprovideitwiththecontrolitfeltwasnecessarytosuccessfullyreplicatethelook,feel,andexperienceofanAmericanStarbucks.TohelpensurecontinuitybetweenitsAmericanstores,anditsJapaneselocations,StarbuckstransferredAmericanemployeestotheJapanesestorestohelptrainworkersintheStarbucksway.UsingjointventureshasallowedStarbuckstosharethecostandriskofdevelopingitsforeignmarkets.WhileawhollyownedsubsidiarywouldgiveStarbuckscompletecontrol,italsoimpliesthatStarbuckswouldincurallofthecostandriskinvolved.InBritain,StarbucksdidacquireanexistingcoffeechainthatwasmodeledafterStarbucks.Becausethechainwasalreadysuccessful,someoftheriskthatwouldnormallybeassociatedwithintroducinganewconcepttoaforeignmarketwaseliminated.StarbucksalsoshiftedtoawhollyownedoperationinThailandafteritsjointventurethereexperienceddifficultyraisingcapitalforfurtherexpansion.Byacquiringthejointventure,Starbuckswasabletogaincontrolovertheprocess.Internalizationtheorysuggeststhatwhenlicensingisdifficult,foreigndirectinvestmentisappropriate.Starbucksseemstohavefollowedthisphilosophy.4.CompareandcontrasttheseexplanationsofverticalFDI:thestrategicbehaviorapproachandthemarketimperfectionsapproach.WhichtheorydoyouthinkoffersthebetterexplanationofthehistoricalpatternofverticalFDI?Why?Answer:ThestrategicbehaviorapproachsuggeststhatFDIflowsreflectstrategicrivalrybetweenfirmsintheglobalmarketplace.Accordingtothetheory,firmsinoligopolisticindustrieswillbemotivatedtorespondtocompetitoractionswithsimilaractionsoftheirown.Studiesshowthatinthe1950sand60s,Americanfirmsinoligopolisticindustriesimitatedeachother’sFDI.Similarly,FDIundertakenbyJapanesefirmsinthe1980swasimitative.Themarketimperfectionstheorytriestoexplainwhythefirstfirminanoligopolychoosesinvestmentoverexportingorlicensing.ManyeconomistspreferthisapproachbecauseitaddressedthequestionofwhetherFDIismoreefficientthanexportingorlicensingforinternationalexpansion.5.YouaretheinternationalmanagerofaUSbusinessthathasjustinventedarevolutionarynewpersonalcomputerthatcanperformthesamefunctionsasPCs,butcostsonlyhalfasmuchtomanufacture.YourCEOhasaskedyoutodecidehowtoexpandintotheEuropeanUnionmarket.Youroptionsare(1)toexportfromtheUnitedStates(2)tolicenseaEuropeanfirmtomanufactureandmarketthecomputerinEurope(3)tosetupawhollyownedsubsidiaryinEuropeEvaluatetheprosandconsofeachalternativeandsuggestacourseofactiontoyourCEO.Answer:InconsideringexpansionintotheEuropeanUnion,threeoptionswillbeconsidered:FDI,licensing,andexport.Withexport,assumingtherearenotradebarriers,thekeyconsiderationswouldlikelybetransportcostsandlocalization.Whiletransportcostsmaybequitelowforarelativelylightandhighvalueproductlikeacomputer,localizationcanpresentsomedifficulties.Powerrequirements,keyboards,andpreferencesinmodelallvaryfromcountrytocountry.Itmay bedifficulttofullyaddresstheselocalizationissuesfromtheUnitedStates,butnotentirelyinfeasible.SincetherearemanycomputermanufacturersanddistributorsinEurope,therearelikelytobeanumberofpotentiallicensees.Butbysigninguplicensees,valuabletechnologicalinformationmayhavetobedisclosed,andthecompetitiveadvantagelostifthelicenseesuseordisseminatethisinformation.FDI(settingupawhollyownedsubsidiary)isclearlythemostcostlyandtimeconsumingapproach,buttheonethatbestguaranteesthatcriticalknowledgewillnotbedisseminatedandthatlocalizationcanbedoneeffectively.Giventhefastpaceofchangeinthepersonalcomputerindustry,itisdifficulttosayhowlongthisrevolutionarynewcomputerwillretainitscompetitiveadvantage.Ifthefirmcanprotectitsadvantageforaperiodoftime,FDImaypayoffandhelpassurethatnotechnologicalknow-howislost.If,however,otherfirmscancopyordevelopevensuperiorproductsrelativelyeasily,thanlicensing,whilespeedingupknowledgedissemination,mayalsoallowthefirmtogetthequickestlargescaleentryintoEuropeandmakeasmuchasitcanbeforetheadvantageislost.Chapter9TheForeignExchangeMarketCRITICALTHINKINGANDDISCUSSIONQUESTIONS1.TheinterestrateonSouthKoreangovernmentsecuritieswithone-yearmaturityis4percentandtheexpectedinflationrateforthecomingyearis2percent.TheUSinterestrateongovernmentsecuritieswithone-yearmaturityis7percentandtheexpectedrateofinflationis5percent.ThecurrentspotexchangerateforKoreawonis$1=W1200.Forecastthespotexchangerateoneyearfromtoday.Explainthelogicofyouranswer.Answer:TheinternationalFishereffectsuggeststhattheexchangeratewillchangeinanequalamountbutinanoppositedirectiontothedifferenceinnominalinterestrates.Hencesincethenominalinterestrateis3%higherintheUSthaninSouthKorea,thedollarshoulddepreciateby3%relativetotheSouthKoreanWon.Usingtheformulafromthebook:(S1-S2)/S2x100=i$-iWonandsubstituting7fori$,4foriWon,and1200forS1,yieldsavalueforS2of$1=W1165.2.Twocountries,BritainandtheUSproducejustonegood:beef.SupposethatthepriceofbeefintheUSis$2.80perpound,andinBritainitis£3.70perpound.