CHAPTER 1 An Overview of International Business 1. ss? What is international business?

How does it differ from domestic busine

2. International business involves any business transaction between partie s from more than one country. It differs from domestic business in that interna tional business transactions cross national borders while domestic transactions do not. More specifically, international business involves foreign currency tra nsactions for at least one party, it may require a company to adjust to a foreig n legal system and/or culture, and the way products are produced or the types of products that are produced may vary according to the availability of resources in different countries. 2. Why is it important for you to study international business? There are at least five reasons why it is important to study international busin ess. First, students will probably work for a company with international operat ions or one that is affected by the global economy. Second, students may actual ly work for a firm that is owned by a corporation based in another country. Thir d, it is important to keep pace with future competitors (other job seekers) who ar e well versed in international business. Fourth, it is important to stay abreas t of the latest business techniques and tools, which may actually be developed o utside of the United States. Finally, it is important to avoid cultural illiter acy, a label given to those who are not conversant with the global economy and i nternational marketplaces. 3. What are the basic forms of international business activity?

The basic forms of international business activity are importing and exporting, international investments, licensing, franchising, and management contracts. Ex porting involves selling products made in ones own country for use or resale in o ther countries, while importing involves buying products made in other countries for use or resale in ones own country. International investments include forei gn direct investment and portfolio investments. Foreign direct investments are investments made for the purpose of actively controlling property, assets, or co mpanies located in foreign host countries, while portfolio investment involves t he purchase of foreign financial assets such as stocks, bonds, and certificates of deposit, for purposes other than control. A licensing agreement allows a fir m in one country to use all or some of the intellectual property of a firm in an other country in exchange for a royalty payment. A franchise agreement authorize s a firm in one country to utilize the brand names, logos, and operating techniq ues of a firm in a second country in exchange for a royalty payment. Management contracts involve an agreement in which a firm in one country operates facilitie s or provides other management services to a firm in another country for a fee. 4. How do merchandise exports and imports and service exports and imports d iffer? Merchandise exports and imports refer to trade in goods while service exports an d imports refer to trade in intangible products. The former is sometimes referr ed to as visible trade while the latter is sometimes referred to as invisible tr ade. 5. What is portfolio investment?

Portfolio investments involve purchasing foreign financial assets such as stocks , bonds, and certificates of deposit, for purposes other than control.

6. What are the basic reasons for the recent growth of international busine ss activity? A number of factors have led to the recent growth of international business. The more important factors include market expansion, resource acquisition, competit ive forces, technological change, and social change. Market expansion has led t o growth in international business as firms, facing saturated domestic markets, seek new market opportunities in other countries. In some cases, firms will als o expand into other markets as they seek resources such as materials, labor, and /or capital. Such resources may either be scarce or unavailable domestically. The competitive forces that exist in todays marketplace also encourage the intern ationalization of business. When a firms competitors expand into new markets, tha t firm must also internationalize. Changes in technology, particularly in areas such as communications, transportation, and information processing, are making it increasingly easier for firms to carry out international transactions, thus a dding to the growth of international business. Social change is making it possi ble for firms to sell their products more easily in foreign markets. Consumers today are much more aware of the products and services being offered in other ma rkets, and are therefore more likely to seek out foreign-made products than in t he past. Finally, looser government trade and investment policies have made it easier for international businesses to capitalize on growth opportunities in the global marketplace. CHAPTER 2 Global Marketplaces and Business Centers 1. What is the Triad? What is the Quad? Why are they important to internat ional business? The Triad consists of the United States, the European Union, and Japan. Accordi ng to Kenichi Ohmae, managing director of McKinsey & Companys Tokyo office, the c ountries of the Triad are increasingly dominating the world economy. Ohmae argu es that if firms are to be successful competitors in the world economy, they mus t become an insider in each of the Triad countries. Other experts in the field h ave broadened the Triad to include Canada, calling the new grouping the Quad. T ogether, the Quad countries represent 75% of the worlds GDP, and provide a pool o f 776 million high-income buyers. 2. 2. How do differences in income levels and income distribution among nat ions affect international businesses? A countrys income level is a key indicator of how attractive it will be to intern ational businesses because it provides companies with information about the natu re of a nations consumers and the countrys value as a production site. Countries are typically classified according to the World Bank scheme as being high-income , middle-income, or low-income nations. Firms can use this information to help identify the best markets for their products. For example, a firm with a range of products in different price categories might export the most expensive, sophi sticated products to high-income countries, and the low-priced, standard product s to low-income countries. Similarly, a firm seeking sources of low cost labor would consider low-income countries, while a firm needing a well developed infrastructure would look at higher income countries. 3. Describe the U.S. role in the world economy.

