1
Solution Manual International Business A Managerial
Perspective
An Overview of International Business
1-1 What is international business? How does it differ from domestic business?
International business involves any business transaction between parties from more than one
country. It differs from domestic business in that international business transactions cross
national borders while domestic transactions do not. More specifically, international business
involves foreign currency transactions for at least one party, it may require a company to adjust
to a foreign 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. (LO 1.1, AACSB: Communication Skills, Learning Outcomes: Define the
fundamental concepts of international business)
1-2 Why is it important for you to study international business?
There are at least five reasons why it is important to study international business. First,
students will probably work for a company with international operations or one that is affected
by the global economy. Second, students may actually work for a firm that is owned by a
corporation based in another country. Third, it is important to keep pace with future
“competitors” (other job seekers) who are well versed in international business. Fourth, it is
important to stay abreast of the latest business techniques and tools, which may actually be
developed outside of the United States. Finally, it is important to avoid cultural illiteracy, a
label given to those who are not conversant with the global economy and international
marketplaces. (LO 1.2, AACSB: Communication Skills, Learning Outcomes: Define the
fundamental concepts of international business)
1-3 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. Exporting involves selling
Copyright © 2015 Pearson Education, Inc.
, 2
products made in one’s own country for use or resale in other countries, while importing
involves buying products made in other countries for use or resale in one’s own country.
International investments include foreign direct investment and portfolio investments. Foreign
direct investments are investments made for the purpose of actively controlling property,
assets, or companies located in foreign host countries, while portfolio investment involves the
purchase of foreign financial assets, such as stocks, bonds, and certificates of deposit for
purposes other than control. A licensing agreement allows a firm in one country to use all or
some of the intellectual property of a firm in another country in exchange for a royalty payment.
A franchise agreement authorizes a firm in one country to utilize the brand names, logos, and
operating techniques 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 facilities
or provides other management services to a firm in another country for a fee. (LO 1.3, AACSB:
Communication Skills, Learning Outcomes: Define the fundamental concepts of international
business)
1-4 How do merchandise exports and imports and service exports and imports differ?
Merchandise exports and imports refer to trade in goods while service exports and imports
refer to trade in intangible products. The former is sometimes referred to as visible trade while
the latter is sometimes referred to as invisible trade. (LO 1.3, AACSB: Communication Skills,
Learning Outcomes: Define the fundamental concepts of international business)
1-5 What is portfolio investment?
Portfolio investments involve purchasing foreign financial assets such as stocks, bonds, and
certificates of deposit for purposes other than control. (LO 1.3, AACSB: Communication Skills,
Learning Outcomes: Define the fundamental concepts of international business)
1-6 What are the basic reasons for the recent growth of international business activity?
A number of factors have led to the recent growth of international business. The more
important factors include market expansion, resource acquisition, competitive forces,
technological change, and social change. Market expansion has led to growth in international
business as firms, facing saturated domestic markets, seek new market opportunities in other
countries. In some cases, firms will also 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 today’s marketplace also encourage the
Copyright © 2015 Pearson Education, Inc.
, 3
internationalization of business. When a firm’s competitors expand into new markets, that 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 adding to the growth of international
business. Social change is making it possible 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 markets, and are therefore more likely to seek out foreign-made products than
in the past. Finally, looser government trade and investment policies have made it easier for
international businesses to capitalize on growth opportunities in the global marketplace. (LO
1.4, AACSB: Communication Skills, Learning Outcomes: Discuss trends in and the debate
over globalization)
QUESTIONS FOR DISCUSSION
1-7 Why do some industries become global while others remain local or regional?
There are a number of factors that play a role in determining which industries become global,
which become regional, and which remain local. The airline industry, for example, is
considered a global industry. One of the main reasons for this status is the cost of developing
and producing large aircraft, combined with market size. The industry is “forced” to be global
because it must sell aircraft to a marketplace that is big enough to justify the costs of
developing and building new jets. No single country has a market big enough to justify such
costs, thus companies must seek customers around the globe. On the other hand, the bakery
industry tends to be regional or local because its products tend to perish very easily. While
improvements in transportation and shipping have created a larger marketplace, for the most
part, firms in this industry cater to local customers. From this brief discussion, it is clear that
factors such as cost, market size, and product life all play a role in determining which industries
will be global and which will not. However, it is important to recognize that many other factors
(for example, resource availability, government regulations, and similarity of customer taste)
also play a role in this determination. (LO 1.4, AACSB: Analytical Skills, Learning Outcomes:
Discuss trends in and the debate over globalization)
1-8 What is the impact of the Internet on international business? Which companies and which
countries will gain as Internet usage increases throughout the world? Which will lose?