(a)AccordingtoPPPtheory,whatshouldthe$/£spotexchangeratebe?(b)Supposethepriceofbeefisexpectedtoriseto$3.10intheUS,andto£4.65inBritain.Whatshouldbetheoneyearforward$/£exchangerate?(c)Givenyouranswerstoparts(a)and(b),andgiventhatthecurrentinterestrateintheUSis10percent,whatwouldyouexpectcurrentinterestratetobeinBritain?(a)AccordingtoPPP,the$/£rateshouldbe2.80/3.70,or.76$/£.(b)AccordingtoPPP,the$/£oneyearforwardexchangerateshouldbe3.10/4.65,or.67$/£.(c)Sincethedollarisappreciatingrelativetothepound,andgiventherelationshipoftheinternationalFishereffect,theBritishmusthavehigherinterestratesthantheUS.Usingtheformula(S1-S2)/S2x100=i£-i$wecansolvetheequationfori£,withS1=.76,S2=.67,i$=10,yieldingavalueof23.4%fortheBritishinterestrates.3.Youmanufacturewinegoblets.InmidJuneyoureceiveanorderfor10,000gobletsfromJapan.Paymentof¥400,000isdueinmidDecember.Youexpecttheyentorisefromitspresentrateof$1=¥130to$1=¥100byDecember.Youcanborrowyenat6%perannum.Whatshouldyoudo?(1)ThesimplestsolutionwouldbetojustwaituntilDecember,takethe¥400,000andconvertitatthespotrateatthattime,whichyouassumewillbe$1=¥100.◦Inthiscaseyouwouldhave$4,000inmid-December.(2)ForwardContract ◦Ifthecurrent180-dayforwardrateislowerthan100¥/$,thenaforwardcontractmightbepreferablesinceitbothlocksintherateatabetterlevelandreducesrisk.◦Iftherateisabove¥100/$,thenwhetheryouchoosetolockintheforwardrateorwaitandseewhatthespotdoeswilldependuponyourriskaversion.(3)BorrowMoney◦Thereisathirdpossibilityalso.Youcouldborrowmoneyfromabankthatyouwillpaybackwiththe¥400,000youwillreceive(400,000/1.03=¥388,350borrowed),convertthistodaytoUS$(388,350/130=$2,987),andtheninvestthesedollarsinaUSaccount.Forthistobepreferabletothesimplestsolution,youwouldhavetobeabletomakealotofinterest(4,000-2,987=$1,013),whichwouldturnouttobeanannualrateof51%((1,013/4000)*2).If,however,youcouldlockintheseinterestrates,thenthismethodwouldalsoreduceanyexchangeraterisk.Whatyoushoulddodependsupontheinterestratesavailable,theforwardratesavailable,howlargeariskyouarewillingtotake,andhowcertainyoufeelthatthespotrateinDecemberwillbe¥100=$1.4.YouareCFOofaU.S.firmwhosewhollyownedsubsidiaryinMexicomanufacturescomponentpartsforyourU.S.assemblyoperations.ThesubsidiaryhasbeenfinancedbybankborrowingsintheUnitedStates.OneofyouranalyststoldyouthattheMexicanpesoisexpectedtodepreciateby30percentagainstthedollarontheforeignexchangemarketsoverthenextyear.Whatactions,ifany,shouldyoutake?Yourfinancingandoperatingcapitalareindollars,yetmanyofyourcosts(labor)mustbeinpeso.Yourhardassetsareallinpeso,andtheirvaluewilldecline.Ontheotherhand,ifthepesodepreciates,thenyourdollarswillgofurther.Soperhapsdoingnothingisthebestapproach.Ifyouareprettysurethatthepesowilldepreciate,thenyoumaywanttoavoidanymajorpeso-denominatedcoststhatyoucanuntilafterdevaluation.Thatmaymeanholdingbackonshipmentsifpossible,andyoumaywantanydollar-denominatedpurchasesmadebeforethedevaluation.Youmaywanttomoveanypeso-denominatedmajoraccountsintodollarsbeforethedevaluation.Chapter11:TheStrategyofInternationalBusiness1.Inaworldofzerotransportationcosts,notradebarriers,andnon-trivialdifferencesbetweennationswithregardtofactorendowments,firmsmustexpandinternationallyiftheyaretosurvive.Discuss.Answer:Givendifferencesincountrieswithrespecttofactorendowments,thetheoryofcomparativeadvantagesuggeststhatdifferentactivitiesshouldtakeplaceinthecountriesthatcanperformthemmostefficiently.Iftherearealsonobarriersorcoststotrade,thenitislikelythatalotofindustrieswillbebasedoutofthecountriesthatprovidethebestsetoffactorendowments.Forafirmthatislocatedinasub-optimallocation,itwilleitherhavetoexpandinternationallyorswitchtoadifferentindustrywherethefactorendowmentsareinitsfavor.Forfirmsalreadylocatedinthecountrieswiththemostfavorablefactorendowmentsfortheirindustry,however,theremaynotbeaneedtoexpandinternationally.Firstly,thefirmmaybecontenttosimplyfocusonthedomesticmarket.Butifthefirmdoeswanttoexpandinternationally,itmaybeabletodosovialicensingorexporting,andneednotnecessarilyundertakeFDI.Thus,notonlyintheory,butalsoinpracticemanyfirmsareabletosurvivequitewellwithouthavingtoexpandinternationally.2.PlotthepositionofthefollowingfirmsonFigure11.8-Procter&Gamble,IBM,Nokia,Coca-Cola,DowChemical,USSteel,andMcDonald"s.Ineachcasejustifyyouranswer.Answer:Procter&Gamblewouldbelocatedinthemiddleright-handportionofthegraph.Thisisapositionofhighpressuresforlocalresponsivenessandmoderatepressuresforcostreductions.P&Gsellspersonalandhomecareproducts,whichdofacepressuresforlocalresponsiveness.Althoughtheseproductsarenotcommodities,therearemanycompetitorsinP&Gindustries,whichimpliesamoderatedegreeofcostpressures.IBMwouldbeintheuppermiddleportionofthegraph.Thisisapositionofmoderatepressureforlocalresponsivenessandhighpressureforcostreductions.ThereisamoderateamountofpressureforlocalresponsivenessforIBMproducts,duetolanguagedifferencesanddifferingvoltagerequirementsfor