International Business Chapter 15 Quiz
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Questions and Answers

What issues pertaining to law and culture may affect international product strategy?

Adaptation to local laws and regulations, cultural preferences and tastes.

What factors related to brand and product names might influence a company’s international product strategy?

Brand perception, cultural significance, and language compatibility.

What other product issues can influence a company’s product or brand reputation in a market abroad?

Counterfeit goods and product adaptations.

What are the two general promotional strategies that a company can use in its marketing?

<p>Push strategy and pull strategy.</p> Signup and view all the answers

Why might a company standardize its international advertising efforts?

<p>To maintain a consistent brand message and reduce costs.</p> Signup and view all the answers

What are the five ways that a company can blend its product and promotional strategies?

<p>Product/communications extension, product extension/communications adaptation, product adaptation/communications extension, product/communications adaptation, product invention.</p> Signup and view all the answers

What are the two general types of distribution channels that companies can choose from based on desired exposure?

<p>Exclusive channel and intensive channel.</p> Signup and view all the answers

How does channel length factor into distribution channel design?

<p>It refers to the number of intermediaries between the producer and the buyer.</p> Signup and view all the answers

How does a product's value density influence the design of its distribution strategy?

<p>Lower value density products require a more localized distribution system.</p> Signup and view all the answers

What are the two main types of pricing strategy that international businesses employ?

<p>Worldwide pricing and dual pricing.</p> Signup and view all the answers

How do companies use transfer prices internationally and why might this practice decline in the future?

<p>Transfer prices are charged for goods transferred among a company’s subsidiaries; this practice might decline due to increasing regulation.</p> Signup and view all the answers

What do we mean by the term arm’s length price and why is it significant?

<p>The arm's length price is the free-market price charged between unrelated parties, significant for fair trade practices.</p> Signup and view all the answers

What issues pertaining to law and culture may affect international product strategy?

<p>Laws and regulations in a target market, cultural preferences that may require product adaptation.</p> Signup and view all the answers

What factors related to brand and product names might influence a company’s international product strategy?

<p>Brand recognition, meaning of names in different languages, and cultural significance of names.</p> Signup and view all the answers

What other product issues can influence a company’s product or brand reputation in a market abroad?

<p>Counterfeit goods, local market preferences, and market entry strategies.</p> Signup and view all the answers

What are the two general promotional strategies that a company can use in its marketing?

<p>Push strategy</p> Signup and view all the answers

Why might a company standardize its international advertising efforts?

<p>To contain costs and achieve consistency across different markets.</p> Signup and view all the answers

What are the five ways that a company can blend its product and promotional strategies?

<p>Product/communications extension, product extension/communications adaptation, product adaptation/communications extension, product/communications adaptation, product invention.</p> Signup and view all the answers

What are the two general types of distribution channels that companies can choose from based on desired exposure?

<p>Exclusive channel and intensive channel.</p> Signup and view all the answers

How does channel length factor into distribution channel design?

<p>Channel length refers to the number of intermediaries between the producer and the buyer.</p> Signup and view all the answers

How does a product’s value density influence the design of its distribution strategy?

<p>Lower value density means more localized distribution; higher value density allows for broader distribution.</p> Signup and view all the answers

What are the two main types of pricing strategies that international businesses employ?

<p>Worldwide pricing and dual pricing.</p> Signup and view all the answers

How do companies use transfer prices internationally and why might this practice decline in the future?

<p>Transfer prices are used for pricing goods exchanged among subsidiaries; this practice may decline due to increased regulation.</p> Signup and view all the answers

What do we mean by the term arm’s length price and why is it significant?

<p>The arm's length price is the free-market price charged between unrelated parties, significant for fair trade practice.</p> Signup and view all the answers

What is the name for a facility that is entirely owned and controlled by a single parent company?

<p>Wholly owned subsidiary</p> Signup and view all the answers

What do we call a company that is created and jointly owned by two or more independent entities to achieve a common business objective?

<p>Joint venture</p> Signup and view all the answers

What is the name for a relationship between two or more entities to cooperate to achieve the strategic goals of each but not form a separate entity?

<p>Strategic alliance</p> Signup and view all the answers

Why should companies choose partners carefully when joining forces in global markets?

<p>To align interests, avoid conflicts, and ensure mutual benefit.</p> Signup and view all the answers

What are the four steps involved in creating an export strategy?

<p>Identify a potential market, Match needs to abilities, Initiate meetings, Commit resources.</p> Signup and view all the answers

What is the main difference between direct and indirect exporting?

<p>Direct exporting involves selling products directly to buyers, while indirect exporting involves selling products to intermediaries who then resell to buyers.</p> Signup and view all the answers

What are the names of each type of countertrade?

<p>Barter, Counterpurchase, Offset, Switch trading, Buyback.</p> Signup and view all the answers

What is export/import financing that presents the greatest risk for exporters?

<p>Advance payment.</p> Signup and view all the answers

What is the term for export/import financing in which a bank acts as an intermediary without accepting financial risk?

<p>Documentary collection.</p> Signup and view all the answers

What is export/import financing in which the importer’s bank issues a letter pledging to pay the exporter?

<p>Letter of credit.</p> Signup and view all the answers

Which export/import financing approach presents the greatest risk for importers?

<p>Advance payment.</p> Signup and view all the answers

What is it called when a company grants another the right to use intangible property for a limited period of time?

<p>Licensing.</p> Signup and view all the answers

What is it called when a company supplies intangible property and other assistance over an extended period?