The United States has a unique position in the world economy because of its size and political stability. Approximately 26% of the worlds trade in goods and ser vices is accounted for by the United States. Furthermore, it acts as a magnet f or lower-income nations that are attempting to raise their standard of living th rough export-oriented economic development strategies and for higher-income coun try firms that target the countrys large, well-educated middle class. The U.S. d

ollar plays an important role in global financial markets. Approximately one-ha lf of all international transactions are denominated in U.S. dollars, and it is an important component of foreign currency reserves owned by governments through out the world. As a result of the countrys political stability, investors freque ntly invest their money in the United States whenever political conflicts and in stability flare up. The United States is also a recipient of long-term investme nt. International trade remains a relatively small component of the U.S. econom y, although it is becoming increasingly important. 4. What role did MITI serve in the Japanese economy?

MITI, a government agency, partnered with Japanese businesses to help guide corp orate production and investment strategies in a manner that helped Japanese busi nesses concentrate initially on basic industries such as steel, and then later t o move into automobiles, electronics, and so on. In this manner, MITI contribute d to the rebuilding of the Japanese economy after World War II 5. What is a keiretsu?

A keiretsu is a large family of interrelated companies that share ownership amon g each other. Typically, a keiretsu is centered around a major Japanese bank th at takes primary responsibility for meeting the keiretsu s financing needs. The members often act as suppliers, buyers, and distributors for one another. 6. ss? Who are the Four Tigers? Why are they important to international busine

The Four Tigers are South Korea, Taiwan, Singapore, and Hong Kong. The Four Tig ers are important to international business because of their rapid strides towar d economic development. South Korea is one of the worlds fastest growing nation s. Much of its growth has come through exports. Taiwan also enjoys rapid econ omic growth, and today focuses on high-value-added industries such as electronic s and automobiles. Singapore is an export intensive nation, exporting 138 perce nt of its GDP in 1992. It is also an important port and center for oil refining in Asia, and provides sophisticated communications and financial services for P acific Rim companies. Finally, Hong Kongs highly educated and productive workfor ce makes it attractive to industries such as textiles and electronics. It also provides banking and financial services for much of East Asia and is an importan t link for companies that want to do business in mainland China. 7. What is a chaebol?

A chaebol is a conglomerate of privately owned companies. Some examples of cha ebol include Samsung, Hyundai, Daewoo, and Lucky-Goldstar. Leaders of chaebol m ay be related to each other or to top government officials through marriage.

Much of Africa s economy is tied to its natural resources. Several countries (s uch as Nigeria, Gabon, and Angola) rely heavily on oil exports to sustain their economies. In other countries (such as Ivory Coast and Rwanda), agricultural pr oducts are their only major export. Apart from exports, in many countries (such as Gambia, Mozambique, Sierra Leone, Tanzania, and Zambia), a major part of the population is "employed" in subsistence farming. 9. How did import substitution policies affect the economies of Brazil and Argentina? Import substitution policies attempt to stimulate the development of local indus

8. y.

Discuss the role of natural resources and agriculture in Africa s econom

try by discouraging imports through tariff and nontariff barriers. The policie s create problems, however, when a domestic market is too small to allow produce rs to gain economies of scale from mass production or to permit much competition between local producers. Thus, prices rise above prices in other markets, maki ng exports uncompetitive. Governments are then forced to subsidize domestic pro ducers, and possibly nationalize them as a means of preserving jobs. This leads to governmental budget deficits, inflation, and the destruction of the savings of the middle class. Today, Brazil and Argentina have reversed their import sub stitution policies and are opening up their economies so that they can compete i n the world marketplace. CHAPTER 7 International Cooperation among Nations 1. What does most favored nation (MFN) mean?

MFN is a trading status that grants the recipient the same tariff rates as the i mporting country gives its preferred trading partners. All members of the WTO a re expected to grant MFN status to other WTO member countries. 2. Under what conditions can WTO members not use MFN when dealing with one another? The WTO permits members to give below MFN rates in order to assist poorer countr ies in their development efforts. Also, lower than MFN rates are permitted withi n regional trading blocs such as the EU and NAFTA. 3. How does the WTO differ from GATT? Uru is mu free the

The World Trade Organization has been charged with the implementation of the guay Round. While GATT focused primarily on trade in goods, the WTOs scope ch broader; it will act as the worlds advocate and monitor of more open and trade in goods, services, and technology. Moreover, unlike its predecessor, WTO has the power to enforce its policies. 4. How do the various forms of economic integration differ?

There are five forms of regional economic integration. A free trade area elimin ates all barriers to trade among member countries, but allows each member to est ablish its own trade policies against non-members. A customs union involves fre e trade among member countries, and follows a common external trade policy towar d non-members. A common market eliminates tariffs among member countries, follo ws a common external trade policy, and eliminates barriers that inhibit the move ment of factors of production. In an economic union, barriers to trade among me mber countries are eliminated, a common external trade policy is established, fa ctors of production move freely between countries, and economic policies are coo rdinated. Finally, a political union further integrates nations by encompassing complete political integration. 5. Why do free trade areas develop rules of origin?