electronicproductsacrosscountries.IBMisinaverycompetitiveindustry,andcostpressuresarehigh.Nokiamanufactureswirelesshandsetsandinfrastructuressuchasswitches.Nokia,becauseitmustcustomizeitsproductofferingaccordingtothetechnicalstandardsprevailinginagivencountrywouldbeinthelowerrighthandsideofthegraph.Coca-Colaisacommoditytypeproduct,anditwouldbelocatedintheupperleft-handportionofthegraph.Thisisapositionoflowpressuresforlocalresponsivenessandhighpressuresforcostreductions.DowChemicalandU.S.Steelwouldbothbelocatedintheupperleft-handportionofthegraph.BothDowandU.S.Steelsellproductsthatarecommodity-likebynature.Asaresult,costpressureswouldbehighandlocalresponsivenesspressureswouldbelowfortheseproducts.Finally,McDonaldswouldbelocatedinthemiddleleft-handportionofthegraph.Pressuresforlocalresponsivenesswouldbelow,andcostreductionpressureswouldbemoderate.McDonaldssellsasemicommodity-likeproduct,butnottothesamedegreeasDowChemicalofU.S.Steel.3.Re-ReadtheManagementFocusboxonProcter&Gambleandthenanswerthefollowingquestions:a)WhatstrategywasProcter&Gamblepursuingwhenitfirstenteredforeignmarketsintheperiodupuntilthe1980s?b)Whydoyouthinkthisstrategybecamelessviableinthe1990s?c)WhatstrategydoesProcter&Gambleappeartobemovingtoward?Whatarethebenefitsofthisstrategy?Whatarethepotentialrisksassociatedwithit?Answer:Procter&GambleinitiallyexpandedinternationallywhenitenteredCanadain1915.However,evenafterexpandingintoWesternEuropeandAsiainthe1960sand1970s,thecompanysillmaintainedallproductdevelopmentatitsheadquarterslocationinCincinnati,Ohio.Subsidiaryunitswereresponsibleformanufacturing,marketing,anddistributingtheproductsintheirlocalmarkets.However,bythe1990sseveralfactorscausedProcter&Gambletoreconsideritsinternationalstrategy.Barrierstolow-costtradewerefallingrapidlyworldwide,andfragmentednationalmarketsweremergingintolargerregionalorglobalmarkets.Inaddition,theretailersthroughwhichthecompanydistributeditsproductsweregrowinglargerandmoreglobal,andweredemandingpricediscountsfromProcter&Gamble.Thecompanynowappearstobemovingtowardsatransnationalstrategyinwhichtherearesevenself-containedbusinessunits,eachresponsibleforthecompletegenerationofprofitsfromitsproducts,andformanufacturing,marketing,anddevelopment.Atransnationalstrategyiscomplex,andthecompanywillhavetobalancethedemandsofrespondingtolocalmarketneedsforitsconsumerproducts,whileatthesametimereachingitscostsavingsgoals.4.Whatdoyouseeasthemainorganizationalproblemsthatarelikelytobeassociatedwiththeimplementationofatransnationalstrategy?Answer:Simultaneouslytryingtoachievecostefficiencies,globallearning,andlocalresponsivenessplacesdifficultandcontradictorydemandsonanorganization.Managingtheseconflictingdemandsrequiresthesettingofcontrolandmotivationalpoliciesforpeopleandorganizationsthatforcebalancingofthesedemandsatmultiplelevelswithinfirms.Theorganizationalchallengesinvolvemanagingtheseinherentconflictstoresolutionsthatservethebestinterestsofthefirmoverall.5.RereadtheManagementFocusboxonthealliancebetweenCiscoandFujitsu.WhatarethebenefitstoCiscoandFujitsurespectivelyofthealliance?WhataretheriskstoCisco?HowcanCiscomitigatethoserisks?Answer:TheCisco-Fujitsuventurewasimportanttobothcompaniesastheydevelopthenextgenerationofrouters.ThefirmswillbeabletopooltheirR&Defforts,sharecomplementarytechnology,andgetproductstomarketmorequickly.ThetwocompaniesalsobelievethatthecombinationofCisco’stechnologytogetherwithFujitsu’sproductionexpertisewillenablethemtoproducemorereliableproducts.Inaddition,theallianceprovidesCiscowithaccesstotheJapanesemarket,amarketthatitbelieveswillbeimportantinthefuture,andamorecompleteproductlineforFujitsu.CiscowillhavetoensurethatitputspropersafeguardsinplaceasitsharesitstechnologywithFujitsu,orriskcreatingacompetitor.Chapter12:EnteringForeignMarkets1.ReviewtheManagementFocusonING.INGchosetoentertheU.S.financialservicesmarketviaacquisitionsratherthangreenfieldventures.WhatdoyouthinkaretheadvantagestoINGofdoingthis?Whatmightthedrawbacksbe?Doesthisstrategymakesense?Why?Answer:MoststudentswillprobablyagreethatING’sstrategyofacquiringfirmswithastronglocalpresencemakessense.Thecompanymaintainsthelocalmanagementteamandproducts,yetsellsitsownINGproductsaswell.Thisstrategyallowsthecompanytoactlocally,whilebuildingaglobalname.2.Licensingproprietytechnologytoforeigncompetitorsisthebestwaytogiveupafirm"s