Chapter 3

Question 1

The basis for international business

Answer 1

Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in
- Exporting
- Importing

=>Balance of trade
Exports - Imports

=> Trade deficit
More Imports than Exports

=> Balance of payments
Total inflow – Total outflow

Question 2

Restrictions to international business

Answer 2

Reasons for restricting trade:
- From internal political and economic pressures to mistrust of
other nations.

Nations are generally eager to export their products.

Therefore, most trade restrictions are applied to imports from other nations.

Question 3

Types of trade restrictions

Answer 3

Import duty (tariff)
- A tax levied on a particular foreign product entering a country
> Revenue tariffs to generate an income for the government
> Protective tariffs to protect the domestic industry against
dumping

Nontariff barriers
- Nontax measures imposed by a government to favour domestic
over foreign suppliers
> Import quota
> Embargo
> Foreign exchange control
> Currency devaluation

Question 4

Pros and cons for trade restrictions

Answer 4

Pros
> To equalize a nation’s balance of payments
> To protect new or weak industries
> To protect domestic jobs
> To protect national security
> To protect the health of citizens
> To retaliate for another country’s trade restrictions

Cons
> Higher prices for consumers
> Restriction of consumers’ choices
> Loss of jobs
> Misallocation of international resources
> To retaliate for another country’s trade restrictions

Question 5

International trade agreements

Answer 5

The General Agreement on Tariffs and Trade and the World Trade Organization

• General Agreement of Tariffs and Trade (GATT)
  > International organization of 164 nations dedicated to
  reducing or eliminating tariffs and other trade barriers
  > Kennedy, Tokyo, Uruguay and Doha rounds.
• World Trade Organization (WTO)
  > Created in the Uruguay Round
  > WTO oversees GATT provisions, has judicial powers to mediate
  trade disputes arising from GATT rules and exerts more
  binding authority than GATT

Question 6

Economic communities - Trade Blocks

Answer 6

An organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies
- works to foster trade

Trade blocks
> European Union (EU)- BREXIT
> North American Free Trade Agreement
> Common Market of the Southern Cone (MERCOSUR)
> South African Customs Union (SACU): five countries ofSouthern > Africa:Botswana,Lesotho,Namibia,South
> AfricaandEswatini(formerly Swaziland)
> South African Development Community (SADC)

Question 7

BRICS

Answer 7

• Developing or newly industrialised countries
• Brazil, Russia, India, China and South Africa
• Distinguish according to size, growth rate economy and influence
  on provincial and national activities
• 2022: Represented 3.22 billion people, total GDP of
  US$24.73trillion, fastest growing BRICS economy is India

Question 8

Entering international marketing

Answer 8

Licencinsing
> contractual agreement which permits a firm to produce and market its product and brand in return for royalties/compensation

Exporting
> Manufacturer produce in own country and export for sale in foreign markets

Joint venture
> partnership formed to achieve a specific goal or to operate for a specific period of time

Totally owned facilities
> direct investment
> production + marketing facilities in 1/+ foreign nations

-> Building new facilities in foreign country
-> purchase existing firm in foreign country

Strategic alliance
> partnerships formed to create a competitive advantage on a worldwide basis

Trading company
> firms that provide a link between buyers and sellers in different countries

Countertrade
> international barter transaction

Multinational enterprise
> firm that operates on a worldwide scale without ties to a specific nation/region