International Business Concepts
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Questions and Answers

How is international business defined?

The performance of activities by firms across national borders.

What is another term for international business?

  • Laissez-faire business
  • Cross-border business (correct)
  • Born global business
  • Multi-hub business

Which of the following best characterizes the development of international business?

  • It has existed in some form for centuries. (correct)
  • Its development has slowed in recent years.
  • It developed after the year 2000.
  • It first started in Europe.

A few decades ago, international business was largely the domain of which type of firms?

<p>Multinational firms (B)</p> Signup and view all the answers

What is another term for importing?

<p>Global sourcing (B)</p> Signup and view all the answers

Which of the following is subject to both importing and exporting?

<p>Both finished products and intermediate goods (B)</p> Signup and view all the answers

What does the term "international investment" refer to?

<p>The transfer of assets to another country or the acquisition of assets in that country.</p> Signup and view all the answers

Which of the following represents a factor of production except?

<p>Government regulations (D)</p> Signup and view all the answers

Which of the following is not an example of foreign direct investment (FDI)?

<p>Cross-border purchase of stocks (B)</p> Signup and view all the answers

What is the total value of products and services produced in a country over the course of a year called?

<p>GDP (Gross Domestic Product)</p> Signup and view all the answers

Which of the following best explains why export growth has outpaced the growth of domestic production in recent decades?

<p>Advanced economies now source many of their consumable products from low-cost manufacturing nations. (D)</p> Signup and view all the answers

Which of the following has not contributed to the rapid growth of trade among nations?

<p>The increase in trade barriers (D)</p> Signup and view all the answers

International business is performed not just by individual firms, but also by governments and international agencies.

<p>True (A)</p> Signup and view all the answers

The globalization of markets refers to the growing independence and self-sufficiency of countries worldwide.

<p>False (B)</p> Signup and view all the answers

International business today is predominantly the domain of large, multinational companies.

<p>False (B)</p> Signup and view all the answers

Exporting is an entry strategy involving the sale of products or services to customers located abroad.

<p>True (A)</p> Signup and view all the answers

A country's economic assets are also known as factors of production.

<p>True (A)</p> Signup and view all the answers

The two primary types of international investment are portfolio investment and foreign direct investment.

<p>True (A)</p> Signup and view all the answers

Over the last few decades, export activity by nations has grown more quickly than has domestic production.

<p>True (A)</p> Signup and view all the answers

In the past, international trade and investment activities were mainly conducted by companies that sold services.

<p>False (B)</p> Signup and view all the answers

Although services trade is growing rapidly, the value of merchandise trade is still much larger.

<p>True (A)</p> Signup and view all the answers

The level of government intervention in commercial activities is similar across most countries.

<p>False (B)</p> Signup and view all the answers

Currency risk refers to the risk posed by adverse fluctuations in exchange rates.

<p>True (A)</p> Signup and view all the answers

For internationalizing firms, the consequences of poor business management decisions are usually more costly when mistakes occur abroad than when they occur at home.

<p>True (A)</p> Signup and view all the answers

What is meant by the term "entrepôt economies"? Provide an example.

<p>Entrepôt economies are countries that import a large volume of products, some of which they process into higher value-added products, while others they simply re-export to other destinations. Singapore is a major entrepôt for petroleum products received from the Middle East, which it then exports to China and other destinations in Asia.</p> Signup and view all the answers

Describe the major trends in the growth of foreign direct investment (FDI) since the 1980s.

<p>FDI has grown significantly since the 1980s, with a rapid increase in the dollar volume of FDI, especially in developed countries. FDI inflows to developing economies surpassed those to advanced economies around 2010. Although interrupted by events like the 2001 terrorist attacks and the 2008 global recession, the trend has continued to grow, particularly in developing economies, driven by their need for modernization and infrastructure development.</p> Signup and view all the answers

What are the main differences between products and services? Provide three examples of each. Which sector has seen the greatest growth in international trade in recent years?