Rules of origin specify the conditions under which a good is classified as a mem ber or a non-member good. Free trade areas develop rules of origin to prevent t rade deflection from destroying their tariff policies toward non-members. 6. What was the goal of the Treaty of Rome?

The Treaty of Rome was signed in 1957 by Belgium, France, Luxembourg, Germany, I taly, and the Netherlands. Under the treaty, the countries agreed to create a c ommon market by eliminating internal barriers to trade, developing common extern

al trade policies, and improving factor mobility. 7. Describe the four major organizations governing the EU.

The Council of the European Union, made up of representatives of each member cou ntry, is the EUs main decision making body, and because of its composition, refle cts the desires of member countries to maintain sovereignty. The Commission of the EU is comprised of 17 elected representatives who focus on the interests of the EU itself, rather than the interests of individual member countries. The re presentatives of the European Parliament initially played a consultative role in EU policy making, but have expanded their capacity under the Maastrict Treaty. Finally, the Court of Justice interprets the meaning of EU law and ensures that EU regulations and policies are followed.

Under NAFTA, tariffs will be reduced over a 15-year period, investment restricti ons will be eliminated in most sectors, some white-collar movement will be allow ed, other countries may enter the Area, member countries can leave after giving six months notice, trade disagreements will be resolved through arbitration, and snap-back tariffs will be allowed if a surge of imports hurts a domestic indust ry. 9. What is the Caribbean Basin Initiative? What is its goal?

The Caribbean Basin Initiative facilitates the development of Central American a nd Caribbean Sea nations. It was initiated by the United States to stimulate inv estment by domestic, U.S., and other foreign firms in industries that lack a pre sence in the Caribbean Basin nations. 10. What efforts have South American countries made to regionally integrate their economies? Latin American nations have made various efforts to regionally integrate their e conomies. Mexico and Chile signed a free trade agreement in 1971. Mexico also worked with Venezuela and Colombia in 1971 to reduce trade barriers against each others goods. Mexico is additionally seeking free trade agreements with its fiv e Central American neighbors. The Mercosur Accord created a customs union betwe en Argentina, Brazil, Paraguay, and Uruguay in 1991. Finally, the Andean Pact, established in 1969, promotes free trade between Bolivia, Chile, Colombia, Ecuad or, and Peru. The agreement was expanded to customs union status in 1992.

CHAPTER 8 Legal, Technological, and Political Forces 1. Describe the four different types of legal systems with which internatio nal businesses must deal. The four types of legal systems with which international businesses must deal ar e common law, civil law, religious law, and bureaucratic law. The common law sy stem relies on the cumulative effect of judicial decisions on individual cases. In contrast, the civil law system is based on a detailed listing of what is and is not permissible. Religious law has its base in the official rules that gove rn the faith and practice of a particular religion. Finally, bureaucratic law i s whatever the countrys bureaucrats say it is. 2. What is extraterritoriality?

8.

What are NAFTA s major provisions?

Extraterritoriality is an attempt by a country to regulate business activities t hat are conducted outside of its borders. Examples of extraterritoriality inclu de attempts by a country to monitor transfer prices, antitrust laws, and antiboy cott provisions in trade law. 3. How can an MNC affect its host country?

An MNC can affect its host country in numerous ways, some positive, others negat ive. On the positive side, local jobs may be created as a result of investments in plants and factories; tax payments may improve a countrys infrastructure; and technology may be transferred to the host country. On the negative side, local jobs and profits may be lost as a result of increased competition, and the loca l economy may become dependent on the success of the MNC. An MNC will typically also have a significant political impact. 4. How do expropriation and confiscation differ?

When a government nationalizes an industry (or company), it may compensate the p rivate owners for their loss (expropriation) or it may not (confiscation). 5. rms? Why do countries impose restrictions on foreign ownership of domestic fi

Countries may impose restrictions on foreign ownership of domestic firms to avoi d control of their economies by foreigners, because they fear that foreign compa nies could undermine their industrial policies, and because they believe that lo cal citizens should receive the benefits of certain industries. 6. ems? What is the difference between first to invent and first to file patent syst

A first-to-invent policy, followed by the United States, Canada, and the Philippin es, focuses on protecting the rights of the true inventor, while a first-to-file sys tem assigns rights to the first patent applicant. The former encourages litigat ion, while the latter avoids it. 7. CHAPTER 9 The Role of Culture 1. What is culture? Culture consists of the interrelated values, beliefs, behaviors, customs, and at titudes that distinguish a society. It is a learned behavior that is shared bet ween members of a society and it changes to adapt to external forces that affect a society. 2. What are the primary characteristics of culture?

The primary characteristics of culture are social structure, language, communica tion, religion, and values and attitudes. How these elements interact affects t he local environment in which international businesses operate. 3. Describe the difference between high-context and low-context cultures.