<p>Franchising.</p> Signup and view all the answers

What do we call the practice in which one company supplies another with managerial expertise over a specific period of time?

<p>Management contract.</p> Signup and view all the answers

What is the name of the practice in which a company designs, constructs, and tests a production facility for a client?

<p>Turnkey project.</p> Signup and view all the answers

What is a wholly owned subsidiary?

<p>A facility entirely owned and controlled by a single parent company.</p> Signup and view all the answers

What is a joint venture?

<p>A separate company created and jointly owned by two or more independent entities.</p> Signup and view all the answers

What is a strategic alliance?

<p>A relationship whereby two or more entities cooperate to achieve strategic goals without forming a separate company.</p> Signup and view all the answers

What is critical for selecting a trustworthy partner in international business?

<p>The partner must have something valuable to offer and commitment to the goals of the agreement.</p> Signup and view all the answers

What is involved in conducting the first step of the screening process for potential markets and sites?

<p>Determining basic demand and resource availability</p> Signup and view all the answers

What are some cultural forces that a company should research when assessing a nation’s business environment?

<p>Workforce availability, product preferences, and marketing strategies</p> Signup and view all the answers

What are the political and legal forces for a company to research when assessing a nation’s business environment?

<p>Regulations, bureaucracy, political stability, and investment barriers</p> Signup and view all the answers

What are the economic and financial forces to consider when assessing a nation’s business environment?

<p>Fiscal policies, currency issues, transportation costs</p> Signup and view all the answers

What term describes the sensitivity of demand for a product relative to changes in income?

<p>Income elasticity</p> Signup and view all the answers

Which factors are commonly included in a market-potential index?

<p>Market size, growth rate, consumption capacity, economic freedom</p> Signup and view all the answers

How important is it for top managers to pay a visit to a market or site before making a final decision?

<p>Very important</p> Signup and view all the answers

What do we call the process of obtaining information that already exists within a company or can be obtained from outside sources?

<p>Secondary market research</p> Signup and view all the answers

What are several public sources of existing market information for companies?

<p>WTO reports, UN statistics, CIA World Factbook</p> Signup and view all the answers

From what private sources might companies obtain existing market information?

<p>Industry associations, service organizations</p> Signup and view all the answers

What are three potential issues that can arise with the use of secondary research data?

<p>Data availability, reliability, and comparability</p> Signup and view all the answers

What is the term for the act of collecting and analyzing original data and applying results to current research needs?

<p>Primary market research</p> Signup and view all the answers

What is the appeal of trade shows and trade missions for small and medium-sized companies?

<p>Opportunities to network and explore business prospects</p> Signup and view all the answers

What type of information are interviews, focus groups, and surveys good at providing?

<p>Qualitative insights on attitudes and behaviors</p> Signup and view all the answers

What potential issues can arise when collecting and analyzing original data?

<p>Cultural variables, language barriers, illiteracy</p> Signup and view all the answers

What is involved in conducting the first step of the screening process for potential markets and sites?

<p>Identifying basic demand and resource availability.</p> Signup and view all the answers

What are some cultural forces that a company should research when assessing a nation's business environment?

<p>Product preferences, marketing strategies, and workforce availability.</p> Signup and view all the answers

What are the political and legal forces for a company to research when assessing a nation's business environment?

<p>Regulations, bureaucracy, political stability, and investment barriers.</p> Signup and view all the answers

What are the economic and financial forces to consider when assessing a nation's business environment?

<p>Fiscal policies, monetary policies, currency issues, and transportation costs.</p> Signup and view all the answers

What term describes the sensitivity of demand for a product relative to changes in income?

<p>Income elasticity.</p> Signup and view all the answers

Which factors are commonly included in a market-potential index?

<p>All of the above</p> Signup and view all the answers

How important is it for top managers to pay a visit to a market or site before making a final decision?

<p>Very important to confirm expectations and perform competitor analysis.</p> Signup and view all the answers

What do we call the process of obtaining information that already exists within a company or can be obtained from outside sources?

<p>Secondary market research.</p> Signup and view all the answers

What are several public sources of existing market information for companies?

<p>WTO reports, UN statistics, and CIA World Factbook.</p> Signup and view all the answers

From what private sources might companies obtain existing market information?

<p>Industry associations and service organizations.</p> Signup and view all the answers

What are three potential issues that can arise with the use of secondary research data?

<p>All of the above</p> Signup and view all the answers

What is the term for the act of collecting and analyzing original data and applying results to current research needs?

<p>Primary market research.</p> Signup and view all the answers

What is the appeal of trade shows and trade missions for small and medium-sized companies?

<p>Opportunities to network and explore new markets.</p> Signup and view all the answers

What type of information are interviews, focus groups, and surveys good at providing?

<p>Consumers' attitudes, opinions, and facts.</p> Signup and view all the answers

What potential issues can arise when collecting and analyzing original data?

<p>Cultural factors, language barriers, and local illiteracy rates.</p> Signup and view all the answers

How might a weakening currency influence the price of a nation’s exports and imports?

<p>A weakening currency lowers the price of a nation's exports on world markets and increases the price of its imports.</p> Signup and view all the answers

What two overall features do managers prefer currencies and exchange rates to embody?

<p>Stability and predictability.</p> Signup and view all the answers

What is the main difference between the two views of whether or not prices of financial instruments reflect all publicly available information?

<p>The efficient market view states that prices reflect all available information, while the inefficient market view asserts they do not.</p> Signup and view all the answers

What are the names of the two techniques used to analyze and forecast exchange rates?

