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International Management Essay

Chapter 1

Q1. What are the differences between international, global, and multidomestic companies?

Multinational company : An organization with multi country affiliates, each of which formulates its own business strategy based on perceived market differences.

Global company : An organization that attempts to standardize and integrate operations worldwide in all functional areas.

International company : Either a global or a multi domestic company

Q2. Give examples to show how an international business manager might manipulate one of the controllable forces in answer to a change in the uncontrollable forces.

Uncontrollable forces(External forces) :


Manager can lobby for a changing a law and promoting a new product which requires changes in a cultural attitude.

Q3. “A nation whose GNI is smaller than the sales volume of a global firm is in no position to enforce its wishes on the local subsidiary of that firm.” True or False? Explain.

GNI is different from sales volume in terms of a calculation method. GNI is a measure of value added, not sales. And each subsidiary of global firms is also a local company that must comply with law in the country where it is located.

Q4. Discuss the forces that are leading international firms to the globalization of their sourcing, production, and marketing.

5 major forces : Political, Technological, Market, Cost, and Competitive Followings are the five change-based drivers that are leading international firms to globalize their operations, with an example for each kind : (1)political-preferential trading agreements, (2)technological-advances in communications technology, (3)market-global firms become global customers, (4)cost-globalization of product line and production helps reduce costs by achieving economies of scale, and (5)competitive-firms are defending their home markets from foreign competitors by entering the foreign competitors’ markets.

Q5. Business is business, and every firm has to produce and market its goods. Why, then, might managers be unable to apply the techniques and concepts they have learned in their own country to other areas of the world?

Despite firms have knowledges and skills for business in own country, they might not be successful in foreign countries that have their own cultures and trends of consumption. Good example for this question is Wal-mart in Korea. The international environmental defined as the interactions (1)between the domestic environmental forces and the foreign environmental forces and (2)between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another.

Q6. What do you believe makes foreign business activities more complex than purely domestic ones?

To make a decision in foreign country is more difficult than home country. They not only must take into account the domestic forces bot also must evaluate the influence of 10 foreign national environments.

Q7. Discuss some possible conflicts between host governments and foreign-owned companies.

I am the opinion that restrictions for subsidiaries of foreign companies are sensitive problems. For example, If a certain nation prohibits funding for foreign companies, conflicts will increase. And complains of foreign companies will also increase. On the other hands, If a certain nation is open to the funding for foreign companies, there will be some troubles with foreign companies about taxes and incentives.

Q8. Why, in your opinion, do the authors regard the use of the self-reference criterion as “probably the biggest cause of international business blunders”? Can you think of an example?

If I do business in overseas, I don’t know everything exactly concerning about foreign country’s culture, policy, social situations, economy, and trends. So, doing business well in foreign country is very difficult. Self-reference criterion means unconscious reference to one’s own cultural values when judging behaviors of others in a new and different environment. Managers’ unfamiliarity with other cultures, to make matters worse, some managers will ascribe to others their own preferences and reactions. For example, selling beefs by self-reference criterion business in Muslim countries will be failed.

Q9. You have decided to take a job in your hometown after graduation. Why should you study international business?

Owing to globalization trends in the worlds, and importance of relationship between domestic and foreign country, we have to study hard international business. I will take a job in home country. But I might have opportunities for business in overseas and meeting foreign buyers. Thus, to obtain other countries values, cultures, policies, and trends by studying international business is very important for me.

Q10. Although forces in the foreign environment are the same as those in the domestic environment, they operate differently. Why is this so?

I think that domestic environmental and foreign environmental are different in terms of domestic and foreign’s culture, and international environmental. When comparing with domestic environmental, operating company in the foreign country has different environments such as company’s market share, foreigner’s own culture, and growth in global. And domestic environmental is also originated in home country’s culture which effect on the companies.

Q11. What examples of globalization can you identify within your community? How would you classify each of these examples(e.g., international investment, international trade)?

– International investment :
I could feel the globalization by watching the Coka-Cola in every super market. – International trade :
FTA(Korea and Chile) is a good example for international trade. This free trade agreements is mutually profitable for each nations Q12. Why is there opposition to globalization of trade and integration of the world’s economy? Please assess the major arguments for and against such globalization efforts.

I think that this argument against globalization is originated by the different people’s valules and concepts. This argument can be examined by three primary ones (1) that globalization has produced uneven results across nations and people (2) that globalization has had deleterious effects on labor and labor standards (3) that globalization has contributed to a decline in environmental and health conditions.

