- What are the various types of risks that firms face when they conduct international business?
Solution: There are 4 types of risks in International Business
- Commercial Risk: The first kind of risk involved is commercial risk in which there is possibility of a company incurring huge losses or failing to exist because of various reasons that include badly executed strategies .These also include timing of the company into a particular market, the competitive intensity existing prevailing in the market, poor strategy execution and the weakness of the partner and also the various kinds of operational problems.
- Country risk: Country risk is also a very major risk factor in international business .It has the capacity to have very negative effects on the operations of an organization and also the profit because of the various kinds of changes in the economic, judicial and administrative scenario in a foreign nation.
- Currency risk: Financial risk is another name for currency risk. It is related to the effects of undeterminable up downs in daily exchange rates of different currencies pegged against each other .It includes the valuation of the assets and the foreign taxation policies of different countries.
- Cross-cultural risk: The last kind of risk while doing IB is the cross cultural risk. It is sometimes also referred to as cultural shock. It is a scenario where a slight situation related to miscommunication regarding cultures may put the human values at a significant risk. It is related to different decision related styles and ethical practices.
- What are the key motivations for firms to engage in international business?
Solution: There are many motivational factors to engage in IB in today's globalized work.
- The first and one of the most prominent is the want to have opportunities to grow into a bigger international firm through diversification.
- Money is always one of the most crucial factors .There is motivation for earning greater and greater profits
- Curiosity is one of the factors propelling human growth .There is and always has been a desire to learn new ideas and methods about the different kinds of business methods and practices being followed in different geographies of the world.
- Another factor motivating factor for companies is to service the customers that have relocated to foreign shores.
- One reason compelling companies to go for IB is to be nearer to the originating supply sources and benefit from the integrated global supply chain and gain advantage from the sourcing and also gains an upper hand by having leniency in product sourcing.
- It helps the companies involved in the world trade to have a better access to the ever improving and affordable factors of production.
- It brings the companies to a state where they can be mammoths in the R&D, marketing and production related activities.
- It enables the companies to limit the expanse of foreign companies in their home market as well go head to head with international competition on a more effective level.
- By engaging in IB, companies have a potentially everlasting n stable relation with their partners which has a very good effect for the future of the enterprise.
- What makes international business different from domestic business?
Solution: International Business management is much more complex than handling domestic operations .The difference in the national identity of the companies involved, the stability of the production factors, the different types of customers across the market, the changes in business ethics and the political environment as you switch across geographies and currency fluctuations are the key elements that make international business different from domestic market.
- Scope: The scale of IB is quite vast. It contains merchandise exports as well as services, franchising and licensing and also contains the reign of foreign investments. The domestic Business is limited to a very less territory and all the activities are confined to a boundary.
- Market Fluctuations: Firms have to face market fluctuations which lead in very loss gains and in a very few cases losses also. International business stabilizes the changing fluctuations of market which helps them to face the very large losses because their reach is so wide that companies operating locally can't even dream of.
Describe the five drivers of globalization? Explain in detail.
Solution: The five drivers that have championed the cause of globalization are:
- There has been a tremendous worldwide reduction in barriers related to trade and investment even in the most far flung areas of the globe at an earlier time which one could have never imagined a decade back .With the forming of GATT and now WTO and the various treaties barriers have been minimization.
- Within the last decade and with the rapid strides in globalization there has been rapid breaking of walls .There has been a rapid transition to free market based approach and the adoption of liberal trade policies in countries that had earlier bound by communist shackles like china, ex USSR and other countries.
- The world financial system has become so integrated that it is difficult to tell where one ends and the other starts .The world market has been integrated into 1 giant web.
- The advances in technology has championed the cause of globalization which has the brought the world to our homes. The modern technology has flattened the world.
- The cause of globalization has been spread by the rapid industrialization, modernization and the economic development
What is the role of the WTO?
Solution: The WTO as we know it is organization which is internationally spread throughout the world which was started to free international trade of all the barriers .It started working on January 1, 1995 which replaced GATT.
The WTO has been made for dealing in regulating trade between the member countries and it provides a regulatory framework for agreeing to trade treaties, and it follows to resolve disputes and it enforces to adhere to the standard agreements of WTO signed by international governments. Most of the present issues are derived from past trade disputes.
The current endeavors are pertaining to Doha Development Agenda started in 2001 whose aim was to increase the involvement of the poorest countries of the world which form the major chunk of the world's population. But the talks have been stalled for years due to non agreement between the countries whose major workforce are farmers and the bulk agriculture exporters over the special measures of safeguard to protect the farmers in their respective countries from the surge in the imports which threatens to put millions in poverty and make them unemployed. (Ruth A. Pagell, 1999)
What are online intermediaries? How do focal firms use the internet to carry out international activities?
