Lecture 6

Question 1

Mercantilism

Answer 1

commercialism. A country attempts to maximize its wealth by increasing exports and decreasing imports. Wealth is measured by the country’s holdings in treasure. Once dominant. Motivation for colonialism centuries ago.

Question 2

Adam Smith’s (1776) “absolute advantage”

Answer 2

• The ability (of a country) to produce an item with fewer

inputs than any other (country)

Question 3

– David Ricardo’s (1817) “comparative advantage”

Answer 3

“Absolute” cost is irrelevant. “Opportunity” cost determines the international trade activities of the country

Question 4

How do we determine where to locate our
business activity (inputs)?

Answer 4

– Labor cost – Employee productivity – Natural resources, availability of raw ingredients – Inflation, stability of the economy – Energy costs – Taxes – Country’s business climate – Concentration/clustering of suppliers, partners, etc.

Question 5

Why should we seek foreign markets (for

outputs)?

Answer 5

1. New customers (growth), “replacement”
   customers (in cases of shrinking domestic
   markets)
2. To reduce costs by producing on a larger
   scale. Born global?
3. To minimize risk, market volatility
   (economics, weather, fashion, etc.)

Question 6

HC

Answer 6

– Home Country. Consumer’s country of residence.

Question 7

• DC

Answer 7

– Designed-in Country, as in Italian designed furniture, or

Japanese designed electronics.

Question 8

• PC

Answer 8

– Parts Country signifies the origin of the components,

regardless of where assembly actually takes place.

Question 9

• AC

Answer 9

– Assembly Country. As opposed to PC, this designates

the location of product assembly and not source location of components.

Question 10

• OC

Answer 10

– Origin Country. A symbolic or tradition country of origin, as in the cases USA for Zenith and Japan for Sony.

Question 11

• Barriers to trade:

Answer 11

– Tariffs- tax on imported goods
– Subsidies- government backed loans, benefits,
tax breaks
– Quotas- limits on quantities of imported goods
– Standards- laws regulating products quality or
features

Question 12

Geert Hofstede

Answer 12

4 dimensions of culture

1. Power-distance
2. Uncertainty avoidance
3. Individualism/collectivism
4. Masculinity/Femininity

Question 13

Two “newer” Hofstede dimensions

Answer 13

• Long/Short-term orientation

* Indulgence vs. restraint

Question 14

Edward T. Hall (US, 1914-2009)

Answer 14

Anthropologist, defined cultures as “high

context” or “low context”

Question 15

Global consistency or “standardization”

Answer 15

•Universal needs among people throughout the
world
•Pressure to lower costs
•Global strategic coordination

Question 16

•Local responsiveness or “adaptation”

Answer 16

• Different preferences throughout the world
• Customs, traditions, cultures
• Distribution channels
• Economic, political and legislative issues

Question 17

International Model

Answer 17

•Local presence in a number of countries, some

independence,

Question 18

Global Model

Answer 18

•Standardized to the highest degree possible
•Manufactured in a concentrated manner in
few places, where place is chosen based on
costs
•Advantage based on economies of scale
•Most electronics, automotive
•Disadvantages: difficulties associated with
cross-border shipments, inappropriateness
for local markets

Question 19

Transnational Model

Answer 19

Takes advantage of both economies of

scale and adaptation

Question 20

Modes of Entry into Foreign

Markets

Answer 20

• Exporting
• Licensing
• Franchising
• Joint ventures
• Wholly owned subsidiary