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INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA


END-OF-SEMESTER EXAMINATION
SEMESTER 2, 2010/2011SESSION

KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES

Programme

: BBA/BACC/ENGIN/HS

Level of Study

: 1-4

Time

: 9:00 a.m 12:00 am

Date

: 10th April 20

Duration

: 3 Hr(s) 00 Min(s)
Section(s)

: 1- 3

Course Code : MGT 4810


Course Title

: International Business

(This Examination Paper consists of 7 Printed Pages Including a Cover Page with 3 parts)
INSTRUCTION(S) TO CANDIDATES:
DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO

1.

2.

3.

Part A: True /False


- Answer ALL questions. Write your answers in your answer booklet. Be
sure to record clearly the question number and your answers, either T
for true or F for false. The maximum score for Part A is 30.
Part B: Essay
- Answer any TWO (2) questions. The maximum possible score for Part B
is 40.
Part C: Case Analysis
- Read the following case and answer ALL questions. The maximum
possible score for Part C is 30.

Any form of cheating or attempt to cheat is a serious offence


which may lead to dismissal.
APPROVED BY:

PROF. EMERITUS DR. MOHAMED SULAIMAN


Head, Department of Business Administration
Kulliyyah of Economics and Management Sciences

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Part A: True/False
Answer ALL questions. Write your answers in your answer booklet. Be sure to record clearly
the question number and your answers, either T for true or F for false. The maximum score
for Part A is 30.

1) The theory of comparative advantage states that the country having a comparative
advantage in the production of a certain good will produces that good when barriers to
trade do not exist.
2) The most common economic reason for nations' attempts to influence international trade
is preserving national security.
3) When a company exports a product at a price higher than the price normally charged in its
domestic market, it is said to be dumping.
4) A market that is said to operate at peak efficiency and where goods are readily and easily
available is said to be a perfect market.
5) The capital account is a national account that records transactions involving the import
and export of goods and services, income receipts on assets abroad, and income payments
on foreign assets inside the country.
6) The eclectic theory states that a company will begin by exporting its products and later
undertake foreign direct investment as a product moves through its life cycle.
7) By issuing bonds in the international bond market, borrowers from newly industrialized
and developing countries can borrow money from other nations where interest rates are
lower.
8) The rapid growth of the international capital market can be traced to three main factors:
deregulation, innovative financial instruments, and information technology.
9) The practice of insuring against potential losses that result from adverse changes in
exchange rates is called currency arbitrage.
10) The practice of insuring against potential losses that result from adverse changes in
exchange rates is called currency arbitrage.
11) Currency revaluation increases the prices of exports and reduces the prices of imports.
12) A market is efficient if prices of financial instruments quickly reflect new public
information made available to traders.
13) The Asian currency crisis was primarily caused by the lack of funding from the
International Monetary Fund and the World Bank.
14) Locating production facilities within regional markets (such as ASEAN) is popular
because producing in one of a region's countries provides duty-free access to every
consumer in the trade bloc.
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15) Volatile currency values make it profitable and easier for firms to predict future earnings
accurately in terms of the home-country currency.

16) Products made in less-developed countries tend to be evaluated more positively than
those from relatively more developed countries.
17) The choice of how to enter a new market is influenced by many factors, including the
local business environment and a company's own core competency.
18) Countertrade can provide access to markets that are otherwise closed because of a lack of
hard currency.
19) Under the stipulations of a turnkey project, one company supplies another with
managerial expertise for a specific period of time.
20) Product standardization is more likely when nations share the same level of economic
development.
21) Under the product extension and communication adaptation method, a company extends
the same home-market product and marketing promotion into the target market.
22) Efforts by a company to reach distribution channels and target customers through
communications such as personal selling, advertising, public relations, and direct
marketing are called its promotion mix.
23) Globally branded products, such as Lego, MasterCard, and Sony, evoke a sense of
consumer confidence, which allows firms to charge premium prices.
24) A company that succeeds in combining a low-cost position with a high-quality product
can gain a tremendous competitive advantage in its market.
25) Companies selling differentiated products find centralized production the better option.
26) By buying from multiple suppliers located in several countries, a company can maintain
the flexibility needed to change sources and reduce the risk associated with sudden
swings in exchange rates.
27) Location economies arise when each production activity generates more value in a
particular location than it could generate elsewhere.
28) In advanced economies, firms generally do not outsource value chain activities because
they fear the loss of proprietary knowledge and trade secrets.
29) Global sourcing creates a complex scenario for managers who must oversee a global
network of production networks and business associates.
30) Given the complexities of international business, manufacturing is generally the only
value chain activity that can be outsourced efficiently.