In low-context cultures such as the United States and Germany, a speakers words e xplicitly convey his/her message to the listener, whereas in high-context cultur es such as Japan, the context in which the conversation takes place and accompan ying cultural clues are just as important as the actual words. 4. What are cultural clusters?

Countries can be grouped into cultural clusters based on similarities in their c ultures. Within each cluster, countries may be similar in terms of attitudes, v alues, language, or some other cultural element. At least eight cultural cluste rs have been identified: Near Eastern, Nordic, Germanic, Anglo, Latin European, Latin American, Far Eastern, and Arab. 5. What are individualism and collectivism? How do they differ?

Individualism is the cultural belief that the person comes first and collectivis m is the belief that the group comes first. Individuals from individualistic cu ltures typically possess a high degree of self-respect and independence, while t hose from collectivistic cultures tend to put the good of the group ahead of the ir own personal interests. 6. Discuss the difference in pay systems between U.S. and Japanese firms. To what extent are these differences culturally determined? U.S. employees are typically compensated according to their individual accomplis hments. On the other hand, Japanese employees are compensated on the basis of t he groups achievements. These differences in pay systems are very much rooted in the differences in the two countries cultures. The Japanese culture is a grouporiented one, while the United States stresses individualism. 7. What is power orientation?

Power orientation, the second of Hofstedes dimensions, refers to the beliefs that people in a culture hold about the appropriateness of power and authority diffe rences in hierarchies such as business organizations. In cultures characterized by power respect, people tend to accept the power and authority of their superio rs simply on the basis of the superiors positions in the hierarchy and to respect the superiors right to that power. In contrast, in cultures that are characteri zed by power tolerance, much less significance is attached to a persons position in the hierarchy. 8. What is uncertainty orientation?

Uncertainty orientation, the third of Hofstedes dimensions, is the feeling people have regarding uncertain and ambiguous situations. Those individuals character ized by uncertainty acceptance are stimulated by change and new opportunities, w hile those individuals characterized by uncertainty avoidance dislike and avoid ambiguity. 9. What are aggressive and passive goal behaviors? How do they differ?

Goal orientation, Hofstedes fourth dimension, is the manner in which people are m otivated to work toward different kinds of goals. People exhibiting aggressive goal behavior place a high premium on material possessions, money, and assertive ness. Those who exhibit passive goal behavior place a higher value on social re lationships, quality of life, and concern for others. 10. What is the self-reference criterion?

It is the reliance, usually subconscious, on one s own culture to help assess ne w surroundings. Using one s own culture as a reference point can lead to proble ms when dealing cross-culturally. CHAPTER 10 International Strategic Management What is international strategic management?

International strategic management is a comprehensive and ongoing management pla nning process aimed at formulating and implementing strategies that enable a fir m to compete effectively in the global marketplace. What are the three sources of competitive advantage available to international b usinesses that are not available to purely domestic businesses? The three sources of competitive advantage available to international businesses are global efficiencies, multinational flexibility, and worldwide learning. Why is it difficult for firms to exploit these three competitive advantages simu ltaneously? It is difficult to exploit the three competitive advantages simultaneously becau se each advantage requires a different strategic perspective. For example, to e xploit global efficiencies, a firm often centralizes control; however, this limi ts its ability to exploit multinational flexibility. Pursuing either global eff iciencies or multinational flexibility may inhibit a companys ability to promote worldwide learning, since in the case of global efficiencies, the centralization of power may limit the ability to glean information from other parts of the fir m, while the decentralization of power that is associated with multinational fle xibility may also impair worldwide learning as units operate in isolation from e ach other. What are the four basic philosophies that guide strategic management in most MNC s? The four basic philosophies that guide strategic management include the home rep lication strategy, the multidomestic strategy, the global strategy, and the tran snational strategy. How do international strategy formulation and international strategy implementat ion differ? International strategy formulation involves the creation of a firms international strategies. During this stage of the strategy process, the firm establishes it s goals and the strategic plan that will help it achieve the goals. Internation al strategy implementation is the process by which a strategy is achieved. What are the steps in international strategy formulation? Are these likely to v ary among firms? The key steps in international strategy formulation are developing a mission sta tement; analyzing the firm and its environment to determine strengths, weaknesse s, opportunities, and threats; setting strategic goals; developing tactical goal s and plans; and developing a strategic control framework. These steps are used by most firms. Identify the four components of an international strategy. The four components of an international strategy are scope of operations, resour ce deployment, distinctive competence, and synergy. Defining the scope of opera tions involves determining where business will be conducted. Resource deploymen t identifies how resources will be allocated to each market the firm will compet e in. Distinctive competence identifies what the firm does exceptionally well, especially when compared to the competition. Finally, synergy involves determin ing how different elements of a business benefit each other. 1. Describe the role and importance of distinctive competence in international stra

