TUTORIAL 1

1.Summarize each benefit a company might obtain from the globalization of markets.

• Reduces marketing costs by standardizing activities. (*per unit marketing cost)

• Creates new market opportunities abroad if home is small or saturated.

• Levels uneven income streams for global seasonal products.(*not over dependent on 1 market that
effect income- when recession & inflation)

2. How might a company benefit from the globalization of production?

• Access lower-cost workers to cut overall production costs.

• Access technical expertise

• Access production inputs unavailable or more costly at home.

3. Describe the two major forces that drive globalization and how they work together to expand
globalization.
i)Falling barriers to trade and investment:

• GATT(General Agreement on Tariffs & Trade)

-1947:designed to promote free trade by reducing tariffs & non-tariffs barriers.
-1994:a)reduced tariffs & lowered subsidies for agricultural products; b)defined & protected
intellectual property rights; c)creates WTO

• WTO(World Trade Organization)

-organization that enforces the rules of international trade.
-helps: a)improve the free flow trade; b)negotiate the further opening of markets; c)settle trade
disputes
-has 159 members & 25 observer governments.

• Regional Trade Agreements

-signed by governments to liberalize/facilitate trade on regional basis.
-European Union(EU) & North American Free Trade Agreement(NAFTA).

• Foreign direct investment

4. Explain how technological innovation impacts globalization and how it is accelerating the
process.
Technology accelerates globalization by making it easier, faster, and less costly to move data, goods
& equipment around the world.

ii)Technological innovation:

• e-mail & video-conferencing

-better coordination & control

• internet & WWW

-reduces cost of reaching international customers
*webpage + server

• company intranets & extranets

-improve communications & management
*communication intranet (in organization)+extranet(outside organization-supplier)

• advancement in transportation technology

-making shipping more efficient & dependable
*gps/flight

**also help to drive global

5. Sun Tzu, a Chinese military strategist who lived 2,500 years ago, said:
“Know the weather and the field – your victory will be complete.”
“Without local guides, your enemy employs the land as a weapon against you.” How can these be
applied in international business?

• When entering enemy territory, you must know the face of the country-its mountains & forests, its
pitfalls & precipices, its marshes & swamps.
*different preparation=different strategies
*weather(IB=customer segmentation & market to target(demographic)
*field(culture & barriers(equity restriction-%local management(expertise))
*which countries have incentive for foreign company(tax exemption-encourage new
business/industry)

• without local guide, you are unable to take the natural advantages to be obtained from the land.

• Without local guides, your enemy employs the land as a weapons against you

6. How does this current period of globalization compare with the first age of globalization?

• First age globalization

-extended from mid-1800s to 1920s
-drivers: steamship, telegraph, railroad, telephone & airplane
-migration levels reach record highs.
-Trade & capital flowed more freely than ever before

• World war 1,the Russian Revolution & the Great Depression

-abruptly ended first age of globalization.

• Second age of Globalization

-international capital flows regained their prior pace in the 1990s.
-drivers:communication satellites,fiber optics,microchips & the internet
-can control in home country

7. What are the claims of those who say globalization eliminates jobs, lowers wages, and exploits
workers? Are the claims true?
Impact against globalization
No.As for globalization:
-increase wealth in all nations(increase wages)
-generates labor market flexibility in developed nations.Labor can be rapidly deployed to where
demand is relatively great.(create job-increase labor standard)
-advances economies of developing nations-more jobs,higher wage
*developing country=more job,wages increase,labor standard increase(training to local
worker,increase expertise),bring along labor culture-MNC-move to cheaper location=exploit
worker(reason)
*developed country=less job, decrease wages
8. Summarize the claims of each side in the debate over globalization’s influence on cultures.

• Against globalization
-homogenizes our world
-destroy cultural diversity
-wipe out small local businesses

• For globalization
-allow nations to specialize & trade for goods they do not produce
-imports other peoples’ cultural goods
-protect deeper moral & cultural norms

9. What are the several myths that keep small companies from engaging going global and the facts
that dispel these myths?
myth:
1-no export financing available for small businesses
2-small businesses have no place to turn for export advice
3-the licensing requirements needed fors exporting are not worth the effort
4-small business do not have the right people to assist in exporting
5-small business find it difficult to research & identify international market
6-no right technology
7-not enough capital

*Use website-no need to rent places

*franchising=low investment in capital & personnel to establish franchise outlets

CASE STUDY: How General Electric Is Reinventing Itself

In May 2009, General Electric announced that over the next six years it would spend $3 billion to
create at least 100 health-care innovations that would substantially lower costs, increase access, and
improve quality. Two products it highlighted at the time—a $1,000 handheld electrocardiogram
device and a portable, PC-based ultrasound machine that sells for as little as $15,000—are
revolutionary, and not just because of their small size and low price. They’re also extraordinary
because they originally were developed for markets in emerging economies (the ECG device for
rural India and the ultrasound machine for rural China) and are now being sold in the United States,
where they’re pioneering new uses for such machines.

We call the process used to develop the two machines and take them global reverse innovation,
because it’s the opposite of the glocalization approach that many industrial-goods manufacturers
based in rich countries have employed for decades. With glocalization, companies develop great
products at home and then distribute them worldwide, with some adaptations to local conditions. It
allows multinationals to make the optimal trade-off between the global scale so crucial to
minimizing costs and the local customization required to maximize market share. Glocalization
worked fine in an era when rich countries accounted for the vast majority of the market and other
countries didn’t offer much opportunity. But those days are over—thanks to the rapid development
of populous countries like China and India and the slowing growth of wealthy nations.

GE badly needs innovations like the low-cost ECG and ultrasound machines, not only to expand
beyond high-end segments in places like China and India but also to preempt local companies in
those countries—the emerging giants—from creating similar products and then using them to
disrupt GE in rich countries. To put it bluntly: If GE’s businesses are to survive and prosper in the
next decade, they must become as adept at reverse innovation as they are at glocalization. Success
in developing countries is a prerequisite for continued vitality in developed ones.

The problem is that there are deep conflicts between glocalization and reverse innovation. And the
company can’t simply replace the first with the second, because glocalization will continue to
dominate strategy for the foreseeable future. The two models need to do more than coexist; they
need to cooperate. This is a heck of a lot easier said than done since the centralized, product-
focused structures and practices that have made multinationals so successful at glocalization
actually get in the way of reverse innovation, which requires a decentralized, local-market focus.
1. What are the similarities and differences between GE’s traditional innovation and reverse
innovation?

• Traditional innovation=begins in developed countries & then sold in the emerging nations.the cost
of innovation is more expensive

• Reverse innovation=begins in emerging nations & then brought to the developed nations.It
focuses on low cost(wages for engineers &scientist) & simplicity in order to be profitable in the
emerging nations

• Start in India.R&D

2. Why is GE so interested in reverse innovation?

• The developed economies are saturated by competitors.at contrary,the emerging country is

untapped

• Can be a source of competitive threats.(if a MNE does not use the approach,it may be ultimately
destroyed by those who do)

• cheaper,design what local market needs(indian market)

3. What is the main concern that prevents Western MNEs from aggressively investing in emerging
economies? What are the costs if they choose not to focus on emerging economies?
I. Main concern:
- Investing in emerging markets will take a long time to be profitable(hesitation)Investing in
developed economies is more profitable in the short run
II. Cost:
- The firm might miss out on the long run potential benefits
- The firm might be overtaken by emerging economy MNEs

4. Why is a leading U.S. MNE such as GE afraid of emerging multinationals from emerging
economies?

5.

• True global companies must have subsidiary/branches worldwide(McD)

• Must have MNC team of worker(foreign worker+local)

• Top manager must have global mentality

TUTORIAL 2:Cross cultural business

1. How does ethnocentricity distort one’s view of other cultures?***

Ethnocentricity=belief that one’s own ethnic culture is superior than others.view other culture in
term of their own.it can undermine business project.=not satisfy needs of other people

*Distort one’s view of other culture & cause them to overlook important human & environmental
differences among cultures

2. Why should businesspeople understand other cultures?

• Businesspeople should understand other culture through cultural literacy which is detailed
knowledge about a culture that enables a person to function effectively within it.