Solution: An intermediary is a facilitator that's offers in between services between two parties who are trading .It acts as a guarantee for the products in contention. It also creates a place for itself by creating a value for itself for adding and offering some value added services to the trade which might have been accessible by the two way trade between the two parties .The main application is in the space of insurance ,financial services business industry .The online intermediaries offer all the traditional services offered by the intermediaries but without the inconvenience of having to set up a shop somewhere in a main financial hub and letting the computers do that all that for you without the hassles caused by public relations management. The most famous examples that have set the trend include the likes of Alibaba which is a portal for B2B exchanges in China, Amazon, Dell and the likes on eBay in US. With technology reaching every nook and cranny you can imagine the traditional likes of WalMart and Carrefour have also set up their online shops which are going head to head with the online intermediaries. Setting all positives aside there is also a negative side which leads to cheats preying on innocent consumers with bad products which are fakes of original stuff.
A focal firm is a firm that sows the seeds for international business .It takes care of all the transactions involved in the international business that includes all the Multinational Enterprises and the entire Short and medium term enterprises.
What are the specific sources of national competitive advantage? Think of a successful product and service in UAE. Which of the competitive advantage sources is most relevant for each of these?
Solution: The specific sources that offer a nation competitive advantage are classified into 2 categories:
Comparative advantage refers to a country's specific set of resources that include the brilliant features that a country has to offer that provides it special benefits in the global competitive environment which have either been obtained from specific and strong national polices or the national wealth.
Egs include exodus of IT workers in India, the abundance of the lowest cost labor force in developing countries or the Uranium sources of Australia etc.
Competitive advantage refers to the set of sources that include unique assets or the competitiveness of a company that derives its value from the cost, and the innovations that a company has the capacity to make which are difficult for others to follow
Egs include the technical mastery and expertise of dell in its global supply linkage, the marketing mantras of P&G, Apple's lead in the area of personal and portable music players and mobile phones.
One of the most successful product and services in the UAE has been the prowess of its financial industry which was initially caused by oil dollars but has now taken its own stance.
Summarize factor proportions theory. What factors are most abundant in the following countries: China, Japan, Saudi Arabia, UAE and USA?
Solution: Factor proportions theory is one of the most important aspects of the IB industry. It states that each and every country of the world no matter rich or poor should manufacture and also export products that are products of an intense supply chain of processes and that one should import only those which have a little addition to the raw materials, i.e., they use very less resources.
The most abundant factor in China: Low cost labor
The most abundant factor in Japan: Technical expertise
The most abundant factor in Saudi Arabia: Oil
The most abundant factor in USA: Pharmaceutical
How does a manager with a deal orientation differ from a manager with a relationship orientation?
Solution: There are 2 kinds of approaches that can be followed by a manager:
- Deal orientation-In this kind of approach the main focus of the manager is to take care of the task which has been assigned to him on that particular time. They can't let emotions get in the way of their work. They are in the habit of typically using contracts. They don't waste their time on non sense and believe the strictly business approach.
An example of countries where this approach is followed is Australia and countries of North America.
- Relationship Manager: In this kind of approach the manager show a more humane side. They associate with people in a friendly manner; they try to build relations while doing business. Relationships are valued much more than the deals. Trust is given the highest priority that can given be given to any property.
Examples of countries where this approach is followed are the like of Asian countries like India, China and the countries of Latin America.
Explain why culture matters in international business? In what types of contexts can cross -cultural differences cause concerns for managers?
Solution: Culture plays a very important role in the global scenario of International Business and one of the most sensitive issues you have to handle while doing International Business .Culture plays a very integral role in the development of new products .Understanding the culture of each other during IB helps you to communicate and talk with your business partners in a much more effective way and gives you an edge while negotiating international treaties and laying ground rules for structuring the business decisions. It helps you to be a better interaction by helping you to talk to your present and future clients effectively. It helps you to prepare yourself to create a much better marketing and promotional stuff for the brand positioning. (Brian Toyne, 1999)
Cross-cultural differences can cause a lot of troubles for managers because of the kind of bindings you have to deal with while handling cultural differences like they have to face the problem in case when the locals and the foreigners don't gel well. Workers in some countries are expected to remain loyal to the firms throughout their working lives , which becomes difficult for firms to handle .The organizational structure in the new workplace also creates a lot of challenges as there are numerous considerations like information sharing is not allowed to move freely because of the various constraints. Fitting into cultures becomes very difficult in case when people are not comfortable with following their own thought process and rather lead a follower's life.
- Dilipchandra. (n.d.). Major Difference between Domestic and International Business. Retrieved on March 29, 2010, from http://hubpages.com/hub/Major-Difference-between-Domestic-and-International-Business
- Brian Toyne, Douglas William Nigh. (1999). International business: institutions and the dissemination of knowledge. Univ of South Carolina Press.
- Ruth A. Pagell, Michael H. (1999). International Business Information: How to Find It, How to Use It. Lessons Professional Publishing.