1
Solution Manual For
International Business A Managerial Perspective, Global Edition, 9th edition Ricky W. Griffin
Michael Pustay
Chapters 1-19
Chapter 1
Chapter Objectives
After studying this chapter, students should be able to:
1. Discuss the meaning of international business.
2. Explain the importance of understanding international business.
3. Identify and describe the basic forms of international business
activities.
4. Discuss the causes of globalization.
LECTURE OUTLINE
OPENING CASE: The Business of the World Cup
The opening case explores the relationship between international business and the FIFA
World Cup. The World Cup tournaments embody international business as it contains
participants and stakeholders across the globe, is highly competitive, and involves
transactions between parties with vested interests who stand to benefit in different ways.
In this regard, it can be used to show both the pros and cons of the mechanisms of
international business.
Key Points
The FIFA World Cup represents a global machine of intensive international
business, with participants, decisionmakers, and stakeholders spread across the
globe.
The Fédération Internationale de Football Association (FIFA) governs the World Cup
tournaments and an executive committee takes the ultimate decision on which
nation will host the tournament after a fiercely competitive bidding process.
Each nation makes a presentation to the FIFA committee on why they should be the
next host and commit to developing their infrastructure and facilities as outlined by
FIFA.
Being hosted in different cities is important for the World Cup as it is part of FIFA‘s
mission statement to spread football beyond Europe and South America. The host
city also provides the facilities, workforce, and organizational support.
Hosting the World Cup also gives a boost to tourism, leads to developments in
infrastructure, and a global spotlight that can spearhead significant economic gains.
FIFA makes money off the World Cup by selling the broadcasting rights and
advertising rights at a premium, and through corporate sponsorship.
, There has been criticism on FIFA‘s business model, which makes the host nation
foot a multi-billion-dollar bill while collecting billions in profits.
The fairness of the bidding process has also undergone some controversy and
criticism has been aimed at cases of bribery and the general lack of transparency in
the executive committee.
Additional Case Application
An exercise that can help the students make the connection between the football World
Cup and international business is to ask them to imagine the FIFA World Cup without
the involvement of corporations. Students can form groups and analyze organizing a
World Cup tournament from the perspective of the different stakeholders: athletes, host
nation government, FIFA executive committee, local businesspeople, local resident, etc.
CHAPTER SUMMARY
Chapter One introduces the topic of international business by initially asking ―what is
international business‖ and then moving on to ask ―why is it important to study
international business?‖ The chapter then provides an introductory definition and
explanation of some of the basic international business terminology, such as importing,
exporting, and multinational corporation.
The chapter moves on to explore the evolution of international business going back to
2000 B.C. examining major developments that have resulted in the growth and
maturation of international business as we know it today. The chapter concludes with an
overview of the text.
WHAT IS INTERNATIONAL BUSINESS?
International business involves any business transaction between parties from
more than one country. It includes such activities as buying and selling raw
materials, inputs or finished products across borders, operating plants in other
countries to take advantage of local resources, and borrowing money in one country
to finance operations in a second country.
International business is different from domestic business in that it necessarily
involves transactions that cross national borders while domestic business does not.
Thus, at least one party will have to adjust to a different legal, economic, and cultural
system; convert its currency into the other party‘s currency; and make changes in
how products are produced or the types of products that are produced.
Teaching Note:
Instructors may wish to pause for a moment at this point and ask
students why a particular foreign company chose to invest in the
United States. It is helpful to choose a company that is in the local area; however,
some well-known examples that should also generate good discussion include
Honda, Sony, and Nissan. While students probably won‘t pick up on the finer points
of why the investments were made, the question should at least get them to think
about international business, and the question can be raised again later in the
course.
, 3
BRINGING THE WORLD INTO FOCUS
Borders Do Matter
This section points out that, despite previous expert predictions of a
boundaryless world, boundaries and borders do matter. That reality impacts all
aspects of international business, including, legal systems, political systems,
social structures, cultural values, taxes, labor, land and other resources. The
CAGE System developed by Pankaj Ghemawat provides a useful framework for
understanding the operating challenges facing international business because of
these national differences: 1) Cultural distance, 2) Administrative distance,
3) Geographic distance, and 4) Economic distance.
