Homework assignment 1

Lucia Vitazkova
MC 573 – International Business
Mr. Johan Winbladh
Course Review Assignment 1
April 15, 2008
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Homework Assignment 1
Chapter 1: Question no. 5

Would you want to work for a foreign-owned firm? Why or why not?

The answer on this question is positive. I have a work experience in either

foreign-owned company and also for domestic company. Both have positive as well as
negative points. However, to compare, to work for MNC was more interactive and it
brought me wider view on the business world. For two years I worked for Swedish
division called Emerson energy systems of American corporation Emerson. My division
was responsible for supplies of telecommunication equipment worldwide.
My position of customer order coordinator required my cooperation with all
departments within the company, divisions in Sweden, suppliers and customers mainly
from Arabic countries. Therefore, it was interesting to be part of company that has
organized supply chain worldwide in order to use its resource allocation as much as
possible. Moreover, the work in international team makes people better understand
different cultures, approaches and attitudes. Open communication and tolerance was the
only way to overcome internal problems. In addition, foreign managers needed to
interconnect its domestic cultural habits with company culture as well as with Slovak
culture.

Chapter 2: Question no. 2

Many American and European businesspeople argue that the keiretsu system
in Japan acts as a barrier to foreign companies entering the Japanese market. Why
do you think they believe this?

According to the Wikipedia “a keiretsu, keiretsu is a set of companies with

interlocking business relationships and shareholdings. It is a type of business group”
(Wikipedia, n.d.) The character of these groups is to cooperate, to support and supply
each company within the group in order to protect companies from growing world
competition. Japanese businesses in keiretsu protect domestic market from foreign
investments and inflow of competitors. From Japanese point of view, there is high level
of business protection. Moreover, the cultural aspect of Japan is important to mention.
Japanese culture is high context culture where decision making process is within the
group and loyalty to business group is on very high level of the scale. (Griffin, Pustay,
2005) Therefore, these groups are viewed as positive.
On the other hand, foreign businesses those want to enter the Japanese market feel
discrimination because these “cultural” barriers have no formal form such as NAFTA or
other trade organizations; therefore, it is hard to negotiate. Foreign investors entering
Japanese market need to face cultural barrier, while Japanese companies face “only”
formal barriers. That is why American and European businesspeople feel keiretsu as the
barrier with no way to overcome.

Chapter 3: Question no. 2

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Homework Assignment 1
What is the impact of vigorous enforcement of intellectual property rights on
the world economy? Who gains and who loses from strict enforcement of these
laws?

There are many legal forms and organizations that protect intellectual property
rights. However, protection of these rights is endangered with expansion and
development of technique. Protection of “intangible property rights that include patents,
copyrights, trademarks, brand names, and trade secrets” is dependent on the legal system
of the country, ability of the country to watch and to sentence the violation with adequate
penalty. Development of the Internet started up the boom of violation of these rights.
Piracy copies of music, movies, books, and other intellectual properties distributed on the
internet bring big loses to the owners. On the other hand, the consumer gains.
In spite of the fact that there are internationally agreed documents of protection of
these laws, not every country signed these documents. For example, Chinese producers
are able to copy anything. Whole world is supplied by illegal copies of every kind of
product daily. On the other hand, it has to be transported by the sea or air. Therefore,
forwarders gains, illegal producers gain, people who buy it also gain. Even though there
are few controls made by each importing country, there is no law that could secure
original producers from copies or abuse of business trade mark.

Chapter 4: Question no. 2

How can international business people avoid relying on the self- reference
criterion when dealing with people from other countries?

