International Business

Question 1

Why do it

Answer 1

• Supply chains are now global
• Corporations are now international in scope
• Countries are part of larger regional trading blocs
• Small markets cannot support large industries
- Aerospace, automotive
- Need high volumes to support R&D effort
• Need to grow, because smaller companies get
amalgamated into larger ones
• Communication & transportation make it possible

Question 2

We have globalization in markets and production

Answer 2

Markets: the consolidation of many national markets into one big world market
Production: global competition, global workplace, multinationals

Question 3

International business

Answer 3

Any commercial transaction that crosses the borders of two or more nations.

Question 4

Importing

Answer 4

Importing: when a company buys goods outside the country and resells them domestically.

Question 5

Exporting

Answer 5

Exporting: when a company produces goods domestically and sells them outside the country

Question 6

Globalization (impact on international business)

Answer 6

Globalization has made international business prevalent, and fewer and fewer products are made solely within one country’s borders

Globalization has been driven by technological change (internet, inexpensive and fast transportation and communications)

Question 7

Globalization

Answer 7

Globalization, the trend whereby national economies are becoming integrated into the world economy, is reflected in three developments:
1. the rise of the global workplace and e-commerce
2. the trend of the world’s becoming one big market
3. the rise of both big firms and quick, Internet-enabled small firms worldwide

Globalisation rests on the free movement of:
- Goods, Money, and People Nationalism (Make America Great!) and the rejection of the free movement of people (Brexit) are counterbalances to the trend towards ever increasing Globalisation.

Question 8

Conditions affecting international trade

Answer 8

Product design and characteristics, packaging, promotion and other have to take account of differences amongst business environments & markets, such as:
• Cultural
• Economic
• Political and legal

Question 9

Culture

Answer 9

Culture: the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people

International business requires cultural literacy of
national cultures and subcultures

Question 10

The main components of culture (6)

Answer 10

Education
Values
Customs
Social structure
Religion
Language

Question 11

Infrastructure

Answer 11

Infrastructure: the physical facilities that form the basis for its level of economic development.

Question 12

Developed countries

Answer 12

Developed countries: first-world countries, those with a high level of economic development and generally high average level of income among their citizens

Question 13

Less-developed countries

Answer 13

Less-developed countries: or developing countries, are third-world countries, those nations with low economic development and low average incomes

Question 14

Emerging markets

Answer 14

Emerging Markets: High growth markets

Question 15

Political and legal systems

Answer 15

• Political systems may be stable or unstable
• Political instability makes it difficult to commit to long term investments as these could suffer from unforeseen events (Political Risk)
  • Expropriation: defined as a government’s seizure of a domestic or foreign company’s assets.
  • Conflict & violence
• Legal systems differ and may be permissive or
  restrictive towards business practices
  • Corruption & Enforcement
  • Intellectual property protection
  • Taxation

Question 16

Strategies for reaching global markets

Answer 16

From lower risk and control to higher risk and control
- exporting, licensing, franchising, foreign direct investment

Question 17

Strategies for reaching global markets: exporting

Answer 17

• The most basic level of international market development.
• It means producing products domestically and selling them abroad.
• Sales are made to other businesses that act as wholesalers or retailers for the firm’s product or sales can be made directly to consumers or businesses that use the product themselves.

Question 18

Strategies for reaching global markets: licensing

Answer 18

• Involves a domestic firm granting a foreign firm the rights to produce and market its product or use its intellectual property rights in a defined geographical market.
• Firms grant licensing rights to others in foreign countries to produce and/or sell their products (e.g. Products with professional sports team logos, Pepsi bottling rights, etc.).
• Involves a licensor and a licensee, with royalties being paid.

Question 19

Strategies for reaching global markets: franchising

Answer 19

• Is a specialized type of licensing
• A firm expands through foreign franchising by offering franchisees the right to duplicate a specific business in other countries (e.g. McDonalds).
• Involves a franchisor and a franchisee, with royalties being paid.

Question 20

Strategies for reaching global markets: foreign direct investment

Answer 20

• This represents the deepest level of global involvement.
• It involves investing in foreign countries to set up
manufacturing, distribution systems and/or sales offices in foreign countries.
• Examples include Bombardier which has manufacturing, engineering, administration and customer service facilities in many countries and continents.

