International business 10 questions

1. (TCO A) Describe the concept of globalization. What are the major opportunities and challenges that globalization has created for business organizations?
Globalization can broadly be defined as the continuous process through which there is an ever increasing level of integration among companies, people and the governments of different nations all spread out all over the world. It is mainly driven by investment and increased international trade and is greatly aided by information technology.
Some of the major opportunities that globalization has created for business organizations include:
Increased cross boundary trade between nation countries meaning larger markets for business organizations.
It has resulted in a drastic reduction of trade barriers and more simplified export and import procedures.
Companies are now able to sell their products in more countries.
Companies are now able to have many more factor plants and subsidiary companies in many countries.
Globalization has also promoted technical collaborations and joint ventures between companies in different countries all over the world.
Companies are now able to source for cheaper or more readily available raw materials from many other different countries.
Companies are now able to offer more competitive prices of their goods to their customers due to the reduced cost of production as a result of the benefits of globalization.
It has been noted that in the event that globalization is not restricted, there is a general hampering of development in the less developed countries of the world which ends up affecting the local businesses in those countries.
If there are adverse economic conditions affecting the business environment in one country, they may escalate and affect other countries and have a high chance of ending up adopting global proportions.
Most of the smaller global firms might find themselves unable to adequately compete on the international market as a result of lack of enough resources. This might cause them to eventually be forced out of business.
2. (TCO B) What is the difference between political risk, economic risk, and legal risk? What can managers of international business do to manage these risks? (Points : 30)
Political Risk is the risk that a business or individual’s investments could end up suffering a huge loss mainly due to a result of a country’s instability or political changes in a country’s legislative body, government, military control or other foreign policy makers. It is also commonly referred to as geopolitical risk, while economic risk is the risk that a country’s macroeconomic conditions like government regulations, exchange rates and political stability will affect a business entity’s investment in that country to be economically unsustainable as a result of its profit revenues not being sufficient enough to repay its debts and cover its every day operating costs. On the other hand, legal risk is the risk that a company’s business transactions will contravene the regulatory policies in a country or parties in a business contract are not able to enter into any business contract.
Managers can manage political risks by better understanding the political uncertainties in a given country and employing the use of mitigation tactics like risk diversification, intellectual property safeguards and buying political insurance.
3-(TCO C) What is a subsidy? Provide some examples of the forms that subsidies take. How do subsidies help domestic producers?
A subsidy is a form of assistance made mostly by governments mostly in the form of tax deductions or cash payments, to businesses like producers and have the result of being distributed as subventions within a given industry with the intention of preventing the overall decline of that industry in the interest of the general public.
Subsidies help domestic producers by helping to ensure that the domestic services and goods are artificially adequately competitive against imports into the country.
4. (TCO D) Despite its advantages, FDI has been described as an ” expensive” and ” risky” international growth strategy. Other things being equal, why is FDI expensive and risky? Compare the risks involved with FDI to the risks involved with exporting and licensing.
FDI is seen to be risky and expensive mainly because of the increased risk of a rise in inflation, domestic companies which happen not to be competitive enough suffering huge losses, and countries and industries that have attracted the FDI becoming entirely dependent on them for growth.
The cost of the goods exported or licensed to foreign markets is usually higher than those produced in the local markets as a result of FDI.
The large imports Tariffs placed on goods that are of foreign origin are normally overcome as a result of FDI.
Companies making the FDI might not be able to control the distribution or manufacturing process in the country but are covered against the risk of not being able to export their goods to the country in the event that there is political instability or policy change restricting imports to that country.
5. (TCO E) How do exchange rates affect individual international businesses? Do international businesses like stable rates or volatile rates? How can a firm manage this risk? (Points : 30)
Exchange rates affect individual international businesses because they determine how much of one currency will be required to buy their goods and services in other countries and thus affect their pricing. The stronger the currency of the parent country from where the company is producing its goods and services, the less of its products it will be able to export but the more of the raw materials it will be able to import.
Businesses tend to prefer stable rates to volatile rates as it is easier for them to make their financial projections and estimates accurately.
In order to manage this risk, businesses can engage in hedging their transactions so as to preserve their overall cash flows and earnings. This is mainly dependent on their view of the general movement or trend of the currencies involved.
1. (TCO E) Why are global capital markets needed? What functions do they provide beyond that available in most domestic markets, especially domestic markets as big as the U. S. and Japan?
Global capital markets are needed because they help in promoting efficiency and increased productive investments. They also help in directing capital investments to productive uses.
Some of the functions that they provide for domestic markets as big as the U. S. and Japan include the fact that they provide larger opportunities for people to borrow and invest money.
2. (TCO F) Can firms that expand globally increase their profitability in ways that are not available to them in domestic markets? What are the constraints on taking full advantage of the potential for increasing profits in international markets? (Points : 30)
Firms that expand globally can increase their profitability in ways that are usually not available to them in the local markets due to the fact that they are able to obtain capital at lower costs than the domestic market provides for them. They also enjoy a much wider range of investment opportunities than they would normally be able to enjoy in the local domestic capital markets.
Some of the constraints that would prevent firms from taking full advantage of the potential for increasing profits in international markets include moving to higher tax brackets and increased political risk.
3. (TCO G) What are strategic alliances? Are strategic alliances on the rise or decline? How could an auto maker in the U. S. use strategic alliances to improve its global competitiveness? (Points : 30)
Strategic alliances are defined as joint ventures or relationships between two or more different business entities. The relationships are designed with the aim of helping the parties satisfy certain business needs or achieve some goals while all along remaining independent.
With increasing globalization, strategic alliances are seen to be continuously decreasing.
An Auto maker in the U. S. can enter an alliance with other auto makers and raw material producers to ensure that it produces vehicles which will be cheaper and hence more competitive with the cheaper models in the global market.
4. (TCO H) What are the factors that influence a firms ability to sell the same product worldwide? Ideally, is it better for a firm to sell the same product worldwide, or would a firm rather customize its products for each individual market? (Points : 30)
Some of the factors that influence a firm’s ability to sell the same product worldwide include economic and cultural differences between various countries. Technological standards and trade barriers also play a major role in limiting the standardization of a product in the global market.
In some instances like the sale of electronics, a firm can sell the same standardized product globally and hence benefit from reduced production and general engineering expenses. While in some products like food stuff and clothing, different taboos might force them to customize their products.
5. (TCO I) Describe the concept of human resources management. What extra challenges confront an international business in this area? (Points : 30)
Human resource management can broadly be defined as the strategic management of a company’s employees and workers. Some of the extra challenges faced in international human resource management include More HR activities that are usually not necessary in the local domestic markets. There is more complex involvement in the company’s employee’s personal lives as the company has to provide housing, medial and insurance arrangements. Dealing with more than one group of employees can also be rather hectic.