competitiveadvantage.Discuss.Thestatementisbasicallycorrect-licensingproprietarytechnologytoforeigncompetitorsdoessignificantlyincreasetheriskoflosingthetechnology.Thereforelicensingshouldgenerallybeavoidedinthesesituations.Yetlicensingstillmaybeagoodchoiceinsomeinstances.Whenalicensingarrangementcanbestructuredinsuchawayastoreducetherisksofafirm"stechnologicalknow-howbeingexpropriatedbylicensees,thenlicensingmaybeappropriate.Afurtherexampleiswhenafirmperceivesitstechnologicaladvantageasbeingonlytransitory,anditconsidersrapidimitationofitscoretechnologybycompetitorstobelikely.Insuchacase,thefirmmightwanttolicenseitstechnologyasrapidlyaspossibletoforeignfirmsinordertogainglobalacceptanceforitstechnologybeforeimitationoccurs.Suchastrategyhassomeadvantages.Bylicensingitstechnologytocompetitors,thefirmmaydeterthemfromdevelopingtheirown,possiblysuperior,technology.Andbylicensingitstechnologythefirmmaybeabletoestablishitstechnologyasthedominantdesignintheindustry.Inturn,thismayensureasteadystreamofroyaltypayments.Suchsituationsapart,however,theattractionsoflicensingareprobablyoutweighedbytherisksoflosingcontrolovertechnology,andlicensingshouldbeavoided3.Discusshowtheneedforcontroloverforeignoperationsvarieswithfirms’strategiesandcorecompetencies.Whataretheimplicationsforthechoiceofentrymode?Ifafirm’scompetitiveadvantage(itscorecompetence)isbasedoncontroloverproprietarytechnologicalknow-how,licensingandjointventurearrangementsshouldbeavoidedifpossiblesothattheriskoflosingcontroloverthattechnologyisminimized.Forfirmswithacompetitiveadvantagebasedonmanagementknow-how,theriskoflosingcontroloverthemanagementskillstofranchiseesorjointventurepartnersisnotthatgreat.Consequently,manyservicefirmsfavoracombinationoffranchisingandsubsidiariestocontrolthefranchiseswithinparticularcountriesorregions.Thesubsidiariesmaybewhollyownedorjointventures,butmostservicefirmshavefoundthatjointventureswithlocalpartnersworkbestforcontrollingsubsidiaries.4.AsmallCanadianfirmthathasdevelopedsomevaluablenewmedicalproductsusingitsuniquebiotechnologyknow-howistryingtodecidehowbesttoservetheEuropeanCommunitymarket.Itschoicesaregivenbelow.ThecostofinvestmentinmanufacturingfacilitieswillbeamajoronefortheCanadianfirm,butitisnotoutsideitsreach.Ifthesearethefirm’sonlyoptions,whichonewouldyouadviseittochoose?Why?(1)Manufacturetheproductathomeandletforeignsalesagentshandlemarketing.(2)ManufacturetheproductsathomebutsetupawhollyownedsubsidiaryinEuropetohandlemarketing.(3)EnterintoastrategicalliancewithalargeEuropeanpharmaceuticalfirm.TheproductwouldbemanufacturedinEuropebya50/50jointventure,andmarketedbytheEuropeanfirm.Answer:Iftherewerenosignificantbarrierstoexporting,thenoption(iii)wouldseemunnecessarilyriskyandexpensive.Afterall,thetransportationcostsrequiredtoshipdrugsaresmallrelativetothevalueoftheproduct.Bothoptions(i)and(ii)wouldexposethefirmtolessriskoftechnologicalloss,andwouldallowthefirmtomaintainmuchtightercontroloverthequalityandcostsofthedrug.Theonlyotherreasontoconsideroption(iii)wouldbeifanexistingpharmaceuticalfirmcouldalsogiveitmuchbetteraccesstothemarketandpotentiallyaccesstoitsproductsandtechnology,andthatthissamefirmwouldinsistonthe50/50manufacturingjointventureratherthanagreeingtobeaforeignsalesagent.Thechoicebetween(i)and(ii)boilsdowntoaquestionofwhichwaywillbethemosteffectiveinattackingthemarket.Ifaforeignsalesagentcanbefoundthatisalreadyquitefamiliarwiththemarketandwhowillagreetoaggressivelymarkettheproduct,theagentmaybeabletoincreasemarketsharemorequicklythanawhollyownedmarketingsubsidiarythatwilltakesometimetogetgoing.Ontheotherhand,inthelongrunthefirmwilllearnagreatdealmoreaboutthemarketandwilllikelyearngreaterprofitsifsetsupitsownsalesforce.Chapter13:Exporting,Importing,andCountertrade1.AfirmbasedinWashingtonStatewantstoexportashiploadoffinishedlumbertothePhilippines.Thewould-beimportercannotgetsufficientcreditfromdomesticsourcestopayfortheshipmentbutinsiststhatthefinishedlumbercanbequicklyresoldinthePhilippinesforaprofit.OutlinethestepstheexportershouldtaketoeffectthisexporttothePhilippines.Answer:TheexportershouldrecommendtotheimporterthattheimporterapplytoEximbankforaloan.EximbankhasadirectlendingoperationunderwhichitlendsdollarstoforeignborrowersforuseinpurchasingU.S.exports.TheforeignborrowersusetheloanstopayU.S.suppliersandrepaytheloantoEximbankwithinterest.2.YouaretheassistanttotheCEOofasmalltextilefirmthatmanufactureshigh-quality,premium-priced,stylishclothing.TheCEOhasdecidedtoseewhattheopportunitiesareforexportingandhasaskedyouforadviceastothestepsthecompanyshouldtake.Whatadvice