WHY STUDY INTERNATIONAL BUSINESS?
Teaching Note:
It is interesting to ask the question ―why study international
business?‖ before actually discussing the material in the text.
Instructors will probably find that, with a little prompting, students will eventually
come up with all or most of the reasons listed below.
Students need to study international business for a number of different reasons.
First, students will almost certainly work for a company that is either foreign
owned, domestically owned but has some foreign operations, or domestically
owned but is affected by the global economy. Thus, if students are to be
successful and productive in their careers, it is important that they understand at
least the basics of why companies conduct business across borders. Secondly,
since even small businesses are becoming more active in the international
business environment through activities such as buying and supplying
components, students who are planning to start their own businesses should also
be cognizant of international business.
Cultural literacy is another reason for studying international business. Because
business today often means international business, it is critical that students
develop the type of cultural literacy that will enable them to be conversant with the
global economy and international marketplaces. Furthermore, students who fail to
develop such skills will find themselves losing ground to their future ―competitors‖
(students, particularly those from Europe and Japan, who have learned multiple
languages, have had job experiences in other countries and traveled widely).
Finally, since not all business techniques and tools are developed in the United
States, students need to study international business so that they are aware of
developments taking place in other parts of the globe, such as the use of just-in-
time (JIT) systems.
INTERNATIONAL BUSINESS ACTIVITIES
International business can take various forms. Exporting involves selling products
made in one‘s own country for use or resale in other countries. Importing involves
buying products made in other countries for use or resale in one‘s own country.
Many companies begin their international operations with either importing or
exporting since the risk involved is minimal.
, Merchandise exports and imports refers to trade in goods (also known as visible
trade) while service exports and imports refers to trade in intangible products
(also known as invisible trade). See Figure 1.1 (Exports of Goods and Services as
a Percentage of GDP for Some Key Countries) here.
Exporting is important to both large and small firms. For example, the text notes
that in a normal year, 70 percent of Boeing‘s commercial aircraft sales, which
generated $57 billion of revenue in 2017, are to foreign customers creating tens of
thousands of jobs, and that Task Force Tips, a small Indiana manufacturer of fire
hose nozzles, exports its specialized products to 100 countries.
BRINGING THE WORLD INTO FOCUS
The Early Era of International Business
International business has been around for centuries. In fact, its origins can be
traced back as far as 2000 B.C. to the trading that took place between North
African tribes and parts of the Middle East. Greece and the Roman Empire owe
part of their early prosperity to international trade and its associated political and
military power. Some significant trading relationships that endure today were
developed during the Middle Ages.
The colonization of America, brought about in part because important
trading routes to the Middle East were cut off when the Turks conquered
Constantinople, brought new trading avenues, particularly with Europe.
During the colonial period and the subsequent Age of Imperialism, foreign
direct investment and multinational companies grew rapidly as Europeans invested
in their colonial empires in America, Asia, and Africa. The invention of the steam
engine, and its associated low cost transportation, further encouraged foreign
investments in the nineteenth century.
International investments, in which residents of one country supply capital to those
of a second country, constitute the second major form of international business
activity. Foreign direct investments (FDI) are investments made for the purpose of
actively controlling property, assets, or companies located in foreign host countries.
The country from which the investment flows is referred to as the home country.
The country to which the investment flows is referred to as the host country.
Portfolio investments involve purchases of foreign financial assets (stocks, bonds,
certificates of deposit) for purposes other than control.
Other forms of international business activity. A licensing agreement allows a
firm in one country to use all or some of the intellectual property of a firm in a second
country in exchange for a royalty payment. A franchising agreement allows a firm in
one country to use 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 agrees to operate facilities or provide
other management services for an agreed-upon fee.
