1. Distinguish between an absolute advantage and a comparative advantage. Cite an example of a country that has an absolute advantage and one with a comparative advantage.
Absolute advantage is when a monopoly exists in a country when it is the only source and product of an item. Meanwhile, a comparative advantage is when a country can supply products more efficiently and at a lower cost than it can produce other items. South Africa has an absolute advantage because of its diamonds. The United States has a comparative advantage because of the many products we produce.
3. What effect does devaluation have on a nation’s currency? Can you think of a country that has devaluated or revaluated its currency? What have been the results?Devaluation decreases the value of currency in relation to other currencies. Mexico is a country that has devalued their currency. The result of this is to make things less expensive.
4. How do political issues affect international business?Political issues affect international business by it helps to sell products overseas.
5. What is an import tariff? A quota? Dumping? How might a country use import tariffs and quotas to control its balance of trade and payments? Why can dumping result in the imposition of tariffs and quotas?An import tariff is a tax made by the nation on goods imported into the country. A quota limits the amount of products that can be imported into a country. Dumping is a country selling products at less than what it costs to produce them. A country uses import tariffs to protect domestic products by raising the price of imported ones. A country uses quotas by voluntary agreement or by government decree. Dumping can result in the imposition of tariffs and quotas because it permits quick entry into the market or a firm’s product is too small to have a certain level of production.
6. How do social and cultural differences create barriers to international trade? Can you think of any additional social or cultural barriers (other than those mentioned in this chapter) that might inhibit international business?Social and cultural differences create barriers to international trade by cultural differences in spoken and written languages are different. A certain phrase in America can be defined as something very different and sometimes inappropriate in another culture. Body languages and personal space are also an affect. These differences can cause misunderstandings or uncomfortable feelings toward a specific business. Another cultural barrier may be a certain religion and something that person believes in. A business may be mocking a religion without knowing anything about it.
8. At what levels might a firm get involved in international business? What level requires the least commitment of resources? What level requires the most?A firm might get involved in international business at many levels, it depends on the commitment and effort a certain company decides to involve itself in international trade. The least commitment of resources is a small company on the level of less than 100 employees. The level which requires the most is a large company with more than 500 employees.
9. Compare and contrast licensing, franchising, contract manufacturing, and outsourcing.
Licensing is a trade arrangement in which on company allows another to use its company’s name, products, patents, brands, trademarks, raw materials, and many others in exchange for a fee or royalty. Franchising is a form of licensing in which a company agrees to provide their name, logo, methods of operation, advertising, products, and other elements in return for a financial commitment and the agreement to conduct business in accordance with the original standard of operations.
Contract manufacturing is when a company hires a foreign company to produce a specified amount of the firm’s product to specification. Outsourcing is transferring manufacturing or other tasks to companies in countries where labor and supplies are less expensive. All of these ideas are similar in the way it helps businesses expand their work into more areas of their own countries or in foreign countries as well.
10. Compare multinational and global strategies. Which is best? Under what circumstances might each be used?Multinational strategies are plans used by international companies that involve customizing products, promotion, and distribution according to cultural, technological, regional, and national differences. Global strategies involve standardizing products for the whole world. The best is global strategies because it helps the world recognize different cultures and understand the way one culture believes to another. A global strategy is used by American clothing, movies, music, and cosmetics. A Multinational strategy is used by celebrities being advertised in one country but can’t be advertised in another because of the unfamiliarity.
Book: Business Organization and Management