Tutorial 1

1. Not all companies go international by first exporting, then using contracts, and then
investing in other markets as they gain international experience.
a. How (if at all) do you think a company’s product influences the process of going
international?
Answer:

Product Influence on Going International

The nature of a company's product can significantly influence the process of going international.
For example, companies with unique or innovative products may choose to enter foreign markets
through direct investment rather than exporting or using contracts. This allows them to maintain
control over their intellectual property and ensure the quality and consistency of their products.
On the other hand, companies with standardized or commoditized products may find it more
cost-effective to start with exporting or using contracts before considering direct investment.

b. How (if at all) will technology affect the process of going international? Explain.
Answer:

Impact of Technology on Going International

Technology plays a crucial role in the process of going international. It enables companies to
overcome geographical barriers, communicate and collaborate with partners and customers in
different countries, and streamline their operations. Advancements in transportation and logistics
technology have made it easier and more cost-effective to transport goods across borders. Digital
technologies have facilitated online sales and marketing, allowing companies to reach customers
in foreign markets without the need for physical presence. Additionally, technology has enabled
companies to gather market intelligence, analyze data, and make informed decisions about
entering and expanding into international markets.

2. Imagine you overhear two of your colleagues talking and one says to the other,
“Companies should use investment entry modes whenever possible because they offer
the greatest control over business operations.”
a. Do you agree or disagree with this statement? Explain.

Answer:
Agree: Investment entry modes offer greater control over business operations

Investment entry modes, such as direct investments and joint ventures, can provide companies
with greater control over their business operations. Through direct investments, companies can
have full ownership and control over their operations in a foreign market. Similarly, joint ventures
allow companies to share control and decision-making with a local partner. These modes offer the
advantage of being able to implement strategies and make decisions that align with the
company's overall objectives and priorities.

b. Are there times when other market entry modes offer greater control? Explain.
Answer:
 Other market entry modes can offer greater control

While investment entry modes can provide greater control, there are times when other market
entry modes may offer even greater control over business operations. For example, licensing
agreements and franchising allow companies to maintain control over their brand and intellectual
property while leveraging the local knowledge and resources of a licensee or franchisee. This can
be particularly beneficial in markets where local expertise is crucial for success.

Additionally, collaborative arrangements, such as management contracts and clustering, can offer
companies a high level of control over specific aspects of their operations. Management contracts
allow companies to retain control over key managerial decisions while outsourcing the day-to-day
operations to a local partner. Clustering, on the other hand, allows companies to locate their
operations in close proximity to other related businesses, enabling greater control over supply
chains and access to specialized resources.

In conclusion, while investment entry modes generally offer greater control over business
operations, there are times when other market entry modes can provide even greater control. The
choice of entry mode should be based on a careful assessment of the specific market conditions,
the company's objectives, and the level of control desired.

Tutorial 2
1. Discuss Hofstede's national culture dimensions. What are some of the implications of
these dimensions for international business?
Answer:

Hofstede's National Culture Dimensions

Hofstede's research identified five important dimensions of national culture: social orientation,
power orientation, uncertainty orientation, goal orientation, and time orientation. These
dimensions reflect tendencies within cultures, not absolutes, and can vary over time. Social
orientation refers to the relative importance of the individual and the group. Power orientation
relates to the acceptance or avoidance of authority within a hierarchy. Uncertainty orientation
reflects people's feelings about uncertain and ambiguous situations. Goal orientation refers to the
motivation behind achieving different goals. Time orientation is the extent to which members of a
culture adopt a long-term versus a short-term outlook on work, life, and other aspects of society.
2. How can multinationals prepare their employees to understand cross-cultural differences?

Answer:

One way multinationals can prepare their employees to understand cross-cultural differences is
by building cultural awareness . This involves gathering research on another culture, observing
the behavior of respected individuals in that culture, and assessing information to determine if it
perpetuates unwarranted stereotypes or is obsolete . Additionally, successful teams have been
found to work to understand each other's cultures before dealing with tasks at hand, and an
expectation of high diversity among teams can lead members to prepare more to deal with
differences and keep open minds .
3. Discuss some of the major reasons why it is important to understand national culture.

Answer:

Understanding national culture is important for several reasons. Firstly, laws governing business
operations are largely along national lines, so understanding national culture is essential for
complying with local laws and regulations . Secondly, cultural differences can lead to
misunderstandings and miscommunications, which can negatively impact business relationships
and outcomes . Thirdly, understanding national culture can help businesses to identify and
capitalize on opportunities for growth and expansion in foreign markets . Finally, nurturing cultural
diversity can enable businesses to gain a deeper knowledge of products and services and how to
create and deliver them.