<p>Fundamental analysis and technical analysis.</p> Signup and view all the answers

What is the principle that an identical item must have an identical price in all countries when price is expressed in a common currency?

<p>Law of one price.</p> Signup and view all the answers

What do we mean by the expression, 'an implied PPP exchange rate'?

<p>It refers to the exchange rate predicted by purchasing power parity based on the price levels of goods in different countries.</p> Signup and view all the answers

How does inflation in a country influence its currency’s exchange rate with other currencies?

<p>Higher inflation decreases the purchasing power of a currency, leading to a depreciation in its exchange rate.</p> Signup and view all the answers

What factors can influence the power of purchasing power parity to accurately predict exchange rates?

<p>Transportation costs, trade barriers, and business confidence.</p> Signup and view all the answers

The gold standard is an example of what type of international monetary system?

<p>Fixed exchange rate system.</p> Signup and view all the answers

What were the main advantages of the gold standard?

<p>Reduced exchange rate risk, imposed strict monetary policies, and assisted in correcting trade imbalances.</p> Signup and view all the answers

What were the most important elements of the Bretton Woods international monetary system?

<p>Fixed exchange rates, a par value for the US dollar against gold, and the establishment of the IMF and World Bank.</p> Signup and view all the answers

What do we call an exchange-rate system in which currencies float against one another with governments intervening to stabilize currencies at target rates?

<p>Managed float system.</p> Signup and view all the answers

What is the name for an exchange-rate system in which currencies float freely against one another without government interference?

<p>Free float system.</p> Signup and view all the answers

What are some of the countries that have recently faced currency crises and received assistance from the IMF?

<p>Mexico, Southeast Asia, Russia, Argentina.</p> Signup and view all the answers

What does the economic transition process involve?

<p>The economic transition process involves moving from a centrally planned economy to a market-based economy, which includes the development of managerial skills, establishment of legal frameworks, and fostering international relationships.</p> Signup and view all the answers

What are the key obstacles for countries in transition?

<p>The key obstacles include developing managerial talent, political instability, and an unstable investment climate.</p> Signup and view all the answers

What are the main characteristics of China’s experience with economic transition?

<p>China's experience with economic transition has been characterized by gradual reforms, state control over key sectors, and significant foreign investment.</p> Signup and view all the answers

How has Russia managed its economic transition from central planning?

<p>Russia has faced challenges such as political instability, a lack of managerial skills, and an unstable investment climate, necessitating reforms in business laws and property rights.</p> Signup and view all the answers

What is meant by the term economic development?

<p>Increase in the economic well-being, quality of life, and general welfare of a nation's people.</p> Signup and view all the answers

What are the drawbacks of using national production to measure economic development?

<p>Gross product figures do not indicate whether an economy is growing or shrinking.</p> Signup and view all the answers

The Human Development Index measures which aspects of a nation’s development?

<p>The extent to which a government equitably provides its people with a long and healthy life, education, and decent standard of living.</p> Signup and view all the answers

What is political risk and how might it affect companies?

<p>The likelihood of political action that will positively or negatively affect a business.</p> Signup and view all the answers

What dangers does conflict abroad present to companies?

<p>Open conflict can threaten a company's physical assets and the lives of employees.</p> Signup and view all the answers

What are the three forms of property seizure that nations might pursue?

<p>Confiscation, expropriation, and nationalization.</p> Signup and view all the answers

How can situational awareness help to keep a company ahead of political risks?

<p>By developing a better understanding of local context and potential changes in the political landscape.</p> Signup and view all the answers

What are the three main approaches to managing political risk?

<p>Adaptation, information gathering, and political influence.</p> Signup and view all the answers

How might international relations among countries affect political risk?

<p>Strong political relationships can foster stable business environments and lower risk.</p> Signup and view all the answers

What are some key obstacles for countries in transition?

<p>Managerial expertise, shortage of capital, and cultural differences.</p> Signup and view all the answers

What reforms did China implement starting in 1979?

<p>Agricultural reforms and legalization of township and village enterprises.</p> Signup and view all the answers

What challenges does China face in its economic transition?

<p>Rapid economic and social change, political problems, and unemployment.</p> Signup and view all the answers

What characterizes Russia's economic transition after the fall of communism?

<p>A sudden and turbulent move away from government ownership and central planning.</p> Signup and view all the answers

What is a value added tax (VAT)?

<p>A tax levied on each party that adds value to a product throughout its production and distribution.</p> Signup and view all the answers

The VAT rate mentioned in the table is ______%.

<p>10</p> Signup and view all the answers

What are some examples of intellectual property?

<p>Patents, copyrights, trademarks.</p> Signup and view all the answers

What are the different types of industrial property?

<p>Patents, trademarks, industrial designs, trade secrets.</p> Signup and view all the answers

What are laws called that hold parties responsible for damage, injury, or death caused by defective products?

<p>Product liability laws.</p> Signup and view all the answers

Match the production stages with their VAT:

<p>Shrimper = $0.10 Processor = $0.07 Wholesaler = $0.11 Retailer = $0.10</p> Signup and view all the answers

What do we call the belief that individual rights and responsibilities should be placed above the group's welfare?

<p>Individualism</p> Signup and view all the answers

What political ideology lies at one extreme of the political spectrum, opposite totalitarianism?

<p>Anarchism</p> Signup and view all the answers

Which of the following are features of totalitarian governments? (Select all that apply)

<p>Imposed Authority</p> Signup and view all the answers

What is the political system in which religious leaders are also political leaders called?

<p>Theocracy</p> Signup and view all the answers

Which type of democracy allows citizens to elect individuals to represent their political views?