The globalization of the world business environment brought new view on the
cultural influence on the business and importance of cultural interaction. The character of
daily business routine consists of close cooperation of different nations and different
cultures. It’s not only language or business habits, but it is also religion, age, time zone
and many other aspects that influences business.
For today’s managers or businesspeople in general it is vital to know what the
cultural background of the business partner is. Very important is to listen and watch the
gestures and mimics, read the non- verbal language of the partner and to “translate” it to
words. However, it is more than important to understand the meaning of verbal and non-
verbal communication of business partner with different cultural background in order to
avoid misunderstanding. Relying on the self- reference criterion, in other words,
understanding different culture based on self- culture is the worst thing that
businessperson can make. Business people should know the culture of business partner
and to communicate in order to make issues clear. However, sometimes it is hard. Good
example can be meeting of high context culture Japanese partner and low context culture
German partner. Japanese would understand German factual speech while German needs
to understand the context in which the message is hidden when Japanese communicate.

Chapter 5: Question no.

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Homework Assignment 1
Do you think that social responsibility for a multinational corporation is
something best managed locally or best managed globally?

Social responsibility of internationally operating companies should be

combination of both. First, the social responsibility should be involved in the company
culture. Only after that can company provide and behave socially on the local market.
Social responsibly and specific actions depends on the local operations and preferences of
the company. For example, one corporation operating in different continents or even
countries need to manage its social responsibility locally.
The local management of social responsibility of the company helps company
better understand local environment, area character and culture. Different preferences of
people or officials in the place of operations of the company defines the social
responsibility strategy and activities.

Chapter 6: Question no. 4

Hyundai decided to build a new automobile assembly plant in Alabama.

A, What factors do you think Hyundai considered in selecting Alabama as the site
for the factory?
Each FDI decision is based on analysis of several factors. This specific company
decided based on following:
• location – new customer access, infrastructure
• brand awareness
• supply chain availability
• production costs compared to purchasing power of Americans
• Trade barriers for importing the finished goods to the U.S.
All these factors could be important when deciding to invest to the new production
plant USA.

B, Who benefits and who loses from the new plant in Alabama?
Investments to new plants are done in order to bring higher profits. Therefore,
first who should gain is investing company. Moreover, the company creates new jobs for
local people in form of new positions within the company, new possibilities for suppliers
and even during the construction process. Consumer’s gain in form of cheaper products
on the market (not every time) and better service availability (easier access to supplies).
Possible loses can be case of competition. In this specific case it could be
American producers of the cars. There is high possibility of outflow of skilled labor
motivated be higher salaries and social bonuses. Next loss is new competitor on the
market (what is the case of American car market) with strong investment basement.

C, Is the firm’s decision to build the new plant consistent with Dunning’s eclectic
theory?
The company definitely follows first condition of theory in terms of the benefits
of economies of scale and ownership of proprietary technology. Investment in new plant
and availability of resources decreases production costs. Moreover, Korean production
costs and technology are much cheaper comparing to the U.S. producers.
Also second condition is fulfilled. By investing to the new plant the U.S. the
company is able to use already skilled labor and avid high import tariffs on goods
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Homework Assignment 1
produced out of USA what decreases company costs. Moreover, the access to the
consumers is better.
Definitely, Hyundai’s decision follows also the third condition. To rely on the
contractual sales places and services would not be profitable for the company. Strong
automobile market as in USA requires direct control of sales and services; therefore, it is
important to be closer to the consumer.

Chapter 7: Question 2

Did the key role that the dollar played in Bretton Woods system benefit or
hurt the United States?

The key role of the dollar was initially good idea to start- up world economics
after world wars; however, it hurt the U.S. economics and monetary system. Different
supporting aid programs for Europe encouraged outflow of U.S. dollars to support
countries fighting socialist revolutions and many pro- U.S. regimes worldwide. People
believed in U.S. currency; however, it brought many problems. This belief of people in
dollars increased demand for purchase and people increased holdings of this currency. As
a paradox, the more dollars were out of U.S., the less reliable the currency was. This
situation is known as the Triffin paradox. (Griffin, Pustay, 2005)
Initial idea of the U.S. was to use convertible financial system to support
developing economies to produce enormous profit. By supporting new developing
economies the U.S. planned to create new market for American products. Consequently,
these developing economies would support purchase from the countries of the Third
World that were under American control. (Bretton Wood System, n.d.) However, this
plan was not successful. After several unsuccessful corrective actions to keep the value of
the U.S. dollar tight to gold, the U.S. was forced to sell part of gold supplies in order to
keep the dollar value. Moreover, the dollar was devaluated and demand for other world
currencies increased in the financial markets.