The Internet has had a significant impact on international business in at least three ways.
First, the Internet facilitates international trade in services (e.g., banking, education, and
Copyright © 2015 Pearson Education, Inc.
, 4
retailing). Second, it has helped level the playing field between large and small firms entering
a foreign market, since even small firms can sell their products internationally on the Web.
Third, the Internet can make business-to-business transactions (e.g., bringing together
suppliers and buyers) much easier and more efficiently. (LO 1.4, AACSB: Analytical Skills,
Learning Outcomes: Discuss trends in and the debate over globalization)
1-9 Which markets are more important to international business – the traditional markets of North
America, the European Union, and Japan or the emerging markets? Defend your answer.
Clearly, the volume of business in the traditional markets is much greater than the volume in
emerging markets. However, as the traditional markets become saturated, opportunities for
growth will increasingly shift toward emerging markets. (LO 1.4, AACSB: Analytical Skills,
Learning Outcomes: Discuss trends in and the debate over globalization)
1-10 Does your college or university have any international programs? Does this make the
institution an international organization? Why or why not?
Students who attend a college or university that has international programs will probably find
this question interesting. Students who do not have international programs available to them
can still find the question worth considering if they use a little imagination. The text defines
international organizations to include public sector organizations that cross national borders.
With this definition in mind, a college or university could very well be considered an
international organization. However, it is important to consider the type of international
programs an institution has to offer. For example, one could argue that a university that simply
offers several courses that deal with international business is not an international organization
because the institution at that point does not cross borders (see definition above). In contrast,
it could be argued that a university that offers courses in international business and also offers
a student exchange program is an international organization because the missing element in
the previous example (of crossing borders) is fulfilled because of the exchange program. The
key point in this question, therefore, is to determine exactly when international programs make
a college or university an international organization. (LO 1.2, AACSB: Analytical Skills,
Learning Outcomes: Discuss trends in and the debate over globalization)
1-11 What are some of the differences in skills that may exist between managers in a domestic
firm and those in an international firm?
Copyright © 2015 Pearson Education, Inc.
Solution Manual International Business A Managerial
Perspective
An Overview of International Business
1-1 What is international business? How does it differ from domestic business?
International business involves any business transaction between parties from more than one
country. It differs from domestic business in that international business transactions cross
national borders while domestic transactions do not. More specifically, international business
involves foreign currency transactions for at least one party, it may require a company to adjust
to a foreign 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. (LO 1.1, AACSB: Communication Skills, Learning Outcomes: Define the
fundamental concepts of international business)
1-2 Why is it important for you to study international business?
There are at least five reasons why it is important to study international business. First,
students will probably work for a company with international operations or one that is affected
by the global economy. Second, students may actually work for a firm that is owned by a
corporation based in another country. Third, it is important to keep pace with future
“competitors” (other job seekers) who are well versed in international business. Fourth, it is
important to stay abreast of the latest business techniques and tools, which may actually be
developed outside of the United States. Finally, it is important to avoid cultural illiteracy, a
label given to those who are not conversant with the global economy and international
marketplaces. (LO 1.2, AACSB: Communication Skills, Learning Outcomes: Define the
fundamental concepts of international business)
1-3 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. Exporting involves selling
Copyright © 2015 Pearson Education, Inc.
, 2
products made in one’s own country for use or resale in other countries, while importing
involves buying products made in other countries for use or resale in one’s own country.
International investments include foreign direct investment and portfolio investments. Foreign
direct investments are investments made for the purpose of actively controlling property,
assets, or companies located in foreign host countries, while portfolio investment involves the
purchase of foreign financial assets, such as stocks, bonds, and certificates of deposit for
purposes other than control. A licensing agreement allows a firm in one country to use all or
some of the intellectual property of a firm in another country in exchange for a royalty payment.
A franchise agreement authorizes a firm in one country to utilize the brand names, logos, and
operating techniques 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 facilities
or provides other management services to a firm in another country for a fee. (LO 1.3, AACSB:
Communication Skills, Learning Outcomes: Define the fundamental concepts of international
business)
1-4 How do merchandise exports and imports and service exports and imports differ?
Merchandise exports and imports refer to trade in goods while service exports and imports
refer to trade in intangible products. The former is sometimes referred to as visible trade while
the latter is sometimes referred to as invisible trade. (LO 1.3, AACSB: Communication Skills,
Learning Outcomes: Define the fundamental concepts of international business)
1-5 What is portfolio investment?