Question 21

Foreign subsidiary

Answer 21

A foreign subsidiary is a company in a foreign country that is totally owned and controlled by the parent company. The advantages of having a foreign subsidiary are:
• No sharing
• More control
• More in-country incentives

Question 22

Exporting advantages and disadvantages

Answer 22

Advantages
- for a nation: creation of wealth, local jobs
- for a corporation
• allows for more volume which covers fixed costs (lower prices, higher margins, more competitive)

Disadvantages
- for a nation: none
- for a corporation
• can be administratively complicated (export permits, import tariffs, after sales support)
• expensive (high transportation & insurance costs, currency variations)

Question 23

Importing advantages and disadvantages

Answer 23

Advantages
- Internationally
• Efficient allocation of resources
- For an importing nation:
• Access to goods at a lower cost than domestically
- For a corporation
• Access to goods & services at a lower cost
• More competitive
• More productive

Disadvantages
- For a nation
• Perceived loss of jobs
• Cash outflow
- For a corporation
• Can be expensive (High transportation & insurance costs, currency variations)

Question 24

Protectionism

Answer 24

• Seeks to protect local jobs from displacement to other national entities
• Seeks to protect local industries
  • Agriculture is always the top priority
• Seeks to promote a balance of trade or a favorable inflow of funds
• Seeks to ensure national autosufficiency

Question 25

Barriers to trade: trade protectionism

Answer 25

Trade protectionism—the use of government regulations, tariffs, quotas, and embargoes to limit the import of goods and services.

Question 26

Barriers to trade: tariffs

Answer 26

A fancy name for “taxes” on imports
A tariff is a trade barrier in the form of a customs duty, or tax, levied mainly on imports.  

Question 27

Barriers to trade: import quotas
(+ dumping definition)

Answer 27

An import quota is a trade barrier in the form of a limit on the quantity of a product that can be imported.
Dumping is the practice of a foreign company’s selling its products abroad for less—even less than the cost of manufacture—than the price of the domestic product in that market.

Question 28

Barriers to trade: embargoes

Answer 28

An embargo is a complete ban on the import or export of certain products

Question 29

Exchange rates

Answer 29

Currencies vary in value one to another according to economic factors

Currency Exchange Rate : the rate at which one country’s currency can be exchanged for the currencies of other countries

International business transactions have to account for these short term variations

Companies can protect themselves from currency losses with special insurance and through forward currency contracts

Question 30

Trading blocs

Answer 30

From Free trade areas to Political union

• European Union
  • Europe
• USMCA (Before NAFTA)
  • North America
• Mercosur
  • South America
• ASEAN
  • Asia (Pacific region)

Question 31

Free trade

Answer 31

Free trade = different barriers against non members

Question 32

Economic union

Answer 32

Economic Union = common trade policy against non members

Question 33

Global trade: balance of trade

Answer 33

Balance of trade is the value of a country’s exports compared to the value of its imports as measured over a particular period of time.

Question 34

Global trade: trade surplus

Answer 34

Trade Surplus or favorable balance of trade, exists when the value of a country’s total exports exceeds the value of its total imports.

Question 35

Global trade: trade deficit

Answer 35

Trade Deficit or unfavorable balance of trade, exists when the value of a country’s total imports exceeds the value of its total exports.

Question 36

Global trade: balance of payment surplus

Answer 36

Balance-of-Payments Surplus: or favorable balance of payments, exists when more money flows into a country than flows out.

Question 37

Global trade: balance of payments deficit

Answer 37

Balance-of-Payments Deficit: or unfavorable balance of payments exists when more money flows out of a country than flows in.

Question 38

Global supply chain: Outsourcing

Answer 38

A common practice of many companies, outsourcing, or contract manufacturing, is defined as using suppliers outside the company to provide goods and services.

Question 39

Global supply chain: global outsourcing/offshoring
(+ 3 advantages)

Answer 39

Global outsourcing, sometimes called offshoring, is defined as using foreign suppliers to provide labor, goods, or services.
Three reasons to use offshoring are:
• Special resources
• Special expertise
• Labor costs

Question 40

Global supply chain: joint venture
(+3 advantages)

Answer 40

A firm may form a joint venture, also known as a strategic alliance, with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign county.
Three advantages are:
• Local expertise
• Local base
• Outside assistance