978-0134324838 Chapter 1 Solution Manual Part 1

● SUGGESTED SOLUTIONS TO CASE QUESTIONS

1-4. What is the nature of the international business environments Harley faces? What

types of risk does the firm face?

■ Domestic and international environment: complex and risky

■ All FOUR types of risks in international business are present:

Cross-cultural Risk

Harley-Davidson Motor Company and Buell Motorcycle Company collectively operate eight

■ Translation of HOG Mystique

Considering the cross-cultural risk category, one of Harley’s global challenges is their American

Country Risk (also known as political risk)

■ Chinese Market– With the opening of its third dealership in China during 2008, Harley faces a

large and potentially risky market.

Currency or Financial Risk

■ International Risk from Global Economic Contagion-

■ Harley-Davidson Financial Services [HDFS] – Interest Rate/Credit Exposure

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Commercial Risk

■ International/Domestic Business Risk- Changing Emission Standards

1-5. How can Harley benefit from expanding abroad? What types of advantages can the

firm obtain? What advantages acquired abroad can help Harley improve its performance

in its home market?

■ Harley has reduced its costs of R&D, manufacturing, and service by sourcing plants and other

operations in lower-cost locations such as Brazil and closer to target markets, in order to

1-6. How can Harley effectively compete with rivals from Japan and Europe? What

strategies should management apply to grow the firm’s sales in those regions?

■ The Harley icon is a powerful weapon. Advertising strategy should underscore its immense

global branding, yet employ local people.

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1-7. Competitors such as Lifan and Zongshen are beginning to emerge from China, where

they enjoy competitive advantages like low-cost labor and extensive experience with

emerging markets. How can Harley compete against such firms? Should Harley more

aggressively pursue emerging markets such as Brazil, China, and India? If so, what

strategies will help them succeed in those markets?

■ Global incumbents must leverage their advantages in terms of global efficiencies in order to

compete with global challengers indigenous to emerging, host markets.

Should Harley more aggressively pursue emerging markets such as Brazil, China, and

India? If so, what strategies will help Harley succeed in those markets?

■ One of the fundamental reasons for pursuing international markets is to rejuvenate the product

life-cycle (Vernon). Other reasons include (1) Seeking growth opportunities through market

diversification; (2) Earning higher profits; (3) Capitalizing on new products, services, and

1-8. Evaluate Harley’s environmental sustainability initiatives in the evolving regulatory

environment on global greenhouse gas. What advantages does Harley gain by attempting

to produce environmentally safe and sustainable products?

■ Like automobiles, motorcycles pollute the natural environment, and Harley is vulnerable to

regulatory sanctions because it manufactures very large bikes.

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■ These actions, and its recycling program, help align Harley’s actions with stakeholder

expectations and strengthen their brand, which is in fact builds Harley’s competitive

advantage.

V. END OF CHAPTER QUESTIONS

● TEST YOUR COMPREHENSION

 1-9. Distinguish between international business and globalization of markets.

Visit MyManagementLab for suggested answers.

1-10. What is the difference between exporting and foreign direct investment?

Level of commitment

 1-11. What makes international business different from domestic business?

Visit MyManagementLab for suggested answers.

1-12. What are the various types of risks that firms face when they conduct international

business?

Cross-cultural risk

■ Differences in language, lifestyles, attitudes, customs, and religion, where a cultural

miscommunication jeopardizes a culturally-valued mindset or behavior.

Country risk (also known as political risk)

■ Differences in host country political, legal and economic regimes may adversely impact firm

profitability.

Currency or financial risk

■ Risk of adverse exchange rate fluctuations, inflation and other harmful economic conditions

create uncertainty of returns.

Commercial risk

■ Less than optimal formulation and/or implementation of strategies, tactics or procedures, e.g.

partnering selections, market entry timing, pricing, product features, and promotional themes

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1-13. Who are the major participants in international business?