Portfolio investments involve purchasing foreign financial assets such as stocks, bonds, and
certificates of deposit for purposes other than control. (LO 1.3, AACSB: Communication Skills,
Learning Outcomes: Define the fundamental concepts of international business)
1-6 What are the basic reasons for the recent growth of international business activity?
A number of factors have led to the recent growth of international business. The more
important factors include market expansion, resource acquisition, competitive forces,
technological change, and social change. Market expansion has led to growth in international
business as firms, facing saturated domestic markets, seek new market opportunities in other
countries. In some cases, firms will also 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 today’s marketplace also encourage the
Copyright © 2015 Pearson Education, Inc.
, 3
internationalization of business. When a firm’s competitors expand into new markets, that 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 adding to the growth of international
business. Social change is making it possible 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 markets, and are therefore more likely to seek out foreign-made products than
in the past. Finally, looser government trade and investment policies have made it easier for
international businesses to capitalize on growth opportunities in the global marketplace. (LO
1.4, AACSB: Communication Skills, Learning Outcomes: Discuss trends in and the debate
over globalization)
QUESTIONS FOR DISCUSSION
1-7 Why do some industries become global while others remain local or regional?
There are a number of factors that play a role in determining which industries become global,
which become regional, and which remain local. The airline industry, for example, is
considered a global industry. One of the main reasons for this status is the cost of developing
and producing large aircraft, combined with market size. The industry is “forced” to be global
because it must sell aircraft to a marketplace that is big enough to justify the costs of
developing and building new jets. No single country has a market big enough to justify such
costs, thus companies must seek customers around the globe. On the other hand, the bakery
industry tends to be regional or local because its products tend to perish very easily. While
improvements in transportation and shipping have created a larger marketplace, for the most
part, firms in this industry cater to local customers. From this brief discussion, it is clear that
factors such as cost, market size, and product life all play a role in determining which industries
will be global and which will not. However, it is important to recognize that many other factors
(for example, resource availability, government regulations, and similarity of customer taste)
also play a role in this determination. (LO 1.4, AACSB: Analytical Skills, Learning Outcomes:
Discuss trends in and the debate over globalization)
1-8 What is the impact of the Internet on international business? Which companies and which
countries will gain as Internet usage increases throughout the world? Which will lose?
The Internet has had a significant impact on international business in at least three ways.
First, the Internet facilitates international trade in services (e.g., banking, education, and
Copyright © 2015 Pearson Education, Inc.
, 4
retailing). Second, it has helped level the playing field between large and small firms entering
a foreign market, since even small firms can sell their products internationally on the Web.
Third, the Internet can make business-to-business transactions (e.g., bringing together
suppliers and buyers) much easier and more efficiently. (LO 1.4, AACSB: Analytical Skills,
Learning Outcomes: Discuss trends in and the debate over globalization)
1-9 Which markets are more important to international business – the traditional markets of North
America, the European Union, and Japan or the emerging markets? Defend your answer.
Clearly, the volume of business in the traditional markets is much greater than the volume in
emerging markets. However, as the traditional markets become saturated, opportunities for
growth will increasingly shift toward emerging markets. (LO 1.4, AACSB: Analytical Skills,
Learning Outcomes: Discuss trends in and the debate over globalization)
1-10 Does your college or university have any international programs? Does this make the
institution an international organization? Why or why not?
Students who attend a college or university that has international programs will probably find
this question interesting. Students who do not have international programs available to them
can still find the question worth considering if they use a little imagination. The text defines
international organizations to include public sector organizations that cross national borders.
With this definition in mind, a college or university could very well be considered an
international organization. However, it is important to consider the type of international
programs an institution has to offer. For example, one could argue that a university that simply
offers several courses that deal with international business is not an international organization
because the institution at that point does not cross borders (see definition above). In contrast,
it could be argued that a university that offers courses in international business and also offers
a student exchange program is an international organization because the missing element in
the previous example (of crossing borders) is fulfilled because of the exchange program. The
key point in this question, therefore, is to determine exactly when international programs make
a college or university an international organization. (LO 1.2, AACSB: Analytical Skills,
Learning Outcomes: Discuss trends in and the debate over globalization)
1-11 What are some of the differences in skills that may exist between managers in a domestic
firm and those in an international firm?
Copyright © 2015 Pearson Education, Inc.
