Chapter 1 – International Business: An Overview

 

Multiple Choice Questions

 

DEFINE INTERNATIONAL BUSINESS

 

1.            International business transactions include:

a.     sales.

b.    investments.

c.     transportation.

d.    all of the above (easy, page 3)

 

2.      International business transactions include:

a.    all commercial transactions between two or more countries. (moderate, page 3)

b.    private, but not governmental, commercial transactions between two or more countries.

c.     governmental, but not private, commercial transactions between two or more countries.

d.    only commercial transactions between two or more countries that are entered for the purpose of making a profit.

 

3.      All commercial transactions between two or more countries are known as:

a.     foreign trade.

b.    international business. (easy, page 3)

c.     the balance of payments.

d.    Globalization.

 

4.            International business conducted by governments differs from that conducted by private companies in that the former:

a.     is involved only in foreign aid transactions.

b.    makes foreign sales but is not involved in investments and transportation.

c.     may not necessarily undertake business for the sake of profit. (moderate, page 3)

d.    will handle transactions on credit.

 

Why Should You Study International Business?

 

5.      Managers should study international business because:

a.     international business comprises a large and growing portion of the world’s total business.

b.    global events and competition affect almost all companies.

c.     a company operating internationally will engage in modes of business that differ from those it is accustomed to domestically.

d.    all of the above (difficult, page 4)

 

6.            Because a company’s international external environment is usually more diverse than its domestic external environment, it is useful to study international business in order to:

a.     better understand the environment’s effect on the conduct of business. (moderate, page 4)

b.     diversify business functions.

c.      decide between relativist or normativist practices.

d.     locate high-value activities in areas with low wages.

 

7.      All of the following are reasons to study international business EXCEPT:

a.    to bring non-territorial areas under the control of national governments. (moderate, page 4)

b.    international business comprises a large and growing portion of the world’s total business.

c.     global events and competition affect almost all companies.

d.    company operating internationally will engage in modes of business that differ from those it is accustomed to domestically.

 

 

8.      It is useful to study international business because companies’ international operations and governmental regulations of international business affect:

a.     company profits.

b.    employment security and wages.

c.     all of the selections (moderate, page 4)

d.    national security.

 

What Advantages Can Companies Gain By Engaging In International Business?

 

9.      What would NOT be a reason for a company to engage in international business?

a.    To maximize competitive risk. (easy, page 5)

b.    To acquire resources.

c.     To expand sales.

d.    To diversify sources of sales and supplies.

 

10.    Which of the following is FALSE regarding the reasons companies engage in international business?

a.     Increased sales are a major motive for a company’s expansion into international business.

b.    To minimize swings in sales and profits, companies may seek out foreign markets to take advantage of business cycle difference among countries.

c.     Many companies enter into international business for defensive reasons.

d.    Companies make foreign investments in order to eliminate their dependence on exporting.  (difficult, page 10)

 

11.    Which of the following best describes the reason companies seek out foreign markets in order to take advantage of business cycle differences among countries?

a.     To cut cost and increase efficiency.

b.    To minimize swings in sales and profits. (moderate, page 6)

c.     To maximize new product introductions.

d.    To take advantage of economies of scale.

 

Why has International Business Grown Recently?

 

12.    According to the text, when the former Soviet Union disbanded, business transactions between Russia and Ukraine changed from _____________ to _____________.

a.    domestic, international (difficult, page 6)

b.    international, domestic

c.     international, governmental

d.    domestic, governmental

 

13.    Which of the following statements is TRUE regarding the growth of international business?

a.     International business has grown in more recent years at a slower pace than global production.

b.    International business has grown in more recent years at a faster pace than global production.  (difficult, page 6)

c.     During the global economic downturn of 2001, international business grew at a faster pace than global production.

d.    Growth through trade has increased, but growth through foreign direct investment has not.

 

14.    International business has grown rapidly in recent decades for all the following reasons EXCEPT:

a.     rapid increase in and expansion of technology

b.    liberalization of governmental policies on cross-border movement of trade and resources

c.     development of institutions to support and facilitate international trade

d.    increased cost of labor in both the lesser-developed and developing countries (difficult, page 7)


 

15.    International business has recently grown at such a rapid pace because of:

a.     stricter government policies on cross-border movements.

b.    development of institutions to support and facilitate trade. (moderate, page 8)

c.     decreasing global competition.

d.    companies’ increased concerns with terrorism.