• improves the ability of managers to:

- manage foreign employees better
- to develop & market products better
- conduct negotiation better in local markets

• Apply license to operate in the country

3. How do cultures differ in their attitudes toward time, work, and cultural change?

• Attitudes are more flexible than values

• positive/negative evaluation,feelings & tendencies individual hold toward objects or concepts

• time
- tight time schedule(japan,northern Europe & US) vs casual about time(Latin
america,mediterranean & middle east)

• work
- Take work seriously
- X take work seriously
- work to live(to earn a living-french) vs live to work(satisfaction-japan)
- western work culture(individualism,autonomy,personal achievement) vs eastern work
culture(collectivism,social & security needs)
• cultural change
- resist cultural changes(e.g:French)
- Embrace cultural changes=open & accept foreign culture(e.g:japan)
- cultural imperialism(culture replacement,substitutes from other)
- gov can design law to protect local culture(however can shut market opportunity)

4. How do manners and customs differ? Give examples of each.***

• Manners
- appropriate ways of behaving,speaking & dressing in a culture
- e.g:conducting business during meals-east culture
- table manners:Western(impolite to start eating before everyone has been served) vs
Chinese(don’t stab chopsticks into bowl of rice)

• Customs
- habits/ways of behaving that are passed down through generations
- e.g:bowing culture-caste system(5categories:Bhramin,Kshatryia,Vaishya,Sudra,Dalit)
- meishi(bowing)

*China vs India:-India(fail in globalization:caste system,largest democracy-too many political

party)

5. How does social rank and social mobility affect business?

• e.g:caste system

• social rank=social layer

• social mobility=ease of moving up/down a culture’s social ladder

• Affect:
- certain occupation can be off-limits for certain group of people(e.g:caste)
- greater labor-management conflict
- people can hesitant to work hard
6. In what ways does religion affect international business activities?

• Different religion take different views of work,savings,& material group

• Business need to make sure their product not offensive,unlawful or distasteful(e.g:controversial

ads)

• Christianity
- christian organization sometimes get involved in social causes=affect business policy
- e.g:Ryanair,Hyundai

• Islam
- Restriction on consumption of pork,alcohol & interest in money

• Hinduism
- e.g:caste system,India
- affecting workforce issues is integral to hindu faith
- not allowed to eat beef

• Buddhism
- spiritual rather than worldly matters
- seek nirvana through charity,modesty,compassion,restraint from violence & self-control
- not work hard

• Confucianism
- despised merchant
- many Chinese moved to south east Asia to do business
- Japan,south Korea

• Judaism
- adjustment of work schedules during sabbath

7. Why is the education level of a country’s people important to international companies?

• To determine whether a culture represents:

- a good market for products
- a good location for production/assembly facilities
- edu level:well-educated attract high-paying jobs,while poorly educated attract low-paying
manufacturing jobs

• Country with low literacy=advertiser use radio ads(audio message) or billboard(visual)

8. Why is knowledge of a culture’s spoken language important for international business?

• Learning some of subtleties of language can avoid confusion

• Understand behavior(insight into why people think & act the way they do)

9. What is the difference between a low-context culture and a high-context culture? How would you
classify your home country’s culture?

• Low-context culture
- pay more attention to the words than to the context surrounding them
- what is said=what is meant
- e.g:Australia,U.S,Germany

• High context-culture
- what said may not be what is meant
- high use of body language
- e.g:China,Korea,Japan & Arab nations

-Low context=easier to do business=save times

10. Briefly explain how Hofstede framework can be used to analyze a culture.

• Hofstede
- Individualism(value hard work,entrepreneurial risk taking,freedom to focus on personal goals)
vs Collectivism(strong association to group(family & work unit),goal is to maintain group
harmony & work toward collective rather than personal goals-Japanese)
- identifies the extent to which culture emphasize the individual vs the group
- Large power distance(characterize by inequality between superiors & subordinates,organization
are hierarchical,power derived from prestige,force &inheritance)
small power distance(equality with prestige & rewards equally shared between superiors &
subordinates,power derives from hard work & is considered more legitimate)
- superior & subordinate
- Identifies the degree to which a culture accept social inequality among its people

- High uncertainty avoidance culture(value security,place faith in strong system of rules &
procedures,have lower employee turnover,formal rules for employee behavior,more difficulty
implementing change)
Low uncertainty avoidance culture(more open to change & new ideas)
- Identifies the extent to which culture avoids uncertainty & ambiguity

- High scoring culture(Characterized by assertiveness & the accumulation of wealth &

entrepreneurial drive-like to compare-singapore)
Low scoring culture(Have relaxed lifestyles,with more of a concern for others than material
gain)
- Identifies to extent to which a culture emphasizes personal achievement & materialism vs
relationship & quality of life

- Strong long-term orientation(value respect for tradition,thrift,perseverance & a sense of

personal shame)
Weak long-term orientation(characterized by individual stability & reputation,fulfilling social
obligation & reciprocation of greetings & gifts)
- Indicates a society’s time perspective & an attitude of overcoming obstacles with time.

CASE STUDY: Wal-Mart’s Foreign Expansion

The closing case explores the international expansion of Wal-Mart, the world’s largest retailer.
Wal- Mart began its international expansion in the early 1990s in an effort to continue its growth.
The company began with a joint venture in Mexico with local retailer, Cifra. Initially, the company
tried to implement strategies similar to those that had proved so successful in the United States,
however Wal- Mart quickly realized that to succeed, it would have to adapt to local demands. The
company hired local managers who understood the Mexican culture and buying preferences, and
changed its strategies accordingly. Wal-Mart continued its international expansion by establishing
operations in Europe and South Korea, but in these markets, the company had less success. Not
only did Wal-Mart compete head- to-head with established retailers, but its product offerings did
not match the needs of consumers. Wal- Mart has had much greater success in China where it has
found some parallels between the shopping habits of Chinese and Americans. Wal-Mart has also
adapted its strategy to fit the local market and now not only allows unions, but is also selling a
product mix designed to meet the demands of China.

1. Do you think Wal-Mart could translate its merchandising strategy wholesale to another country
and succeed? If not, why not?
*walmart business model=wholesale
cannot=different society=different culture

2. Why do you think Wal-Mart was successful in Mexico?***

*Joint venture with local retailer=Cifra
*Understand local culture=hire local manager
*Walmart product=low quality & cheap=suitable for Mexican low income level
*Neighboring country with US

3. Why do you think Wal-Mart failed in South Korea and Germany?

Product offering did not match the needs of consumers.
*Korean:a)support local companies,better shopping environment(b)Korean spend more on food &
beverages-fail to understand Korean spending,)
*German:a)buy high quality product,)b)American company=american culture,shopping
privacy,c)Germans are pro worker,wal-mart pay low wages

4. What must Wal-Mart do to succeed in China? Is it on track?

b)labelling use Chinese language
c)sell more fresh product

5. To what extent can a company like Wal-Mart change the culture of the nation where it is doing
business?
it does.e.g:wet market-hypermarket.**change buying habit:high quantity(once a week).
TUTORIAL 3:Politics, Law and Business Ethics

1. Identify the three main features of totalitarianism.

i)Imposed authority
- an individual/group forms the political system without the explicit/implicit approval of the people

ii)Lack of constitutional guarantees

- Denies its citizens the constitutional guarantees of democracies

iii)Restricted participation
- Political representation is limited to parties that are sympathetic to the government or those that
pose no credible threat

2. Briefly explain each form of totalitarianism. How might a totalitarian government affect business
activities?
I. Secular
- military & bureaucratic power
- Pakistan,latin America(before early 1980s),South Korea,Taiwan & Philipines
- Communist(sweeping political & economic powers,less appealing,government sat as they wish &
can destroy profitability of a business operation)
- socialist government(own & regulates means of production,goal is to obtain social & economic
equality-Russia,Cuba)-bad to business
- Tribal(one ethnic group imposes its will on others with whom it shares a national identity,often
characterized by civil unrest,ethic conflicts-Zimbabwe,Tanzania,Uganda,Kenya)-bad to business
- Right-winged (endorse private ownership of property & market-based economy,but grant few
political freedom;leaders strive for economic growth,but oppose left-wing totalitarianism or
communism;attractive location of investment-Singapore,Argentina,Brazil,Paraguay,Chile1980s)-
good for business(Singapore)

II. Theocratic
- under control of religious leaders
- badly damage the economies of the nations who implement it
- e.g:Iran,Afghanistan
- Bad for business
3. What is democracy? How might a democratic government affect business activities in a nation?