tegy formulation. Distinctive competence is the first component of international strategy, and ans wers the question what do we do exceptionally well, compared to our competitors? It is thought to be a necessary condition for competing in international markets . What are the three levels of international strategy? Why is it important to dis tinguish among the levels? The three levels of international strategy are corporate, business, and function al. It is important to distinguish among the three levels because it helps to e ase the complexity of international strategic management. Identify and distinguish among the three common approaches to corporate strategy . The three common approaches to corporate strategy are single business, related d iversification, and unrelated diversification. A single business strategy requi res firms to rely on a single business for its livelihood. In contrast, a firm that has diversified into related areas operates in several different but relate d businesses simultaneously. Finally, a firm that has diversified into unrelate d areas operates in several unrelated businesses at the same time. Identify and distinguish among the three common approaches to business strategy. The three basic forms of business strategy are differentiation, overall cost lea dership, and focus. A firm following a differentiation strategy tries to establ ish and maintain the image that its products/services are unique from competing products/services. An overall cost leadership strategy involves focusing on ach ieving highly efficient operating procedures so that a firms costs are lower than its rivals, and selling products/services at lower prices. Finally, a focus st rategy requires a firm to target specific types of products/services for certain customer groups. What are the basic types of functional strategies most firms use? Is it likely that some firms have different functional strategies? The most common types of functional strategies include financial strategy, marke ting strategy, operations strategy, human resource strategy, and R&D strategy. While most firms employ these basic functional strategies, some firms may emphas ize certain areas more than others. CHAPTER 11 Strategies for Analyzing and Entering Foreign Markets 1. What are the steps in conducting a foreign market analysis?

A market analysis usually is comprised of three steps: (1) assessing alternative markets; (2) evaluating respective costs, benefits, and risks of entering each; and, (3) selecting those that hold the most potential for entry or expansion. 2. What are some of the basic issues a firm must confront when choosing an entry mode for a new foreign market? When choosing an entry mode for a new foreign market, a firm must confront issue s relating to ownership advantages, location advantages, internalization advanta ges, the need for control, the availability of resources, and the firms global st rategy.

3. ?

What is exporting? Why has it increased so dramatically in recent years

Exporting, the most common form of international business activity, is the proce ss of sending goods or services from one country to other countries for use or s ale there. There are three forms of exporting: indirect exporting, direct expor ting, and intracorporate transfer. Many firms are pushed into exporting because of shrinking domestic marketplaces, but other firms are pulled into exporting b ecause of foreign market opportunities. 4. What are the primary advantages and disadvantages of exporting?

One of the primary advantages of exporting is its relatively low level of financ ial exposure. A second advantage of exporting is related to speed of entry. Exp orting allows a firm to expand into a foreign market gradually, and therefore al lows a company to assess the local environment and adapt its products to local c onsumers. The disadvantages of exporting include a lack of presence in the loca l marketplace, vulnerability to trade barriers, and potential problems with trad e intermediaries. 5. What are the three forms of exporting?

The three forms of exporting are indirect exporting, direct exporting, and intra corporate transfer. Indirect exporting involves selling a product to a domestic customer, which then exports the product in its original form or a modified for m. Direct exporting involves selling directly to distributors or end-users in o ther markets. Intracorporate transfer occurs when a company sells its product t o a foreign affiliate. 6. What is an export intermediary? What is its role? What are the various types of export intermediaries? An export intermediary is a third party that specializes in facilitating imports and exports. There are various types of export intermediaries, including expor t management companies, the Webb-Pomerene association, international trading com panies, manufacturers agents, and export and import brokers. The role of an expor t intermediary can range from simply handling transportation and documentation t o taking ownership of foreign-bound goods and/or assuming total responsibility f or marketing or financing exports. Export intermediaries are third parties that specialize in facilitating trade. There are several types of export intermediar ies. An export management company is a firm that acts as the clients export depa rtment, while a Webb-Pomerene association handles market research, overseas prom otion, freight consolidation, contract negotiations, and other services for its members. An international trading company trades a variety of goods for its own account. A manufacturers agent, acting on a commission basis, solicits domestic orders for foreign manufacturers, while a manufacturers export agent acts as an export department for domestic manufacturers. Export and import brokers bring t ogether buyers and sellers of standardized commodities, and freight forwarders h andle the physical transportation of goods. 7. ges? What is international licensing? What are its advantages and disadvanta

International licensing occurs when a firm, the licensor, sells the right to use its intellectual property to another firm, the licensee. The primary advantage s of international licensing are its relatively low financial risk and the oppor tunity it provides the licensor to learn about sales potential in foreign market s. Licensees like the arrangements because they are able to make and sell produc ts with proven success tracks, yet incur low R&D costs. However, the agreements limit market opportunities for both the licensor and the licensee, and there is

mutual dependency between the two parties. Further, there is potential for pro blems and misunderstandings. Finally, licensors must be careful to avoid creati ng a future competitor. 8. ages? What is international franchising? What are its advantages and disadvant