<p>Representative Democracy</p> Signup and view all the answers

What are the three types of economic systems mentioned?

<p>Centrally Planned Economy, Mixed Economy, Market Economy</p> Signup and view all the answers

What economic system is characterized by government ownership of all economic resources?

<p>Centrally Planned Economy</p> Signup and view all the answers

Which of the following is a key feature of a market economy?

<p>Free choice for consumers</p> Signup and view all the answers

What type of legal system is based on tradition, precedent, and usage?

<p>Common Law</p> Signup and view all the answers

What is the primary characteristic of civil law systems?

<p>Based on a detailed set of written rules and statutes</p> Signup and view all the answers

What is intellectual property?

<p>Property that results from people's intellectual talent and abilities</p> Signup and view all the answers

What is the term for the responsibility of manufacturers for damage caused by defective products?

<p>Product Liability</p> Signup and view all the answers

What do antitrust laws aim to prevent?

<p>Unfair trade practices and monopolies</p> Signup and view all the answers

What do countries with the greatest economic freedom tend to have?

<p>High standards of living</p> Signup and view all the answers

Why is it important for firms to do business with integrity and earn the public's trust in international business today?

<p>Because integrity and trust lead to greater brand loyalty, higher employee retention, and enhanced goodwill within the community.</p> Signup and view all the answers

Which theory says that an ethical action is one that brings the greatest good to the greatest number of people?

<p>Utilitarianism</p> Signup and view all the answers

What is the rights theory of ethics and what kinds of rights does it cover?

<p>Rights theory states that every human being has rights and all governments are obligated to protect them, covering rights like life, liberty, and equality.</p> Signup and view all the answers

What type of justice is the focus of the ethics theory of justice?

<p>Equitable and fair solutions for all parties.</p> Signup and view all the answers

What concepts can managers use to resolve ethical dilemmas between the home and host countries?

<p>Conflict of relative development and conflict of cultural tradition.</p> Signup and view all the answers

What is a code of ethics and why is it important for an international business to have one?

<p>A code of ethics is a formal statement conveying ethical values and expected conduct; it's important for guiding behavior and ensuring accountability.</p> Signup and view all the answers

What are the principal sources of unethical behavior?

<p>The moral integrity of individuals and a firm's managerial setting or policies.</p> Signup and view all the answers

How did Adam Smith and Milton Friedman believe companies best served their responsibilities to society?

<p>Adam Smith believed in efficiency through competitive markets, while Milton Friedman argued that maximizing profits for owners is a firm's sole responsibility.</p> Signup and view all the answers

What are the four categories of responsibility identified in the CSR pyramid of corporate social responsibilities?

<p>Economic, legal, ethical, and philanthropic responsibilities.</p> Signup and view all the answers

Which parties are important stakeholders for an average company?

<p>Internal stakeholders (employees, management) and external stakeholders (customers, suppliers, community).</p> Signup and view all the answers

How are sustainability and the term Race to Zero relevant to the discussion of climate change?

<p>The Race to Zero refers to initiatives aimed at achieving net-zero emissions to combat climate change.</p> Signup and view all the answers

What do we mean by the term carbon footprint and what are its two components?

<p>A carbon footprint is the environmental impact of greenhouse gases, measured by primary and secondary footprints.</p> Signup and view all the answers

What are the main differences between a linear economy and a circular economy?

<p>A linear economy follows a 'take-make-dispose' pattern, while a circular economy emphasizes reuse, repair, and recycling to minimize waste.</p> Signup and view all the answers

Why might companies and investment funds engage in greenwashing?

<p>To present themselves as environmentally friendly without committing to substantial changes.</p> Signup and view all the answers

What individuals and types of businesses can be charged under the Foreign Corrupt Practices Act (FCPA)?

<p>US companies, subsidiaries, or citizens who engage in bribing government officials or political candidates worldwide.</p> Signup and view all the answers

What consequences might a firm face if it provides poor working conditions or violates human rights?

<p>Legal consequences, damage to reputation, and loss of consumer trust.</p> Signup and view all the answers

Why is it important for businesses to promote a diverse, equitable, and inclusive workforce in their operations at home and abroad?

<p>It fosters innovation, enhances employee satisfaction, and meets the expectations of a diverse customer base.</p> Signup and view all the answers

Study Notes

Developing and Marketing Products

  • International product strategies must consider laws, regulations, local culture, and consumer preferences.
  • Companies may adopt either standardization or adaptation strategies for international markets.
  • Global popular brands, like Red Bull, often use uniform marketing campaigns globally.

Product Development Considerations

  • Adapting products to comply with local laws is essential (e.g., EU regulations).
  • Cultural preferences influence product offerings, exemplified by Häagen-Dazs creating matcha tea ice cream for Japan.
  • Strong brand names serve as valuable assets and sources of competitive advantage.

Other Product Issues

  • Counterfeit goods can harm brand reputation by mimicking legitimate products.
  • Waterfall strategy involves introducing products to countries sequentially, which is challenging today.

Promotional Strategies

  • Promotion mix includes personal selling, advertising, public relations, and direct marketing aimed at reaching customers.
  • Push strategies pressure distributors to stock a product while pull strategies create consumer demand to encourage distribution.

Effective International Sales Management

  • Improving sales effectiveness abroad involves understanding local markets, respecting cultural differences, and learning from local representatives.

Advertising Strategies

  • Advertising may require varying degrees of adaptation based on cultural similarities or differences between markets.
  • Global campaigns often standardize core messages to control costs while ensuring brand consistency.