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Part B: Essay
Answer any TWO (2) questions. The maximum possible score for Part B is 40.

Question 1
a) Explain how the rising value of the Australian Dollar relative to the Malaysian Ringgit
affects Australian consumers, Australian visitors to Malaysia, and Australian exporters to
Malaysia.
(6 marks)

b) As a member country of APEC, Malaysia must comply with one of APECs key
objectives of increasing the integration and development of the automotive sector within
the region. APEC is adamant that tariffs on imported cars must be reduced if not
abolished. The planned tariff reduction will be in three stages; (1) in 2005, all member
countries must first reduce the tariffs from 20 to 15 percent, (2) in 2010, there must be a
further tariff reduction to 10 percent and (3) in 2015, tariffs on imported cars will be 5
percent or lower.
i.

Tariffs reduce trade. Why would a government like Malaysia want to reduce
trade? Explain by giving three reasons.
(6 marks)

ii.

The Malaysian government is, albeit at a slower pace, meeting APECs tariffs
reduction targets. What others strategies can the Malaysian government adopt to
achieve a similar result as using tariffs? Explain.
(8 marks)

Question 2
a) How was the monetary system under the Bretton Woods Agreement different and similar
to that of the gold standard?
(6 marks)

b) The Coffee Cup Corporation (CCC) is a large US-based coffee retailer with stores across
America. After years of studying the successes and failures of its rival Starbuck in
international markets, CCC management believe that the company is ready to venture
internationally. Two top shortlisted target countries are Australia and Japan.
i.

Identify and briefly describe each of the four steps of the screening process for
potential markets and sites that CCC should engage in.
(4 marks)

ii.

What management issues CCC may have to address if it chooses to engage in FDI
in Australia? Explain any three issues.
(6 marks)

iii.

CCC has the option to either go for a Greenfield investment or acquire a local
coffee chain in Australia. Which is better and why?
(4 marks)

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Question 3
a) The per capita income in the US in 2009 was $36,170 while the per capita income in
Japan, converted into US dollars, is $38,410. Does this mean that the average Japanese
citizen enjoys a higher standard of living than the average American? Why or why not?
(4 marks)

b) The Coffee Cup Corporation (CCC) is a large US-based coffee retailer with stores across
America. After years of studying the successes and failures of its rival Starbuck in
international markets, CCC management believe that the company is ready to venture
internationally.
i.

Identify and explain any three strategic factors that would influence CCCs
international entry mode selection.
(6 marks)

ii.

Discuss two disadvantages CCC would face should it chooses to


internationalize through exporting.
(4 marks)

iii.

CCC will be venturing internationally for the first time. The two options that
management are considering is that of licensing or a wholly owned subsidiary.
Which is the better strategy for CCC? Explain.
(6 marks)

Question 4
a) Why do investors use the foreign exchange market? Explain any two reasons.
(4 marks)
b) IKEAs business model has made this Swedish company a market leader in furniture
retailing in over 30 countries worldwide. A key strategic element of the model is the
sourcing of furniture from independent suppliers around the world. According to
published report, IKEA had around 1400 suppliers in 2009. Almost two-thirds of its
products (64%) were sourced from European countries; the largest single supply market
was China with a 22% share of the supply, and the second largest supply market was
Poland with a 16% share.
i.

IKEA has opted to buy the furniture from independent manufacturers. What
benefits do IKEA derive from this strategy? Explain.
(6 marks)

ii.

How important are logistics in IKEAs global sourcing strategy? Explain.


(4 marks)

iii.

Discuss the three key factors that IKEAs managers must consider when
determining the most appropriate transportation mode for its Chinese-made
furniture.
(6 marks)
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Part C: Case Analysis


Read the following case and answer ALL questions. The maximum possible score for Part C
is 30.