• Government leaders are elected directly by the people

• Views of the people are incorporated into the national decision-making process

• Laws protecting individual property rights are enforced

• A greater portion of factors of production are under private ownership

• Generally good for business

4. What are the five main types of political risk? How might each affect international business
activities?(brief explanation)
• Conflict & violence
- arise from resentment toward the government,territorial disputes & ethnic,racial,religious
disputes

• Terrorism & kidnapping

- done by group of dissatisfied with current political/social situations try to force change through
fear & destruction
- expatriate executives are prime kidnapping targets because their companies can afford large
ransoms

• Property seizure
- Confiscation(forced transfer of company asset to government without compensation)
- Expropriation(forced transfer of company asset to government with compensation)
- Nationalization(involves government takeover of an entire industry-more common than
confiscation & expropriation)

• Policy changes
- frequent changes create unpredictable economic environment & is bad for businesses
- type of policy:
III. Equity ownership
IV. Taxation
V. Profit remittance
VI. Price control
VII. Credit
VIII. Work visa
IX. Property ownership
X. Environmental

• Local content requirements

- Regulation that require international manufacturers to use local resources.Its bad for businesses
- Objectives:

• Develop domestic economy

• Foster local entrepreneurs

• Create local jobs

- Consequences:

• Forcing foreign companies to invest elsewhere

• Increase cost for foreign firms due to poorly trained local workers & inferior quality local raw
material

5. What three methods can businesses use to manage political risk?*exam

i)Adaptation
- Establish partnership through joint venture,strategic alliances & cross-holding
- Localize operations(hire local managers) & the product mix to suit local tastes & culture
- Offer economic development assistance to the host country
- Buy insurance to protect against losses
- incorporate risk into business strategies

ii)Information gathering
- Monitor & predict political events that could threaten future earnings
- Employ people in the country who have valuable contacts & knowledge
- Engage consultancy agencies specializing in political-risk services
- Gather data to better predict & manage risks

iii)Influence local politics

- Lobbying=act of attempting to influence decisions made by the government
- Direct lobbying:involves meeting personally with political people
- Indirect lobbying:advertising campaigns,media publicity,filing of lawsuits or hire professional
lobbyist
- Influence local politics directly or through lobbyists

6. Identify the main features of each type of legal system (common, civil, and theocratic).
• Common law
- based on tradition(nations legal history),precedent(past cases before the courts) &usage(how laws
applied)
- originated in England
- Australia,Britain,Canada,New Zealand,U.S & some nations in Asia & Africa
- Time consuming
- judges have discretion

• Civil law
- based on detailed set of written rules & statutes that constitute a legal code
- dates to roman times(5th century b.c)
- Rules & statutes constitute a legal code
- Defines all obligation,responsibilities & privileges
- Germany,France,Russia,Cuba,Puerto Rico,Central & South America & parts of Asia & Africa
- judges have no discretion (e.g:drug trafficking)
- fast

• Theocratic law
- Based on religious teachings
- Islamic laws(most widely practiced,initially a code governing moral & ethical behavior,& was
later extended to commercial transactions.
- Jewish Law
- Hindu law
- Pakistan,Saudi Arabia,Iran & Middle eastern(Islamic law)
- Malaysia: Sharia law

7. Identify the ramifications of antitrust (antimonopoly) laws and product liability laws.
• Antitrust law
- prevent companies from fixing prices,sharing markets & gain unfair monopoly advantages
- such law increase competition,keep product fairly priced & ensure a variety of products in any
one category
- US & European union have strict antitrust regulation & strict enforcers
- good for small company not for big company

• Product liability law

- product liability:holds manufacturers & sellers responsible for damage,injury or death caused by
defective products
- Developed nations have the toughest product liability law
- Less-developed & emerging countries have weaker laws
- high quality manufacturer have no problem with this=reduce no. of poor/lousy competitors

8. Define ethical behavior and corporate social responsibility. What are the four commonly cited
philosophies of business ethics and social responsibility?
• Ethical behavior
- Personal behavior in accordance with guidelines for good conduct or morality

• Corporate social responsibility(CSR)

- Companies go beyond legal obligation to actively balance commitments to
investors,customers,other companies & communities
- 4philosophies:
i)Friedman
ii)Cultural relativism
iii)Righteous moralism
iv)Utilitarianism

9. List several issues of ethics and social responsibility relevant to international managers.

• Avoid bribery & corruption

• Respect labor conditions & human rights

• Practice fair trade

• Care for environment

10. Under a totalitarian political system, the Indonesian economy grew strongly for 30 years.
Meanwhile, the economy of the largest functioning democracy, India, performed poorly for decades
until recently. What might explain India’s relatively poor performance under a democratic political
system?*1 paragraph each

• Caste system

• anti-foreigner

• too many political parties

CASE STUDY: Walmart’s Chinese Suppliers

The closing case explores the efforts by Walmart to ensure its suppliers in developing countries
make ethical decisions for their organizations. Walmart has established a code of ethics that all
suppliers are required to meet. The company makes regular scheduled and unscheduled audits of its
suppliers and penalizes those found to violate the code of ethics. Because Walmart recognizes the
fact that its continuous demands for better prices can in fact encourage suppliers to make unethical
decisions, the company is also working suppliers to find ways to make their operations more
efficient. Discussion of the case can revolve around the following questions.

1. What are the ethical issues facing Walmart?

Worker-underpaid,overwork,cheap part-time worker
Suppliers-contract uncertain,cheap supply,delay payment
Competitor-underprice product to kill the competitor
Consumer-provide low quality product,false advertising
Society-cause traffic jam,underpaid worker entitled to welfare payment

2. Is it legitimate for an enterprise like Walmart to demand that its suppliers adhere to a code of
ethics? What are the benefits of this practice to Walmart? What are the costs?
Yes,its legitimate.To protect Walmart image.Walmart is paying the supplier

Benefit:protect image & prevent legal sue

Cost:Pay higher price to suppliers. Incur additional cost(monitoring suppliers)

2. Walmart is known for constantly demanding the very lowest prices from its suppliers. How might
this impact upon ethical behavior at its suppliers?
Underpaid worker,child labor,low quality(substandard product),working overtime(overwork)

3. Is Walmart doing enough to ensure that suppliers adhere to its code of ethics for them? What else
might it do?
Walmart is doing code of ethic,conduct regular check & supply check
Punish supplier=buy less quantity,terminate contract

Use reward system=reward supplier(renew contract,pay higher)

4. Given that several cases have come to light where Walmart suppliers falsified their books to give
the impression that they are conforming to Walmart’s code of ethics, should the company even be
doing business in countries where such behavior is widespread?
Walmart have no choice because they are selling cheap product(cheap hypermarket)
TUTORIAL 4:Economics and Emerging Markets

1) What is a centrally planned economy? Describe the link between central planning and
communism.
• Centrally planned economy
- Government controls land,factories & other resources
- Government decides who will work,where they will work & what will be made
- Government plans nearly all economic activity
- Group welfare is more important than individual welfare
- Strives to achieve economic & social equality

• Link between Central planning(market-social equality) & Communism(political)

- Karl Marx(1800s) argued that market economies cannot be reformed.
- Government must be overthrown & replaced with an equitable “communist” system
- Russia(1917),China(1949),Cuba(1959)
- 1970s,central planning was found in Eastern Europe,Asia,Africa & Latin America
- Need to revolution(e.g:Russian revolution & China revolution)

2) Identify several factors that contributed to the decline of centrally planned economies.
• Failure to create economic value
- Central planners failed to produce quality product efficiently

• Failure to provide incentives

- Government ownership limited incentives to maximize benefits from resources,which lowered
economic growth & living standards

• Failure to achieve rapid growth

- Leaders realized their nations were falling quickly behind other nations

• Failure to satisfy consumer needs

- Consumers basic needs were not being met

3) Explain the changes occurring in mixed economies and the role of privatization.
• Mixed economy
- State-owned businesses not efficient,innovative & accountable
- Prices & taxes higher
- Standard of living mixed
- lead to:Sells government-owned companies to private owner

• Privatization
- Increase economic efficiency
- Boost productivity
- Raise living standards
- Cuts subsidies to state-owned firms
- Curtails appointment of managers for political reasons

4) Define what is meant by market economy and identify its three required features.
• Market economy
- Most resources are privately owned
- Individual concerns are above group concerns

• 3 required features:
i)Free choice(Individuals have purchase options)
ii)Free enterprise(Companies can decide what to produce & which markets to compete in
iii)Price flexibility(Prices rise/fall reflecting supply & demand)

5) Explain government’s role in a market economy. How are economic freedom and living
standards related?

• Government role in Market economy

- Government has little direct involvement but play 4 important roles:
i)Enforce Antitrust laws(more firm can enter the market to provide healthy competition,encourage
the development of industries,keep consumer prices in check,prevent monopolies that constrain
commerce)
ii)Preserve property rights(Encourage firms to create new technologies & new products,encourage
entrepreneurs to start new businesses)
iii)Provide stable fiscal & monetary environment(reduce overall uncertainty,improves business
forecast,holds inflation & unemployment low)
iv)Preserve political stability(promotes economic growth generally,reduces worries of political
risk,improves chances for business survival)

• Economic freedom
- connection between political freedom & economic growth is very uncertain
- Greater economic freedom tends to concede with higher living standards

6) Describe any two measures of economic development and list their advantages and
disadvantages.

