International Business Essay Questions
1.. Identify the five cultural dimensions identified by Geert Hofstede and describe them indicating their importance in international business. 2.. Compare the advantages and disadvantages of various modes of entering foreign markets. 3.. Why do we have international strategic alliances? What are the forms and their respective advantages and disadvantages? —————- 4.. Consider a firm facing a make-or-buy decision, Provide 2 potential benefits and 2 risks that the firm may face from outsourcing. Similarly, provide 2 potential advantages and 2 disadvantages of in-house production. .. Explain the Gini Index (or Coefficient) and discuss how it is calculated and used. 6.. When presented with a scenario, indicate how one might act according to various approaches to Social Responsibility. 7.. What are the five forms of economic integration and how do they differ? 8.. List and explain the 4 strategic alternatives multinational corporations may adopt in their attempt to balance the 3 sources of a firm’s international competitive advantage. What determines which strategy is appropriate? 9.. What are the main structures of the EU and what are their functions? 1.
What are the five dimensions of culture? 1. Social Orientation: Individualism vs Collectivism Social Orientation is the person’s belief about the relative importance of of the individual and the group to which the person belongs. Individualism is the cultural belief that the individual comes first (ex. US, canada, UK…) * high self respect and independence * own carreers before that of the company * compensation according to the individuals achievement, the fairness of the compensation is determined by whether or not the objective is achieved * swithcing employers often search for higher paying jobs even if they are not as secure on the long term Collectivism is the belief that the group comes first (ex. Mexico, Taiwan, Pakistan) * People are expected to put the good of their company/group/tribe before their own * When the group fails all the members fells ashamed * In Japan compensation is mostly based on the seniority of the employee (all the accountants with 3 years of seniority have the same pay) * Switching compagnies brands the person as untrustworthy. 2. Power Orientation: tolerance vs Repect
Power orientation refers to the belief that people in a culture hold about the appropriateness of power and authority differences in hierarchies such as business organisation. Power Respect (ex. France, Japan, Spain, Italy) * People tend to accept the power and authority of their superiors because of hierarchy * Implicit belief that higher-level position emplyees carry the right to take decisions and isue mandates * First task of a problem is to determine who is in charge * Bypassing a superior is a sign of insubordination not efficiency * The important work is only handed to those with high authority Power Tolerant (ex.
US, Germany, Israel) * Much less significance to a person’s position in hierarchy * More questionning of the decision taken from above * First tak of a problem is to the define the tasks of the problem and assemble a team * Authority do not necessarily have all the info bypass hierarchical line 3. Uncertanty Orientaion: acceptance vs avoidance Uncertanty Orientation is the feeling people have regarding uncertain and ambiguous situations. Uncertanty Acceptance (US, Australia, Canada, Singapour) * Stimulated by change and thrive on new opportunities Tolerant of flexible hirarchies, rules and procedures * Risk taking is highly valued * More attuned with the new e-commerce economy * Rely on the stock market Uncertanty Avoidance (France, germany, Japan) * Dislike ambiguity and will avoid it when possible * Structured and routined life * Rigid hierarchy and strict rules * Low-risk strategy * Rely on bank capitals 4. Goal Orientation: aggressive vs passive Goal orientaion is the manner in which people are notivated to work towards different types of goals Aggressive goal Orientation( Japan) High premium on material possesion, money and assertiveness * Gender-based roles viewed rigidly (men at work, women at home) Passive Goal Orientaion (Sweden, netherlands, Norway) * Higher value on social relationships, quality of life, and concern for others * Gender based roles not clearly defined 5. Time Orientation long-term (Japan, taiwan, South Korea) vs short-term (US and Germany are intermediates) 3.. Why do we have international strategic alliances? What are the forms and their respective advantages and disadvantages?
If you’ve reached a point that you feel you’ve gotten about as far as you can on your own in charting your export strategy, it’s a good time to consider joining forces with another company of similar size and market presence that is located in a foreign country where you are already doing business, or would like to. First, it’s important to understand exactly how a global strategic alliance works, and what it can and cannot do for you. A Global Strategic Alliance Is Not an Acquisition
A global strategic alliance is usually established when a company wishes to edge into a related business or new geographic market — particularly one where the government prohibits imports in order to protect domestic industry. Typically, alliances are formed between two or more corporations, each based in their home country, for a specified period of time. Their purpose is to share in ownership of a newly formed venture and maximize competitive advantages in their combined territories.