A Call for Progress


It is undeniable that communication technology has changed the way in which people
live their life and revolutionize the management of businesses. Indeed, advancements in
communication technology have enabled organisations to better identify potential
opportunities in foreign markets as well as manage worldwide operations more efficiently.
Conversely, inadequate communication facilities can be an important factor retarding
economic progress and prosperity in many countries. Critically, in many nations, provision
for telephone service was often left in the hands of undercapitalised, inefficient state-run
monopolies, staffed by inadequately trained and poorly motivated bureaucrats. The advert of
mobile phone technology however has allowed countries plagued by poor land-line service to
bypass these problems.
The benefits of improved communications to the economic well-being of a nation
cannot be questioned. Increased access to communication services would make it easier for
businesses to learn about new market opportunities, make the markets more efficient, low
prices and reduce waste of resources. For instance, without a mobile phone, a farmer in
Vietnam would have to leave his farm to search for another farmer who would rent his
tractor. With a mobile phone, all could be achieved in just a few minutes, with just a few
phone calls. Mobile phones have also aided small fishermen in Kerala, a state in the south of
India. Before the mobile phone era, the fishermen would head home with their catch without
knowing what price their catch would bring at the dock and that the price maybe better at the
next port up the coast. Even worst, when market conditions were unfavourable (there were
oversupply or the fish was not in demand), the fishermen may have to dump their catch. With
mobile phones, fishermen could call ahead and get information about prices and market
conditions. They could now head straight to the port that would offer the best price. The end
result would be a more efficient market, better profits for the fishermen, lower prices for the
consumers and last but not least, elimination of wasteful dumping of fishes.
The examples above demonstrated the importance of the mobile phone technologies
for emerging markets. Critically, these relationships are not one sided, in that the players in
the industry also need these markets for future sustainability. The industrys goal is to sell
more than a billion units annually and this goal cannot be achieved unless the players are able
to penetrate the emerging markets. In developed nations, mobile phone penetration is high,
with some suggesting that it is almost saturated. For instance, some Western European
countries have more mobile phone accounts than people. About 80 percent of people in the
US have mobile accounts and only 1.2 million new accounts are created each month. This is
peanuts compared to the statistic in China and India. In China, only 38 percent of population
owns a mobile phone and China is adding 6.8 million new subscribers a month. In India, only
12 percent of the population uses the mobile phones and new accounts set up is about 5
million in one month.
Of course, going to these markets would pose new challenges for the industry. For
one thing, the lower per capita income would probably translate to higher price sensitivity
amongst the consumers in these markets. Millicom International Cellular found it needed to
adapt its marketing strategy accordingly. While its customers in Europe spend above $80 a
month on call charges, its customers in Africa and Latin America spends less than $10 a
month. Furthermore, in the emeriging markets checking customers credit history was
difficult if not impossible. As such, Millicom could not extend the post-paid services it has in
Europe to its customers in these markets. The company instead relied on prepaid calling
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cards. Critically, however, prepaid calling card is the more expensive strategy to run both to
the company and the customer. To help its customers, Millicom allowed customers to
transfer prepaid minutes from friends and families. To make its services even more
affordable, Millicoms calling rates are calculated per second, rather than per minute.
The need to cut costs and the unique operating environment in these markets are also
forcing the industry to innovate. A significantly large part of the costs of providing mobile
services are the costs of mobile towers themselves. In India, towers need air conditioning
because of the humidity and backup power generators because of the countrys frequent
power outages. One leading Indian mobile operator, Bharti, encouraged its suppliers to make
their equipment smaller, in order to reduce its costs and power consumptions. Bharti was able
to slash the costs of each of its tower by 40 percent to $75,000 per tower. Nokia Siemens
Network has developed a small, cheap antenna that can be placed on the highest building in a
village, obviating the need to build a costly tower. To overcome the power supply problem,
Ericsson has teamed up with an Indian mobile phone provider to develop a generator
powered by used cooking oil, having previously abandoned an experiment using methane
produced by cow dung.
There are other surprises facing mobile service providers in emerging markets. Phone
manufacturers had originally assumed that plain vanilla, inexpensive phones would be the
most popular, given the level of per capita income in these markets. Among young urban
consumers in China, however, a mobile phone is a status symbol and having the latest phone
is a must. As such, upgrading the phones every few months has become a culture. Nokia
estimates that 60 percent of its sales in emerging markets in 2007 and 2008 were replacement
sales. According to Bharti, its market research reveals that a typical urban mobile phone user
replaces his or her mobile phone every 8 to 12 months. So no plain vanilla please! In
Bangladesh, a similar phenomenon has been observed. Even in that poor country, young
consumers in Dacca and other cities want stylish, well-designed phones with the latest bells
and whistles.

Question 1
Why is internationalisation important for mobile phone companies from the US and Europe?
Explain by giving three reasons.
(6 marks)

Question 2
What are the differences and similarities in the 4Ps of marketing (product, pricing, promotion
and placement) for the mobile phone industry in a developed nation and an emerging market?
Explain and give examples.
(16 marks)

Question 3
What are the relative opportunities for standardization and customization in the mobile phone
industry?
(8 marks)