Chapter 8: Question 3

Do you expect the U.S. dollar to maintain its position as the dominant
currency in the foreign- exchange market once the euro is fully established? Why or
why not?

Current situation on the foreign- exchange market tends to speculate about the
currency power of the U.S. dollar. The value of U.S. currency against euro is weaker.
Today’s exchange rate EUR/US dollar is 1: 1.5834 (Currency converter, 2008) The
current situation is caused by many economic factors. First, it is situation of the U.S.
economy that is in the recession. Nowadays, the U.S. faces mortgage crisis caused by
inability of people to pay the debts to banks and FED had to cut interest rate. Even
though the financial experts implement several operations to overcome the problem, the
U.S. currency is weaker than euro.
In spite of the fact that the U.S. currency is facing this situation, it still maintains
its position of financial language at the financial markets. All financial markets
(commodities, stock, or bonds) are traded in the U.S. dollars. Analysts and experts do not
expect the situation to change. “Analysts do not expect a change in language on
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Homework Assignment 1
currencies, with the focus most likely too be on the credit crisis, when the G7 releases its
communiqué” (Rodriques, 2008)

Chapter 9: Question 1

What are the advantages and disadvantages of an industrial policy?

Government intervention to the development of the industries and FDI to the

country is the questionable for many experts. On one hand, the government can define the
best strategy for development and concentration of country’s economics. On the other
hand, some experts believe that no ministry can define the right strategy or policy within
any industry of the country. In spite of these expert hesitations, almost each country’s
government uses its power to “regulate” the market of the country.
The advantages can be defined as support of internal (domestic) companies that
directly boost economic welfare of the country as well as key economic indicators.
Moreover, support of domestic government helps company to create pleasant
environment inside the company in order to concentrate on competitiveness on
international market.
The disadvantage of the government support of the specific industry is high risk
of political influence on the industry. Political influence, in other words the
interconnection between industry support and political lobby is hard to prove. No
politician would publicly state that he/her owns some shares in the supported company.
Due to this factor, the governmental intervention and role of the politics in the market
economy is more than risky.

Chapter 10: Question 3

Should international businesses promote or fight the creation of regional

trading blocks?

This question has no direct answer. It depends on many factors. It depends on the
character of the industry, in which the company belongs to, on the strategy of the
company as well as on the fact what the regional restrictions means to company.
Protecting regional trading blocks are beneficial to the internationally trading companies.
Those trading blocks that discriminates entering company to compete on new market
should not be present. Japanese market can be considered as a discriminating for other
business. Japanese keiretsu system is limiting international companies to enter the
market.
However, interstate regional trading blocks can be considered as positive for the
members. Mutual support and beneficial trading conditions supports also internationally
operating companies.

Chapter 11: Question 6

Why do relatively few international firms pursue a single- product strategy?

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International strategies followed by companies vary based on many factors. It can
be the vision of the company, competitive advantage, product or service uniqueness and
others. To choose the right international strategy is the core of the success of the
company that wants to operate in this global market. While some companies prefer to
diversify its production based on customer preferences, location and culture supported by
the cost advantage, others choose to follow single- product strategy. This strategy brings
advantages as well as many disadvantages.
The main advantage is the low cost of production. No or slight differentiation
benefits lies in decreased cost of R&D, resources allocation, supply chain, marketing
costs, and product portfolio. On the other hand, there are many disadvantages that
discourage companies from this strategy. First, it brings the risk of low brand awareness
on the international market. Only strong brand names as McDonald’s can afford to
maintain its similar product portfolio worldwide. Second, it is a risk of different customer
preferences and needs among customers worldwide. Third, it is a risk of technology
development that could be killing factor for a product. Great example can be a company
producing VCR’s that did not innovated production portfolio with DVD’s production as
in the book. (Griffin, Pustay, 2005) All these factors discourage producers from the
single- product strategy.