wouldyougivetheCEO?Answer:Thisquestionisdesignedtostimulateclassroomdiscussionand/ortoencourageyourstudentsto―think‖abouttheexportprocessincompletingawrittenanswerforthisquestion.Thereareanumberofapproachesthatcanbepursuedinansweringthisquestion.Thefirststepmightbetotapintosomeofthegovernmentinformationsourcesthatareavailable,freeofcharge,toseeifinternationalmarketsareavailableforthecompany’sproduct.TherearealsoanumberofresourcesontheInternet,mentionedthroughoutthetextthatcanassistcompaniesinlearningabouttheforeignmarketpotentialoftheirproducts.Anotherapproachwouldbetocontactanexportmanagementcompanyforassistance.Whilethisapproachmayinvolvesomecost,itmaybethefastestwaytoget―upandrunning‖inregardtoinitiatinganexportprogram.3.Analternativetousingaletterofcreditisexportcreditinsurance.Whataretheadvantagesanddisadvantagesofusingexportcreditinsuranceratherthanaletterofcreditforexporting(a)aluxuryyachtfromCaliforniatoCanada,and(b)machinetoolsfromNewYorktotheUkraine?Answer:Exportersprefertogetlettersofcreditfromimporters.However,whentheimporterisinastrongbargainingpositionandabletoplaycompetingsuppliersoffagainsteachother,anexportermayhavetoforgoaletterofcredit.Thelackofaletterofcreditexposestheexportertotheriskthattheforeignimporterwilldefaultonpayment.Theexportercaninsureagainstthispossibilitybybuyingexportcreditinsurance.Studentsmaysuggestthatinthecaseoftheluxuryyacht,shouldtheimporterfailtomakepayment,theclearlydefinedlawsofCanadawouldmakeiteasiertogoaftertheimporterthanwouldbethecasewiththemachinetoolsintheUkraine,andthatthereforealetterofcreditislessimportantfortheyachtexporter.Ontheotherhand,studentsmaynotethatthereisprobablymorecompetitioninmachinetoolsascomparedtoluxuryyachtsandthattheexporterofmachinetoolsmaylosethesaleiftheexporterinsistsonaletterofcredit.4.Howdoyouexplainthepopularityofcountertrade?Underwhatscenariosmightitspopularityincreasestillfurtherbytheyear2010?Underwhatscenariosmightitspopularitydecline?Answer:Thisquestionrequiresstudentstospeculateonthefuturestateofglobaltrade.Astradebetweendevelopinganddevelopedcountries,andtradeamongdevelopingcountriescontinuestogrow,manystudentswillpredictthatthepopularityofcountertradewillincreasebytheyear2010.Somestudentsmaypredictadeclineinthepopularityofcountertradeby2010ascountriesfromtheformerSovietUnionandEasternEuropeanCommunistbloceitherbecomemembersoftheEUanadoptthefullyconvertibleeuroastheircurrency,ordeveloptheirownfullyconvertiblecurrency.5.Howmightacompanymakestrategicuseofcountertradeschemesasamarketingweapontogenerateexportsalesrevenues?Whataretherisksassociatedwithpursuingsuchastrategy?Answer:Counterrtradeisanalternativemeansofstructuringaninternationalsalewhenconventionalmeansofpaymentaredifficult,costly,ornonexistent.Thegovernmentsofdevelopingcountriessometimesinsistonacertainamountofcountertrade.Thus,ifafirmisunwillingtoenteracountertradeagreement,itmayloseanexportopportunitytoacompetitorthatiswillingtomakeacountertradeagreement.Companiesthatarewillingtoentertaincountertradeasameansoffinancing,willhaveanadvantageoverthosefirmsthatprefertraditionalformsoffinancing.Firmsengagingincountertrademustbewillingtoinvestinanin-housetradingdepartmentdedicatedtoarrangingandmanagingcountertradedeals,andmustbeawareofthequalityoftheproductsreceivedincountertradedeals.Chapter14:GlobalProduction,Outsourcing,andLogistics1.Anelectronicsfirmisconsideringhowbesttosupplytheworldmarketformicroprocessorsusedinconsumerandindustrialelectronicproducts.Amanufacturingplantcostapproximately$500milliontoconstructandrequiresahighlyskilledworkforce.Thetotalvalueoftheworldmarketforthisproductoverthenext10yearsisestimatedtobebetween$10and$15billion.Thetariffsprevailinginthisindustryarecurrentlylow.Whatkindofmanufacturingstrategydoyouthinkthefirmshouldadopt-concentratedordecentralized?Whatkindoflocation(s)shouldthefirmfavorforitsplant(s)?Answer:Thefirmshouldpursueaconcentratedmanufacturingbecause(1)thetariffsprevailingintheindustryarelow,(2)thecostofbuildingaplanttoproducethemicroprocessorsishigh,and(3)theproduct"svalue-to-weightratioishigh.Allofthesefactorsfavoraconcentratedvs.adecentralizedmanufacturingstrategy.Intermsoflocation,thecompanyshouldconsiderthreefactors:countryfactors,technologyfactors,andproductfactors.First,intermsofcountryfactors,thefirmshouldlocateitsplantinacountrythathasahighlyskilledpoolofworkersavailable.Thatcriterionprobablylimitsthefirmtodevelopednations.Second,intermsoftechnologyfactors,thefirmiscompelledtolimitthenumberofitsmanufacturingfacilitiesbecauseofthehighcostofconstructingaplant.Third,intermsofproductfactors,thefirmcanmanufactureritsproductinacentrallocationduetotherelativelyhighvalue-weightratioandthe