National boundaries act as proxy for culture because

● Similarity among people is a cause and an effect of national boundaries.
● Laws governing business operations are largely along national lines.
● Language and values are shared within borders.
● Rites and symbols are shared along national lines.
Country-by-country analysis can be difficult because
● Subcultures exist within nations
● Similarities link groups from different countries
● Bicultural or Multicultural people have internalized more than one national culture. This
occurs because they hold dual or multiple nationalities, have parents from another
country, or have lived abroad at an impressionable age.
4. Discuss why the culture of a country might influence the costs of doing business in that
country. Illustrate your answer with country and company examples.

Answer:

The culture of a country can influence the costs of doing business in that country in several ways.
For example, cultural differences can lead to differences in communication styles, which can
increase the costs of doing business . For instance, when Walmart entered the German market, it
failed to understand the importance of local suppliers and the role of unions in the country, which
led to a lack of trust from German consumers and ultimately resulted in Walmart's withdrawal
from the market .

Cultural differences can also lead to differences in business practices, which can increase the
costs of doing business. For example, in some cultures, it is customary to build personal
relationships before conducting business, which can lead to longer lead times and higher costs .
In contrast, in other cultures, business is conducted more formally and efficiently, which can lead
to lower costs. For example, when Toyota entered the US market, it introduced the concept of
"just-in-time" inventory management, which allowed the company to reduce costs and improve
efficiency .

Finally, cultural differences can lead to differences in the regulatory environment, which can
increase the costs of doing business. For example, in some cultures, there may be a greater
emphasis on environmental protection or worker safety, which can lead to higher compliance
costs for businesses . For instance, when BP faced a major oil spill in the Gulf of Mexico, it faced
significant regulatory fines and legal costs due to the stricter environmental regulations in the US
compared to other countries where it operates.

Example: Saudi Arabia

In Saudi Arabia, cultural norms and practices heavily influence business costs. The country
follows Islamic principles, which impact various aspects of business operations. For example,
companies operating in Saudi Arabia may need to adhere to strict dress codes, separate facilities
for men and women, and prayer times, which can impact workplace design and operational costs.

Moreover, Saudi Arabian culture places a strong emphasis on personal relationships and
trust-building. Building and maintaining these relationships may require frequent face-to-face
meetings, which can increase travel and accommodation costs for international businesses.

Example: IKEA in Different Cultures

IKEA, a multinational company, has experienced the influence of culture on business costs in
various countries. For instance, in Saudi Arabia, IKEA had to adapt its product offerings to align
with local cultural preferences and religious customs. This involved modifying furniture designs to
comply with Islamic principles and removing certain products that were not culturally appropriate.

Similarly, in Japan, IKEA had to adjust its pricing strategy to accommodate the cultural preference
for high-quality products and exceptional customer service. This required investing in
higher-quality materials and training staff to provide a personalized shopping experience, which
may have increased operational costs.
5. Do you think that the business practices in an Islamic country are likely to differ from
business practices in a Christian country? If so, How? If not, Why?

Answer:

Yes, business practices in an Islamic country are likely to differ from business practices in a
Christian country due to the differences in religious beliefs and cultural norms . For example,
Islamic law forbids charging interest and selling accident insurance, which can impact the way
financial transactions are conducted in Islamic countries . In contrast, Christian countries do not
have such prohibitions, and interest-based financial transactions are common.

Moreover, Islamic countries may have different expectations regarding gender roles and dress
codes, which can impact the way business is conducted. For instance, in Saudi Arabia, women
are not allowed to work in certain industries or interact with men in certain settings, which can
limit their opportunities for employment and business networking . In contrast, in Christian
countries, there is generally more gender equality and women are more likely to participate in the
workforce.

Finally, Islamic countries may have different expectations regarding the role of religion in
business, which can impact the way business is conducted. For example, in Islamic countries, it
is common for businesses to close during prayer times, and religious holidays may be observed
more strictly than in Christian countries . In contrast, in Christian countries, religion may play a
less prominent role in business practices.

In summary, the differences in religious beliefs and cultural norms between Islamic and Christian
countries are likely to result in differences in business practices. It is important for businesses to
understand and adapt to these differences in order to succeed in foreign markets.

6. Choose two countries that appear to be culturally diverse. Compare the cultures of those
countries, and then indicate how cultural differences influence –
A) the costs of doing business in each country.
B) the likely future economic development of that country, and
C) business practices.

Answer:
One example of two culturally diverse countries is Japan and Brazil.