• 2 measures:
i)National production
- Provide a good estimate of a nation’s overall wealth(as measure by GDP)
- GDP=value of all final goods & services that a nation produces during one-year period
Advantages:
- Give idea of the nation wealth
- compare against other nations
Disadvantages:
- overlook uncounted transaction
- Ignore economic growth rates
- Averages can disguise regions(different region,different income=cover up regional differences)
- Ignore purchasing power

ii)Purchasing power parity

Advantages:
- Takes into account the relative cost of living & the inflation rates of the countries
Disadvantages:
- Ignores other aspects of well-being like leisure time
- Difficult to find comparable basket of goods across countries.(people in different countries
consume different basket of goods)
**only consider income but not include non-income factor(edu/healthcare quality,life span,quality
of air/pollution)
7) Explain the value of the Human Development Index (HDI) in measuring a nation’s level of
development.
• HDI
- Evaluates the extent to which government equitably provides its people with a long & healthy
life,an education & decent standard of living
- This indicator goes beyond estimating only financial wealth & directly assess human aspects of
development
- Non monetary

8) Identify the main characteristics of:

(a) Developed countries

• Highly industrialized,highly efficient & high quality of life

• People receive the finest health care & benefit from the best educational systems

• These countries provide aid programs to help poorer nations

• Australia,Canada,Japan,New Zealand,US & all western European nations

(b) Newly industrialized countries(NIC)

• Have recently increases the portion of national production & exports derived from industrial
operations

• These countries have received an increasing share of total worldwide direct investment

• Hong Kong,South Korea,Singapore,Taiwan

(c) Emerging markets

• Newly industrialized countries & countries that have the potential to become newly industrialized

• They have developed some(but not all) of the operations & export capabilities associated with the
NICs

• Brazil,China,India,Malaysia,Mexico,South Africa & Thailand

(d) Developing countries.

• Poor infrastructure & extremely low personal income

• Rely agriculture,mineral mining,oil drilling

• Often lack resources & skills

• Mainly in Africa,the Middle East & the poorest nations in Eastern Europe & Asia

9) Describe some of the remaining obstacles to businesses in transitional economies.(company

owned by government)
• Lack of managerial expertise
- central planners formerly decided nearly every aspect of the nation’s commercial activities
- Central planners have little need for management skills to develop production,distribution,pricing
& marketing strategies

• Capital shortage
- Economic transition requires high spending:
i)to develop a telecommunications & infrastructure system
ii)to set up financial institutions,including stock markets & a banking system
iii)to educate people in the ways of market economics
- These nations lack capital because of the disastrous financial management during the years of
central planning

• Cultural changes
- slowing the transition
- Replaces dependence on the government with greater emphasize on individuals & modern
management
- Cuts in welfare,unemployment benefits & guaranteed government jobs

• environmental degradation
- Rush among transition economies to catch up to developed countries is leaving serious
environmental damage

10) What are several reform measures that are involved in economic transition?

• Reform measures:
- Reduce budget deficits & expand credit availability
- Allow prices to reflect supply & demand
- Legalize private business,sell state-owned firms,& support property rights
- Reduce barriers to trade & investment & allow currency convertibility

CASE STUDY: Car Financing in China

BEIJING — Jiang Qinxia is just the kind of guy who global automakers like General Motors hope
will jump-start their foray into China’s fledgling and potentially lucrative consumer auto financing
business.
As an upwardly mobile junior manager who lives in Shanghai, Mr. Jiang, 26, recently drove home a
new 105,000-renminbi, or $15,500, Buick Excelle after taking out a 50,000-renminbi loan from
GMAC-SAIC, a six-year-old partnership involving Ally Financial, an SAIC Motor affiliate and
G.M.’s car venture with SAIC.

“I don’t mind paying a little bit more to get a car just as I need it,” said Mr. Jiang. “I will
recommend that to my friends, as it’s fast, easy, and most of all, I don’t have to borrow money from
my parents or friends.”
Even as China’s auto sales rose rapidly last year, just 10 percent of Chinese car buyers used loans
for their purchases, industry executives say. That compares with more than 80 percent in the United
States — a huge gap that has foreign automakers looking to the retail auto financing business as a
way to increase sales.
China’s strong cash culture and lack of comprehensive credit rating tools are major hurdles for the
35 billion-renminbi-a-year industry, according to Sheng Ye, associate research director for Greater
China for the industry consulting firm Ipsos.
Source: New York Times

1. Suggest reasons for you to enter the Chinese market for auto financing.
1)big population
2)rising purchasing power(rising income)
3)car ownership is low(many people haven’t own a car)
4)Allow majority foreign equity holding
5)Better property right protection
2. Suggest reasons for you not to enter the Chinese market for auto financing.
1)Language barrier
2)Lack of centralized credit worthiness checking system
3)strict financing rule
4)Compete with state-owned bank
5)Chinese government pro consumers

3. What is the most prudent mode of entry and market development for you should you chooses to
enter the market?
-Form i.v with local companies=people trust local brand more,restart local culture

4. If you enter, where should you make your moves?

-Enter cities
i)has higher income
ii)show off
iii)has bigger population

5. How do you think the transition to a market economy in China differ from the experiences of
Russia?

• China’s market reforms far earlier in 1978 in a piecemeal,experimental & gradual manner

• China sought economic reform under the strong direction of its communist party

• China view that the upsetting of the political system would generate endless debate,competition
for power & ultimate stagnation & failure for its economic reform

• Unlike Russia,China feels that communist dictatorship & market economy are compatible

• Russia reform political system first,china reform economic system first

TUTORIAL 5:Business-Government Relations

1. What are some political reasons why governments intervene in trade? Explain the role of
national security concerns.

• Political reasons:
i)Political motives
- Protect jobs
- Preserve national security
- Respond to “unfair” trade
- Gain influence

• Role of national security concern:

- Many countries protect their agricultural sector because a nation that imports its food supplies
could face starvation in times of war
- Government banned exports of high technology goods that have dual uses in industrial & military
applications

2. Identify the main economic motives for government trade intervention. What are the drawbacks
of each method of intervention?

• Economic motives
i)Protect infant industries

• Drawbacks:
- Government may make errors in protecting wrong industries
- Protected domestic firms can grow complacent
- Consumers can wind up paying more
- Small promising ventures can now obtain private financing
- can be political suicide to remove protections that have been given

ii)Pursue strategic trade policy

• Drawbacks:
- Can cause inefficiency & high costs
- Benefit only industries with the best political connections
- Can spark destructive competition & even trade wars among nations

3. What cultural motives do nations have for intervening in free trade?

• Cultural motives
- protect national identity
- block imports of products that might be harmful to local culture
- Restrict foreign entertainment programming in order to protect budding artists

4. How do governments use subsidies to promote trade? Identify the drawbacks of subsidies.

• Subsidies:
- financial assistance in form of cash payments,low-interest loans,tax breaks,product price supports
to help domestic companies fend off international competitors
- Increase competitiveness

• Drawbacks:
- Encourage inefficient firms
- Increased consumer prices
- Overuse of resources
- Corporate welfare at the expense of consumers

5. How does export financing promote trade? Explain its importance to small and medium-size
firms.

• Export financing:
- government can help exporters by giving loans or guarantee the loans of exporters
- Crucial to small business just beginning to export because they often have a far greater need for
cash than large,established exporters

6. Define the term foreign trade zone. How can it be used to promote trade?
• Foreign trade zone
- designated region in which merchandise is allowed to pass through with lower customs duties &
fewer customs procedures
- Organized around major seaports,international airports & national frontiers
i)Companies can reduce costs & time by establishing a facility inside a foreign trade zone
ii)Purpose is to increase employment & trade

7. How can special government agencies help promote trade?

• Organize trade missions for officials & businesses

• Operate export-promotion offices at location abroad

• Help import products the home nation does not produce

8. How do tariffs and quotas differ from each other? Identify the different forms each can take.
• Tariffs
- Government tax levied on a product as it enters/leaves a country
- Export tariff(Levied by the government of an exporting country)
- Transit tariff(Levied by the government of a country that product passes through)
- Import tariff(Levies by an importing government)
- Positive result:
i)protect domestic firm from competitor
ii)Generate income for the government(especially in less developed countries where taxes are
difficult to collect because of big shadow economy
- Negative result:
i)Reduce competitiveness of home-based firms
ii)Raise consumer prices
iii)Lessen the gains from trade

• Quota
- Restriction on the quantity/amount(units/weight) of a good that can enter/leave a country
- Governments administer quota systems by granting quota licences
- Import quota:
i)Protect domestic producers of a good
ii)Force outside firms to compete for market access
iii)Domestic consumers have to pay higher prices
iv)Domestic producers who's production requires the import also suffered
- Export quotas:
i)Retain adequate domestic supply of a product
ii)Restrict world supply of a product to raise its international price
9. Describe how a voluntary export restraint works and how it differs from a quota.