 

HOW IS TECHNOLOGY GROWTH AFFECTING INTERNATIONAL BUSINESS?

 

16.    Which of the following statements is TRUE regarding technology and international business?

a.     The cost of  improved communications and transportation has risen faster than costs in general.

b.    The cost of  improved communications and transportation has not changed throughout the years.

c.     The cost of improved communications and transportation has risen slower than costs in general.  (difficult, page 7)

d.    Because of rising costs of communications and transportation, companies cannot as easily monitor and control the performance of their foreign subsidiaries as they could in the past.

 

17.    Technology has had a tremendous impact on international business in all of the following ways EXCEPT:

a.     the demand for new products and services has increased

b.    the number of international business transactions has increased

c.     the managers’ ability to control foreign operations has been improved

d.    it has raised the cost of doing business abroad (difficult, page 7)

 

18.    Which of the following is FALSE regarding the effects of technology growth on international business?

a.     Technology has increased the demand for new products and services.

b.    Improved communications and transportation speed up interactions and improve managers’ ability to control foreign operations.

c.     Conducting business on a domestic level usually involves greater distances than does conducting international business. (difficult, page 7)

d.    The cost of improved communications and transportation has risen more slowly than costs in general.

 

WHY HAVE GOVERNMENTS BEEN LIBERALIZING CROSS-BORDER MOVEMENTS OF GOODS, SERVICES, AND RESOURCES?

 

19.    Why have governments been liberalizing cross-border movements of goods, services, and resources?

a.     Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices.

b.    They reason that their domestic producers will become more efficient as a result of foreign competition.

c.     They hope to induce other countries to reduce their barriers to international movements.

d.    All of the selections are reasons for governments’ liberalizing cross-border movements. (difficult, page 7)

 

20.    Which of the following statements regarding international business is the most TRUE?

a.     Generally, governments impose more restrictions on cross-border movements than they did a decade or two ago.

b.    Generally, governments have not increased or decreased the amount of restrictions on cross-border movements than they did a decade or two ago.

c.     Generally, governments have fewer restrictions on cross-border movements than they did a decade or two ago. (difficult, page 7)

d.    Although governments have decreased restrictions on the international movement of capital and people, they have increased the restrictions on trade.


 

21.    Recently, large groups have protested globalization at meetings of international organizations and heads of state because:

a.     they fear they will be better off with fewer, rather than more, cross-border restrictions.

b.    they fear they will be better off with more, rather than fewer, cross-border transactions. (difficult, page 7)

c.     they fear they will not be counted in the next political election.

d.    they have nothing better to do with their time.

 

GIVE EXAMPLES OF BUSINESS AND GOVERNMENT SERVICES THAT EASE THE CONDUCT OF INTERNATIONAL BUSINESS.

 

22.    What is an example of a business or government service that has eased the conduct of international business in recent years?

a.     Disney’s discounts to Florida residents for entry to its parks in the Orlando, FL area.

b.    Governmental price controls on international transportation.

c.     The systems developed by banks for efficient exchange of foreign currency. (difficult, page 8)

d.    Regulations imposed on companies in a foreign country that are stricter than those in their home countries.

 

23.    Which of the following is NOT a characteristic of bartering internationally?

a.     Bartering can be time-consuming.

b.    Bartering can be expensive.

c.     Bartering is a type of service export and import.  (easy, page 8)

d.    Bartering can be risky.

 

24.    Which of the following is an example of products or services that allow producers to be paid relatively easily for goods and services sold abroad?

a.     bank credit agreements

b.    clearing arrangements that convert one country’s currency into another’s

c.     insurance that covers damage en route and nonpayment by the buyer

d.    All of the selections are examples of products or services that allow producers to be paid relatively easily.  (difficult, page 8)

 

DEFINE AND GIVE EXAMPLES OF MERCHANDISE AND SERVICE IMPORTS AND EXPORTS.

 

25.    Which of the following best describes the mode of international business used by most companies?

a.     mixed ventures

b.    foreign direct investment

c.     joint ventures

d.    exporting and importing (moderate, page 9)

 

26.    _______________ are tangible products sent out of a country.

a.    Merchandise exports (moderate, page 9)

b.    Merchandise imports

c.     Service exports

d.    Service imports

 

27.    Exports and imports apply mostly to which of the following?

a.     services

b.    merchandise (moderate, page 9)

c.     intellectual property

d.    licensing

 


28.    Regarding service exports and imports, the company or individual receiving payment is making a:

a.     service import.

b.    merchandise export.

c.     service export. (moderate, page 9)

d.    merchandise import.