Blending Product and Promotional Strategies

  • Five blending strategies include:
    • Product/communication extension (dual extension)
    • Product extension/communication adaptation
    • Product adaptation/communication extension
    • Product/communication adaptation (dual adaptation)
    • Product invention for local markets.

Distribution Strategies

  • Distribution involves planning and controlling product flow from origin to consumption, with different channels like exclusive vs. intensive channels.
  • Channel length impacts distribution design, dictating how many intermediaries are involved in reaching the consumer.

Special Distribution Issues

  • Value density affects distribution strategy; low-value products tend to require localized distribution systems.
  • Companies often need to customize products slightly for different markets to meet local needs.

Pricing Strategies

  • Worldwide pricing sets the same price globally but varies due to production costs, market access, purchasing power, and currency fluctuations.
  • Dual pricing involves setting different prices in export markets compared to the home market, often higher due to price escalation.

Factors Influencing Pricing Decisions

  • Transfer prices apply to goods exchanged within a company and its subsidiaries, while arm’s length prices are based on free-market conditions.
  • Price controls in certain markets can dictate pricing strategies, and dumping can occur when export prices undercut domestic prices.

Developing and Marketing Products

  • International product strategies must consider laws, regulations, local culture, and consumer preferences.
  • Companies may adopt either standardization or adaptation strategies for international markets.
  • Global popular brands, like Red Bull, often use uniform marketing campaigns globally.

Product Development Considerations

  • Adapting products to comply with local laws is essential (e.g., EU regulations).
  • Cultural preferences influence product offerings, exemplified by Häagen-Dazs creating matcha tea ice cream for Japan.
  • Strong brand names serve as valuable assets and sources of competitive advantage.

Other Product Issues

  • Counterfeit goods can harm brand reputation by mimicking legitimate products.
  • Waterfall strategy involves introducing products to countries sequentially, which is challenging today.

Promotional Strategies

  • Promotion mix includes personal selling, advertising, public relations, and direct marketing aimed at reaching customers.
  • Push strategies pressure distributors to stock a product while pull strategies create consumer demand to encourage distribution.

Effective International Sales Management

  • Improving sales effectiveness abroad involves understanding local markets, respecting cultural differences, and learning from local representatives.

Advertising Strategies

  • Advertising may require varying degrees of adaptation based on cultural similarities or differences between markets.
  • Global campaigns often standardize core messages to control costs while ensuring brand consistency.

Blending Product and Promotional Strategies

  • Five blending strategies include:
    • Product/communication extension (dual extension)
    • Product extension/communication adaptation
    • Product adaptation/communication extension
    • Product/communication adaptation (dual adaptation)
    • Product invention for local markets.

Distribution Strategies

  • Distribution involves planning and controlling product flow from origin to consumption, with different channels like exclusive vs. intensive channels.
  • Channel length impacts distribution design, dictating how many intermediaries are involved in reaching the consumer.

Special Distribution Issues

  • Value density affects distribution strategy; low-value products tend to require localized distribution systems.
  • Companies often need to customize products slightly for different markets to meet local needs.

Pricing Strategies

  • Worldwide pricing sets the same price globally but varies due to production costs, market access, purchasing power, and currency fluctuations.
  • Dual pricing involves setting different prices in export markets compared to the home market, often higher due to price escalation.

Factors Influencing Pricing Decisions

  • Transfer prices apply to goods exchanged within a company and its subsidiaries, while arm’s length prices are based on free-market conditions.
  • Price controls in certain markets can dictate pricing strategies, and dumping can occur when export prices undercut domestic prices.

Entry Modes

  • Entry mode refers to the institutional arrangements through which firms get products, technologies, and other resources into a market.
  • Major categories of entry modes: exporting/importing and countertrade, contractual entry, and investment entry.

Exporting and Countertrade

  • Companies export to expand total sales, diversify sales, and gain international experience.
  • An export strategy involves four steps:
    • Identify potential markets through research.
    • Assess company capabilities against market needs.
    • Build relationships and trust through initial meetings.
    • Commit resources for a minimum of three to five years.

Degrees of Export Involvement

  • Direct exporting: Selling products directly to target market buyers, using sales representatives or distributors.
  • Indirect exporting: Selling products to intermediaries for resale, adjusting intermediary choice based on market and resource factors.
  • Types of intermediaries include agents, export management companies (EMCs), export trading companies, and freight forwarders.

Countertrade

  • Involves selling goods/services partly in exchange for other goods/services; commonly used by developing nations lacking hard currency.
  • Types of countertrade:
    • Barter: Direct exchange of goods.
    • Counterpurchase: Importing country earns back currency through subsequent sales.
    • Offset: Provides flexibility in fulfilling obligations.
    • Switch trading: Involves third-party purchasing of traded goods.
    • Buyback: Long-term relationships typified in contracts.

Export/Import Financing

  • Advance payment: Importer pays before shipment; favorable for exporters, risky for importers.
  • Documentary collection: Bank intermediary process with low financial risk for banks.
  • Letter of credit: Importer's bank guarantees payment upon fulfillment of terms; common type is irrevocable.
  • Open account: Exporter ships first and bills later; most favorable for importers.

Contractual Entry Modes

  • Licensing: Grants rights to use intangible property for a fee; can hinder licensor’s consistency and global strategies.
  • Franchising: Provides brand and operational support over time; requires local knowledge but can limit flexibility.
  • Management contracts: Transfer management expertise, developing local skills with minimal risk; however, can create competitors and involve personnel risks.
  • Turnkey projects: Design and construction contracts that can benefit nations with infrastructure, yet risk politicization.