There are several ways to describe the extent of a firm‘s international orientation. At the
broadest level is the international business: an organization that engages in commercial
transactions with individuals, private firms, or public sector organizations that cross
borders. The term multinational corporation (MNC) is used to identify firms with
Solution Manual For
International Business A Managerial Perspective, Global Edition, 9th edition Ricky W. Griffin
Michael Pustay
Chapters 1-19
Chapter 1
Chapter Objectives
After studying this chapter, students should be able to:
1. Discuss the meaning of international business.
2. Explain the importance of understanding international business.
3. Identify and describe the basic forms of international business
activities.
4. Discuss the causes of globalization.
LECTURE OUTLINE
OPENING CASE: The Business of the World Cup
The opening case explores the relationship between international business and the FIFA
World Cup. The World Cup tournaments embody international business as it contains
participants and stakeholders across the globe, is highly competitive, and involves
transactions between parties with vested interests who stand to benefit in different ways.
In this regard, it can be used to show both the pros and cons of the mechanisms of
international business.
Key Points
The FIFA World Cup represents a global machine of intensive international
business, with participants, decisionmakers, and stakeholders spread across the
globe.
The Fédération Internationale de Football Association (FIFA) governs the World Cup
tournaments and an executive committee takes the ultimate decision on which
nation will host the tournament after a fiercely competitive bidding process.
Each nation makes a presentation to the FIFA committee on why they should be the
next host and commit to developing their infrastructure and facilities as outlined by
FIFA.
Being hosted in different cities is important for the World Cup as it is part of FIFA‘s
mission statement to spread football beyond Europe and South America. The host
city also provides the facilities, workforce, and organizational support.
Hosting the World Cup also gives a boost to tourism, leads to developments in
infrastructure, and a global spotlight that can spearhead significant economic gains.
FIFA makes money off the World Cup by selling the broadcasting rights and
advertising rights at a premium, and through corporate sponsorship.
, There has been criticism on FIFA‘s business model, which makes the host nation
foot a multi-billion-dollar bill while collecting billions in profits.
The fairness of the bidding process has also undergone some controversy and
criticism has been aimed at cases of bribery and the general lack of transparency in
the executive committee.
Additional Case Application
An exercise that can help the students make the connection between the football World
Cup and international business is to ask them to imagine the FIFA World Cup without
the involvement of corporations. Students can form groups and analyze organizing a
World Cup tournament from the perspective of the different stakeholders: athletes, host
nation government, FIFA executive committee, local businesspeople, local resident, etc.
CHAPTER SUMMARY
Chapter One introduces the topic of international business by initially asking ―what is
international business‖ and then moving on to ask ―why is it important to study
international business?‖ The chapter then provides an introductory definition and
explanation of some of the basic international business terminology, such as importing,
exporting, and multinational corporation.
The chapter moves on to explore the evolution of international business going back to
2000 B.C. examining major developments that have resulted in the growth and
maturation of international business as we know it today. The chapter concludes with an
overview of the text.
WHAT IS INTERNATIONAL BUSINESS?
International business involves any business transaction between parties from
more than one country. It includes such activities as buying and selling raw
materials, inputs or finished products across borders, operating plants in other
countries to take advantage of local resources, and borrowing money in one country
to finance operations in a second country.
International business is different from domestic business in that it necessarily
involves transactions that cross national borders while domestic business does not.
Thus, at least one party will have to adjust to a different legal, economic, and cultural
system; convert its currency into the other party‘s currency; and make changes in
how products are produced or the types of products that are produced.
Teaching Note:
Instructors may wish to pause for a moment at this point and ask
students why a particular foreign company chose to invest in the
United States. It is helpful to choose a company that is in the local area; however,
some well-known examples that should also generate good discussion include
Honda, Sony, and Nissan. While students probably won‘t pick up on the finer points
of why the investments were made, the question should at least get them to think
about international business, and the question can be raised again later in the
course.
, 3
BRINGING THE WORLD INTO FOCUS
Borders Do Matter
This section points out that, despite previous expert predictions of a
boundaryless world, boundaries and borders do matter. That reality impacts all
aspects of international business, including, legal systems, political systems,
social structures, cultural values, taxes, labor, land and other resources. The
CAGE System developed by Pankaj Ghemawat provides a useful framework for
understanding the operating challenges facing international business because of
these national differences: 1) Cultural distance, 2) Administrative distance,
3) Geographic distance, and 4) Economic distance.
