9.3 Assessing Internationalism

Question 1

Internationalism

Answer 1

Internationalism is the ideal of countries working together politically, economically and socially to achieve common goals.

Question 2

Reasons for targeting, operating in and trading with international markets

Answer 2

• Growth and profit
• Economies of scale
• Diversify risk
• Trade liberalisation
• Tax - result of transfer pricing

Question 3

Trade liberalisations

Answer 3

Relief of trade barriers allowing/ enabling greater international trade.

Question 4

Transfer pricing

Answer 4

Setting of the price for goods and services sold between related legal entities within and organisation. E.g. if a subsidiary sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price.

Question 5

Factors influencing the attractiveness of international markets

Answer 5

• Risk
• Competition
• Market potential
• Legal and political environment
• Economic factors
• Cost
• Culture
• Methods of entry

Question 6

Reasons for producing more and sourcing more resources abroad

Answer 6

• Reduced costs
• Consistent quality
• Reliability

Question 7

Off-shoring

Answer 7

The movement of the operations of a business to another country.

Question 8

Exporting

Answer 8

Can either export indirectly or directly.

Indirectly:
- through agents
- no direct contact with consumers

Directly:
- relationship is built between the customer and the business

Question 9

Licensing

Answer 9

When a business grants a licence or the right to a business in another country to produce its product.

Question 10

Benefits of licensing

Answer 10

• Quick
• Low-cost method

Question 11

Drawbacks of licensing

Answer 11

• Dependent on local producer who could potentially become a competitor
• Could limit long-term long-term market opportunities and profit

Question 12

Alliances

Answer 12

Involves a cooperative agreement between a company and an overseas business.

Question 13

Benefits of alliances

Answer 13

• Access to foreign markets
• Benefits from the knowledge and expertise of the local business

Question 14

Drawbacks of alliances

Answer 14

• Required to share the knowledge, expertise and technology of the products concerned
• Local business may become a competitor rather than a partner

Question 15

Direct investment

Answer 15

A business can make a direct investment in the foreign market, setting up its own production facilities (off-shoring).

Question 16

Benefits of direct investment

Answer 16

• Direct control over operations
• Avoiding tariffs/ trade barriers
• Reduces transportation costs
• Possibility of reducing labour costs

Question 17

Drawbacks of direct investment

Answer 17

• High initial costs
• Greater exposure to economic risk
• Greater exposure to political risk
• May create problems in terms of management and control of the overseas operation

Question 18

Multinational company

Answer 18

A multinational company is a business that has facilities and other assets in more than one country.

Question 19

Influences on buying, selling and producing abroad

Answer 19

Main Reason: Quality and price

Other factors:
- Skills (different expertise levels in different areas)
- New markets
- A business-friendly framework
- More liberal labour and employment rules
- Overcome trade barriers
- Natural resources

Question 20

Drawbacks of off-shoring

Answer 20

• Ethical issues (inevitable job losses + exploitation of workers)
• Control and quality
• Difficulty in communication due to distance
• IP theft
• British reputation (Made in Britain label)
• Consumer preferences may not be met

Question 21

Re-shoring

Answer 21

When businesses bring back to their home country operations which had been moved overseas.

Question 22

Managing international business including pressures for local responsiveness and pressures for cost reduction

Answer 22

Pressures for local responsiveness relates to:
- The tastes of the local market
- The preferences of the local market
- Could be different due to differences if the local market

Pressures for cost reduction:
- Likely to stem from the competitive environment

Question 23

Bartlett and Ghoshal’s matrix

Answer 23

Identifies four international strategies according to the pressure for local responsiveness (high or low) and the pressure for integration (high or low).

Question 24

High level of pressure for global integration, High level of pressure for local responsiveness

Answer 24

Transnational strategy

Question 25

High level of pressure for global integration, Low level of pressure for local responsiveness

Answer 25

Global Strategy

Question 26

Low level of pressure for global integration, High level of pressure for local responsiveness

Answer 26

Multi-domestic strategy

Question 27

Low level of pressure for global integration, Low level of pressure for local responsiveness

Answer 27

International strategy

Question 28

Impact of internationalism on the functional areas of the business

Answer 28

Marketing:
- Researching the market
- Developing appropriate promotional strategies

Finance:
- Any decision related to internationalism requires financing
- Pressure for cost reductions

Operations:
- Sourcing materials
- Adaptation of products
- Quality
- Capacity

Human Resources:
- Recruitment and training
- Redundancy strategies
- Consideration of management styles when working with different cultures