Chapter 2

Q1. How large and important a role do small and mediumsize enterprises play in generating export sales?

The proportion of generating export sales from the SMEs in the U.S.A increased constantly. According to the Exporter Data Base in the text book, Of total exporters, 218,382 were SMEs(small and medium-size enterprises). It is 97 percent of all U.S.A exporters.

Q2. How has trade in merchandise and services changed over the past decade? What have been the major trends? How might this information be of value to a manager?

Although the economic growth of global has slowdowned in the 2000, the absolute value of their merchandise exports increased, the proportion of exports coming from the regions of Latin America, Africa, and Middle East decreased between 1980 and 2004. The largest exporters and importers of merchandise are generally developed countries.

The results of services exports are similar with merchandise exports. Regionalization of trade is increasing more and more. It is accounted for over 70 percent by 2005. Further, South and East Asia’s share of the world’s manufacturing value added has nearly quadrupled since 1980. From this information the managers may be prepared for the increased competition from exports to their own domestic markets.

Q3. “The greater part of international trade consists of an exchange of raw materials from developing nations for manufactured goods from developed nations.” True? or false? Explain.

False. This is correct partially. More than half the exports from developing nations go to developed countries. Also, over 70% of exports from developed economies go to other industrialized nations

Q4. “The volume of exports has increased, but the ranking of U.S. trading partners in order of importance remains the same year after year.” True or false? Of what use in this information to a manager?

False. Of the top 15 nations, 8 have remained on the list over the years listed, including Canada, Mexico, Japan, Germany, the United Kingdom, France, Italy, and Brazil. However, each nation’s ranking has changed over time, and some new nations have been added to replace other nations that have become relatively less important as trade partners.

Q5. What is the value of analyzing foreign trade data? For example, what should the quadrupling in real terms of exports in less than 35 years indicate to managers?

The analysis information would be helpful to anyone just starting to search outside the home market for new business opportunities by studying the general growth and direction of trade and analyzing major trading partners.

Q6. Knowing that a nation is a major trading partner of another signifies what to a marketing analyst?

There are advantages to focusing attention on a nation that is already a sizable purchaser of another country – The business climate in the importing nation is relatively favorable – Export and import regulations are not insurmountable

– There should be no strong cultural objections to buying that nation’s good – Satisfactory transportation facilities have already been established

Q7. What are the different components of foreign investment? Why has the distinction between them begun to blur in recent years?

It can be divided into two components :
First is portfolio investment and second is direct investment. 1. Portfolio investment : The purchase of stocks and bonds to obtain a return on the funds invested. 2. Direct investment : The purchase of sufficient stock in a firm to obtain significant management control. Because of globalization in recent years, the distinction beetween them begun to blur.

Q8. How has the level and direction of FDI changed over the past decade, both overall and in terms of annual outflows and inflows? Why would this information be of relevance to managers?

Annual FDI outflows hit a historical high in 2000-$1,201 billion. However, By 2002, the total was only $647 billion, only about 54 percent of the 2000 figure because of a subsequent decline in the overall level of annual FDI flows. Outflows significantly increased to $730 billion by 2004. The vast proportion of outward FDI, over 87 percent, originates from the developed countries.

This data has been associated with mergers, acquisitions; purchasing of companies in other nations. In annual inflows’ case, developed countries have been alse occupying over 70 percent of annual FDI investments. Recently for managers, important issues related to inflows are trend that proportion of Asian FDI that has been directed to China and its territories. Their combined proportion of Asian FDI grew from 52.4 percent during 1985-1995 to 75 percent in 2004.

Q9. Why has FDI historically followed foreign trade? What is it about the new international business environment that is causing this path to market expansion to change?

Reason is that engaging in foreign trade is typically less costly and less risky than making a direct investment into foreign markets. Also, management can expand the business in small increments rather than through the considerably greater amounts of investment and market size that a foreign production facility requires. Generally, because the local market would not be large enough to support local production by all the firms exporting to it, the situation would become one of seeing who could begin manufacturing there first.

Q10. Why has most foreign direct investment gone into acquiring existing companies rather than establishing new ones?

1) Corporate restructuring in the United States caused management to put on the market businesses or other assets. 2) Foreign companies wanted to gain rapid access in the United States to advanced technology, especially in computers and communications 3) Management of foreign firms felt that entrance into the large and prosperous American market could be more successful 4) Increased international competitive pressures also could be reasons for this question.