Chapter 12: Question no. 1

Do you think that it is possible for someone to make decision about entering
a particular foreign market without having visited that market? Why or why not?

Decision making process of entering a new market is a complex process based on

several factors. Company needs to analyze and evaluate many factors before final
decision is made. However, no multinational company bases its decision without visiting
a targeted country. Even though much information about the targeted market is freely
available, to visit the country is imperative.
Basic information such as currency stability, GDP, and other economic factors
can be evaluated at the headquarter. However, additional information defining country
character can be obtained only during the visit of the country. Entering company needs to
experience the culture, local preferences and character of the people. Moreover, the
company needs to be in touch with local officials, chamber of commerce representatives
and consulting company that can advise many important facts. (Griffin, Pustay, 2005)
Therefore, the company representative need to visit the country before entering in order
to based the analysis an all available information including character of the country.

Chapter 13: Question no. 7

Why would a firm decide to enter a new market on its own rather than using
a strategic alliance?

In spite of several experienced advantages of strategic alliance with local

company when entering new market, there are also disadvantages that this alliance
brings. As stated in Griffin & Pustay, 2005, it is a fear of incoherence with chosen
partner, limited access to information, possible conflicts in management and logistics,
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Homework Assignment 1
fear of loss of authority and many others. All these factors for some companies represents
major factor when deciding to create strategic alliance when entering new market.
Some companies that closely watch its production secret or other sensitive
information do not want to share it and undertakes the risk of lost secret. Moreover,
companies believe in its ability to analyze the new market in way that local, known
company is not needed.

Chapter 14: Question 4

Why is a global matrix design almost transitional in nature?

The global matrix design is popular organizational design of international

corporations. This kind of design allows for different functional departments to cooperate
on specific task at specific time frame. The matrix organization interconnects experts
from different areas in order to come up with new product or service. It is mostly used in
corporation from highly competitive industries e.g. information technology. Matrix teams
of experts can work without limitations of communication that supports flexibility of
team members.
Since the temporary character of matrix organization is the advantage on one
hand, it is also disadvantage on the other hand. Coordination and task fulfillment are the
most important aspects of these organizations. In addition, the responsibilities and
decision making process is limited and have to be clearly defined in order to prevent
chaos and deadline postponement.

Chapter 15: Question 1

Which do you think is a more powerful determinant of human behavior –

cultural factors or individual differences?

Everybody is different. This statement is known for decades. However, there are
also other experienced statements that say about the character of specific groups or
cultures. Mainly cultures are defined by specific common characteristics that make
generalizations for many times. Different cultures can be characterized by one adjective.
For example, Japanese can be considered as hard working, Spanish as temperament,
Slovaks as hospitable. However, this is very general statement. Also among Japanese you
would find lazy unemployed people. Therefore, the generalization should not be taken in
place.
Considering business behavior, I would say that dominant factor of human
behavior is individual differences. Especially in the world of globalization and
multicultural organization there are mainly personal characters and working abilities
determining the person’s behavior. The home culture creates only background on that
person can develop its personality.

Chapter 16: Question 1

What are the similarities and differences between domestic and international
marketing?
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Homework Assignment 1

The similarities of international and domestic marketing are based on 4 marketing

P’s. This is very first similarity in general. Both kinds are based on the idea of promoting
product to targeted market and to sell this product. The customer and target market in
general is the goal of both marketing strategies.
On the other hand, there are many differences. Very first is the cultural influence
to the marketing strategy that differs in every aspect. Globally operating company needs
to analyze current market situation in each cultural region separately in order to develop
and apply specific marketing strategy. However, very important is to keep the initial idea
of the product or service in spite of the different marketing strategy. With the different
markets differs also 4 P’s. The company needs to adapt these P’s to targeted market.