<p>Products are tangible goods, such as clothing, computers, and cars, while services are intangible deeds, performances, or efforts, such as advertising campaigns, financial services, and restaurant management. International trade in services, like tourism and transportation, has seen the greatest growth in recent years.</p> Signup and view all the answers

Identify three sectors in the service industry that are internationalizing rapidly. Explain the types of activities conducted within each sector and provide examples of three companies that operate in each.

<p>The three sectors are: 1) Architectural, construction, and engineering: Services include construction, design, and engineering for infrastructure projects. Companies include Bechtel, Halliburton, and Kajima. 2) Banking, Finance, and Insurance: Services include financial management, risk evaluation, and insurance provision. Companies include HSBC, Morgan Stanley, and Allianz. 3) Education, training, and publication: Services include management training, technical training, and language training. Companies include Berlitz, Kumon, and Pearson.</p> Signup and view all the answers

Explain the meaning of international trade. Describe the two major forms through which international trade takes place.

<p>International trade is the exchange of products and services across national borders. It can occur through exporting, where goods are sold to customers located abroad from a base in the home country or third country, or importing, where goods are sourced from suppliers located abroad for consumption in the home country or third country. Both finished products and intermediate goods can be imported and exported.</p> Signup and view all the answers

What is international business, and how has it transformed the world economy?

<p>International business is the performance of trade and investment activities by firms across national borders. The key developments that have transformed the world economy are: 1) Increased international trade and investment: Global trade and FDI have experienced rapid growth in recent decades. 2) Rise of emerging markets: Countries like China, India, and Brazil have become major players in global trade and investment. 3) Advancements in technology: The internet, information technology, and communication technologies have facilitated international business and interconnectedness. 4) Globalization of markets: The world has become increasingly integrated, with companies operating across multiple countries.</p> Signup and view all the answers

Which of the following types of risk is also known as political risk?

<p>Country risk (D)</p> Signup and view all the answers

Which of the following is not an example of a cross-cultural risk factor?

<p>Costs of production (B)</p> Signup and view all the answers

Fluctuating exchange rates are an example of which of the following?

<p>Currency risk (C)</p> Signup and view all the answers

LeShaun Golding researched the risks linked to establishing a plant in Country B. He cited government intervention, lack of local managerial talent, and unethical business practices as the most prominent risks for this location. LeShaun noted all of the following types of risks except?

<p>Currency risk (C)</p> Signup and view all the answers

Rosa Suarez reported on her analysis of cross-cultural risks involved with establishing a plant in Country C. Each of the following was most likely discussed in her report except?

<p>The level of national debt (C)</p> Signup and view all the answers

Explain the cross-cultural risk faced by internationalizing firms. What causes this type of risk? Why might it pose a problem for internationalizing firms?

<p>Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some human value at stake. It arises from differences in language, lifestyles, mind-sets, customs, and religion. Miscommunication due to cultural differences can lead to inappropriate business strategies and ineffective relations with customers.</p> Signup and view all the answers

Discuss how international firms manage the four types of international business risk. Provide an example that illustrates the process of risk management.

<p>International firms routinely face four types of risk: 1) Cross-cultural risk: Misunderstandings due to cultural differences. 2) Country risk: Political, economic, and legal risks of a foreign country. 3) Currency risk: Fluctuations in exchange rates. 4) Commercial risk: Poorly developed business strategies. To manage these risks, firms conduct thorough research, develop contingency plans, and build strong relationships with local partners. For example, a firm entering a new market might invest in cultural training for its employees, analyze the political and economic risks of the country, and hedge against currency fluctuations.</p> Signup and view all the answers

Businesses that directly initiate international business transactions are known as what?

<p>Focal firms</p> Signup and view all the answers

The Coca-Cola Company is an example of which type of firm?

<p>Multinational enterprise (A)</p> Signup and view all the answers

Which of the following is an example of a new global challenger?

<p>A firm from Russia that is rapidly growing in the communications industry (A)</p> Signup and view all the answers

China has the second most MNEs.

<p>True (A)</p> Signup and view all the answers

SMEs usually choose exporting as their main strategy for entering foreign markets.