Q11. What are the main reasons that a firm might enter into foreign markets?

First reason is to increase their profits and sales (Enter new markets / Obtain greater profits / Test market) Second is to protect markets, profits, and sales (Protect domestic market / Attack in competitor’s home market / Protect foreign markets / Guarantee supply of raw materials / Acquire technology and management know-how / geographic diversification / Satisfy management’s desire for expansion)

Q12. What are in-bond plants? Why might they be an attractive alternative for a manufacturing company?

In-bond plants, often called maquiladoras, is production facilities in Mexico that temporarily import raw materials, components, or parts duty-free to be manufactured, processed, or assembled with less expensive local labor, after which the finished or semifinished product is exported. Because the Mexican government permitted duty-free importation of parts and materials from the USA within the in-bond plant, provided that the finished products were re-exported.

Q13. How can a firm protect its domestic market by investing overseas?

When companies face competitor which has lower price advantage in domestic, companies can break this difficult situation by using advantages of overseas investments.(cheap labor cost, raw material, and etc.)

Q14. What are the seven dimensions along which management can globalize? How is it possible for a firm to be multidomesic on one dimension of globalization and global on another?

There are at least seven dimensions : 1) product, 2) market, 3) promotion, 4) where value is added to the product, 5) competitive strategy, 6) use of non-home-country personnel, and 7) extent of global ownership in the firm. The possibilities range from zero standardization(multidomestic) to standardization along all seven dimensions(completely global). The challenge
for company managers is to determine how far the firm should go with each one.

Chapter 3

Q1. Describe mercantilism, and explain why mercantilism has been argued to be a poor approach to use in order to promote economic development and prosperity.

Mercantilism is an economic system (Europe in 18th century) to increase a nation’s wealth by government regulation of all of the nation’s commercial interests. Mercantilism that stressed governments’ promotion of limitation of imports from other nations and internal economies in order to improve tax revenues; popular during 17th and 18th centuries in Europe. The Paradox of Mercantilism is to be “rich” a country needed to have a lot of poor people.

Mercantilism failed to understand the notions of absolute advantage and comparative advantage and the benefits of trade. For instance, Portugal was a far more efficient producer of wine than England, while in England it was relatively cheaper to produce cloth. Thus if Portugal specialized in wine and England in cloth, both states would end up better off if they traded. This is an example of the reciprocal benefits of trade due to a comparative advantage. In modern economic theory, trade is not a zero-sum game of competition, because both sides can benefit.

a. Explain Adam Smith’s theory of absolute advantage.

The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. Entities with absolute advantages can produce something using a smaller number of inputs than another party producing the same product. As such, absolute advantage can reduce costs and boost profits.

b. How does Ricardo’s theory of comparative advantage differ from the theory of absolute advantage?

Absolute advantage and comparative advantage are two basic concepts to international trade. Under absolute advantage, one country can produce more output per unit of productive input than another. With comparative advantage, if one country has an absolute (dis)advantage in every type of output, the other might benefit from specializing in and exporting those products, if any exist.

A country has an absolute advantage economically over another, in a particular good, when it can produce that good at a lower cost. Using the same input of resources a country with an absolute advantage will have greater output. Assuming this one good is the only item in the market, beneficial trade is impossible. An absolute advantage is one where trade is not mutually beneficial, as opposed to a comparative advantage where trade is mutually beneficial.

A country has a comparative advantage in the production of a good if it can produce that good at a lower opportunity cost relative to another country. The theory of comparative advantage explains why it can be beneficial for two parties (countries, regions, individuals and so on) to trade if one has a lower relative cost of producing some good. What matters is not the absolute cost of production but the opportunity cost, which measures how much production of one good, is reduced to produce one more unit of the other good.

c. Using the example from the chapter, explain why no gains from specialization exist(and thus why two countries could not trade in a manner that benefits each) if there is no pattern of comparative advantage(if the ratios of soybeans to cloth production are the same in the two countries).

China has an absolute advantage in producing both soybeans and cloth. If there is a trade between 2 countries according to comparative advantage theory, United States will have 4 tons of soybeans and 5 bolts of cloth. On the other hand, China will have 4 tons of soybeans and 5 bolts of cloth. Therefore, china will have a loss for their total soybeans compared with
before trading the products.

Q3. Consider the case in which a country does not have a comparative advantage in the production of a product, such as apples, because its soils or climate are not appropriate. Explain who would be likely to favor free trade, and who would be likely to oppose free trade, in this product.