Chapter 17: Question 6

List 10 products you use for which quality is important in your purchasing
decision. Which countries, if any, have reputations (good or bad) for each of these
particular products?

– car should be responsible and safe- Japanese cars are high quality products, Indian
cars are considered bad quality
– bed, this product needs to be high quality while half of a human life is spent in
bed
– food products need to be high quality to supply enough nutrition
– electronics products- reliable nad lasting, safe
– watches- reliable and exact
– mobile phone
– cosmetics- preferred are French high quality cosmetics products based on expert
research
– clothing- natural materials that last
– alcohol- quality alcohol in proper quantities
– sport equipment

Chapter 18: Question 4

How does capital budgeting for international projects differ from that for
domestic products?

Investments of the companies are very sensitive and closely watched because of
limitation of the capital. Each company uses different approaches in order to analyze
possible investment. Investment capital budgeting evaluations methods used by
companies vary depending on the kind of investment and expected return.
Internationally operating companies need to analyze and evaluate more aspects of
new investment costs and revenues. First is choice of currency. To choose proper
currency in which the company would trade the project is important in order to secure
exchange rate changes. Moreover, exchange rate between currencies can be hedged to
prevent loss. However, operations with currencies in capital budgeting are very fragile. In
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Homework Assignment 1
capital budgeting of domestic project the risk with currency exchange is not the case. The
company can budget the project based on other approaches of project evaluations.

Chapter 19: Question 4

How can an international firm use transfer pricing to increase its after- tax
income?

The international firm uses transfer pricing often in order to maximize the after/
taxation profits. This method is legal; however, the ethics is not the issue of this question.
The basic principle of transfer pricing is to charge lower transfer prices in low tax
countries or raise transfer prices paid by division in high tax countries in order to secure
low taxes. Total summary of taxes from all subsidiaries is lowered.
This principle of decreased taxation automatically increases corporate after tax
income. Companies can use two methods of transfer pricing. First is market based
method called Market- Based transfer prices is based on principle of charging transfer
prices between one corporation subsidiaries based on open market prices. Second
method, the method of Non- market based transfer prices, uses the principle of negotiated
prices between subsidiaries of one corporations due to the fact that no real market exists
for such a products/ services. (Griffin, Pustay, 2005)

Chapter 20: Question 4

If you were being assigned to a foreign position, what specific training

requests would you make of your employee?

New position in within the company requires additional trainings in order to

develop personality to the level in that the employee can perform the most effective. New
position that requires work abroad requires also additional training of communication and
culture of host country. I would ask for training specified on communication skills and
training (education) of the host country culture. This is important because host country
would be a “home” for some time; therefore, the person should be prepared for that.
Moreover, additional training should be devoted to the specific position. What is
this new position? Is it managerial position? Do I need to develop or continue in some
project? Do I need to establish new subsidiary abroad? Depending on the position there
are many others training requests that need to be fulfileed.
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References

Bretton Wood System. (n.d.) Wikipedia. Retrieved April 14 17, 200 from
http://en.wikipedia.org/wiki/Bretton_Woods_system

Griffin, R. W. & Pustay, M. W. (2005) International business: A managerial perspective

(4th ed.). Upper Saddle River, NJ: Pearson Prentice Hall

Rodrigues, V. (2008, April 10) FOREX-Dollar rises from record lows vs euro, eyes
ECB. Reuters. Retrieved April 14, 2008 from
http://www.reuters.com/article/usDollarRpt/idUSN1033488320080410?pageNu
ber=2&virtualBrandChannel=0

Currency converter. (n.d.) Yahoo. Retrieved April 15, 2008 from

http://finance.yahoo.com/currency/convert?from=EUR&to=USD&amt=1&t=5y