 

WHAT IS FOREIGN DIRECT INVESTMENT, AND HOW DO COMPANIES BENEFIT FROM IT?

 

29.    Which of the following best describe the two forms of foreign investment?

a.    direct and portfolio (moderate, page 11)

b.    indirect and common

c.     direct and common

d.    mixed and indirect

 

30.    An investment that gives the investor a controlling interest in a foreign company is known as which of the following?

a.     foreign portfolio investment

b.    foreign direct investment (moderate, page 11)

c.     mixed venture

d.    pure venture

 

31.    In order to have controlling interest in a foreign company:

a.     an investor must have at least 100 % interest in the foreign company.

b.    an investor must have at least 50% interest in the foreign company.

c.     an investor may hold a minority stake if the remaining ownership is widely dispersed. (difficult, page 11)

d.    an investor must make all decisions at headquarters about the foreign company.

 

32.    Which of the following is FALSE regarding a company’s benefit from foreign direct investment (FDI)?

a.     Companies may choose FDI as a mode to access certain resources or reach a market.

b.    Many small firms maintain sales offices abroad to complement their export efforts, which are FDI along with the real estate they own abroad.

c.     The value of FDI’s for large companies tend to be higher than for small companies.

d.    FDI is the domain of large companies only. (difficult, page 11)

 

WHAT IS A MULTINATIONAL ENTERPRISE (MNE)?

 

33.    A company that takes a global approach to foreign markets and productions is called a:

a.    multinational enterprise. (moderate, page 12)

b.    multi-global company.

c.     cross-transnational company.

d.    mixed venture company.

 

34.    An MNE may be synonymous with all of the following EXCEPT:

a.     a company that has a worldwide approach to markets and promotions

b.    an FDI  (moderate, page 12)

c.     an MNC

d.    a TNC

 

35.    Which of the following is TRUE regarding the characteristics of a multinational enterprise (MNE)?

a.     An MNE must have production facilities in a minimum of five different countries.

b.    All MNEs are considered “giant companies.”

c.     A small company can be an MNE.  (difficult, page 12)

d.    An MNE consists of at least two or more partnering companies.

 

WHAT DO WE MEAN BY A COMPANY’S PHYSICAL AND SOCIETAL ENVIRONMENTS? WHY SHOULD COMPANIES UNDERSTAND THEM WHEN ENGAGING IN INTERNATIONAL BUSINESS?

 

36.    To operate within a company’s external environment, a company’s managers should have a working knowledge of the basic social sciences that include all of the following EXCEPT:

a.    statistics (moderate, page 13)

b.    anthropology

c.     sociology

d.    economics

 

37.    By studying _____________, managers can better understand why, where, and when one country can produce goods or services less expensively than another can.

a.     sociology

b.    economics (easy, page 14)

c.     politics

d.    geography

 

38.    Which of the following is TRUE regarding the international legal environment as it affects business?

a.     Legal agreements between two countries govern how both tax the earnings.

b.    International law may determine how and whether companies can operate in a certain locale.

c.     The enforcement of laws affects a company’s operations.

d.    All of the statements are TRUE.  (difficult, page 14)

 

HOW DO COMPANIES’ INTERNATIONAL INVOLVEMENT (COMMITMENTS) TYPICALLY EVOLVE OVER TIME?

 

39.    Which of the following is NOT TRUE regarding a company’s movement to international expansion?

a.     Companies sometimes receive unsolicited export requests because someone has seen or heard of their products.

b.    Many companies decide not to export because they fear they will not be paid.

c.     Many companies decide not to export because they know little about the mechanics of foreign trade.

d.    Most companies establish foreign investments before they commence exporting. (difficult, page 16)

 

40.    A company commonly uses _____________ to handle foreign operations during the early stages of international expansion because it minimizes commitment.

a.     its own sales force

b.    intermediaries  (moderate, page 16)

c.      barter transactions

d.    wholly owned subsidiaries

 

41.    At an early stage of international involvement, ______________ require(s) the least formal commitment and pose the least risk to the company’s resources.

a.     foreign direct investment

b.    joint ventures

c.     importing and exporting  (moderate, page 16)

d.    wholly owned subsidiaries


 

42.    Which of the following is TRUE regarding a company’s international evolution over time?

a.    When a company adopts other means of operating internationally, it typically does not abandon its early modes of operating abroad, such as importing and exporting.  (difficult, page 17)

b.    A company typically abandons its early modes of operating abroad, such as importing and exporting, when it adopts other means of operating internationally.

c.     When companies first move internationally, they are most apt to do business in many different foreign locations.

d.    When companies begin foreign operations, they generally move first to other countries that are very different from their home-country.