– Favor to free trade : countries which has a comparative advantage in production of a product, such as apples.

– Opposite to free trade : countries which has a comparative disadvantage in production of a product, such as apples.

Q4. What is the relationship between the Heckscher-Ohlin factor endowment theory and the theories in question 2?

It builds on David Ricardo’s theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially says that countries will export products that utilize their abundant and cheap factors of production and import products that utilize the countries’ scarce factors.

Q5. Why were Leontief’s empirical results considered to be paradoxical?

In 1954, Leontief found that the U.S. (the most capital-abundant country in the world by any criteria) exported labor-intensive commodities and imported capital-intensive commodities, in contradiction with Heckscher-Ohlin theory.

Q6. Why does most of the world’s international trade take place between economies that are similar in their level of economic development?

According to the Linder’s demand-oriented theory, The reason is 1) income levels of both nations 2) overlapping demand. Because an entrepreneur will produce goods to meet demand, the kinds of products manufactured reflect the country’s level of income per capital. Goods produced for domestic consumption will eventually be exported, due to similarity of income levels and therefore demand in other countries.

Q7. Name some products that you believe have passed through the four stages of the international product life cycle.

Telegraphy. I read recently how Western Union sent the last telex / telegram in 2006, so that definitely qualifies to decline. You can literally see how this expanded based upon rail and cable laying; and didn’t start in all places on earth (let alone a single country) simultaneously; and continued to be a viable business in some countries long after voice, fax, then email and SMS replaced such.

Q8. What factors increase the cost of trading goods and services across borders? Can these costs be reduced? How?

I think that import/export tariffs, subsidies, expensive transaction costs, and etc are factors which increase the cost of trading goods and services across borders. This factors which occur costs can be reduced by free trade agreements(FTA) or regional trade agreements such as NAFTA, EU. It will reduce unnecessary costs and encourage trading among nations.

Q9. It seems that free, unrestricted international trade, in which each nation produces and exports products for which it has a comparative advantage, will enable everyone to have a higher level of living. Why, then, does every country have import duty restrictions?

Because many nation did not produce other nation’s product and the nation has lower qualities or a lot of cost better than other nation’s product. In case that many nation needs other nation’s product. At the trading among the nations, there are a lot of problems. For example, economical, historical problems, political and so on. If a nation has infant industry.

For example, farming which is needed to develop for domestic market, The nation can be protect the industry from competitive companies by having import duty restrictions. And then, their nation’s infrastructure can be collapse. For fair competition, nation have to improve the balance of the trading.

Q10. “We certainly need defense industries, and we must protect them from import competition by placing restrictions on competitive imports.” True or false? Is there an alternative to trade restrictions that might make more economic sense?

I think that it may be not true. All is not certainly, If nation’s competitive industry help income of nation that select and improve nation’s industry. A nation trading needs of basic infrastructure among the nations. And then, About tariff of the trading remove or a little portion levy.

Q11. Suppose that a country negotiates an agreement with its trade partners to restrict its imports through voluntary export restrictions(VERs). What impacts might be expected from implementing such VERs?

VER(Voluntary Export Restriction) mean’s that exporting nation restricted quantities of export and list of article. In case that at nation’s exporting product surplus or insufficiency in a given situation. In a surplus situation, nation should be restricted for their quantities. In a insufficiency situation, nation make some increasing demand and higher cost.

Q12. “Workers are paid $20 an hour in the United States but only $4 in Taiwan. Of course we can’t compete. We need to protect our jobs from cheap foreign labor.” What are some possible problems with this statement?

In a given situation, cheaper product come round in our nation. At the same time, our nation’s job of labor disappeared. LDC(Lower Develope Country) has cheaper wage that supply more profi better than industrialization nation. But Many industrialization nation has higher wage and lower productivity. Production costs may actually be higher in a low-wage.

Q13. There are two general classifications of import duties : tariff and non-tariff barriers. a. Describe the various types of tariff barriers.

An ad valorem tariff is a set percentage of the value of the good that is being imported. Sometimes these are problematic, as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely, when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is higher.

A specific tariff, is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs are vulnerable to changes in the market or inflation unless updated periodically.

A revenue tariff is a set of rates designed primarily to raise money for the government. A tariff on coffee imports imposed by countries where coffee cannot be grown, for example raises a steady flow of revenue.