• Voluntary export restraint

- Imposed by nation on its exports at the request of an importing nation
- Domestic consumers in the exporting countries benefit from lower prices due to a greater supply
- Export quotas hurt consumers in the importing nation because of reduced supply & higher prices

• Tariff-Quotas
- a lower tariff rate for a certain quantity of imports & higher rate for quantities that exceed the
quota

10. What is an embargo? Explain why it is seldom used today.

• Embargo=Complete ban
- can be decreed by individual nations/by supranational organization(U.N)
- i)Most restrictive non tariff trade barrier
- ii)Often used to achieve political goals
- iii)Use less frequently today because difficult to enforce

11. Explain how local content requirements, administrative delays, and currency controls restrict
trade.

• Local content requirements

- laws stipulates that international companies must use a specific amount of local resources in the
production process
- May help protect domestic producers to compete with companies based in low-wage countries
- Developing countries use them to boost industrialization

• Administrative delays
- Regulatory controls/bureaucratic rules to slow imports into a country
- Method used:
i)Inconvenient ports for imports
ii)Strict product-damaging inspections
iii)Understaffed customs offices
iv)Lengthy licensing procedures

• Currency controls
- Restrictions on the convertibility of a currency into other currencies
- Limit the amount of globally accepted currency available to pay for imports
- Set an unfavorable exchange rate when paying for imports

CASE STUDY: PROTECTION OF THE USA STEEL INDUSTRY

Since the late 1960s, the US steel industry has been asking for protection from imports and
subsidies to help alleviate its troubles. The US government has, from time to time, announced
various protectionist measures. In 2001, President George W Bush announced his Steel Program. It
consisted of three parts: negotiations with trading partners to eliminate inefficient excess capacity in
the steel industry worldwide; negotiations with trading partners to eliminate the distorting practices
including subsidies that resulted in excess capacity; and investigation under Section 201 to
determine whether the industry was harmed by low-priced steel imports. After the investigation by
the U.S. International Trade Commission (USITC), in March 2002, the President imposed tariff
measures under Section 201 to help domestic producers to compete with imported steel.

1. Why is the steel industry important to the United States?

Steel industry-military application(weapons),industrial application

2. Summarize the issues faced by the U.S. steel industry.

-Compete with cheap foreign steel industry(china,Korea)
-legacy(inheritance) cost-hire new workers after old worker retire
-Higher grade steel
-Location not strategic-transportation cost(req coal)
-Old technology

3. How can the steel industry solve the problems created by legacy costs?
-government intervention(medical cost),merge/joint-venture

4. What are the arguments for tariffs on steel?

-protect strategic industry,other country subsidies their steel industry(own by government-china),

5. What are the arguments against tariffs and for free trade?
-Steel price high
-price of other goods that use steel as raw material will increase(example:car price)
-attract retaliation from other countries
-other sector in USA will demand for protection
TUTORIAL 6

1.What is the difference between foreign direct investment&portfolio investment?

Foreign direct investment:
-purchase of physical assets of a significant amount of the stock of a company in another country to
gain management control

Portfolio investment:
-passive investor
-earn dividend &

2.What factors influence global flows of foreign direct investment?

a)increasing globalization
-before GATT
-after GATT*tariff started to fall-cheaper production

b)international mergers & acquisitions

c)rising FDI from entrepreneurs & small businesses

3.Identify the main destinations of foreign direct investment.Is the pattern shifting?
Developed countries
-57% of global FDI inflows.but shares is declining

Developing countries
-37% of global FDI inflows
-the share is rising
-china - Africa

NICs & emerging countries

-particularly in Asia
-growing source of FDI
4.Explain the International product life cycle theory of FDI.
New product stage:
A good is produced entirely in the home market because of uncertain domestic demand & to keep
production close to the research department that developed the product.

Maturing product stage:

A good is produced in the home market & in markets abroad that are large enough to warrant
production facilities.

Standardized product stage:

Increased competition creates pressures to reduce production costs.The company builds production
capacity in low-cost developing nations to serve the world.

5.How does theory of market imperfections(internalization) explain FDI?

When a imperfection in the market makes a transaction less efficient,a company will undertake FDI
to internalize the transaction & remove the imperfection.

2market imperfection:
a)trade barriers:
-companies can eliminate the inefficiency of trade barriers by developing production facilities
within the market.*avoid trade barriers-paying tax

b)specialized knowledge:
-companies undertake FDI:
—>because the specialized knowledge of employees simply cannot be licensed to another firm
—>to lessen the risk of giving away a competitive advantage to other companies through licensing
agreements.
*doesn’t want to acquire knowledge(high skill)

6.Explain the eclectic theory,and identify the three advantages necessary for FDI to occur.
Eclectic theory:Firms undertake FDI when location,ownership & internalization advantages are
appealing for investment.

3advantages:
a)Location(optimal location)
-characteristics(natural/acquired)of the location
b)Ownership(special asset)
-Ownership of some special asset,such as powerful brand,technical knowledge or management
ability.
c)Internalization(efficiency)
-Advantage that arises from internalizing a business activity,rather than leaving it to a relatively
inefficient market.

7.How does the theory of market power explain the occurrence of FDI?
-Firms undertake FDI to establish a dominant market presence & gain market power.
-Market power brings greater profit because the firm is better able to dictate the cost of its inputs or
the price of its output.
-Companies can gain market power through the extension backward integration(to control supply of
input) or forward integration(to absorb its output)

8.Why is control important to companies considering the FDI decision?

-Many companies invest abroad because they wish to control activities in the local market(e.g,to
ensure the selling price remains the same across markets)
-they try to maintain majority ownership of the local operations in the belief that greater ownership
gives them greater control.
*Standardize:price,quality,market activities

9.Define rationalized production.

Process of improving the means of production in order to improve production efficiency.
-each of good’s component is produces where the cost of producing that component is lowest
-the components are brought together at one central location for assembly into the final product

10.For what reason do host countries intervene in FDI?

a)To control balance of payment
-boost from initial FDI flows
-prevent outflow of money
-boost inflow of money
b)To obtain resources & benefits
-access to technology
-train local managers
-create job opportunity

11.For what reasons do home countries intervene in FDI?

a)reasons for discouraging outgoing FDI
-sends resources out
-damage nation’s balance of payment(reduce export,increase imports)
-reduce job

b)Reason for encouraging outgoing FDI

-increase long-run competitiveness
-phase out undesirable industries (pollution,labor intensive)

12.Identify the main methods host countries use to promote & restrict FDI.
a)Promotional method
-Financial incentives(tax break,cheap labor,etc)
-infrastructure improvements(airports,railways,power,water,ports)

b)Restriction method
-ownership restriction
-performance demands

13.What methods do home countries use to promote & restrict FDI?

a)Promotional method
-apply political pressure
-grant loans
-offer tax breaks
-offer insurance

b)Restriction method
-impose differential tax rates
-impose sanctions

Case Study

1.What forces drove Mittal Steel to start expanding across national borders?
-Globalization of production
-Globalization of market
-Strict business regulation in India
-Competition with SAIL & Tata Steel

2.Mittal Steel expanded into different nations through mergers & acquisitions,as opposed to
greenfield investment.Why?
-green field investment:build a subsidiary abroad from the ground-up

mergers & acquisition

-inherit supplier,worker,customer,goodwill/brand aware
-use creative financing(share swap)
-quicker(no need to apply for license)
-access technology

3.What benefits does Mittal Steel bring to the countries that its enters?are there any drawbacks to a
nation when Mittal Steel invest there?
Benefit to the country:
-technology
pay taxes
-create jobs
-earn foreign exchange via export
-earn import bills

Drawback:
-pollution
-control by foreigner
-deplete natural resources
-repatriate profit-affect BOP

4.What are the benefits to Mittal Steel from entering different nations?
Benefit:
-diversity market
-increase profit
-access raw materials
-access technology
-increase power

5.The acquisition of Arcelor was very acrimonious,with many politicians objecting to it.Why do
you think they objected?were their objections reasonable?
Objection:
-strategic industry cannot fall into foreigners
-ego
TUTORIAL 7:Regional Economic Integration

1. How important is it for a manager to understand the ramifications of global and regional trade
negotiations?

• Firm’s strategies shift over time due to these negotiations(managers must lead the shifts)