Investment Entry Modes

  • Wholly owned subsidiary: Completely owned facility by a single company; allows full control but is costly and risky.
  • Joint venture: Collaboratively owned entity between independent firms to fulfill mutual goals; reduces risk but may lead to conflicts and loss of control.
  • Strategic alliance: Cooperative arrangements without forming a new company; may leverage strengths of partners but can create competitors.

Partner Selection and Cultural Insights

  • Selecting trustworthy partners is vital for success in international business.
  • Understanding cultural and political factors in negotiations enhances relationship-building:
    • Preparation: Initial research and planning.
    • Opening Positions: Early dialogue to align interests.
    • Hard Bargaining: Intensive negotiation phase.
    • Agreement and Follow-Up: Finalizing deals with ongoing communication.

Key Terms

  • Countertrade: Barter-like transactions in the absence of adequate currency.
  • Licensing/Franchising: Granting rights over intellectual property and support for operational frameworks.
  • Joint Venture/Strategic Alliance: Collaborative efforts to achieve economic objectives without merging organizations.

Analyzing International Opportunities

  • Understanding market appeal involves assessing national factors and basic demand tied to climate and resources.
  • Missteps by companies, such as Walmart, can illustrate the importance of climate considerations in international expansion.
  • National business environments are influenced by cultural, political, economic, and legal forces impacting marketing and operations.

Starbucks’ Global Expansion

  • Starbucks operates 33,000 stores in 83 countries, leveraging market research for growth.
  • Successfully adapted to European café culture and introduced a coffee culture to tea-centric China.

Market Research Fundamentals

  • Companies often begin international ventures in familiar, nearby markets, e.g., U.S., Canada, Mexico.
  • Market research aids managers in decision-making through analysis of buyer preferences and marketing strategies.

National Business Environment

  • Cultural forces shape product offerings and marketing strategies, influencing site selection and workforce availability.
  • Political and legal factors, including regulations, affect investment barriers, profit repatriation, and operational ease.
  • Economic forces, like fiscal policies and currency issues, play a crucial role in assessing market viability and operational logistics.

Measuring Market and Site Potential

  • Market potential can be assessed using a market-potential index considering size, growth rate, and economic freedom.
  • Site potential evaluation includes local resource quality, labor dynamics, wage rates, and productivity levels.

Selecting Markets or Sites

  • Site selection requires visits for competitor analysis, understanding local culture, and evaluating workforce capabilities.
  • Key competitor analysis factors include market competition, product appeal, pricing strategies, distribution channels, and potential threats from substitutes.

Secondary Market Research

  • Secondary research involves gathering existing information either internally or from external sources, often less expensive than primary research.
  • Public sources include reports from international organizations (e.g., WTO, UN) and government agencies (e.g., CIA World Factbook).
  • Private sources consist of industry associations and consulting firms providing relevant market insights.

Challenges with Secondary Research

  • Data availability may be limited in emerging markets, raising questions about reliability and comparability across countries.
  • Differences in terms and measurement among nations can complicate data analysis.

Primary Market Research

  • Primary research entails collecting original data tailored to current research needs, often at a higher cost than secondary data.
  • Trade shows and missions offer platforms for direct engagement with industry contacts and market exploration.

Focus Groups and Surveys

  • Focus groups enable in-depth discussions about attitudes toward a company or product within a small group.
  • Surveys gather quantitative insights through structured questions, suitable for gauging consumer opinions and behaviors.
  • Environmental scanning continually assesses market conditions for potential opportunities or threats.

Cultural Considerations in Research

  • Cultural variables, such as language differences and literacy rates, can impact the effectiveness of primary research efforts.
  • Companies unfamiliar with local markets often partner with local agencies to conduct research efficiently.

Analyzing International Opportunities

  • Understanding market appeal involves assessing national factors and basic demand tied to climate and resources.
  • Missteps by companies, such as Walmart, can illustrate the importance of climate considerations in international expansion.
  • National business environments are influenced by cultural, political, economic, and legal forces impacting marketing and operations.

Starbucks’ Global Expansion

  • Starbucks operates 33,000 stores in 83 countries, leveraging market research for growth.
  • Successfully adapted to European café culture and introduced a coffee culture to tea-centric China.

Market Research Fundamentals

  • Companies often begin international ventures in familiar, nearby markets, e.g., U.S., Canada, Mexico.
  • Market research aids managers in decision-making through analysis of buyer preferences and marketing strategies.

National Business Environment

  • Cultural forces shape product offerings and marketing strategies, influencing site selection and workforce availability.
  • Political and legal factors, including regulations, affect investment barriers, profit repatriation, and operational ease.
  • Economic forces, like fiscal policies and currency issues, play a crucial role in assessing market viability and operational logistics.

Measuring Market and Site Potential

  • Market potential can be assessed using a market-potential index considering size, growth rate, and economic freedom.
  • Site potential evaluation includes local resource quality, labor dynamics, wage rates, and productivity levels.

Selecting Markets or Sites

  • Site selection requires visits for competitor analysis, understanding local culture, and evaluating workforce capabilities.
  • Key competitor analysis factors include market competition, product appeal, pricing strategies, distribution channels, and potential threats from substitutes.

Secondary Market Research

  • Secondary research involves gathering existing information either internally or from external sources, often less expensive than primary research.
  • Public sources include reports from international organizations (e.g., WTO, UN) and government agencies (e.g., CIA World Factbook).
  • Private sources consist of industry associations and consulting firms providing relevant market insights.