 

WHAT PRESSURES DO COMPANIES FACE TO COMPLY OR NOT COMPLY WITH THE ETHICAL NORMS OF THE FOREIGN COUNTRIES WHERE THEY DO BUSINESS?

 

43.    _____________ affirms that ethical truths depend on the groups holding them, making intervention unethical.

a.    Relativism  (moderate, page 20)

b.    Normativism

c.     Anthropology

d.    Psychology

 

44.    Which of the following basic views of cultural practices holds that there are universal standards of behavior that all cultures should follow making nonintervention unethical?

a.     Relativism

b.    Normativism  (moderate, page 20)

c.     Anthropology

d.    Psychology

 

45.    All of the following are examples of pressures companies face to comply with the norms of the country where they operate EXCEPT:

a.     laws that permit or require certain practices

b.    competitive advantage by adapting to local norms

c.     accusations of meddling if a company tries to impose its home-country practices in the foreign country

d.    a belief in normativism (difficult, page 21)

 

EXPLAIN THE COUNTERVAILING FORCES OF STANDARDIZED VERSUS NATIONALLY RESPONSIVE STRATEGIES IN INTERNATIONAL OPERATIONS.

 

46.    The advantages of choosing between globally standardized practices and those practices that respond to different national preferences vary by all of the following EXCEPT:

a.    employees (moderate, page 18)

b.    product

c.     function

d.    country of operation

 

47.    The trends that have influenced the recent worldwide growth in international business, such as rapid expansion of technology and liberalization of governmental trade policies, also usually favor a _____________ strategy.

a.     multidomestic

b.    global (moderate, page 18)

c.     customized

d.    All of the selections are INCORRECT.


 

48.    Which of the following is FALSE regarding the characteristics of a multidomestic approach?

a.     When a company needs to engage in national responsiveness, a multidomestic approach often works better than a global one.

b.    The multidomestic approach gives a great deal of independence to subsidiary managers running facilities in those foreign countries.

c.     A global approach often works better than a multidomestic approach when a company needs to engage in national responsiveness. (difficult, page 18)

d.    It usually involves little integration among operating units in different countries.

 

WHY DO COUNTRIES ENGAGE IN CROSS-NATIONAL RELATIONSHIPS DESPITE THEIR CEDING OF SOME SOVEREIGNTY THROUGH THE ENGAGEMENTS?

 

49.    All of the following are reasons that countries sometimes cede sovereignty through treaties with other countries EXCEPT:

a.    to create economic disadvantages (moderate, page 22)

b.    to gain reciprocal advantages

c.     to attack problems that one country acting alone cannot solve

d.    to deal with areas of concern that lie outside the territory of all countries

 

50.    Countries enact treaties to solve problems they either cannot or will not solve alone because:

a.     the problem is too big.

b.    the problem can be solved through joint inputs.

c.     the problem results from conditions that spill over from another country.

d.    All of the selections are correct. (difficult, page 22)

 

51.    Which of the following is an example of an issue for which an agreement has NOT been made between two or more countries?

a.     restricting harmful emissions

b.    deep-sea mining in noncoastal areas of the oceans (moderate, page 22)

c.     preserving endangered species

d.    banning the use of certain pesticides

 

Essay Questions

 

52.    In a short essay, define international business.

 

Answer

International business is all commercial transactions—private and governmental—between two or more countries.  Private companies undertake such transactions for profit; governments may or may not do the same in their transactions.  These transactions include sales, investments, and transportation.

(easy, page 3)

 

53.    In a short essay, discuss why the study of international business is important to managers.

 

Answer

A simple answer is that international business comprises a large and growing portion of the world’s total business.  A more complex answer is that a company operating internationally will engage in modes of business, such as exporting and importing that differ from those it is accustomed to domestically.  To operate effectively, managers must understand these different modes.