• managers need to take advantage of new opportunities

• Managers also need to prepare for new threats

2. What is the ultimate goal of regional economic integration?

• Raise standard of living by expanding cross-border trade & investment

3. How easy is it for countries to integrate?

• Not easy:
- Currency(set the currency-high/low)
- Different level of economic development
- loss of national sovereignty
- protect from groups that lose out

4. What are the five levels, or degrees, of regional integration? Briefly describe each one.

• 5 level:
i)Free-trade area
-Remove barriers to trade among members,but each country has own policies for nonmembers

ii)Customs union
-Remove barriers to trade among members & set a common trade policy against nonmember

iii)Common market
-Remove barriers to trade,labor & capital among members & set common trade policy against
nonmembers

iv)Economic union
-Remove barriers to trade policy against nonmembers,&coordinate members economic policies

v)Political union
-Coordinate aspects of members economic &political systems

5. Identify several potential benefits and several potential drawbacks of regional integration.
• Benefits:
- Trade creation
- Greater consensus
- Political consideration
- Employment opportunities

• Drawbacks:
- Trade diversion
- Shift of unemployment
- Loss of national sovereignty

6. Why did Europe initially desire to form a regional trading bloc?

• After WW2,Europe face 2 challenge:

- to rebuild itself & avoid further conflict
- to increase its industrial strength to stay competitive with the US

7. What was the impetus for the formation of the North American Free Trade Agreement(NAFTA)?

• NAFTA-to create a trilateral trade bloc in North America

• Main impetus for integration was the accelerating progress made in Europe in the late 1980s &
early 1990s

• Trade among Mexico,USA,Canada has grown tremendously

8. What are the Andean Community and the Southern Common Market (MERCOSUR)? Why have
they not been more effective?

• Andean Community(Can)
- Bolivia,Colombia,Ecuador,Peru
- The main hindrance to formation of the common market is that each member is given many
exceptions in the common tariff structure for trade with nonmember nations

• Southern Common Market-Mercosur

- Argentina,Brazil,paraguay,Uruguay & Venezuela(Bolivia,Chile,Colombia,Ecuador & Peru are
associate member)

• Mercosur
- Most powerful trading bloc in Latin America.Different trade agendas & traditional rivalry
between Argentina & Brazil hamper integration

9. What is the objective of the Free Trade Area of the Americas? What are its current prospects for
success?

• Would be the largest free-trade area on the planet(northern tip of Alaska to southern tip of Tierra
del Fuego in South America)

• Could mean enormous cost saving for business

• Protest by many groups in solving progress

• Big gap of development

• Loss of social sovereignty

• More control of economic policy

• Political/economy not the same

• Corruption

10. How do the goals of the Asia Pacific Economic Cooperation forum differ from those of other
regional blocs?

• Not aim to build trading bloc

• Only strengthen the multilateral trading system

• Simplify & liberalizing trade & investment procedures among member nations

• Aim to promote ..
11. Some people believe the rise of regional trading blocs threatens free trade progress made by the
World Trade Organization (WTO). Do you agree? Why or why not?

• WTO-promote free trade

• promote free trade among member only

• 1 grouping can negotiate with other grouping

• short run-not much free trade=less member

• long run-more free trade because more member will join

CASE STUDY: NAFTA and Mexican Trucking

MEXICO CITY — U.S. and Mexican officials signed an agreement Wednesday allowing each
country's trucks to traverse the other's highways, implementing a key provision of the North
American Free Trade Agreement after nearly two decades of bickering.
Transportation secretaries Ray LaHood and Dionisio Perez-Jacome signed the three-year
memorandum, which is based on an agreement announced in March by Presidents Barack Obama
and Felipe Calderon.
NAFTA, signed in 1994, had called for Mexican trucks to have unrestricted access to highways in
border states by 1995 and full access to all U.S. highways by January 2000. Canadian trucks have
no limits on where they can go.
But until now, Mexican trucks have seldom been allowed farther than a buffer zone on the U.S. side
of the border. In retaliation, Mexico had imposed higher tariffs on dozens of U.S. products.
The Mexican government has now agreed to suspend those tariffs as long as the agreement is in
place.
The public debate surrounding the accord had mostly focused on the safety of Mexican trucks. But
labor unions and other groups were strongly opposed to the agreement, which they say will cost
Americans trucking and other jobs.
The U.S. Department of Transportation says the safety concerns have now been resolved.
Electronic monitoring systems will track how many hours the trucks are in service. Drivers will also
have to pass safety reviews, drug tests and assessments of their English-language and U.S. traffic
sign-reading skills. Mexico has the authority to demand similar measures from U.S. truck drivers
entering their territory.
But those won't do much to resolve the U.S. debate over the migration of jobs, which dates back to
the NAFTA debates of the early 1990s. The question: Will a freer flow of cross-border cargo traffic
boost business and allow owners to hire more workers, or will it ship U.S. jobs to Mexican drivers
who work for lower pay?
LaHood argued the first position in a Wednesday statement.
"By opening the door to long-haul trucking between the United States and Mexico, America's third
largest trading partner, we will create jobs and opportunity for our people and support economic
development in both nations," he said.
The Teamsters Union was incensed. General President Jim Hoffa said the agreement was "probably
illegal" because it goes further than a previously agreed-on pilot program and described it as
"opening the border to dangerous trucks at a time of high unemployment and rampant drug
violence."
Rep. Peter DeFazio, a Democrat from Oregon, introduced a bill Wednesday to block the
administration from implementing the program, saying that his concerns about safety, security and
job loss had not been met.
But other U.S. groups from the National Cattlemen's Beef Association to the National Christmas
Tree Association celebrated the end of the punitive tariffs and hoped for higher sales. The tariffs tax
$2.4 billion worth of U.S. exports according to the U.S. Chamber of Commerce, including tariffs up
to 45 percent on certain fruits according to a trade group.
Those tariffs will be cut in half within 10 days and then eliminated completely when full cross-
border traffic begins.
Questions
1. Why was the Teamsters Union so opposed to allowing Mexican truckers to deliver their goods
in the United States? As a consumer, do you agree with the Teamsters? Why or why not?

• To protect American trucker jobs

• No,Mexican truck can offer cheaper prices

2. In your opinion, were the tariffs imposed on agricultural products and other goods by Mexico
justified? What are the implications of the tariffs for U.S. growers and manufacturers? Should the
United States respond to the concerns of these groups?
• Reason:U.S willing the NAFTA agreement

• Yes,Mexican government have right to impose tariff

• Yes,because US government remove banned for Mexican truck entering U.S

3. Reflect on the political power of unions like the Teamsters. What does this case suggest about
further efforts at economic integration?

• Workers=voters,make the economic decision difficult for the government

Unit 10: International Strategy and Organization TUTORIAL 10

1. What are the three stages of the strategy-formulation process? Describe what is involved at each
stage.
3 stages of strategy formulation:
S1:Identify company mission & goals

• Define the business

- business must continually adapt to its competitive environment
- there a certain core ideals that remain steady
- these unchanging ideals form the mission statement
- Mission statement:written statement of why a company exist & what it plans to accomplish.It
must consider how a company’s operations affect stakeholder(ranging:suppliers+employees-
stockholder-consumers)

• Define main objective

- High-level objectives are stated in general terms(e.g:”to be the largest global company in our
industry”)
- Business-unit objectives are more specific(e.g:”to mass produce a zero-pollution emissions
automobile by 2015”)
- Department-level objectives carry numerical performance targets(e.g:”to increase global market
share by 5% next year”)

S2:Identify core competency & value-creating activities

• Analyze firm’s unique abilities

• Analyze firm’s primary activities

• Analyze firm’s support activities

• Analyze national & international business environment

S3:Formulate strategies

• Select multinational or global strategy

• Formulate corporate-level strategy

• Formulate business-level strategy

• Formulate department-level strategies

2. Define what is meant by the term core competency. How does it differ from a skill?

• Core competencies=multiple skills coordinated & develop over a long period & difficult to teach

• Skills=learned through on-the-job training & personal experience

• Skills are NOT core competencies,core competencies are the fuel for innovation & the roots for
competitive advantage

3. What is value-chain analysis? Explain the difference between primary and secondary activities.

• Value-chain analysis=useful tool for working out how to create the greatest possible for the
customers
a)process of deciding a company’s activities into primary activities & support activities
b)identifying those that create value for customers

Primary activities
- logistic
- production
- marketing & sales
- Customer service
Support activities
- business infrastructure
- Human resources
- Technology development
- Sourcing

4. Compare and contrast multinational strategy and global strategy. When is each appropriate?
Multinational strategy

• Adapting products & their marketing strategies to local preferences in each national market

• (+)respond quickly & effectively to buyer preferences

• (-)difficult to exploit economies of scale

• (-)Not suited to industries in which price competitiveness is a key to success

Global strategy

• Offering same products using the same marketing strategy in all national markets

• (+)Cost savings from standardization

• (+)Lesson learned in a market are shared

• (-)May overlook varying buyer preferences

• (-)Competitors can step in & satisfy unmet local needs creating a niche market

5. What are the four corporate-level strategies? Identify the main characteristics of each.
1:Growth strategy

• Design to increase the scale(size of activities) or scope(kinds of activities) of operations

a)Internally generated growth
b)Mergers & acquisitions
c)Joint venture
d)Strategic alliances

2:Retrenchment strategy

• To reduce the scale or scope of a corporation’s businesses

a)Reduce scale
- close factories
- lay off workers
b)Reduce scope
- sell unprofitable businesses
- sell unrelated businesses

3:Stability strategy

• To guard against change & avoid growth or retrenchment

- Objectives are met
- Satisfied with accomplishments
- See no opportunities or threats
- Strengths fully exploited
- Weaknesses fully protected

• Advisable:
a)if the external environment is highly dynamic & unpredictable
b)if the cost of growth may be higher than the potential benefits
c)excessive expansion may result in violation of anti trust laws.