Challenges with Secondary Research

  • Data availability may be limited in emerging markets, raising questions about reliability and comparability across countries.
  • Differences in terms and measurement among nations can complicate data analysis.

Primary Market Research

  • Primary research entails collecting original data tailored to current research needs, often at a higher cost than secondary data.
  • Trade shows and missions offer platforms for direct engagement with industry contacts and market exploration.

Focus Groups and Surveys

  • Focus groups enable in-depth discussions about attitudes toward a company or product within a small group.
  • Surveys gather quantitative insights through structured questions, suitable for gauging consumer opinions and behaviors.
  • Environmental scanning continually assesses market conditions for potential opportunities or threats.

Cultural Considerations in Research

  • Cultural variables, such as language differences and literacy rates, can impact the effectiveness of primary research efforts.
  • Companies unfamiliar with local markets often partner with local agencies to conduct research efficiently.

International Monetary System

  • Currency values are crucial for international business, impacting trade, investment, and financial stability.
  • A weakening currency increases export competitiveness but raises the cost of imports.
  • Managers prefer currencies and exchange rates to be stable and predictable to facilitate financial planning.

Factors Affecting Exchange Rates

  • Law of One Price: Identical items should have the same price in all countries when expressed in a common currency, creating arbitrage opportunities when disparities exist.
  • Purchasing Power Parity (PPP): Exchange rate adjusts according to price level differences; high inflation depreciates currency value compared to stable countries.
  • Macroeconomic Policies: Monetary (affecting interest rates) and fiscal (tax and government spending) policies influence a nation's money supply and, subsequently, its currency value.

Currency Exchange Techniques

  • Efficient Market View: Prices reflect all publicly available information.
  • Inefficient Market View: Prices do not fully reflect available information.
  • Exchange rates can be forecasted using:
    • Fundamental Analysis: Statistical models based on economic indicators.
    • Technical Analysis: Trends and charts of past prices.

Fixed Exchange Rate Systems

  • In a fixed exchange rate system, currencies are pegged to gold or other currencies at predetermined values.
  • Gold Standard: Linked currencies to specific values of gold, offering stability but led to issues when the US inflated its currency.
  • Bretton Woods Agreement (1944): Fixed exchange rates based on the US dollar; established the IMF and World Bank to manage monetary policies and provide financial support.

Floating Exchange Rate System

  • Jamaica Agreement (1976): Established a system of floating exchange rates allowing currencies to fluctuate in value with minimal government intervention.
  • Types of Float:
    • Managed Float: Governments intervene to stabilize exchange rates.
    • Free Float: No government intervention; market-driven.

Recent Financial Crises and Adjustments

  • Multiple nations have sought help from the IMF during crises, such as:
    • Mexico’s Peso Crisis
    • Southeast Asia’s Currency Crisis
    • Argentina’s Peso Crisis
  • Global managers adapt by:
    • Adjusting operations, sourcing products from different regions, freezing prices, and controlling expenses to mitigate currency volatility.

Future Considerations

  • There is a growing call for revising the IMF and developing new systems that address modern economic challenges.
  • Enhanced private sector involvement may help in managing risks associated with financial crises.

Economic Development

  • Economic development involves enhancing the economic well-being, quality of life, and general welfare of a nation's citizens through productive activity and innovation.
  • Measurement indicators include Gross Domestic Product (GDP) and Gross National Product (GNP), with per capita figures indicating population wealth potential.
  • Classifications of countries based on economic development include:
    • Advanced countries: Highly industrialized with high quality of life (e.g., Australia, Canada, Japan).
    • Emerging markets: Newly industrialized countries increasing industrial output and exports (e.g., Brazil, China, India).
    • Developing countries: Low-quality infrastructure and incomes, often in Africa and the Middle East.

Challenges of Economic Development

  • The shadow economy comprises uncounted transactions, which can account for up to 70% of an economy, particularly in developing nations.
  • Urban areas often show more development than rural areas, affecting average income comparisons.
  • Growth figures alone do not indicate economic conditions; they need contextual information about future performance and regional disparities.

Political Risk

  • Political risk refers to the potential political actions affecting business negatively or positively, varying significantly across countries.
  • Categories of political risk include:
    • Macro risk: Impacts all domestic and international companies.
    • Micro risk: Affects specific industries or companies.
  • Forms of property seizure:
    • Confiscation: Transfer without compensation.
    • Expropriation: Transfer with compensation (e.g., Argentina’s action against YPF).
    • Nationalization: Government takeover of entire industries (e.g., Venezuela).

Managing Political Risk

  • Firms can manage political risk by monitoring political changes proactively, developing situational awareness, and adapting business strategies.
  • Adaptation strategies include partnerships, localization efforts, development assistance, and insurance.
  • Effective political risk management relies on information from experienced local employees and specialized agencies for accurate forecasting.

Economic Transition

  • Economic transition marks the shift from a centrally planned economy to a free-market system, requiring reforms like stabilizing the economy and legalizing private business.
  • Challenges during transition include developing managerial expertise, accessing capital, and overcoming cultural resistance to change.
  • China's economic transition began in 1979 with agricultural reforms and has evolved to significant investment and regional integration initiatives, facing challenges like unemployment and political reforms.
  • Russia's transition from communism has led to a growing middle class; however, issues regarding managerial talent, political instability, and investment climates remain pressing concerns.

Human Development Index (HDI)

  • HDI measures government performance in providing citizens with a healthy life, education, and a decent standard of living, emphasizing that high income alone does not equate to human progress.
  • Understanding of political systems includes structures and processes a nation uses for governance, ranging from anarchism to totalitarianism.
  • Individualism emphasizes the rights and responsibilities of individuals, while collectivism prioritizes group welfare.