(easy, page 4)


 

54.    In a short essay, list and describe the three primary reasons companies engage in international business.

 

Answer

a.      To expand sales – The number of people and the amount of their purchasing power are higher for the world as a whole than for a single country, so companies may increase their sales by reaching international markets. Ordinarily, higher sales mean higher profits, assuming each unit sold has the same markup.

b.     To acquire resources – Manufacturers and distributors seek out products, services, and components produced in foreign countries. They also look for foreign capital, technologies, and information they can use at home. Sometimes they do this to reduce costs. Acquiring resources may enable a company to improve its product quality and differentiate itself from competitors—in both cases, potentially increasing market share and profits. While a company may initially use domestic resources to expand abroad, once the foreign operations are in place, the foreign earnings may then serve as resources for domestic operations.

c.      To minimize competitive risk – Many companies enter into international business for defensive reasons. They want to counter advantages competitors might gain in foreign markets that, in turn, could hurt them domestically. Companies harboring such a fear may enter foreign markets primarily to prevent a competitor from gaining advantages.

(moderate, page 5)

 

55.    In a short essay, list and describe the factors that have led to this increased growth in international business in recent decades.

        

Answer

a.       Rapid increase in an expansion of technology – By increasing the demand for new products and services, technology has tremendous impact on international business. As the demand increases, so do the number of international business transactions. Improved communications and transportation speed up interactions and improve managers’ ability to control foreign operations.

b.      Liberalization of cross-border movements – Although the past decrease in restrictions has been erratic, governments have lowered them because their citizens have expressed the desire for better access to a greater variety of goods and services at lower prices. They also reason that their domestic producers will become more efficient as a result of foreign competition, and they hope to induce other countries to reduce their barriers to international movements.

c.       Development of supporting services – Companies and governments have developed services that ease international business. Today, producers can be paid relatively easily for goods and services sold abroad because of bank credit agreements, clearing arrangements that convert one country’s currency into another’s, and insurance that covers damage en route and nonpayment by the buyer.

d.      Increase in global competition – The pressures of increased foreign competition can persuade a company to expand its business into international markets. Today companies can respond rapidly to many foreign sales opportunities. They can shift production quickly among countries if they’re experienced in foreign markets and because they can transport goods efficiently from most places.

(difficult, page 7)

 

56.    In a short essay, discuss why governments have been liberalizing cross-border movements of goods, services, and resources.

 

Answer

Generally, governments today impose fewer restrictions on cross-border movements than they did a decade or two ago.  They have lowered them for the following reasons:

a.       Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices.

b.      They reason that their domestic producers will become more efficient as a result of foreign competition.

c.       They hope to induce other countries to reduce their barriers to international movements.

(moderate, page 7)

 

57.    Give at least two examples of business and government services that ease the conduct of international business.

 

Answer

Banks have developed efficient means for companies to receive payment for their foreign sales.  Today, most producers can be paid relatively easily for goods and services sold abroad because of bank credit agreements, clearing arrangements that convert one country’s currency into another’s, and insurance that covers damage en route and nonpayment by the buyer.

(easy, page 8)

 

58.    In a short essay, define and give examples of merchandise and service imports and exports.

 

Answer

a.       Merchandise exports are tangible products—goods—sent out of a country. Merchandise imports are goods brought into a country.  When a Chinese contractor sends toy action figures from China to Hasbro in the United States, the contractor exports and Hasbro imports.

b.      Service exports and imports are nonproduct international earnings. The company or individual receiving payment is making a service export.  The company or individual paying is making a service import.

(moderate, page 9)

 

59.    In a short essay, list and describe the various modes of international business as described in the text.

 

Answer

a.          Importing and exporting – More companies are involved in exporting and importing than in any other international mode. This is especially true of smaller companies, even though they are less likely than large companies to engage in exporting. For most countries, exporting and importing of goods are the major sources of international revenue and expenditures.

b.         Licensing and franchising – Licensing agreements are used when companies allow others to use their assets, such as trademarks, patents, copyrights, or expertise under contract. Franchising is a mode of business in which one party allows another party the use of a trademark that is an essential asset for the franchisee’s business.

c.          Turnkey operations – Refers to construction, performed under contract, of facilities that are transferred to the owner when they are ready to begin operating.

d.         Management contracts – Refers to arrangements in which one company provides personnel to perform general or specialized management functions for another company.

e.          Direct and portfolio investment – A direct investment is one that gives the investor a controlling interest in a foreign company. A portfolio investment is a noncontrolling interest in a company or ownership of a loan to another party.