<p>True (A)</p> Signup and view all the answers

What distinguishes an MNE from an SME? Describe the major differences between the two types of firms.

<p>MNEs are large companies with substantial resources operating across multiple countries through subsidiaries and affiliates. SMEs are smaller businesses with fewer employees that may not have as extensive global operations. Key differences include size, resources, and global reach. MNEs often engage in foreign direct investment (FDI), while SMEs may primarily focus on exporting.</p> Signup and view all the answers

Why might firms choose to pursue internationalization strategies? Identify five major motivations for expanding overseas. Classify these motivations as strategic or reactive and provide an example of each.

<p>Firms internationalize for strategic and reactive reasons. 1) Strategic: Market diversification: Expanding into new markets to reduce risk. Example: A company selling tech products expands into a new country to reduce dependence on its home market. 2) Strategic: Increased margins and profits: Entering markets with less competition and high demand. Example: A company selling high-end furniture expands into a country with untapped demand. 3) Strategic: New ideas and efficiency: Gaining knowledge and experience from foreign markets. Example: A company adopts lean manufacturing practices after observing a successful Japanese manufacturer. 4) Strategic: Access to resources: Utilizing cheaper labor or raw materials. Example: Clothing manufacturer relocating to a country with lower labor costs. 5) Reactive: Responding to competitors: Expanding to compete with rivals in their home market. Example: A company enters a new market to prevent a competitor from gaining dominance.</p> Signup and view all the answers

All of the following contribute to economic prosperity except?

<p>International trade and investment have experienced unprecedented decline (A)</p> Signup and view all the answers

Flashcards

International Business

The performance of trade and investment activities by companies across national borders.

Cross-border business

Another name for international business.

Development of International Business

International business has existed for centuries and has significantly expanded.

Multinational firms

Companies that operate in many countries.

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Importing

Acquiring goods or services from another country.

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Exporting

Selling goods or services to customers in another country.

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Global Sourcing

Acquiring goods or services from suppliers around the world.

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International Investment

Transferring assets to or acquiring assets in another country.

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Factors of Production

Resources used to produce goods and services, like labor, capital, and technology.

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Foreign Direct Investment (FDI)

Investment in a company's physical assets in another country.

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Gross Domestic Product (GDP)

The total value of goods and services produced in a country in a year.

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Export Growth

The rate at which exports increase.

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Globalization of Markets

The increasing interdependence and interconnectedness of countries' economies.

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Trade Barriers

Obstacles to international trade, such as tariffs or quotas.

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Information Technology

Technology that helps with communication and data processing.

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International Agencies

Organizations like the WTO, that facilitate international cooperation on trade and other issues.

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Merchandise Trade

The exchange of physical goods between countries.

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Services Trade

The exchange of services between countries.

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Portfolio Investment

Investment in foreign financial assets, such as stocks and bonds.

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Intermediate Goods

Products used in the production of other goods.

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Trade Liberalization

Reduction of trade barriers.

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Study Notes

International Business: Key Concepts

  • International business is the performance of activities by firms across national borders.
  • It encompasses trade and investment.
  • International business has existed for centuries, evolving significantly over time.

International Business Development

  • International business has largely been dominated by multinational firms in recent decades.
  • International business is now increasingly conducted by smaller firms.
  • Globalization is a driving force behind increased international business activity.

International Investment

  • International investment involves the transfer of assets to another country, including acquisition of assets.
  • International portfolio investment involves the purchase of foreign securities (stocks, bonds) for financial gains.
  • Foreign direct investment involves ownership of productive assets, such as facilities or corporations.

Factors of Production

  • A country's economic assets are also known as factors of production.

Measures of Economic Activity

  • Gross Domestic Product (GDP) is the total value of products and services produced in a country over a year.

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Description

Explore the fundamental concepts of international business, including trade, investment, and the influence of globalization. This quiz covers the evolution of international business, the role of multinational firms, and key investment strategies. Test your knowledge on how assets are transferred across borders and the various factors affecting international trade.

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