Political Systems

  • Totalitarianism:

    • Centralization of political power with features like imposed authority, lack of constitutional guarantees, and restricted participation.
    • Types include:
      • Theocratic Totalitarianism: Control by religious leaders (e.g., Iran).
      • Secular Totalitarianism: Control through military or bureaucratic means, examples being communism and right-wing authoritarianism.
    • Business risks in totalitarian countries include legal issues and ethical dilemmas.

  • Democracy:

    • Leaders elected directly by the people or their representatives.
    • Representative democracy ensures freedom of expression, periodic elections, civil and property rights, minority rights, and nonpolitical bureaucracies.
    • Democracies typically support entrepreneurship and protect property rights leading to economic progress.

Economic Systems

  • Key economic systems influence how resources are allocated and reflect cultural values, with orientations towards individualism or collectivism.

  • Centrally Planned Economy:

    • Government owns resources and plans economic activity, exemplified by the former Soviet Union.
    • Declines due to inefficiencies, lack of incentives, and failure to meet consumer needs.
    • State capitalism occurs when the state plays a major economic role for political objectives, notably in China.

  • Mixed Economy:

    • Features a balance of private and government ownership; assists key industries and provides welfare support.
    • Aims for economic efficiency while preventing excesses of greed.

  • Market Economy (Capitalism):

    • Resources are predominantly privately owned, allowing free choice and enterprise.
    • Governed by supply and demand with significant roles for antitrust laws and protection of property rights.
  • Legal systems encompass laws, regulations, enforcement, and court accountability, impacted by politics and nationalism.
  • Major types:
    • Common Law: Based on tradition, precedent, and usage, found in nations like the U.S. and Australia.
    • Civil Law: Based on written codes and statutes, prevalent in most of Europe and Latin America.
    • Theocratic Law: Based on religious doctrines, including Islamic, Hindu, and Jewish laws.
  • Companies must navigate various legal systems across borders due to the absence of universally accepted international laws.
  • Intellectual Property (IP): Critical for innovation and includes:
    • Industrial Property: Patents and trademarks that protect inventions and brands.
    • Copyright: Protects creators of original works, regulated by treaties like the Berne Convention.
  • Product Safety and Liability: Manufacturers are responsible for damages from defective products.
  • Antitrust Regulations: Ensure competition and fair prices; rigorously enforced in the U.S. and EU.
  • Taxation Issues: Many nations impose value-added taxes (VAT), affecting product costs throughout the supply chain.

Ethics and International Business

  • Key ethical theories include Utilitarianism, Rights Theory, Justice Theory, and Cultural Relativism, essential for guiding international business practices.
  • Utilitarianism aims to maximize happiness and promote actions with the best overall outcomes, exemplified by Unilever’s climate transition action plan.
  • Rights Theory emphasizes every individual's inherent rights, as detailed in the UN's Universal Declaration of Human Rights.
  • Justice Theory focuses on fair and equitable solutions in a society where all citizens have equal rights.
  • Cultural Relativism posits that ethical behaviour is context-dependent, varying between cultures.

Corporate Social Responsibility (CSR)

  • CSR suggests that businesses should integrate social goals into their core objectives, positively impacting society.
  • Stakeholder Theory emphasizes the importance of recognizing and valuing internal and external stakeholders.
  • Benefit Corporations legally incorporate stakeholder interest alongside profit maximization, with notable examples like Patagonia and Danone North America.

Sustainability in Business

  • Sustainability involves meeting present needs without compromising future generations, encompassing climate change initiatives and net-zero emissions goals.
  • Carbon footprints calculate a business's greenhouse gas emissions, divided into primary and secondary footprints.
  • The concept of a circular economy promotes product designs that minimize waste and enhance reuse and recycling practices.

Global Business Challenges

  • Businesses face ethical dilemmas, often requiring the application of ethical theories to find resolutions.
  • Ethical behavior creates a competitive advantage through trustworthiness, leading to improved brand loyalty and reduced risk of legal challenges.
  • The Foreign Corrupt Practices Act prohibits bribing foreign officials and emphasizes ethical practices globally.

Diversity, Equity, and Inclusion (DEI)

  • DEI encompasses creating diverse workplaces that foster inclusivity and equitable opportunities for all employees.
  • Companies like Apple and Nike highlight the importance of official DEI statements and initiatives to commit to these values.
  • Impact sourcing brings marginalized groups into the global workforce, enhancing diversity and social responsibility.

Importance of Ethical Conduct

  • A strong ethical framework benefits companies through heightened brand loyalty, employee morale, community goodwill, and reduced litigation risks.
  • Managers must navigate the complexities of ethical decisions, balancing local customs with universal ethical standards.

Challenges in Global Operations

  • Ethical dilemmas often arise concerning local labor standards, necessitating thoughtful application of ethical theories such as utilitarianism and justice.
  • Unethical behavior stems from individual moral integrity and corporate culture, highlighting the need for strong leadership examples within organizations.

Conclusion

  • Ethical business practices, CSR, sustainability, and DEI initiatives are critical to thriving in a competitive international landscape.
  • Companies must commit to social responsibility not only for compliance but to establish long-term relationships with stakeholders and enhance overall business success.

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Test your knowledge on Chapter 15 of 'International Business: The Challenges of Globalization.' This quiz focuses on developing and marketing products internationally, covering key factors and promotional strategies. Enhance your understanding of international product strategies and their implications.

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