(moderate, page 10)


 

60.    In a short essay, list and discuss the three sources of service exports and imports as described in the text.

 

Answer

a.       Tourism and transportation – International tourism and transportation are important sources of revenue for airlines, shipping companies, travel agencies, and hotels. Earnings from foreign tourism are more important for the Bahamian economy than are earnings from the export of merchandise. Similarly, the United States has in recent years earned more from foreign tourism than from its exports of agricultural goods.

b.      Performance of services – Some services, such as banking, insurance, rentals, engineering, and management services, net companies earnings in the form of fees. On an international level, for example, companies pay fees for engineering services that are often handled through turnkey operations. Companies also pay fees for management contracts.

c.       Use of assets – When companies allow others to use their assets, such as trademarks, patents, copyrights, or expertise under contracts, they receive earnings called royalties. Dividends and interest paid on foreign investments are also treated as service exports and imports because they represent the use of assets.

(moderate, page 10)

 

61.    In a short essay, discuss how companies benefit from foreign direct investment (FDI).

 

Answer

Companies may choose FDI as a mode to access certain resources or reach a market.  Today, about 63,000 companies worldwide have FDIs that encompass every type of business function—extracting raw materials from the earth, growing crops, manufacturing products or components, selling output, and providing various services.  Many small firms maintain their sales offices abroad to complement their export efforts, which are FDI along with the real estate they own abroad.

(easy, page 11)

 

62.    In a short essay, define a multinational enterprise.

 

Answer

The multinational enterprise (MNE) is a company that takes a global approach to foreign markets and production.  It is willing to consider market and production locations anywhere in the world.

(easy, page 12)

 

63.    In a short essay, list and describe the various types of international companies as described in the text.

 

Answer

a.       Multinational enterprise – A company that takes a global approach to foreign markets and production.

b.      Transnational company – A company owned and managed by nationals in different countries and an organization in which capabilities and contributions may differ by country but are developed and integrated into its worldwide operations.

c.       Global company –A company that integrates its operations that are located in different countries.

d.      Multidomestic company – A company that allows each of its foreign-country operations to act fairly independently, such as by designing and producing a product or service for the local market (i.e., in France for the French market and in Japan for the Japanese market).

(moderate, page 12)


 

64.    In a short essay, discuss a company’s physical and societal environments.  Why should companies understand them when engaging in international business?

 

Answer

To operate within a company’s external environment, its managers should have, in addition to knowledge of business operations, a working knowledge of the basic social sciences: political science, law, anthropology, sociology, psychology, economics, and geography. Politics help shape business worldwide because political leaders control whether and how international business takes place. Domestic and international law determines largely what the managers of a company operating internationally can do. The related sciences of anthropology, sociology, and psychology describe, in part, people’s social and mental development.  Economics explains, among other concepts, why countries exchange goods and service with each other.  Managers who know geography can better determine the location, quantity, quality, and availability of the world’s resources, as well as the best means to exploit them.

(moderate page 13)

 

65.    The external environment is important in the planning strategy, especially in the international arena. In a short essay, list and describe the various factors that comprise the external environment

 

Answer

a.       Physical factors – Managers who know geography can better determine the location, quantity, quality, and availability of the world’s resources, as well as the best means to exploit them.

b.      Societal factors – Includes a country’s politics, law, culture, and economy.

c.       Competitive factors – Includes the number and strength of suppliers, customers, and rival firms.

(moderate, page 13)

 

66.    To operate within a company’s external environment, its managers should have, in addition to knowledge of business operations, a working knowledge of the basic social sciences. In a short essay, list and discuss the various social sciences that are discussed in the text.

 

Answer

a.       Political science – Politics helps shape business worldwide because the political leaders control whether and how international business takes place. Domestic and international law largely determines what the managers of a company operating internationally can do. Domestic law includes regulations in both the home and host countries on such matters as taxation, employment, and foreign exchange transactions. International law in the form of legal agreements between two countries governs how both tax the earnings.

b.      By studying anthropology, sociology, and psychology, managers can better understand societal values, attitudes, and beliefs concerning themselves and others. This understanding can help them function better in different countries.

c.       Economics explains, among other concepts, why countries exchange goods and services with each other, why capital and people travel among countries in the course of business, and why one country’s currency has a certain value compared to another’s. By studying economics, managers can better understand why, where, and when one country can produce goods or services less expensively than another can.

d.      Managers who know geography can better determine the location, quantity, quality, and availability of the world’s resources, as well as the best means to exploit them. The uneven distribution of resources results in different products and services being produced or offered in different parts of the world. Geographical barriers such as high mountains, vast deserts, and inhospitable jungles affect communications and distribution channels for companies in many countries.