universalappealoftheproduct.2.Achemicalfirmisconsideringhowbesttosupplytheworldmarketforsulfuricacid.Amanufacturingplantcostsapproximately$20milliontoconstructandrequiresamoderatelyskilledworkforce.Thetotalvalueoftheworldmarketforthisproductoverthenew10yearsisestimatedtobebetween$20and$30billion.Thetariffsprevailinginthisindustryaremoderate.Shouldthefirmfavorconcentratedmanufacturingordecentralizedmanufacturing?Whatkindoflocation(s)shouldthefirmseekforitsplant(s)?Answer:ThisquestionisatoughercallthanthescenariodepictedinQuestion#1.Thefirmshouldprobablypursuealimiteddecentralizedmanufacturingstrategy(meaningthatthefirmshouldnotsetupaplantineverycountrythatitsellsto,butshouldsetupplantsinseveral"regions"oftheworld).Thisstrategymakessensebecause(1)Thetariffsprevailingintheindustryaremoderate(ratherthanlow),(2)thecostofconstructingafacilityisrelativelymodest($20million),and(3)onlyamoderatelyskilledworkforceisneeded(whichisprobablyavailableinmanylow-costregionsoftheworld).Thefirmshouldselectitslocationbasedoncountryfactors,technologyfactorsandproductfactors.Intermsofcountryfactors,thefirmshouldfindlocationswheresemi-skilledlaborisinexpensive.Intermsoftechnologyfactors,thefirmisnotconstrainedbyahighfixedcostsassociatedwithitsproduct,sotechnologyisnotapervasiveissue.Finally,productfactorsfavorthefirmlocatinginseverallocationsthroughouttheworld.Thecompany"sproducthasalowvalue-weightratio,makingitunattractivetoproducetheproductinacentrallocationandexportitacrosstheworld.3.Afirmmustdecidewhethertomakeacomponentpartin-houseortocontractitouttoanindependentsupplier.Manufacturingthepartrequiresanonrecoverableinvestmentinspecializedassets.Themostefficientsuppliersarelocatedincountrieswithcurrenciesthatmanyforeignexchangeanalystsexpecttoappreciatesubstantiallyoverthenextdecade.Whataretheprosandconsof(a)manufacturingthecomponentin-houseand(b)outsourcingmanufacturetoanindependentsupplier?Whichoptionwouldyourecommend?Why?Answer:Manufacturingin-housewouldreducetheriskofcurrencyappreciationandrisingcostsfromindependentsuppliers.Specializedassetinvestmentwouldmakefirmdependentonspecificsuppliers,however,technologicalknow-howwouldbeprotected,andimprovedschedulingwouldbeavailable.Out-sourcingwouldbebeneficialiftheproductusingthecomponentfailsinthemarketbecausethesupplierwillbearthecostofthenon-recoverableinvestment,andflexibilityincaseabettercomponentcanbedesignedorboughtwouldbepreserved.Outsourcingwouldalsolowerorganizationalandcoordinationcosts.Basedonwhatweknow,manufacturinginhousemaybeslightlypreferred,butotherinformationcouldtipthedecisiontheotherway.4.Explainhowanefficientmaterialsmanagementfunctioncanhelpaninternationalbusinesscompetemoreeffectivelyintheglobalmarketplace.Answer:Giventhecomplexityinvolvedincoordinationofmaterialandproductflowsinamultinationalenterprise(purchases,currencyexchange,inboundandoutboundtransportation,production,inventory,communication,expediting,tariffsandduties),amaterialsmanagementfunctioncanhelptoassurethattheseflowstakeplaceinthemostefficientmannerpossible.Arelatedadvantageisthatbyhavingamaterialsmanagementfunction,afirmmayobtainimprovedinformationaboutthecostsofdifferenttransportalternatives,andchoosetoreconfiguresomeofitsflowstobettertakeadvantageofthesecosts.Bybeingbetterabletoutilizejustintimetechniques,thecostofproductioncanbeloweredwhilethequalityisincreased.Thematerialsmanagementfunctioncanalsohelpaninternationalbusinesstodevelopinformationtechnologysystemsthatallowittobettertracktheflowofgoodsthroughoutthefirm.Chapter15:GlobalMarketingandR&D1.ImagineyouarethemarketingmanagerforaUSmanufacturerofdisposablediapers.YourfirmisconsideringenteringtheBrazilianmarket.YourCEObelievestheadvertisingmessagethathasbeeneffectiveintheUnitedStateswillsufficeinBrazil.Outlinesomepossibleobjectionstothis.YourCEOalsobelievesthatthepricingdecisionsinBrazilcanbedelegatedtolocalmanagers.Whymightshebewrong?Answer:Whilebabies’behindsservethesamefunctioninallcultures,andtheproduct"stechnicalstandardsmaybesimilar,sensitivitytobodilyfunctionsdoesvaryacrosscultures.Thustheadvertisingmessagemayneedtobechangedfordifferentattitudestowardswhatisappropriateadvertising.Likewise,whereitmightbeprogressivetoshowanadwithamalechangingadiaperinsomecountries,inothercountriesthismessagecouldbelostormisinterpreted.Anotherconsiderationwouldbethenoiselevelcreatedbytheadvertisingmessageofcompetitor"sproducts,whichmaywellbedifferentinBrazil.WhilelocaldemandandpriceelasticitydecisionsshouldplayanimportantroleinBrazil,pricingshouldnotbeleftsolelytothediscretionofthelocalmanagers.Sincethisisaglobalbusiness,yourfirmwilllikelybecompetinginBrazilwithsomeofthesamecompetitorsaselsewhere.Thuspricingdecisionsinonecountrycanhaveanimpact onpricingandcompetitioninothermarkets.Similarly,yourfirmmaywanttopositionandpricethebrandsimilarlyacrossdifferentSouthAmericancountries.2.Within20yearswewillhaveseentheemergenceofenormousglobalmarketsforstandardizedconsumerproducts.Doyouagreewiththisstatement?Justifyyouranswer.Answer:Onecouldeitherchoosetoagreeordisagree,whilethebestanswerwouldlikelyhedgeitsomewhereinthemiddle.ThereclearlyalreadyareenormousglobalmarketsalreadyforproductslikeCokeandLevis,whileitisquestionablewhethertherewilleverbeaglobalconsumermarketforNorwegianlutefisk.Moreglobalconsumermarketswilllikelyemerge,buttherewillcontinuetobenationaldistinctionsformanyproducts.3.YouarethemarketingmanagerofafoodproductscompanythatisconsideringenteringtheIndianmarket.TheretailsysteminIndiatendstobeveryfragmented.Also,retailersandwholesalerstendtohavelong-termtieswithIndianfoodcompanies,whichmakesaccesstodistributionchannelsdifficult.Whatdistributionstrategywouldyouadvisethecompanytopursue?Why?Answer:Thefirmshouldselltoeitherwholesalersorimportagents.BecausetheretailsysteminIndiaisveryfragmented,itwouldbeveryexpensiveforthefirmtomakecontactwitheachindividualretailer.Asaresult,itwouldbemoreeconomicalforthefirmtoselltowholesalersorimportagents.Importagentsmayhavelong-termrelationshipswithwholesalers,retailers,and/orotherimportagents.Similarly,wholesalersmayhavelong-standingrelationshipswithretailersand,therefore,bebetterabletopersuadethemtocarrythefirm’sproductthanthefirmitselfwould.4.Pricediscriminationinindistinguishablefromdumping.Discusstheaccuracyofthisstatement?Answer:Insomespecificinstancesthisstatementiscorrect,butasageneralruleitisnot.Whenafirmispricinglowerinaforeigncountrythanitisinitsdomesticmarket,itcanbedifficulttodistinguishdumpingfrompricediscriminationunlessitisclearthatthefirmissellingatbelowcostintheforeignmarket.Yetwhencostsarereasonablywellknownandallpricesareabovethese,orifthefirmispricinglowerinitsdomesticmarketthaninforeignmarkets,itcanreasonablyconcludedthatpricediscriminationratherthandumpingisoccurring.5.Youworkforacompanythatdesignsandmanufacturespersonalcomputers.Yourcompany’sR&DcenterisinNorthDakota.ThecomputersaremanufacturedundercontractinTaiwan.Marketingstrategyisdelegatedtotheheadsofthreeregionalgroups:aNorthAmericangroup(basedinChicago),aEuropeangroup(basedinParis),andanAsiangroup(basedinSingapore).Eachregionalgroupdevelopsthemarketingapproachwithinitsregion.Inorderofimportance,thelargestmarketsforyourproductsareNorthAmerica,Germany,Britain,China,andAustralia.Yourcompanyisexperiencingproblemsinitsproductdevelopmentandcommercializationprocess.Productsarelatetomarket,themanufacturingqualityispoor,andcostsarehigherthanprojected,andmarketacceptanceofnewproductsislessthanhopedfor.Whatmightbethesourceoftheseproblems?Howwouldyoufixthem?Answer:Thedispersionofactivitiesmakessense-productsareproducedinthelowestcostlocationandmarketedbypeoplefamiliarwithlocalconditions.(TheR&DinNorthDakotamustbeahistoricalfluke.)Yetthismakesthecoordinationtaskextremelycomplex,andinformationrequiredforsuccessfulcommercializationislikelynotbeingeffectivelycommunicatedamongalltheappropriatepeople.Greatercross-functionalintegrationinthenewproductdevelopmentprocessshouldhelptoimproveproductdevelopmentandcommercialization.Chapter16:GlobalHumanResourceManagement1.Whatarethemainadvantagesanddisadvantagesoftheethnocentric,polycentric,andgeocentricapproachestostaffingpolicy?Wheniseachapproachappropriate?Answer:TheanswertothisquestioniscontainedinTable16.1inthetext.Anethnocentricstaffingpolicyisoneinwhichkeymanagementpositionsarefilledbyparentcountrynationals.Theadvantagesoftheethnocentricapproachare:(1)Overcomeslackofqualifiedmanagersinhostcountry,(2)Unifiedculture,and(3)Helpstransfercorecompetencies.Thedisadvantagesoftheethnocentricapproachare:(1)Producesresentmentinhostcountry,and(2)Canleadtoculturalmyopia.Anethnocentricapproachistypicallyappropriateforfirmsutilizinganinternationalstrategy.Apolycentricstaffingpolicyrequireshostcountrynationalstoberecruitedtomanagesubsidiaries,whileparentcountrynationsoccupykeypositionsatcorporateheadquarters.Theadvantagesofthepolycentricapproachare:(1)Alleviatesculturalmyopia,and(2)Itisinexpensivetoimplement.Thedisadvantagesofthepolycentricapproachare:(1)Limitscareermobility,and(2)Isolatesheadquartersfromforeignsubsidiaries.Apolycentricapproachistypicallyappropriateforfirmsutilizingalocalizationstrategy.Ageocentricstaffingpolicyseeksthebestpeopleforkeyjobsthroughouttheorganization,regardlessofnationality.Theadvantagesofageocentricapproach