A) The costs of doing business in Japan and Brazil are influenced by their cultural differences.
For example, in Japan, there is a strong emphasis on building personal relationships before
conducting business, which can lead to longer lead times and higher costs . In contrast, in Brazil,
business is conducted more informally, and personal relationships are less important, which can
lead to lower costs . Additionally, Japan has a more hierarchical business culture, which can lead
to slower decision-making and higher costs, while Brazil has a more egalitarian culture, which can
lead to faster decision-making and lower costs .
 B) The likely future economic development of Japan and Brazil is also influenced by their cultural
differences. For example, Japan has a strong work ethic and a focus on innovation, which has
helped it to become a leader in technology and manufacturing . However, Japan's aging
population and resistance to immigration may limit its future economic growth . In contrast, Brazil
has a large and growing population, abundant natural resources, and a diverse economy, which
has helped it to become a major player in agriculture, mining, and energy . However, Brazil's
political instability and corruption may limit its future economic growth .

C) Business practices in Japan and Brazil are also influenced by their cultural differences. For
example, in Japan, there is a strong emphasis on teamwork and consensus-building, which can
lead to slower decision-making but also greater buy-in and commitment from employees . In
contrast, in Brazil, there is a greater emphasis on individualism and entrepreneurship, which can
lead to faster decision-making but also greater risk-taking and less collaboration . Additionally, in
Japan, there is a greater emphasis on quality and attention to detail, while in Brazil, there is a
greater emphasis on flexibility and adaptability .

In summary, the cultural differences between Japan and Brazil influence the costs of doing
business, the likely future economic development, and business practices in each country. It is
important for businesses to understand and adapt to these cultural differences in order to
succeed in foreign markets.

Tutorial 3
POLITICAL, LEGAL & ECONOMIC
ENVIRONMENT AND INTERNATIONAL TRADE
THEORIES
Question 1:
a. What were the fallacies of the theory of mercantilism?
Answer:

According to (Page 7), mercantilism held that a country's wealth was measured by its holdings of gold
and that countries should export more than they import to receive gold from countries that run deficits.
However, this theory had several fallacies, including the idea that a country's wealth was limited to its
holdings of gold and that trade was a zero-sum game where one country's gain was another's loss.
Additionally, mercantilist policies such as import restrictions and subsidies could lead to inefficiencies and
distortions in the economy.

b. Briefly describe the differences between the theories of absolute and comparative
advantage. What were the shortcomings of these theories?
Answer:
According to (Page 8) and (Page 39), the theory of absolute advantage holds that different countries
produce some goods more efficiently than others, and questions why the citizens of any country should
have to buy domestically produced goods when they can buy them more cheaply from abroad. On the
other hand, the theory of comparative advantage proposes that countries should specialize in producing
goods in which they have a lower opportunity cost than other countries, even if they have an absolute
disadvantage in producing those goods. This allows countries to trade with each other and increase total
global output, even if one country has an absolute advantage in the production of all products.

However, policymakers have questioned some of the assumptions of these theories, including the idea
that full employment exists, output efficiency is always a country's major objective, and resources move
freely within countries but are immobile internationally. Additionally, the theories do not account for factors
such as transport costs, dynamic changes in comparative advantage, and the increasing importance of
services in international trade. (Page 8) (Page 39)

c. What problems or concerns may exist when GNI per capita is used as an indicator to
evaluate national economies and potential business opportunities? What other factors
could be used?

Answer:

There are several problems or concerns that may exist when GNI per capita is used as an indicator to
evaluate national economies and potential business opportunities.

First, GNI per capita does not take into account the distribution of income within a country. A country with
a high GNI per capita may still have a significant portion of its population living in poverty.

Second, GNI per capita does not account for differences in the cost of living between countries. A country
with a lower GNI per capita may still have a lower cost of living, making it a more attractive location for
business opportunities.

Third, GNI per capita does not consider non-monetary factors such as quality of life, education, and
healthcare.

To address these concerns, other factors could be used to evaluate national economies and potential
business opportunities. For example, the Human Development Index (HDI) takes into account factors
such as life expectancy, education, and income to provide a more comprehensive measure of human
development. The Global Competitiveness Index (GCI) measures the factors that contribute to a country's
productivity and competitiveness, including infrastructure, institutions, and innovation. The Ease of Doing
Business Index measures the ease of starting and operating a business in a country, taking into account
factors such as regulations, taxes, and property rights. By considering a range of factors, managers can
gain a more complete understanding of a country's economic environment and potential for business
opportunities.