A protective tariff is intended to artificially inflate prices of imports and protect domestic industries from foreign competition (see also effective rate of protection,) especially from competitors whose host nations allow them to operate under conditions that are illegal in the protected nation, or who subsidize their exports.

b. What are some of the nontariff barriers?

Non-tariff barriers may also be in the form of product standards and technical regulations, which may dictate particular manufacturing guidelines or product specifications. If products do not meet the given requirements, they will face an import ban. Examples of this sort are the European Union restrictions on genetically-modified organisms or beef treated with growth hormones.

Q14. “A firm entering the market first will soon dominate it, and the large market share it acquires will enable it to obtain the benefits of economies of scale.” True or false? Remember that there are at least two studies showing that first movers held large market shares.

True. First-mover advantage theory is economic and strategic advantage gained by being the first company to enter an industry. However, If only the firm possess core strategies such as superior technology, knowledge about local market, and other advantages over indigenous firms. It could be failure that you awkwardly enter the market for the first mover without these strategies.

This conclusion will bring about more advantage opportunities to the second mover who has been indirectly experienced the failure of first mover. It is never true that only the first mover strategy is the best theory.

Q15. According to theories presented in this chapter, why do companies engage in foreign direct investment?

For defensive reason, Refer to the international product life cycle theory. International investement as well as international trade. Refer to the eclectic theory of international production, the company must have location and ownership advantages to invest in a foreign plant. It will invest where it is most profitable in internalize. It is monopolistic advantage.

Chapter 4

Q1. What are some reasons that business people should be aware of important international institutions?

International institutions have resolved conflicts among nations. It is very important to make business internationally. International institutions has also valuable data which apply to business.

Q2. Even though the UN is best known for peace keeping missions, it has many agencies involved in activities affecting business. In your judgement, do these activities justify support for the UN? Would it be better if the activities of these agencies were done by private entities such as trade groups?

The UN has helped some countries which need support to make their industry by funding and teaching knowledges. This activities justify support for the UN
because UN has a number of informations which is originated by connections of other counties.

Q3. How did the WTO come into existence? What purpose does it serve? Would bilateral trading agreements work better than the multilateral WTO approach?

The Bretton Woods Conference of 1944 proposed the creation of an International Trade Organization (ITO) to establish rules and regulations for trade between countries. The ITO charter was agreed at the UN Conference on Trade and Employment in Havana in March 1948, but was blocked by the U.S. Senate (WTO, 2004b).

Some historians have argued that the failure may have resulted from fears within the American business community that the International Trade Organization could be used to regulate, rather than liberate, big business (Lisa Wilkins, 1997; Helen Milner 1993).

Only one element of the ITO survived: the General Agreement on Tariffs and Trade (GATT). Seven rounds of negotiations occurred under GATT before the eighth round – the Uruguay Round – concluded in 1995 with the establishment of the WTO as the GATT’s replacement. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them. Unlike the GATT, the WTO has a substantial institutional structure.

I think that the multilateral trading agreements is better than bilateral trading agreements because there will be no discrimination to all WTO members.

Q4. What are the four main organs of the EU, and what is the purpose of each?

1. European Parliament: to pass European laws, voice of the European people in EU 2. Council of European Union: policy setting, voice of the member states, where decisions on foreign policy and security issues are made 3. European Commission: represents the interest of Europe as a whole, runs the day to day operations of EU 4. European Court of Justice: court that decides cases related to EU policies

Q5. What is the impact of the EU on business?

The European Union has had a significant influence on international trade, especially in respect of the countries that are member states in the Union. Internally, trading between the member states within the European Union has become less restrictive, because of the laws and regulations passed. Globally, the European Union has created a power that can compete internationally with superpowers such as the United States.

Q6. The U.S. Congress approved the North American Free Trade Agreement despite strong opposition from organized labor. Why would labor have opposed NAFTA?

I think a reason why is that they (organized labor) want to obtain working visa in North America.

Q7. What is the importance of the OECD for business?

OECD promotes economic expansion and provides a number of economic information/researches which can support and help its country members.

Q8. Mercosur’s major trading partner is the EU rather than the United States. Why might this be the case?

Mercosur is based on the EU and can trade several countries in the EU.

Q9. How might a small business person in Des Moines, Iowa, who is exporting agricultural products find useful the international institutions and agreements that this chapter describes?

1. To find out which countries is available for a business person to export their productions. 2. To protect their products from other foreign competitors.

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