The cost of a global strategic alliance is usually shared equitably among the corporations involved, and is generally the least expensive way for all concerned to form a partnership. An acquisition, on the other hand, offers a faster start in exploiting an overseas market, but tends to be a much more expensive undertaking for the acquiring company — one that is likely to be well out of the reach of a solo operator. While a global strategic alliance works well for core business expansion and utilizing existing geographic markets, an acquisition works better for immediate penetration to new geographic territories.
Hence, an alliance provides a good solution to global marketers that lack required distribution to get into overseas markets. A global strategic alliance is also much more flexible than an acquisition with respect to the degree of control enjoyed by each party. Depending on your resources, you can structure an equity or non-equity partnership. Within an equity partnership, you can hold a minority, majority or equal stake. In a non-equity partnership, the host country partner has a greater stake in the deal, and thus holds a majority interest.
Yet whom you choose as your partner is arguably more important than how the partnership is structured. For when it gets down to business, you want a partner who will have an active contribution to make, and who is flexible and able to resolve conflicts as the alliance evolves. Even more important, however, is that you keep clearly in mind what you are seeking to gain from the alliance, and that you choose a partner whose contribution will enable you to achieve those goals. Where Should Importers and Exporters Look for Partners? You might be surprised to find that you can build mutually advantageous lliances with some unlikely allies. Many companies make conscious decisions to form partnerships with complimentary or even competing companies that can offer them market share in countries they have been struggling to break into for years. Nokia and Microsoft, for example, have entered into a broad global strategic alliance where they plan to combine assets and develop innovative mobile products on an unprecedented scale. By using their complementary strengths and expertise, these potential competitors thus ensure their mutual survival in the new global mobile ecosystem and marketplace.
Even if you’re not an international technology company or world’s leading mobile phone supplier, you can follow Nokia’s and Microsoft’s example and see which of your contacts, colleagues, peers and competitors in the international market might have compatible needs and objectives. You’ll probably feel most secure with a company with whom you already have a reasonably long-standing business relationship, especially if you have achieved substantial sales growth together.
It could be your distributor in South Africa, a manufacturer who took on distribution of your product in China, or that trading company in Japan who can’t keep up with consumer demand! Any one of your contacts with a problem you can solve or a need you can fulfill might serve as a potential partner. Advantages of the Global Strategic Alliance There are many specific advantages of a global strategic alliance. You can: * Get instant market access, or at least speed your entry into a new market. * Exploit new opportunities to strengthen your position in a market where you already have a foothold. Increase sales. * Gain new skills and technology. * Develop new products at a profit. * Share fixed costs and resources. * Enlarge your distribution channels. * Broaden your business and political contact base. * Gain greater knowledge of international customs and culture. * Enhance your image in the world marketplace. Disadvantages of the Global Strategic Alliance There are also some inevitable trade-offs to consider: * Weaker management involvement or less equity stake. * Fear of market insulation due to local partner’s presence. * Less efficient communication. * Poor resource allocation. Difficult to keep objectives on target over time. * Loss of control over such important issues as product quality, operating costs, employees, etc. For example, if you enter into a global strategic alliance with even a little less equity stake — say, 49% — you lose managerial control. You may end up with that equity percentage because the host government only allows up to 49% for an outsider, because you could only negotiate that amount, or because you were willing to accept a minority stake in exchange for gains (e. g. , responsibility for research and development) that you thought important during the negotiation phase.
Whatever the reason, what are you going to do if profits plummet, product quality deteriorates, or customers are dissatisfied? You do not have enough interest in the venture to take action. Your 49% can swiftly depreciate when it comes to exercising any control. In any partnership, the majority interest holder tends to dominate, putting their needs first, their partner’s last. The ideal situation is a 50-50 partnership which allows both parties to share in mutual successes, but if you do settle for a minority interest, make sure you maintain enough control to accomplish your objectives in the target market.