Question 2:
 a. What are the economic factors that affecting international business operations and why
are they important?
Answer:

The economic factors that affect international business operations include external influences
such as political policies, legal practices, cultural factors, economic forces, and geographic
influences. These factors shape a country's development, performance, and potential, and
managers study them to assess a country's economic environment, make better investment
choices, and operating decisions. Economic freedom, type of economic system, and leading
economic indicators are some of the universal characteristics that managers often focus on to
organize analysis. Understanding these factors is important because they help managers
anticipate new situations, estimate the attractiveness of a country as a place to do business, and
make prudent investment and operating decisions.

b. What is meant by the idea of economic freedom? What factors are used in the Economic
Freedom Index? For managers, what role does the Economic Freedom Index play in
analyzing the potential of a country?
Answer:

Economic freedom refers to the absence of government coercion or constraint on the production, distribution,
or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty.
The Economic Freedom Index estimates the extent to which a government constrains free choice and free
enterprise for reasons that go beyond the need to protect property, liberty, safety, and efficiency. The index
rests on Adam Smith's notion that "basic institutions that protect the liberty of individuals to pursue their
economic interests result in greater prosperity for the larger society."

The Index of Economic Freedom analyzes 50 indicators that comprise 10 components organized into four
categories: rule of law, government size, regulatory efficiency, and open markets. The Heritage Foundation
annually applies this index to 177 countries, grading the performance of each. The higher the score on a factor,
within the range of 0 to 100 percent, the higher the degree of economic freedom (or, conversely, the lower the
level of government interference).

For managers, the Economic Freedom Index plays a crucial role in analyzing the potential of a country.
By studying the index, managers can assess a country's economic environment, make better investment
choices, and operating decisions. Countries with higher economic freedom scores tend to have higher per
capita income, standards of living, and social stability than do less-free or repressed countries. Therefore,
managers often use the index to identify countries that are more attractive for investment and to avoid
those that are less attractive.
 c. Describe the three ways economies can be categorised.
Answer:

Economies can be categorized in three ways: by level of development, by type of economic system, and by
degree of government intervention.

1. By level of development: Economies can be categorized by their level of development, which is typically
measured by gross domestic product (GDP) per capita. High-income economies are those with a GDP per
capita of $12,536 or more, upper-middle-income economies have a GDP per capita between $4,046 and
$12,535, lower-middle-income economies have a GDP per capita between $1,036 and $4,045, and low-income
economies have a GDP per capita of $1,035 or less.

2. By type of economic system: Economies can also be categorized by their type of economic system. The
three main types of economic systems are market economies, command economies, and mixed economies. In
a market economy, the production and distribution of goods and services are determined by supply and
demand. In a command economy, the government controls the production and distribution of goods and
services. In a mixed economy, both the government and the market play a role in the production and
distribution of goods and services.

3. By degree of government intervention: Economies can also be categorized by their degree of government
intervention. At one end of the spectrum are laissez-faire economies, where the government plays a minimal
role in the economy. At the other end of the spectrum are state-controlled economies, where the government
controls most aspects of the economy. Most economies fall somewhere in between these two extremes and are
considered mixed economies.

Question 3:
a. Compare and contrast the theories of absolute and comparative advantage.

Answer:

Both the theories of absolute and comparative advantage deal with the concept of specialization and trade
between countries. The theory of absolute advantage suggests that a country should produce and export
goods that it can produce more efficiently than other countries, while importing goods that other countries can
produce more efficiently. In contrast, the theory of comparative advantage suggests that a country should
specialize in producing goods in which it has a lower opportunity cost than other countries, even if it does not
have an absolute advantage in producing those goods.

The main difference between the two theories is that absolute advantage focuses on the absolute productivity
of a country in producing a good, while comparative advantage focuses on the relative productivity of a country
in producing a good. Absolute advantage is based on the idea that a country can produce a good more
efficiently than other countries due to natural or acquired advantages, while comparative advantage is based on
the idea that a country can produce a good at a lower opportunity cost than other countries.

Both theories have their shortcomings, including the assumption of full employment, the lack of consideration
for transport costs, and the immobility of resources internationally. However, they remain important concepts in
international trade and have been used to inform trade policies and agreements.

b. How does Hecksher-Ohlin(HO) theory build on the earlier work of absolute and
comparative advantage?

Answer:

The Heckscher-Ohlin (HO) theory builds on the earlier work of absolute and comparative advantage by
introducing the concept of factor endowments. According to (Page 15), the HO theory maintains that
differences in countries' endowments of labor compared to land or capital endowments explain differences in
the cost of production factors. In other words, countries will tend to specialize in producing goods that use their
abundant factors of production more intensively, and trade with countries that have different factor
endowments.