International franchising involves an agreement whereby the franchisee operates a business under the name of the franchisor in return for a fee. International f ranchising agreements are attractive because they allow franchisees to enter a b usiness that is established and has a proven track record. Franchisors benefit from the agreements because they can expand internationally at relatively low co st and risk. In addition, they can obtain critical information about the local marketplace from franchisees. However, an international franchising agreement r equires both parties to share profits and may be more complicated than domestic franchisee agreements. 9. What are three specialized entry modes for international business, and h ow do they work? Three specialized entry modes for international business are management contract s, turnkey projects, and contract manufacturing. Under a management contract ag reement, one firm provides managerial assistance, technical expertise, or specia lized services to a second firm in exchange for a fee. A turnkey project is an agreement whereby a firm agrees to fully design, construct, and equip a facilit y and then turn the key over to the purchaser when it is ready for operation. C ontract manufacturing involves outsourcing manufacturing needs to other companie s. 10. What is FDI? What are its three basic forms? What are the relative adv antages and disadvantages of each? FDI is foreign direct investment. The three basic forms of FDI are greenfield i nvestments, acquisitions, and joint ventures. Greenfield investments involve th e construction of new facilities. It is attractive because it allows a firm to select the most suitable site for construction, the firm starts with a clean sla te, and the firm can adapt to its new surroundings at its own pace. However, gr eenfield investments take time and patience, may be expensive, require the firm to comply with local regulations and recruit a workforce, and may result in a fi rm being perceived as a foreigner. Acquisitions, in contrast, allow a firm to g enerate profits even as it integrates the new company into its overall strategy. However, acquisition requires a firm to assume all of the acquired firms liabil ities, and spend substantial money up front. Joint ventures involve the creatio n of a new firm by two or more companies working together for mutual benefit. CHAPTER 12 International Strategic Alliances 1. What are the basic differences between joint ventures and other types of strategic alliances? A strategic alliance is a business arrangement in which two or more firms agree to cooperate for their mutual benefit. A joint venture, a special type of strat egic alliance, involves the creation of a new business entity that is independen t of the parent companies. This separate entity can then be broader in purpose, scope, and duration than other types of strategic alliances. Joint ventures ty pically have formal management systems, while other types of strategic alliances may be more informally managed. Strategic alliances are usually considered les s stable than joint ventures because they lack formal organizational structures and have narrow missions.

2.

Why have strategic alliances grown in popularity in recent years?

Strategic alliances have grown in popularity in recent years because they are an effective means of competing in the global marketplace. In fact, in just a dec ade, the growth rate of alliances quadrupled from 6 percent a year in 1980, to 2 2 percent a year in 1990. 3. What are the basic benefits partners are likely to gain from their strat egic alliance? Briefly explain each. The basic benefits partners are likely to gain from their strategic alliances ar e ease of market entry, shared risk, shared knowledge and expertise, and synergy and competitive advantage. Strategic alliances can ease market entry because t hey allow firms to overcome barriers such as entrenched competition and hostile government regulations and/or reduce the cost of entry. Strategic alliances can also enable firms to reduce or control exposure to risk. Firms can gain knowle dge and expertise via strategic alliances, as well as synergy and competitive ad vantage. In theory, strategic alliances should help firms to achieve more and c ompete more effectively than if they acted independently. 4. What are the basic characteristics of a comprehensive alliance? What fo rm is it likely to take? Comprehensive alliances involve collaboration at multiple stages of the process by which goods and services are brought to the market. Most comprehensive allia nces take the form of a joint venture because it is difficult to effectively int egrate the differing operating procedures of the parent over a broad range of ac tivities without a formal organizational structure. Typically, comprehensive al liances involve only two firms and may evolve over time. Firms involved in such alliances hope to achieve greater synergy through sheer size and total resource s. 5. What are the four common types of functional alliances? Briefly explain each. The four common types of functional alliances are production alliances, marketin g alliances, financial alliances, and R&D alliances. Production alliances invol ve collaboration in product manufacturing and may involve a shared or common fac ility. Marketing alliances typically involve a situation whereby one firm with a presence in a particular market assists a new firm in entering that market. F inancial alliances are used by firms to reduce the financial risks associated wi th a project. Finally, R&D alliances involve collaboration to develop new produ cts or services and help participants stay abreast of the rapid technological ch ange that is currently affecting high-technology industries. 6. What is an R&D consortium? An R&D consortium is a confederation of organizations that bands together to res earch and develop new products and processes for world markets. Some examples i nclude ESPRIT, BRITE, and RACE. 7. ner? What factors should be considered in selecting a strategic alliance part

At least four factors should be considered in selecting a strategic alliance par tner including compatibility, the nature of the potential partners products or se rvices, the relative safeness of the alliance, and the learning potential of the alliance.

8.

What are the three basic ways of managing a strategic alliance?