It’s also critical to explore all the legal and financial implications before entering into a partnership with an overseas company. Seek legal counsel that is well-experienced in international trade, acquisitions, joint ventures and divestitures to go over the best and worst-case scenarios with you. You should hire counsel both in your own country and the host country for maximum protection of your rights. You are not only seeking to ensure the fundamental integrity of the partnership, but to work out crucial entitlements and obligations such as copyrights, trademarks, patents, taxes, antitrust and exchange controls.
You will also need to keep informed about the host country’s political and economic stability. Get in touch with the local economic development offices within the host country. They should be able to assess the country’s future investment climate, and to provide you with past, present and future growth trends. This will give you a better idea of what kind of risks you will incur, if any, if you go ahead with the alliance. 4.. Consider a firm facing a make-or-buy decision, Provide 2 potential benefits and 2 risks that the firm may face from outsourcing.
Similarly, provide 2 potential advantages and 2 disadvantages of in-house production. The factors you have to consider in “Make it or Buy it” decision are strictly related to the choice of the appropriate level of Vertical integration. * In deciding how to acquire the components necessary to manufacture a firm’s products, its production managers have two choices: The firm can make the inputs itself, or it can buy them from outside suppliers. * Influence Factors for the Make-or-Buy Decision Size Scope of Operations Technological Expertise
Nature of Product – For example, because larger firms are better able to benefit from economies of scale in the production of inputs, larger automakers such as GM and Fiat are more likely to make their parts themselves, whereas smaller automakers such as Saab or BMW are more likely to buy parts from outside suppliers. – Components embodying relatively new technologies are more likely to be purchased from outside suppliers, whereas more standardized components, such as conventional AM/FM automotive radios, are more likely to be produced in-house. At other times, the make-or-buy decision will depend on existing investments in technology and manufacturing facilities. For example, personal computer manufacturers such as Dell and IBM must decide whether they want to make or buy microprocessors, memory chips, disk drives, motherboards, and power supplies. Because of its extensive manufacturing expertise with mainframe computers, IBM is more likely to make a PC component in-house, whereas Dell is more likely to rely heavily on outside suppliers More generally a firm will make the choice which most benefit to it in terms f cheaper investment. Competitive Advantage versus Strategic Vulnerability This highlights the need to balance competitive advantage against strategic vulnerability when resolving the make-or-buy decision. If a high potential for competitive advantage exists along with a high degree of strategic vulnerability, the firm is likely to maintain strategic control by producing internally. However, if the potential for competitive advantage and the degree of strategic vulnerability are both low, the firm will need less control and therefore will be more likely to buy “off the shelf. Finally, when intermediate potential for competitive advantage and moderate degree of strategic vulnerability call for moderate control, special ventures or contract arrangements may be most appropriate. Advantages/disadvantages Making a component increases the firm’s control over product quality, delivery schedules, design changes, and costs. * Buying a component from an external supplier : 1. Reduces the firm’s financial and operating risks. 2. Lowers the firm’s level of investment. (by not having to build a new factory or to learn a new tech the firm can free up capital for other purposes). . Reduces the firm’s training cost and expertise requirements. 4. Increases the firm’s flexibility (it can change suppliers as soon as the tech evolve or the economic landscape changes = inflation or exchange rate fluctuations). * But a firm which entirely relies on outside supplier may become overly dependent on those suppliers. In case of problem with the supplier it can greatly affects the firm’s operations. Sometimes the firms must make trade-offs (compromis) which reduce flexibility but might help in keeping good relations with its suppliers. 5. Explain the Gini Index (or Coefficient) and discuss how it is calculated and used. * Measures of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini in 1912. * Gini coefficient is a measure of the inequality of a distribution: * -a value of 0 total equality * -a value of 1 maximal inequality. * It has found application in the study of inequalities in diverse disciplines * Gini coefficients for income range from approximately 0. 23 (Sweden) to 0. 0 (Namibia) BUT not every country has been assessed. * Gini Coefficient is usually defined mathematically based on the Lorenz Curve which plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x% of the population * Line at 45 degrees represents perfect equality of incomes (Gini=0) * Gini Index: ratio of the area that lies between the line of equality and the Lorenz curve (marked ‘A’ in the diagram) over the total area under the line of equality.