4:Combination strategy

• Mixes growth,retrenchment & stability strategies across business units

a)Invest in promising units
b)Stabilize other units
c)Retrench for less exposure

6. Identify the three business-level strategies. Describe how they differ from one another.
1:Low-cost leadership strategy

• Exploit economies of scale to have the lowest cost structure of any competitor in an industry
a)Mantra is to contain all cost
b)Big production scale & large start-up costs prevent new entrants
c)Suitable if customer loyalty is low.Buyers will purchase from the low-cost leader
d)The strategy works best with mass-marketed products aimed at price-sensitive buyers

2:Differentiation strategy

• Design products that buyer perceive as unique

• Differentiators:
- Quality
- Brand image
- Product design

• Effects:
- price premium
- Customer loyalty
- Low market share
- Higher production & marketing costs

3:Focus strategy

• Focus on narrow market segment by being the low-cost leader,by differentiating/both

- Many sub-segment today
- Need distinctive product
- Serve the needs of single geography,ethnicity,etc.

7. Explain what is meant by organizational structure. What is the difference between centralized
and decentralized decision making?
Organizational structure=the way in which a company divides its activities among separate units &
coordinates activities between those units
• Centralized
- occur at high level in one location such as headquarters
- Small business(e.g:trucking companies)
• Decentralized
- Occurs at lower levels,such as in international subsidiaries
- e.g:fast food chain(let local manager decide)
8. What four main types of organizational structure are used in international business?

• International division structure*sell in all area

• International area structure*by region

• Global product structure

• Global matrix structure

9 Has IKEA taken a standardization approach or an adaptation approach in its markets around the
world? Do you think the company’s approach is the right one for the future? Explain.
-Standardization(the logo) & adaption-furniture=customize

10. When IKEA’s founder Kamprad decided to expand into China his decision was not based on
market research but, rather, on his own intuition. Did Kamprad’s decision pay off(doing well)?

11. After failing in Japan two decades earlier, IKEA returned to Japan in 2006. Was IKEA able to
avoid the mistakes it made in its first failed attempt?

CASE STUDY: Coca-Cola

The case examines how strategy has changed over time at Coca Cola. The company currently relies
on foreign markets for over 70 percent of its case volume. Until the 1990s, Coca Cola followed a
localization strategy in foreign markets, but when Roberto Goizueta became CEO in 1981, the
company shifted to a more globalized approach to markets. Management and marketing was
centralized in Atlanta, and the focus shifted to economies of scale and standardization. In the late
1990s, under the leadership of a new CEO, Coca Cola shifted back to a localized strategy in the
hopes of regaining some of the sales it lost
under its global approach. Today, the company has moved to a strategy that allows both
standardization and customization to local demands.

QUESTION 1: Why do you think that Roberto Goizueta switched from a strategy that emphasized
localization towards one that emphasized global standardization? What were the benefits of such a
strategy?
-switch because coca cola is global brand name
Benefit:
-easier to centralized/control
-ensure consistency & quality
-cheaper cost,better control,consistent quality

QUESTION 2: What were the limitations of Goizueta’s strategy that persuaded his successor, Daft,
to shift away from it?
Weaknesses of standardization:
-cannot respond fast to changes to local market
What was Daft trying to achieve?
Delegate the decision making to the local managers.
Daft’s strategy also did not produce the desired results. Why do you think this was the case?
Disadvantages of globalization

QUESTION 3:
How would you characterize the strategy now being pursued by Coke?

What is the enterprise trying to do?

Get advantages from both side-globalization& standardization
How is this different from the strategies of both Goizueta and Daft?
provide both advantages & avoid both disadvantages
What are the potential costs and risks?
Lost control
QUESTION 4:
What does the evolution of Coke’s strategy tell you about the convergence of consumer tastes and
preferences in today’s global economy?
want to b global company,local..still important
Unit 9: Analyzing International Opportunities TUTORIAL 9
1. What are the four steps in the screening process?
i)Identify basic appeal
ii)Assess the national business environment
iii)Measures market or site potential
iv)Select the market/site

2. Identify the main factors to investigate when identifying the basic appeal of a market or site for
operations.
-Market:climate,ban
-site:availability of raw material,labor & financing

3. What key forces should be examined when assessing a nation’s business environment?
-cultural
-political-legal(gov regulation(tax policy,import/export policy,foreign equity policy,environmental
policy,ban certain sector for foreigner).gov bureaucracy,political stability)
-economic & financial(fiscal-monetary policy:low inflation,low unemployment,reduce budget
deficit,stable currency,high productivity
-others

4. How do transport costs and country image affect the location decision?
-logistic,country image,e-biz

5. Identify each component of a market-potential indicator. Why is it useful in assessing emerging

markets?
1) Market size: snapshot of current market size.
2) Market growth rate: Identify large (but shrinking) markets and small (but expanding) markets.
3) Market intensity: Estimate a market’s wealth or buying power.
4) Market consumption capacity: Estimate a market’s spending capacity.
5) Commercial infrastructure: Assess channels of distribution and communication.
6) Economic freedom: Estimate extent that free-market principles predominate.
7) Market receptivity: Estimate market “openness.”
8) Country risk: Estimate risk of doing business, including political, economic, and financial risks.

6. What are the most important factors to consider when measuring site potential?
1) Managers must assess the quality of labor and management.
2) Managers must access training needs. Training requires a substantial investment of time and
money.
3) Managers must assess the productivity of local labor. Low wages may reflect low productivity.
4) Managers must access local infrastructure.

7. Explain why a field trip and competitor analysis are useful in the final stage of the screening
process.

Field trips let managers:

(i) experience first hand the culture
(ii) observe the workforce
(iii) meet potential new customers and distributors
(iv) engage in negotiations.

*competitor analysis:

8. Identify the benefits associated with conducting international secondary market research.
Benefit associate with conducting secondary market research:
- based on intuition
-

9. What are the three main difficulties of conducting research in international markets? Explain
each briefly.
i)Availability of data
ii)Comparability of data
iii)Cultural differences

10. Identify some of the main sources of secondary market research data.
- International organization
- Government agencies
- Industry & trade association
- Service organizations
- Internet

11. How does primary market research differ from secondary market research?
Primary:collect raw data,more expensive& time consuming
Secondary:collect data that already exist,relatively inexpensive

12. Describe each main method used to conduct primary market research.
Primary market research:
- Trade shows & trade mission
- Interviews & focus groups
- Surveys
- Environmental scanning

13. What are some of the difficulties of conducting international market research?
1) Interviewing customers in other countries is difficult because of cultural differences.
2) Written surveys are impractical in countries with high illiteracy rates although verbal responses
can be obtained.
3) In a focus group interview in group-oriented cultures, people might have a tendency to agree
with one another in a roundtable discussion.

CASE STUDY: Singapore Rises to Prominence in the World Market

Singapore was originally a small fishing village. References to the region date back to the third
century, when the Chinese called it Pu-luo-chung, meaning 'island at the end of a peninsula' (See
Exhibit I for Key Information on Singapore). According to historical accounts, the Chinese started
living in the island in greater numbers in the 13th century. In the 14th century, the island came to be
known as Singapura, Malay for 'Lion City'. The name later evolved to become Singapore.
In the mid 20th century, Singapore continued to grow as a regional entrepôt . This led to the growth
of storage and warehousing, shipping, and banking services and Singapore gradually gained
expertise in trade, transport, and finance...
Q1. As the economic adviser to the president of a small, developing country, what lessons can you
take from Singapore’s economic approach to apply to your own country?
Lesson:
- Restrict political freedom
- Promote economic freedom
- Good government
- Strong leadership
- Independent judiciary
- Government take “strategic” investment
Your country also has a functional, but not overly busy, port. What steps do you take to encourage
trade with foreign countries?
Step:
- Low tariff
- efficient post
- english speaking labor force

Q2. Do you think that the economy of Singapore will be greatly affected by changes in the financial
status of traditional economic superpowers? Why or why not? If the economy is affected, will it be
positive or negative?