This theory builds on the earlier work of absolute and comparative advantage by providing a more nuanced
explanation for why countries trade with each other. While absolute advantage focuses on the productivity of a
country in producing a good, and comparative advantage focuses on the opportunity cost of producing a good,
the HO theory takes into account the different factor endowments of countries and how these endowments
affect the cost of production.
Overall, the HO theory provides a more comprehensive explanation for why countries trade with each other,
and has been used to inform trade policies and agreements.

c. The Leontief paradox finds opposite trading patterns for the US to those predicted by the
HO theory. How can you resolve this paradox?

Answer:

The Leontief paradox refers to the finding that the US, a capital-abundant country, exports relatively more
labor-intensive goods and imports relatively more capital-intensive goods, which is the opposite of what the HO
theory predicts. There are several ways to resolve this paradox, as discussed in (Page 40).

One possible explanation is that the HO theory assumes that all factors of production are perfectly mobile
within a country, but this may not be the case in reality. For example, labor may be more specialized in certain
industries or regions, which could affect the cost of production and trade patterns. Additionally, the HO theory
assumes that all countries have the same production technologies, but this may not be the case in reality
either. If the US has more advanced production technologies than other countries, it may be able to produce
labor-intensive goods more efficiently than predicted by the HO theory.

Another possible explanation is that the HO theory assumes that trade is based solely on comparative
advantage, but other factors such as transport costs, tariffs, and non-tariff barriers can also affect trade
patterns. For example, if the US imposes higher tariffs on capital-intensive goods, this could lead to a higher
relative price of these goods and a shift towards importing more labor-intensive goods.

Overall, the Leontief paradox highlights the limitations of the HO theory and the complexity of international
trade. While the theory provides a useful framework for understanding trade patterns, it is important to consider
other factors that may affect trade as well.

Question 4:
a. What is the difference between individualism and collectivism? What is the relationship
between government and business under each orientation?

Answer:
Individualism and collectivism are two different cultural orientations that shape the way people
think, behave, and interact with others.

Individualism is a cultural orientation that emphasizes the importance of the individual over the
group. It values personal freedom, autonomy, and self-expression. In an individualistic society,
people are expected to take care of themselves and their immediate family, and to pursue their
own goals and interests. In the business world, individualism holds that the primary goal of a
company is to maximize profits for its owners or shareholders. The government's role is to create
a level playing field for businesses to compete in, and to protect the rights of individuals and
companies.

Collectivism, on the other hand, is a cultural orientation that emphasizes the importance of the
group over the individual. It values social harmony, cooperation, and interdependence. In a
collectivist society, people are expected to prioritize the needs of the group over their own needs
and interests. In the business world, collectivism holds that the primary goal of a company is to
improve the welfare of all members of society. The government's role is to regulate the market to
 promote social equality, labor rights, income equality, and workplace democracy so that the
"welfare of the nation takes precedence over the selfishness of the individuals."

In summary, individualism and collectivism represent two different cultural orientations that shape
the way people think, behave, and interact with others. In the business world, individualism holds
that the primary goal of a company is to maximize profits for its owners or shareholders, while
collectivism holds that the primary goal of a company is to improve the welfare of all members of
society. The government's role is to create a level playing field for businesses to compete in and
to protect the rights of individuals and companies under individualism, while under collectivism,
the government's role is to regulate the market to promote social equality, labor rights, income
equality, and workplace democracy.

b. What is procedural political risk? How does a nation's political and legal environment
influence procedural risk for MNEs?
Answer:

Procedural political risk is a type of political risk that arises from the political and legal
environment in which multinational enterprises (MNEs) operate. It refers to the risk that political
actions, such as public fraud, partisan judicial systems, or corrupt officials, will impose frictions
that slow or stop business transactions between subsidiaries, companies, or countries. These
actions can raise business costs, lower returns, and constrain the flexibility of local operations.

A nation's political and legal environment can influence procedural risk for MNEs in several ways.
For example, a country with a weak rule of law, a corrupt judiciary, or a lack of transparency in
government decision-making is likely to have a higher level of procedural risk than a country with
a strong rule of law, an independent judiciary, and a transparent government. Similarly, a country
with a high level of political instability, social unrest, or terrorism is likely to have a higher level of
procedural risk than a country with a stable political environment.

MNEs can manage their exposure to procedural political risk by monitoring industry
developments, minding the relative contribution of their firms to the local economy, and promoting
solid citizenship. They can also use legal and political risk insurance, political risk analysis, and
contingency planning to mitigate the impact of procedural political risk on their operations.