are:(1)Useshumanresourcesefficiently,(2)Helpsbuildstrongcultureandinformalmanagementnetwork.Thedisadvantagesofthegeocentricstaffingpolicyare:(1)Nationalimmigrationpoliciesmaylimitimplementation,and(3)Itisexpensivetoimplement.Ageocentricapproachistypicallyappropriateforfirmsunitizingaglobalortransnationalstrategy.2.Researchsuggeststhatmanyexpatriateemployeesencounterproblemsthatlimitboththeireffectivenessinaforeignpostingandtheircontributiontothecompanywhentheyreturnhome.Whatarethemaincausesandconsequencesoftheseproblems,andhowmightafirmreducetheoccurrenceofsuchproblems?Answer:Theprimarycausesofexpatriateproblemsaretheinabilityofthespousetoadjust,inabilityoftheemployeetoadjust,otherfamilyproblems,personal/emotionalmaturity,andaninabilitytocopewiththelargeroverseasresponsibilities.Theconsequencesofsuchproblemsarethatanemployeecanbeineffectiveordetrimentaloverseas,and/ormayreturnprematurelybeforetheassignedjobtasksarecompleted.Afirmcanreducetheoccurrenceofexpatiateproblemsbydevelopinganeffectiveselectionprocess,training,andrepatriationprogram.Themostsuccessfulexpatriatesseemtobethosewhohavehighself-esteemandself-confidence,getalongwellwithothers,arewillingtoattempttocommunicateinaforeignlanguage,andcanempathizewithpeopleofothercultures.Anexpatriatetrainingprogramshouldincludecultural,language,andpracticaltraining.Culturaltrainingseekstofosteranappreciationofthehostcountry"sculturesothattheexpatriatebehavesaccordingly.Languagetraininginvolvestraininginlocallanguagebothfromabusinessandpersonalperspective.Practicaltrainingisaimedatassistingtheexpatriatemanagerandherfamilytoeasethemselvesintoday-to-daylifeinthehostcountry.Thesooneraday-to-dayroutineisestablished,thebettertheprospectsarethattheexpatriateandfamilywilladaptsuccessfully.Beforeleaving,however,specificplansandproceduresshouldbeinplacefortherepatriationoftheemployee.3.Whatisthelinkbetweenaninternationalbusiness"sstrategyanditshumanresourcemanagementpolicies,particularlywithregardtotheuseofexpatriateemployeesandtheirpayscale?Answer:Infirmspursuingalocalizationstrategy,apolycentricstaffingapproachismostcommonandtherearerelativelyfewexpatriatesortheassociatedpayissues.Expatriatesaremorecommoninfirmswithinternationalstrategies,andanethnocentricstaffingapproachisutilized.Inthissituationthepayisoftenbasedonhomecountrylevels,withadjustmentsasrequiredfordifferinglivingcostsandtaxesasoutlinedbythebalancesheetapproach.Firmspursuingglobalstandardizationortransnationalstrategiesmostoftenuseageocentricapproachtostaffing,wherethebestindividuals(regardlessofnationality)arechosenfillpositionsinanycountry.Herethepayissuesforexpatiatescanbecomeparticularlycomplex,asallowancemustbemadeforhomecountrynorms,hostcountrycostsandexpectations,andglobalnormsacrossthecompany.4.Inwhatwayscanorganizedlaborconstrainthestrategicchoicesofaninternationalbusiness?Howcananinternationalbusinesslimittheseconstraints?Answer:Organizedlaborcansignificantlyconstrainthechoicesfirmsmakewithrespecttolocation.Internationalfirms(ordomesticonesforthatmatter)oftenchoosetolocatenewfacilitiesinplaceswherethereisrelativelaborpeaceandharmoniousworkingrelations.Laborcanalsoraiseobjectionsandthreatendisruptivebehaviorifafirmdecidestomovesomeactivitiestootherlocations-whichinsomecasesonlyreinforcestheneedforrelocatingtheactivities.Organizedlaborhasalsoattemptedto(i)set-uptheirowninternationalorganizations,(ii)lobbyfornationallegislationtorestrictmultinationals,and(iii)achieveregulationofmultinationalsthroughinternationalorganizationsuchastheUnitedNations.However,noneofthesebroadereffortshavebeenthatsuccessful.Internationalbusinesseshavetheadvantageofbeingabletoprovideortakeawayjobs,andintoday"slabormarketthatgivesthemconsiderablepower.Asaconditionofopeningorexpandingafacility,firmscannegotiatefavorableconditionswithlocalunionsandforceunionstocompeteagainsteachotherforthegainsinmembership.'