WHO PARTICIPATES IN INTERNATIONAL BUSINESS? (Four categories)

[1] Focal firm– The initiator of an international business transaction, which conceives, designs,

[2] Distribution channel intermediary– A specialist firm that provides various logistics and

[3] Facilitator– A firm or an individual with special expertise in banking, legal advice, customs

[4] Governments– (public sector) act as suppliers, buyers, and regulators.

◘ Russia, China, and Brazil – State-owned enterprises account for a substantial portion

◘ France, Australia, and Sweden– Governments in these advanced economies have

1-14. What is the difference between a multi-national enterprise (MNE) and a small and

medium-sized enterprise (SME)?

Multinational Enterprise (MNE):

■ Exhibit 1.8 provides a geographic distribution of the world’s leading MNEs. The size of each

circle represents total MNE revenues per country.

■ Born-global firms– young, entrepreneurial SMEs that initiate international business from

inception, and are found in both advanced economies as well as emerging markets such as

China and India.

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1-15. What are some of the key motivations for firms to engage in international business?

Firms internationalize seeking growth and profit opportunities to enhance competitive advantage.

Specifically:

A. Increase sales by seeking new markets and market diversification.

B. Earn higher margins and profits.

1-16. Why should you care about international business?

(LO 1.5; AACSB: Reflective thinking)

A Competitive Advantage

■ We are touched everyday by a variety of global business transactions.

● APPLY YOUR UNDERSTANDING

1-17. Richard Bendix is the marketing manager at a firm that makes and sells high-quality

prefabricated houses. He believes there is little difference between his homecountry

market and foreign markets, and that he can use the same methods for selling in Asia or

Latin America as he does in his home country. Write a memo in which you explain to

Richard the differences between domestic and international business. Explain the risks

and other differences that Richard’s firm will likely encounter if it expands abroad.

(LO 1.2; AACSB: Analytical Thinking)

TO: Richard

FROM: Myself

DATE: 07/07/15

RE: International vs. Domestic Business- Differences, Opportunities & Threats

Differences:

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1-18. Suppose that after graduation you get a job with Cottonwood Corporation, a small

firm that does business only in its domestic market. You have just completed coursework

in international business, are aware of various business opportunities abroad, and believe

that Cottonwood should internationalize. Write a memo to your boss in which you explain

why your company should pursue international business. What are the benefits to

Cottonwood of venturing abroad? Explain why firms internationalize.

(LO 1.4; AACSB: Analytical Thinking)

Your memo should include:

Cottonwood Corporation should internationalize to expand growth and profit opportunities in

order to build competitive advantage. Specifically:

A. Increase sales by seeking new markets and market diversification.

B. Earn higher margins and profits.

C. Better serve key markets or customers who have relocated abroad.

1-19. You have become the president of the International Business Club at your school.

You are trying to recruit new members and find that many students do not recognize the

importance of international business or the career opportunities available to them. You

decide to give a presentation on this theme. Prepare an outline of a presentation in which

you explain what types of companies participate in international business, why students

should study international business, and what career opportunities they might find.

Your presentation should include:

Who Participates In International Business?

■ Focal firm- firms that initiate and implement international business activities.

■ Distribution channel intermediary- [Ch.3] distributors and retailers that provide distribution

services in international markets.

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■ Exhibit 1.8 provides a geographic distribution of the world’s leading MNEs.

Small and Medium-sized Enterprise (SME)

■ SME is a company with 500 or fewer employees.

■ Small firms comprise 90% – 95% of all firms in most economies.

■ Born-global firms– young, entrepreneurial SMEs that initiate international business from

inception, and are found in both advanced economies as well as emerging markets such as

China and India.

■ International business complexities are considerably more challenging for SMEs than MNEs.

■ SME Strategies for success:

Why Study International Business?