WHY STUDY INTERNATIONAL BUSINESS?
Teaching Note:
It is interesting to ask the question ―why study international
business?‖ before actually discussing the material in the text.
Instructors will probably find that, with a little prompting, students will eventually
come up with all or most of the reasons listed below.
Students need to study international business for a number of different reasons.
First, students will almost certainly work for a company that is either foreign
owned, domestically owned but has some foreign operations, or domestically
owned but is affected by the global economy. Thus, if students are to be
successful and productive in their careers, it is important that they understand at
least the basics of why companies conduct business across borders. Secondly,
since even small businesses are becoming more active in the international
business environment through activities such as buying and supplying
components, students who are planning to start their own businesses should also
be cognizant of international business.
Cultural literacy is another reason for studying international business. Because
business today often means international business, it is critical that students
develop the type of cultural literacy that will enable them to be conversant with the
global economy and international marketplaces. Furthermore, students who fail to
develop such skills will find themselves losing ground to their future ―competitors‖
(students, particularly those from Europe and Japan, who have learned multiple
languages, have had job experiences in other countries and traveled widely).
Finally, since not all business techniques and tools are developed in the United
States, students need to study international business so that they are aware of
developments taking place in other parts of the globe, such as the use of just-in-
time (JIT) systems.
INTERNATIONAL BUSINESS ACTIVITIES
International business can take various forms. Exporting involves selling products
made in one‘s own country for use or resale in other countries. Importing involves
buying products made in other countries for use or resale in one‘s own country.
Many companies begin their international operations with either importing or
exporting since the risk involved is minimal.
, Merchandise exports and imports refers to trade in goods (also known as visible
trade) while service exports and imports refers to trade in intangible products
(also known as invisible trade). See Figure 1.1 (Exports of Goods and Services as
a Percentage of GDP for Some Key Countries) here.
Exporting is important to both large and small firms. For example, the text notes
that in a normal year, 70 percent of Boeing‘s commercial aircraft sales, which
generated $57 billion of revenue in 2017, are to foreign customers creating tens of
thousands of jobs, and that Task Force Tips, a small Indiana manufacturer of fire
hose nozzles, exports its specialized products to 100 countries.
BRINGING THE WORLD INTO FOCUS
The Early Era of International Business
International business has been around for centuries. In fact, its origins can be
traced back as far as 2000 B.C. to the trading that took place between North
African tribes and parts of the Middle East. Greece and the Roman Empire owe
part of their early prosperity to international trade and its associated political and
military power. Some significant trading relationships that endure today were
developed during the Middle Ages.
The colonization of America, brought about in part because important
trading routes to the Middle East were cut off when the Turks conquered
Constantinople, brought new trading avenues, particularly with Europe.
During the colonial period and the subsequent Age of Imperialism, foreign
direct investment and multinational companies grew rapidly as Europeans invested
in their colonial empires in America, Asia, and Africa. The invention of the steam
engine, and its associated low cost transportation, further encouraged foreign
investments in the nineteenth century.
International investments, in which residents of one country supply capital to those
of a second country, constitute the second major form of international business
activity. Foreign direct investments (FDI) are investments made for the purpose of
actively controlling property, assets, or companies located in foreign host countries.
The country from which the investment flows is referred to as the home country.
The country to which the investment flows is referred to as the host country.
Portfolio investments involve purchases of foreign financial assets (stocks, bonds,
certificates of deposit) for purposes other than control.
Other forms of international business activity. A licensing agreement allows a
firm in one country to use all or some of the intellectual property of a firm in a second
country in exchange for a royalty payment. A franchising agreement allows a firm in
one country to use 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 agrees to operate facilities or provide
other management services for an agreed-upon fee.
There are several ways to describe the extent of a firm‘s international orientation. At the
broadest level is the international business: an organization that engages in commercial
transactions with individuals, private firms, or public sector organizations that cross
borders. The term multinational corporation (MNC) is used to identify firms with