Q3. Why do you think the strategy of extended entrepôt trading—importing raw materials, refining
them, then exporting them to foreign countries—is effective?
- strategic location
- knowledgable workforce(skill,educated)

Q4. Is it possible for a country as small as Singapore to become a worldwide economic

superpower? YesWhat factors must be considered in answering this question? In the new global
economy, does the size of a country matter at all if the economic strategy is effective? Is having a
busy port enough of an economic boost to lift a small country to economic prominence?
Unit 10: Selecting and Managing Entry Modes TUTORIAL 10
Short-answer Problems

1. Briefly describe each of the four steps involved in building an export strategy.
Step 1:Identify a potential market
- Perform market research to determine whether demand exists
- Novice exporters should focus on one or a few markets that are culturally understood
Step 2:Match needs to abilities
- Assess a company’s ability to satisfy market needs
Step 3:Initiate meetings
- Early meetings with potential distributors,buyers to build trust and cooperation
- Later meetings to estimate potential success of an agreement
- Advance meetings to negotiate & finalize the details of agreements
Step 4:Commit resources
- After inked the agreement,mobilize human,financial & physical resources
- State the objectives of export program over the next 3 to 5 years
- As companies expand activities,set up an export department or division

2. How does direct exporting differ from indirect exporting?

Direct exporting

• Company sells directly to buyers(not necessary end users) in a target market through sales
representatives or distributors

Indirect exporting

• Company sells to intermediaries(agents,export management companies(EMC)& export trading

companies(ETC))who resell to buyers in a target market

3. Compare and contrast export management companies and export trading companies.
Export management companies(EMC)

• one that exports on behalf of indirect exporters,operating contractually,either as an agent or as a

distributor

• Additional services:
- gather market information
- formulate strategy
- perform potential duty
- research customer credit
- arrange shipping
- coordinate export documents
Export trading companies(ETC)

• One that provides services to indirect exporters,in addition to those directly related to clients’
exporting activities

• import,export,counter trade,distribution channels,storage,trade financing,investment project

4. Why do companies engage in countertrade? List each of its five types.

• Selling goods/services that are paid for,in whole/part with other goods/services

• Provide access to markets that are otherwise off-limits because of a lack of hard currency

• major benefit is that it conserves foreign currency for cash-strapped nations.

i)Barter:Exchange of g&s directly for other g&s without the use of money
ii)Counter purchase:Sale to a nation in return for promise of future purchase from that nation
iii)Offset agreement:offset a hard-currency sale to a nation with future hard-currency purchase from
that nation
iv)Switch trading:One company sells to another its obligation to make a purchase in a given country
v)Buyback:Export of industrial equipment in return for products that the equipment produces

5. What are the four main methods of export and import financing?
i)Open account
ii)Documentary collection
iii)Letter of credit
iv)Advance payment

6. Describe the various risks that each financing method poses for exporters and importers.
i)Open account
Risk to exporter:Maximum
Risk to importer:Zero

• Exporter ships risk

ii)Documentary collection
Risk to exporter:Higher
Risk to importer:Lower
• Importer pay risk
iii)Letter of credit
Risk to exporter:Lower
Risk to importer:Higher
iv)Advance payment
Risk to exporter:Zero
Risk to importer:Maximum

7. Identify the advantages and disadvantages of licensing for the licensor and the licensee.
Licensing
Advantage

• Finance international expansion

• Less risky method of international expansion

• Can reduce counterfeits

• Licensees can upgrade existing production technologies

• Increasing its brand presence

Disadvantages

• Can restrict a licensor’s future activities

• Might reduce the global consistency of the quality & marketing

• Might amount to lending strategically important property to future competitors

8. Describe how franchising differs from licensing. What are its main benefits and drawbacks?
Differ in 3 ways:
i)Franchising gives greater control over sale of a produce in a target market
ii)Although licensing is fairly common in manufacturing industries,franchising is primarily used in
the service sector
iii)Although licensing normally involve a one-tome transfer property,franchising requires ongoing
assistance from the franchiser
Benefits

• Low cost,low risk mode of entry into new market

• Maintain consistency of products & theme

• Allow for rapid geographic expansion

• Uses cultural knowledge & know-how of local managers
Drawbacks

• Possible control problems with many locations

• Franchisees can experience loss of organizational,strategic & tactical flexibility

Licensing=manufacturing,Franchising=fast food,services

9. When is a management contract useful? Identify two types of knowledge it is used to transfer.
Management contracts are useful when the need for expert service is not met by local employees

2 type of knowledge:
i)specialized knowledge of technical managers
e.g:some company own a hotel but not run the hotel(cross-sale),the management company run the
hotel(they managing other hotel too,at different country)
ii)business management skills

10. What is a turnkey project? Describe its main advantages and disadvantages.
Turnkey project=project that is constructed so that it could be sold to buyer as a completed
product(infrastructure)
Advantages

• Allow firms to focus on core competency to exploit opportunities

• Allow governments to obtain designs for infrastructure from the world’s leading companies
Disadvantages

• Company may be awarded a project for political reasons rather than on merits

• Can create future competitors

11. What is a wholly owned subsidiary? Identify its advantages and disadvantages.
Wholly owned subsidiary=facility entirely owned & controlled by a single parent company
Advantages

• Managers have complete over day-to-day operations & over access to valuable
technologies,processes and other intangible properties

• Firm can coordinate activities of its national subsidiaries

Disadvantages
• Expensive for small & medium size firms

• Requires substantial resources,so risk exposure is high

12. What is meant by the term joint venture? Identify four joint venture configurations
Joint venture=A new company is created & jointly owned by 2 or more entities to achieve a
common objective

4joint venture configuration:

i)Forward integration joint venture

• Parties invest together in downstream business activities

ii)Backward integration joint venture

• Parties invest together in upstream business activities

iii)Buyback joint venture

• Input provided by,and output absorbed by,each partner

iv)Multistage joint venture

• One partner integrates down stream and other,upstream

13. How does a strategic alliance differ from a joint venture? Explain the advantages and
disadvantages of such alliances
Strategic alliances=2 or more entities cooperate(but do not form a separate company) to achieve the
strategic goals of each.Can be establish between a company & its suppliers,its buyers an even its
competitors
Joint venture=new company,jointly owned by 2 or more entities to achieve common objective

Advantages

• Share cost of an international investment project

• Tap into competitors specific strengths

• Access to channels of distribution

Disadvantages

• Possibly creating a future competitor

• Conflict can arise & eventually undermine cooperation

14. Discuss the strategic factors to consider when selecting an entry mode.
i)Cultural environment
ii)Political & legal environment
iii)Market size
iv)Production & shipping costs
v)International experience

Low entry mode(low risk,direct/indirect)

(i)very different
High entry mode(wholly-owned,joint ventures,strategic alliance -slide 4)
(iii)market size big
(iv)high cost

CASE STUDY: Game: Competing in Africa’s Playing Fields

JOHANNESBURG, July 10 (Reuters) - South African retailer Massmart is in talks enter Kenya, a
senior executive said on Tuesday, the latest step by the unit of Wal-Mart Stores to expand its
presence in Africa.
"We are in advanced discussions to open a Game store in Nairobi," Brian Leroni, a Massmart
executive for corporate affairs told Reuters, without giving timelines.
Massmart currently has about 36 stores outside of South Africa, many of those its Game discount
retail stores.
Massmart has so far been slow in its African expansion, a year after Wal-Mart, the world's largest
retailer, took a 51 percent stake in the South African retailer.
1. Explain why Game chose the countries it entered and in that order.
S.Africa+Namibia+Botswana+Other country in Africa
Culturally more similar:
i)neighboring
ii)British colonized(can speak english,common law legal system)

2. How does the African retail market differ from the more developed world, and what are the
implications for doing business there?

• Less purchasing power

• Less diversity of goods

• compete street trader

• compete with imitation

• lower literacy

• Corruption

3. In September 2010, Wal-Mart announced that it was making a $4 billion bid for Massmart, the
holding company of Game. Why was Wal-Mart entering the African market for the first time, and
why was it choosing this entry mode?
better understanding of local culture
Lower risk(higher risk culture)