(moderate, page 14)


 

67.    How do companies’ international involvements (commitments) typically evolve over time?

 

         Answer

         Most new companies are established in response to domestic needs, and frequently think of only domestic opportunities until a foreign opportunity presents itself to them.  Companies commonly receive unsolicited export requests because someone has seen or heard of their products.  Often these companies have no idea of how their products became known abroad, but at this juncture, they must make a decision to export or not.  Many decide not to because they fear they will not be paid or they know too little about the mechanics of foreign trade.  Those they do fulfill the unsolicited export orders and then see that opportunities are available to them abroad are later apt to seek out other markets to sell their goods.  Even large companies may move from passive to active expansion with aspects of their business.

         (moderate, page 16)

 

68.    Exporting is the mode of international business used by many companies, both small and large. However, many companies are still reluctant to export due to several concerns. In a short essay, describe the reasons companies are afraid to export to other countries.

 

Answer

a.       Companies fear customers in other countries will not pay them.

b.      Companies feel they know too little about the mechanics of foreign trade to export.

(easy, page 16)

 

69.    In addition to the effect of external and competitive environmental factors, countervailing forces complicate decision making in international business. The strength of one force compared to that of another influences the choices available to companies that compete internationally. In a short essay, list and discuss some of the opposing choices that companies have to contend with.

 

Answer

a.       Globally standardized versus nationally responsive practices – Any company operating internationally must decide between the advantages of globally standardized practices and those practices that respond to different national preferences. These advantages may vary by product, function, and country of operation. One advantage is that the company can reduce costs. It may reduce manufacturing costs by serving multiple markets from a single production unit. The company may need to engage in national responsiveness by implementing a multidomestic approach compared to a global one because the company managers abroad are best able to assess and deal with the environments of the foreign countries in which the company operates.

b.      Country versus company competitiveness – Companies, at least those that are not government-owned, may compete by seeking maximum production efficiency on a global scale. To accomplish this goal, the company’s production would use the best inputs for the price, even if the production location moved abroad. The company would then sell the output wherever it would fetch the best price. Such practices should lead to maximum performance for the company. Countries also compete with each other in terms of fulfilling economic, political, and social objectives.

c.       Sovereign versus cross-national relationships – countries sometimes cede sovereignty (freedom from external control) reluctantly because of coercion and international conflicts. Countries that want to ensure that companies headquartered within their borders are not disadvantaged by foreign-country policies, so they enter into treaties and agreements with other countries on a variety of commercial activities, such as transportation and trade. Treaties and agreements may be bilateral (involving only two countries) or multilateral (involving a few or many). Countries commonly enter into treaties in which each allows the others’ commercial ships and planes to use certain seaports and airports in exchange for reciprocal port use.

(difficult, page 18)


 

70.    Explain the countervailing forces of standardized versus nationally responsive strategies in international operations.

 

         Answer

         The trends that have influenced the recent worldwide growth in international business also usually favor a global strategy, specifically one that has a great deal of standardized practices from one country to another.  One advantage is that the company can reduce costs.  However, when a company goes abroad, it faces conditions very different from those it encounters at home.  The company may need to engage in national responsiveness, meaning it makes operating adjustments where it does business to reach a satisfactory level of performance.  In such cases, a multidomestic approach often works better than a global one because the company managers abroad are best able to assess and deal with the environments of the foreign countries in which the company operates.

         (moderate, page 18)

 

71.    What pressures do companies face to comply or not comply with the ethical norms of the foreign countries where they do business?

 

         Answer

         A company can face pressures to comply with a country’s norms.  These pressures may include laws that permit or even require certain practices, competitive advantages for rivals who adapt to local norms, or accusations of meddling if a company tries to impose its home-country practices in the foreign country.  However, companies can face pressures not to comply.  These pressures can come from a company’s own ethical values, its home-country government, or constituencies that threaten to boycott its products or to spread adverse publicity about it or its products.

         (moderate, page 20)