There are three basic ways of jointly managing a strategic alliance: through a s hared management agreement in which each partner fully and actively participates in managing the alliance, through an assigned arrangement in which one partner assumes the primary responsibility of managing the alliance, and through a deleg ated arrangement whereby management of the operation is delegated to the joint v enture itself. 9. Under what circumstances might a strategic alliance be undertaken by pub lic and private partners? There are several circumstances that might warrant a public-private venture. Fi rst, governments may form partnerships with a private firm to obtain assistance in the development of a particular resource. Second, firms may seek an alliance with a government if the particular country does not permit wholly owned subsid iaries. Finally, firms operating in centrally planned economies may be forced t o seek government partners if they are to have freedom to operate. 10. What are the potential pitfalls of strategic alliances?

The potential pitfalls of strategic alliances include conflict among partners (o ne of the primary causes of failure), access to information (firms may prefer to keep certain information secret), distribution of earnings (profits must be sha red among partners), potential loss of autonomy (control must be shared among pa rtners), and changing circumstances (as circumstances change, the rationale behi nd the formation of an alliance may no longer exist). CHAPTER 14 Managing Behavior in International Relations 1. Define personality and explain how personality differences affect indivi dual behavior. Personality is the relatively stable set of psychological attributes that distin guish one person from another. Five fundamental personality differences (agreea bleness, conscientiousness, emotional stability, extroversion, and openness) aff ect individual behavior. In addition, locus of control, self-efficacy, authorita rianism, and self-esteem are important influences in an individuals personality. 2. Explain how attitudes vary across cultures.

Attitudes, the complexes of beliefs and feelings that people have about specific ideas, situations, or other people, are important because they are the mechanis m through which people express their feelings. Attitudes can vary greatly across cultures; for example, the text provides the results of a study that shows that Japanese workers are less satisfied than their American counterparts. Students may also bring out points from the opening case in their response to this quest ion. 3. Discuss the basic perceptual process and note how it differs in differen t cultures. Perception is the set of processes by which an individual becomes aware of and i nterprets information about the environment. Stereotyping is one common percept ual process that occurs when an individual makes inferences about someone becaus e of one or more characteristics they possess. Perceptions also influence how a n individual feels about political or other forms of risk. The text provides nu merous examples of how perceptions differ across cultures, and students will pro bably be able to generate additional examples.

4.

Explain how attitudes and perception can affect each other.

Perception, the set of processes by which an individual becomes aware of and int erprets information about the environment, is an important attitude determinant. An individuals perceptions may result in stereotyping. Perceptions also influ ence an individuals attitude toward risk. 5. Discuss stress and how it varies across cultures.

Stress is an individuals response to a strong stimulus. The stimulus is known as a stressor. It is important for international managers to consider the stress i nvolved in managing international assignments, and also to recognize that people from different cultures may experience and handle stress in different ways. Th e text notes, for example, that Swedish executives experienced lower stress as c ompared to their British, U.S., and West German counterparts. 6. Identify some of the basic issues managers must confront when attempting to motivate employees in different cultures. Motivation refers to the overall set of forces that encourage people to select c ertain behaviors from a set of available behaviors. Managers attempting to moti vate employees in different cultures face a complex task because the factors tha t motivate individuals in one culture may be very different from the factors tha t motivate individuals in another culture. Managers must determine whether empl oyees are individualistic or collectivistic, what their beliefs are about power and uncertainty orientation, and whether they demonstrate aggressive or passive goal behaviors before motivation techniques can be implemented. 7. How do needs and values differ in different cultures?

Understanding needs (the things an individual must have or wants to have) and va lues are a starting point in understanding motivation. Primary needs are things people need for survival, while secondary needs are more psychological and learn ed. Values are influenced by family, peers, experiences, and culture. Conseque ntly, both needs and values will reflect local social and cultural norms. 8. Summarize the steps in the normative model of decision making and relate each to international business. The normative model of decision making implies that managers make logical and ra tional decisions. The model starts with the identification of a problem and the realization that a decision needs to be made, then possible alternatives to add ress the problem are identified and evaluated, and finally, the best alternative is selected. Students may relate the model to the example given in the text or to some other situation. 9. Why are teams so important? What are the basic implications of teams fo r an international business? Companies consider teams to be important because, at least in theory, people wor king together can accomplish more than people working independently. Teams have several implications for international business. Teams serve to develop role st ructures, establish norms of behavior for team members, and promote cohesiveness among employees. In addition, informal leaders typically emerge from teams, an d efficiency may emerge from the role structure of the team. Teams may be homog enous or heterogeneous. The former generally have less conflict, better communi cation, less creativity, more uniform norms, higher cohesiveness, and clear info rmal leadership when compared to the latter.