A Competitive Advantage

● GlobalEDGE™ INTERNET EXERCISES http://globaledge.msu.edu

1-20. You can gain valuable insights into international business by examining how

countries compare to each other. Various research groups and international agencies

systematically examine economic, political, and other features of nations. Visit

globalEDGE™ Tools and Data, scroll down and click Interactive Rankings. Select

Countries. You will find dozens of criteria ranking countries based on GDP per capita;

Education—literacy rate; People—population total; People—population density; Health—

mortality rate; Energy—electricity production; Infrastructure—mobile cellular

subscriptions; Infrastructure—roads, total network; Trade and Investment—foreign direct

investment net inflows; and many other factors. Choose the ranking criteria that interest

you most and then examine the following three countries: Germany, India, and South

Africa. Based on your analysis, explain why they rank where they do. Do their relative

positions make sense to you? Does each country seem like a good place to do business?

Why or why not? Hint: Evaluate countries on a per-capita basis by dividing each criterion

by the country’s population.

The question can be answered in various ways. A hypothetical answer is given below, using

country rankings based on data from the CIA World Factbook. Germany, India and South Africa

are compared based on the following:

GDP (ppp)

US$ million

GDP real

growth rate

GDP per

capita (ppp)

Industrial

production Inflation

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Country (%) US$/person growth rate Rate (%)

Germany 3,058,600 3.7 37,400 8.0 1.1

India 4,421,000 6.8 3,700 4.8 8.9

South Africa 528,200 2.8 10,500 2.5 4.3

■ India and South Africa are emerging markets. Germany is an advanced economy. Thus,

Germany is ranked first in GDP per capita and industrial production growth rate; second in both

GDP and GDP real growth rate after India; and had the lowest inflation rate. India is ranked first

■ As an advanced economy, it stands to reason that Germany would have the highest GDP and

■ With a well-developed infrastructure (transportation, information and communication, power,

■ India’s emerging economy experienced a hefty real growth rate in GDP and GDP real growth

■ South Africa’s inflation was the second highest among the three countries compared; it is still

1-21. In this chapter, we reviewed the four major risks that firms face in international

business: cross-cultural risk, country risk, currency risk, and commercial risk. Identify

one or more countries that interest you and then visit globalEDGE™ and research the

countries to uncover examples of each of the four types of risks. For example, China is

characterized by various cultural differences and a national government that tends to

intervene in business. Research by entering the country name in the search engine. Visit

Global Insights and Market Potential Index. Illustrate each risk with examples.

This can be answered in various ways. One example is the Czech Republic.

■ Cross-cultural risk: One of the main business cultural differences between U.S.

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■ Country risk: Although the Czech Republic has made various improvements, its tax, labor,

■ Currency risk: Inflation in the Czech Republic has been running at about 2%. Although low by

■ Commercial risk: Agents and distributors in the Czech Republic expect exclusivity in

1-22. You have recently been hired by a smaller firm that is beginning to expand

internationally. When first starting out, most firms choose exporting as their main foreign

market entry strategy. However, no one in your firm knows how to conduct exporting.

Therefore, your boss has given you an assignment: Prepare a presentation for your

coworkers on how to engage in exporting. Using globalEDGE™, find and review Guide to

Exporting, which you can use to create your presentation.

A presentation on how to export would include some or all of the following topics:

■ Understanding Exporting

■ Ensure the Basics of Exporting are met prior to Execution

■ Evaluate our Company’s Ability to Export

■ Preparing a Budget for Exporting

■ Assessing Export Cost

■ Understanding Export Documentation

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■ Export Financing

■ Export Marketing and Logistics

MyManagementLab

Go to MyManagementLab.com for Auto-graded writing questions as well as the following

Assisted-graded writing questions:

 1-23. What role do distribution channel intermediaries fulfill?

 1-24. What risks do companies typically engage in with international business?

 1-25. MyManagementLab Only– comprehensive writing assignment for this

chapter.

Visit MyManagementLab for suggested answers.

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