So: G= A/(A+B) * Low Gini coefficient indicates a more equal distribution, with 0 corresponding to complete equality, * High Gini coefficients indicate more unequal distribution, with 1 corresponding to complete inequality * Most unequal society will be one in which a single person receives 100% of the total income and the remaining people receive none (G=1). The most equal society will be one in which every person receives the same income (G=0). * * Developed European nations and Canada tend to have Gini indices between 0. 24 and 0. 36 Equal Income Distribution * The US’ and Mexico’s Gini indices are both above 0. 0, indicating that the US and Mexico have greater inequality. Using the Gini can help quantify differences in welfare and compensation. * However, Gini coefficient can be misleading when used to make political comparisons between large and small countries. * Gini index for the entire world is: 0,56 ; G ; 0,66 * Simplicity of Gini Index comparison across diverse countries and of income distributions across time, various geographic regions , etc. * Advantage: 4 principles * -Anonymity: it does not matter who the high and low earners are. -Scale independence: Gini index doesn’t consider the size of the economy. * -Population independence: doesn’t matter how large the population of the * country is. * -Transfer principle: if income (less than the difference), is transferred from a rich person to a poor person the resulting distribution is more equal. * Limitations: * Relative nature: Absolute national and personal incomes are on the * same level. * Countries may have identical Gini coefficients, but differ greatly * in wealth. * It does not address causes: income equality may reflect differences in * opportunity, or capability.
For example, some countries may have a social * class structure barriers to upward mobility OR some people may * have more skills than others. 6. When presented with a scenario, indicate how one might act according to various approaches to Social Responsibility. 1. Obstructionist Stance/Reactive social responsibility strategy: will deny responsibility while striving to maintain the status quo. This strategy has been a favorite one for the tobacco industry, intent on preventing any legal liabilities linkage between smoking and cancer.
When European countries showed signs of adopting US-style bans on secondhand smoke, Philip Morris launched a rather odd reactive strategy. When they cross the line, they avoid/deny accepting responsibilities for their actions. 2. Defensive Stance: A defensive social responsibility strategy uses legal maneuvering and/or public relations to avoid assuming additional responsibilities. Do everything that is required legally but nothing more, generally admit mistakes and correct them. 3. Accommodative Stance: The organization must be pressured into assuming additional responsibilities when it follows an accommodative social esponsibility strategy. Some outside stimulus, such as pressure from a special-interest group or threatened government action, is usually required to trigger an accommodative strategy. Example of Staples that changed its supply norms after protest against them. Meets the ethical and legal requirements and will go beyond these requirements 4. Proactive Stance: A proactive social responsibility strategy involves taking the initiative with a progressive program that serves as an inspiring role model for the industry.
Example of Patagonia in the sportswear industry, who introduced organic cotton, this idea was then used by Nike and the Gap. * 7. The five level of economic integration * We distinguish 5 levels of economic integration, here given in order of ascending degree of integration : Free Trade Area : it encourages trade among its members by eliminating trade barriers (tariffs, quotas, NTBs) =; Ex : NAFTA Problem : in a Free Trade Area members are allowed to establish their own policies toward non-members. Thus, the Free Trade Area is vulnerable to Trade Deflection.
To prevent such thing most free trade agreements specify Rules of origins. (A good would benefit a preferential treatment only if it processed or assembled in members countries). Customs Union: free trade are policy + common external trade policies toward non-members. (avoids trade deflection) =; Ex : historically, Zollverein between German former principalities. Nowadays, Mercosur (common external tariffs, includes Argentina, Paraguay, Uruguay, Brazil and since 2006 Venezuela as full members + associate members).
Common Market : customs union policy + members also eliminate barriers that restrict movement of factors of production such as labor, capital and technology. Workers may move from their homeland, firms may locate facilities, invest and utilize their tech anywhere within the common market. Goal =; Increase Productivity because Factors of production are free to locate where the returns to them are highest. =; Ex : European Economic Area (goal of the 1957 Treaty of Rome, became effective after the signature of the 1986 Single European Act) Problem : Increases competition because firms can compete within the all market.
Involves problems of Harmonization and mutual recognition. Economic Union : Common market policy + full integration of members economies by coordinating their economic policies (monetary, fiscal, taxation, social welfare programs) =; Ex : Members of the EU which have adopted a common currency, the euro. Political Union : By estabilishing complete political and economical integration, the union effectively become one single country. =; Ex : Formation of the USA from the 13 colonies.