In summary, procedural political risk is a type of political risk that arises from the political and
legal environment in which MNEs operate. A nation's political and legal environment can
influence procedural risk for MNEs by affecting the level of political stability, rule of law,
transparency, and corruption in the country. MNEs can manage their exposure to procedural
political risk by monitoring industry developments, promoting solid citizenship, and using risk
mitigation strategies.

Question 5
a. How does a nation's legal environment affect an MNE's marketplace behavior, especially
when the rule of man prevails?

Answer:
To answer your question, when the rule of man prevails in a nation's legal environment, it can
have a significant impact on an MNE's marketplace behavior. The rule of man refers to a legal
system in which the law is not applied equally to all individuals and is subject to the whims of
 those in power. In such a system, the government and its officials have broad discretion to
interpret and enforce the law, which can lead to arbitrary and unpredictable outcomes.

For MNEs, this can create uncertainty and risk in their business operations. They may face
challenges in obtaining licenses and permits, navigating complex regulations, and enforcing
contracts. They may also be subject to arbitrary and discriminatory treatment by government
officials, which can lead to financial losses, damage to reputation, and legal liabilities.

In addition, the rule of man can create a culture of corruption and bribery, as companies may feel
compelled to pay off officials to secure favorable treatment. This can further erode the rule of law
and create a vicious cycle of corruption and impunity.

To mitigate the impact of the rule of man on their marketplace behavior, MNEs can take several
steps. They can conduct thorough due diligence on the legal and political environment of the
countries in which they operate, and develop contingency plans to manage legal and political
risks. They can also establish strong compliance programs to ensure that they are operating in
accordance with applicable laws and regulations, and avoid engaging in corrupt practices. Finally,
they can engage with local stakeholders, including government officials, civil society
organizations, and local communities, to build trust and promote transparency and accountability.

b. Contrast common law, civil law, customary law, and theocratic law.

Answer:

To answer your question, I will provide a brief overview of each legal system:

1. Common law: Common law is a legal system based on tradition, precedent, custom, usage,
and interpretation by the courts. It originated in England and spread to many countries that were
once part of the British Empire, including the United States, Canada, Australia, and India. In a
common law system, judges have the power to interpret the law and make decisions based on
previous court rulings, or precedents. This means that the law is constantly evolving and adapting
to changing circumstances.

2. Civil law: Civil law is a legal system based on a systematic collection of codes and statutes
that judges must follow. It originated in ancient Rome and spread to many countries in Europe,
Latin America, and Asia. In a civil law system, judges do not have the power to interpret the law
or make decisions based on precedent. Instead, they must apply the law as written in the codes
and statutes.

3. Customary law: Customary law is a legal system based on the wisdom of daily experience. It
is often found in societies that are not governed by formal legal systems, such as indigenous
communities or rural areas. In a customary law system, legal rules and norms are passed down
through generations and are enforced by community leaders or elders.

4. Theocratic law: Theocratic law is a legal system based on religious precepts. It is often found
in countries where religion plays a central role in society, such as Iran or Saudi Arabia. In a
theocratic law system, religious leaders have the power to interpret the law and make decisions
based on religious doctrine.
 5. Mixed Law: Mixed law refers to legal systems where two or more of the above legal systems
work together.

In summary, common law is based on tradition, precedent, and interpretation by the courts; civil
law is based on a systematic collection of codes and statutes; customary law is based on the
wisdom of daily experience; and theocratic law is based on religious precepts. Each legal system
has its own strengths and weaknesses, and the choice of legal system can have a significant
impact on the way business is conducted in a particular country.

c. How has intellectual property theft affected China's economy? What is the relationship
between China's legal environment and intellectual property theft?

Answer:

To answer your question, intellectual property theft has had a significant impact on China's
economy. According to aggressive estimates, nearly a third of the Chinese economy is linked to
piracy . The FBI estimates that American companies lose hundreds of billions annually to
counterfeiting, and China continues to be the number one source country for counterfeit and
pirated goods seized . In just the U.S., Chinese counterfeits accounted for 62 percent or $124.7
million of the total domestic value of seizures .