CHAPTERS 13&15 International Organization Design and Control 1. What are some of the initial impacts of international activity on organi zation design? International activity initially impacts organization design in a very minor way , as most firms use the corollary approach to assign responsibility for internat ional orders. Under the corollary approach, responsibility is delegated to exis ting departments such as finance or marketing. As international activity grows, a firm might establish an export department to oversee international sales. Ho wever, as international sales grow, many firms find that an export department is no longer sufficient and they establish an international division. 2. s? What is the global product design? What are its strengths and weaknesse

The global product design assigns worldwide responsibility for specific products or product groups to separate operating divisions within a firm. There are sev eral advantages to the global product design. First, managers gain expertise in all aspects of a product(s) since a division focuses on a single product or pro duct group. Second, manufacturing can take place wherever the manufacturing cos ts are lowest, so production efficiencies are facilitated. Third, managers are able to coordinate production at their various facilities. Fourth, managers can make use of their extensive product knowledge to incorporate new technology into the product and respond quickly and flexibly to technological change that affec ts their markets. The structure also facilitates global marketing, which enable s the firm to develop the necessary expertise to compete globally. Finally, the structure forces managers to think globally. The main disadvantages associated with the structure include its tendency to encourage expensive duplication, the fact that each product group must develop its own knowledge about the local env ironment, and finally, the fact that it makes coordination and corporate learnin g across product groups more complex. 3. What is the global area design? What are its strengths and weaknesses?

The global area design involves centering a firms activities around specific area s or regions of the world. A primary strength of the design is that it allows f irms to develop expertise about the local market necessary in order to adapt pro ducts to meet local needs. However, the design may sacrifice cost efficiencies that could be gained through global production, technology diffusion is slowed s ince there may not be cross-division transfer of technology, resources are dupli cated in each area, and finally, coordination is expensive and product planning is put on the back burner. 4. sses? What is the global functional design? What are its strengths and weakne

The global functional design involves the creation of departments or divisions t hat have worldwide responsibility for the common organizational functions. This structure allows a firm to develop and transfer expertise within each functiona l area, maintain centralized control over functional operations, and focus atten tion on key functions. However, the structure is only practical when the firm h as relatively few products or customers. Moreover, duplication of resources amo ng managers may occur and the firm may find it has difficulty coordinating divis ions. 5. es? What is the global customer design? What are its strengths and weakness

The global customer design is appropriate when a firm serves different customers or customer groups, each of which has specific needs that require special exper tise or attention. The design allows a firm to focus on the needs of each cust omer segment and track the success of its products within segments. However, si nce each segment needs its own area and functional specialists, duplication of r esources may occur, and firms may have difficulty coordinating divisions. 6. ? What is the global matrix design? What are its strengths and weaknesses

The global matrix design is a result of superimposing one form of organization d esign on top of an existing, but different form. The structure allows a firm to capitalize on both the functional and the product expertise of its employees. In addition, the matrix design allows a firm to respond quickly to changes in th e marketplace, promotes organizational flexibility, and promotes coordination an d communication among managers from different divisions. However, the structure implies that employees have two bosses, creates a paradox regarding authority, and promotes compromises or decisions based upon political clout rather than mer it. 7. What are the three levels of control in international business?

The three levels of control in international business are strategic, organizatio nal, and operational. Strategic control allows a firm to monitor both the formu lation and implementation of strategy. Organizational control involves adopting the appropriate organizational design to fit the internal and external environm ent. Finally, operational controls relate to the operating processes and system s within a company. 8. Why is financial control so important?

Financial control is critical because it is the driving force of an organization . Firms must design appropriate control systems that monitor a firms revenues, c osts, and expenses. In most firms, financial control is separated from other pa rts of strategic control, and is handled by a controller. 9. What are the four basic steps in establishing an international control s ystem? The four basic steps in establishing an international control system are setting the control standards for performance, measuring actual performance, comparing performance against standards, and responding to deviations. These steps are ap plicable to any area and any level of control.

8.

How do restrictions on repatriation of profits affect MNCs?

In an effort to encourage local reinvestment of earnings, countries may limit th e repatriation of profits by MNCs. In some cases, the threat of restrictions on the repatriation of profits will discourage MNCs from investing in the first pl ace. Restrictions are sometimes formulated in such a way that export operations are encouraged. The text provides an example of how Poland encourages firms to expand their exports from their Polish operations by allowing companies to repa triate all of their profits earned from exports. 9. What is political risk? What forms can it take?

Political risks are defined as any changes in the political environment that may adversely affect the value of the firm s business activities. Most political r

isks can be divided into three categories: ownership risk (the threat of confisc ation or expropriation), operating risk (political changes will put employees an d/or profits in danger), and transfer risk (the threat that the government will interfere with the firm s ability to shift funds in and out of the country). 10. What is OPICs role in promoting international business activity?

OPICs role in promoting international business activity is centered around reduci ng the risk of a companys foreign operations. OPIC provides insurance against na tionalization, insurrections or revolutions, and foreign-exchange inconvertibili ty. OPICs insurance is available only to companies operating in countries with w hich the United States has a bilateral investment treaty.