Economic integration leads firms to capture Economies of Scale and Economies of Scope. 8.. List and explain the 4 strategic alternatives multinational corporations may adopt in their attempt to balance the 3 sources of a firm’s international competitive advantage. What determines which strategy is appropriate? The 3 sources of a firm’s international competitive advantage: * Global efficiencies: They can capture location efficiencies by locating facilities where there are the lowest production costs (ex. Shoe wear with Nike).
They can lower their production costs by capturing economies of scale (to benefit from economy of scale). Finally firms can enjoy economies of scope by lowering their production and marketing costs while enhancing their bottom line (the model evolves and broadens itself with reputation) * Multinational flexibility: Multinational companies have to deal with multiple diverse and changing environments; this allows them to apply the changes that were necessary in one country to another one at the same time.
More able to exploit and respond to changes and differences in their operating environment. * Worldwide learning/organizational learning: Learn from the mistakes and successes of the different operations in other countries. The four strategic alternatives are * Home replication strategy: a firm utilizes the core competency of firm-specific advantage it developed at home as its main competitive weapon in the foreign market it enters (ex. Of Mercedes-Benz that relies on a brand name and good reputation).
When the pressures for global integration and the need for local responsiveness are low (like Walmart who have the same strategy everywhere) * Multidomestic strategy: a multidomestic corp views itself as a collection of relatively independent operating subsidiaries each of which focuses on a specific domestic market. This is particularly effective were they are clear differences among national markets, when the economies of scale of production, distribution and marketing are low; and when the costs of coordination between the parent corp and its various foreign subsidiaries are high.
When the need to respond to local conditions is high, but the pressures for global integration are low (used by most brand-name food) * Global strategy: a global corp views the world as a single marketplace and has as its primary goal the creation of standardized goods and services that will address the needs of customers worldwide When the pressure for global integration are high but the need for local responsiveness is low (electronic firms like Sony, touches everyone, built with global target) * Transnational strategy: the transnational corp attempts to combine the benefits of global scale efficiencies such as those pursued by a global corp, with the benefits and advantages of local responsiveness, which is the goal of a multidomestic corp. Most of the time they centralize the main management functions and decision making at corp’s headquarters. Considerable attention on integration and coordination between the various subsidiaries. When pressures for global integration and local responsiveness are both high (like car companies such as Ford: adapt the style to the country and keep a global image) * 9. The organization of the EU * * Governing Organizations of the EU * The EU’s members are sovereign nations that have agreed to cede certain of their powers to the EU.
The EU can be characterized both as an “intergovernmental government” (because it is a government of national governments) and as a “supranational government” (because it exercises power above the national level). The EU is governed by four organizations that perform its executive, administrative, legislative, and judicial functions: * The Council of the European Union (headquartered in Brussels, Belgium)is composed of 25 representatives, each selected directly by and responsible to his or her home government. * The European Commission (also based in Brussels)is composed of 25 people, one from each member state, selected for five-year terms. The Commission’s primary mandate is to be the “guardian of the Treaties. The Commission also acts as the EU’s administrative branch and manages the EU’s $130 billion annual budget. * The European Parliament (normally meets in Strasbourg, France)currently comprises 732 representatives elected in national elections to serve five-year terms. The European Parliament shares responsibility for adopting the EU’s budget with the European Commission: BUT not enough diplomatic power. * The European Court of Justice(sitting in Luxembourg) consists of 25 judges who serve six-year terms. The judges are selected jointly by the governments of the member states. The Court interprets EU law and ensures that members follow EU regulations and policies. * * The Co-Decision Procedure: The legislative process in the EU: “the Commission proposes, the Parliament advises, and the Council disposes. ” * As the Parliament has gained increased powers, the complexity of passing legislation has increased exponentially. * The co-decision procedure is used in such areas as education, environmental protection, health, consumer policy, and free movement of workers. On issues where the co-decision process is not used, the process is simpler and the Parliament’s power is weaker. * * Both Treaties of Maastricht (1993), of Amsterdam (1997)and of Nice (2002) attempted to reinforce the Parliament’s strength in the European decision making and co-Decision Procedure BUT the Legislative Process in the EU is currently much too sophisticated.