The relationship between China's legal environment and intellectual property theft is complex.
China has a legal system that is based on civil law, but its legal tradition, influence, and
sluggishness in protecting intellectual property have contributed to a significant problem with
piracy . Officially, China has a battery of laws that comply with international standards for market
access, nondiscrimination, and transparency . However, many Chinese citizens and officials
question the legitimacy of laws passed by foreign governments, and foreign-made laws are
inconsistently enforced in the local marketplace . This gap between domestic traditions and
foreign standards means that China's IP laws "exist to protect Chinese IP from foreign IP"

Question 6
a. What is Inflation?
Answer:

It is the increase in the prices of goods and services over time.

iNFLatioN
Inflation is the sustained rise in prices measured against a standard level of purchasing
power. We estimate it by comparing two sets of products at two points in time and then
computing the increase in cost that is not due to quality improvement. Mainstream economics
holds that inflation results when aggregate demand grows faster than aggregate
supply—essentially, too many people try to buy too few goods, thereby creating demand
that exceeds supply that makes prices rise faster than incomes. Other theories, such as the
Austrian School of Economics, hold that inflation results from an increasing supply of money
by Central Banks.90 Last, some define inflation as the continuous fall in the value of the
currency.91 No matter the explanation, managers watch inflation for its influence on interest
rates, living costs, consumer confidence, political stability, and other factors.92
b. What is gross national income? How is it calculated? Illustrate your answer with a specific
example.
Answer:

Gross National Income (GNI): It is the value of all income produced by a country’s residents (both
citizens and foreign residents) within its geographical borders, plus net receipts of income
(wages, salary, and property income) from abroad. [GNI = GDP + Income earned by the country’s
citizens in foreign countries that flows back into the country – Income earned by foreign residents
in the country and send out of the country]

Gross National Income (GNI) is the broadest measure of a country's economy. It measures the
value of all production in the domestic economy together with the income that the country
receives from other countries (mainly interest and dividends), less similar payments it has made
to other countries .

GNI can be calculated by adding up all the income earned by a country's residents, including
those living abroad, and subtracting any income earned by non-residents within the country. This
includes wages, profits, and taxes, among other things. Adjusting GNI by population lets
managers remove the effects of demography in assessing a country’s relative performance .

For example, Norway had a GNI per capita of $98,860 in 2012, which was the highest in the
world . This means that the total income earned by all Norwegian residents, including those living
abroad, was divided by the country's population of 4.7 million to arrive at the per capita figure.

c. What general characteristics of a country should managers consider when analyzing an

economic environment? What specific indicators help managers measure the economic
development, performance, and potential of a country?

Answer:

Managers should consider several general characteristics of a country when analyzing an

economic environment. These include external influences such as political policies and legal
practices, cultural factors, economic forces, and geographic influences. They should also
consider physical and social factors, as well as the competitive environment .

To measure the economic development, performance, and potential of a country, managers can
use a variety of indicators. These include macro and micro measures such as Gross National
Income (GNI), Gross Domestic Product (GDP), inflation rates, unemployment rates, interest
rates, foreign direct investment (FDI), trade balances, and balance of payments. Other indicators
may be informal or idiosyncratic, such as the number of wireless subscriptions, amount of
electrical power generated, internet searches for telltale terms, or military officers running
companies .

Managers can also use leading economic indicators such as consumer confidence, stock market
performance, and business sentiment to forecast future economic trends. Additionally, they can
use measures of economic freedom, type of economic system, and other economic indicators to
organize their analysis . By considering these indicators, managers can gain a better
 understanding of a country's economic environment and make informed decisions about
investment and other business activities.

Tutorial 3
Question 3:
a. Discuss the various stages of the international product life cycle. Give an example
of a product that was introduced to various countries under this theory.

Answer:

The international product life cycle (PLC) theory suggests that the production location of certain
manufactured products shifts as they go through their life cycle. The cycle consists of four stages:
introduction, growth, maturity, and decline.

During the introduction stage, a new product is introduced to the market, and production is typically
located in the country where the product was researched and developed. The focus is on developing
the product and establishing a market for it.

During the growth stage, demand for the product increases, and production begins to shift to other
countries, especially to developing economies. The focus is on increasing production and improving
efficiency to meet growing demand.

During the maturity stage, the product becomes widely accepted, and production is typically located in
countries with the lowest production costs. The focus is on reducing costs and improving quality to
maintain market share.

During the decline stage, demand for the product decreases, and production may shift back to the
original country or to other countries with lower production costs. The focus is on reducing costs and
maximizing profits before the product becomes obsolete.

An example of a product that was introduced to various countries under this theory is the personal
computer. The first personal computers were developed and produced in the United States during the
introduction stage. As demand for personal computers grew, production shifted to other countries,
especially to developing economies such as Taiwan and China, during the growth stage. During the
maturity stage, production shifted to countries with the lowest production costs, such as China and
India. As demand for personal computers has declined in recent years, production has shifted back to
the United States and other countries with advanced technology and high-skilled labor during the
decline stage.

b. In deciding whether to export to another country or build their own sales or production
site, based on your knowledge of trade theory and theories of FDI, what are the major
considerations for international managers making this choice?

