International Business Operations

Question 1

What is comparative advantage?

Answer 1

specialization in the production and trade of specific products produces comparative advantage in relation to trading partners; companies and countries use comparative advantage to maximize the value of their efforts and resources

Question 2

What are imperfect markets?

Answer 2

resource markets are often deemed to be imperfect; the ability to trade freely between markets is often limited by the physical immobility of the resource or regulatory barriers; in order to retrieve more resources, companies must trade outside their borders

Question 3

What is product cycle?

Answer 3

product manufacture or delivery is subject to a definable cycle, starting with the initial development of the product to meet needs in the domestic markets

Question 4

Methods of conducting international business operations

Answer 4

multinational operations are structured in any number of ways; the following terms help define different methods of organizations:

international trade

licensing

franchising

joint ventures

direct foreign investment

global sourcing

Question 5

Relevant factors of international business operations

Answer 5

factors relevant to assessing the effect of international business operations include:

political and legal influences

potential for asset expropriation

taxes and tariffs

limitations on asset ownership or joint venture participation

content or value added limits

foreign trade zones

economic systems (centrally planned economies, market economies, and conglomerates)

culture (individualism vs collectivism, uncertainty avoidance, short-term vs long-term orientation, acceptance of leadership hierarchy, and technology and infrastructure)

Question 6

Inherent risks of international business operations

Answer 6

the risks associated with conducting international business operations are generally categorized by the following:

exchange rate fluctuation - exchange rate or currency risks (and mitigation techniques) are generally divided into 3 categories: transaction risk, economic risk, and translation risk

foreign economies - an operation within a foreign economy carries the risk of functioning within the general health or weakness of a particular economy; domestic economies may be booming while international economies may be suffering and acting as a drag on a multinational company’s overall performance; the state of the foreign economy in which the company operates is highly significant to risk evaluation

political risk - political risks represent noneconomic events or environmental conditions that are potentially disruptive to financial operations; ultimately, political climates or actions can disrupt cash flows; although expropriation of productive resources represents the most extreme political risk, other features of political risk also must b considered, including:

bureaucracies and related inefficiencies or barriers to trade

corruption

the host government’s attitude toward foreign firms

the attitude of consumers toward foreign firms

inconvertibility of foreign currency

war