Answer:
In terms of deciding whether to export to another country or build their own sales or production site, there are
several major considerations for international managers based on trade theory and theories of foreign direct
investment (FDI).

Firstly, managers need to consider the cost of production in the home country versus the cost of production in
the foreign country. If the cost of production is lower in the foreign country, it may be more cost-effective to build
a production site there rather than exporting from the home country. This is based on the theory of comparative
advantage, which suggests that countries should specialize in producing goods that they can produce more
efficiently than other countries.

Secondly, managers need to consider the level of competition in the foreign market. If there is already a lot of
competition in the market, it may be more difficult to establish a new sales or production site. In this case,
exporting may be a better option. This is based on the theory of market structure, which suggests that the level
of competition in a market affects the behavior of firms.

Thirdly, managers need to consider the level of political risk in the foreign country. If there is a high level of
political risk, such as instability or corruption, it may be more risky to build a production site there. In this case,
exporting may be a safer option. This is based on the theory of transaction costs, which suggests that the costs
of doing business in a foreign country can be affected by factors such as political risk.

Finally, managers need to consider the level of control they want over the production and sales process. If they
want more control, building a production or sales site may be a better option. This is based on the theory of
internalization, which suggests that firms may choose to internalize certain activities rather than relying on
external markets or suppliers.

Overall, the decision to export or build a production or sales site depends on a variety of factors, including cost
of production, level of competition, political risk, and level of control. Trade theory and theories of FDI can help
managers understand these factors and make informed decisions.

Question 4:
a. “The world’s poorest countries cannot find anything to export. There is no resource
that is abundant – certainly not capital or land, and in small poor nations not even labor
is abundant.” – Discuss.
Answer:

Regarding the statement that "the world's poorest countries cannot find anything to export," it is not
entirely accurate. While it is true that many of the world's poorest countries lack abundant resources
such as capital, land, and labor, there are still opportunities for these countries to engage in
international trade.

One approach that can be used to identify potential export opportunities for these countries is the
product space framework. This framework suggests that countries should focus on exporting products
that are related to their existing export base, as this can help them build up the necessary capabilities
and knowledge to compete in global markets.

Another approach is to focus on exporting services rather than goods. Many developing countries have
a comparative advantage in certain services, such as tourism, call centers, and software development.
By focusing on these areas, these countries can generate income and create jobs without relying on
abundant resources.
Additionally, some countries may be able to leverage their natural resources, even if they are not
abundant. For example, some African countries have been able to export high-value agricultural
products such as coffee and cocoa, despite not having abundant land or labor. By focusing on quality
and differentiation, these countries have been able to compete in global markets and generate income.

Overall, while it is true that many of the world's poorest countries lack abundant resources, there are
still opportunities for these countries to engage in international trade. By focusing on their existing
capabilities and identifying areas of comparative advantage, these countries can generate income and
create jobs, which can help to reduce poverty and promote economic development.

b. Boeing is using world-class manufacturing facilities in Japan to supply

components for its new Dreamliner. Should Boeing consider building production
plants in countries like India and China, where there are many excellent
lower-wage engineers? What factors should they take into account?

Answer:

Regarding the question of whether Boeing should consider building production plants in countries
like India and China, there are several factors that the company should take into account.

Firstly, Boeing should consider the cost of production in these countries compared to the cost of
production in Japan. While there may be lower-wage engineers in India and China, other factors
such as infrastructure, logistics, and regulatory environment can also affect the cost of
production. Therefore, Boeing should conduct a thorough cost-benefit analysis to determine
whether building production plants in these countries would be cost-effective.

Secondly, Boeing should consider the level of expertise and experience of the engineers in these
countries. While there may be many excellent lower-wage engineers in India and China, they may
not have the same level of expertise and experience as the engineers in Japan. Therefore,
Boeing should assess the quality of the workforce in these countries and determine whether they
have the necessary skills and knowledge to produce high-quality components for the Dreamliner.

Thirdly, Boeing should consider the level of intellectual property protection in these countries.
Intellectual property theft is a major concern for many companies that operate in countries like
India and China, and Boeing should take steps to protect its intellectual property if it decides to
build production plants in these countries.

Finally, Boeing should consider the political and economic stability of these countries. Political
instability and economic volatility can create risks for companies that operate in these countries,
and Boeing should assess the level of risk and determine whether it is acceptable.

Overall, while there may be benefits to building production plants in countries like India and
China, Boeing should carefully consider the costs and risks before making a decision. By
conducting a thorough analysis of the factors outlined above, Boeing can make an informed
decision that maximizes its competitiveness and profitability.