978-0134324838 Chapter 8 Solution Manual Part 2

8-15. What social and sustainability characteristics are typical of emerging

markets? What can businesses do to support the development of poor countries

in emerging markets?

(LO 8.6; AACSB: Reflective thinking)

■ Leading firms display good corporate social responsibility by engaging in activities

■ Firms can serve low income countries with inexpensive, specifically-designed

■ Microfinance, emergence of financial institutions that serve emerging-market

■ Africa’s GDP has not improved much since the 1960s, unemployment is high, and

■ Bureaucracy– much of Africa’s poverty is the result of government policies that

discourage entrepreneurship, trade, and investment.

◘ Example– starting a new business:

● In sub-Saharan countries in Africa involves an average of 11 different

■ Africa is beginning to transform itself, despite these tendencies.

■ Several African countries have begun to experience economic success, with annual

GDP growth now approaching 5% per year.

◘ Ghana is becoming a regional hub for financial and technological services.

◘ Botswana’s diamond trade is experiencing a boom. De Beers is the world’s

◘ Tanzania, and other parts of Africa -Ericsson modernized the rural telecom

infrastructure.

◘ The emergence of a significant cell phone market in Africa led to the

Two prevalent trends improving African conditions:

■ Political- African governments are doing a better job of managing their national

■ Economic- Africa has begun to receive a steady inflow of FDI. China, India, and other

◘ Infrastructure- cell phones are proving vital to Africa’s development. Africans

◘ McKinsey found that the economic impact of cellular telephony in poor

◘ Orascom, Millicom, and other telecom firms have been establishing cell

◘ Microfinance- South Africa-based Blue Financial Services has over 170

Promising Industries:

◘ Food processing – abundant farm and ranch lands- firms are investing to

◘ Health care- Africa bears the burden of about one-quarter of all disease, yet it

What can businesses do to support the development of poor countries such as

Africa?

■ The application of business models – such as local entrepreneurship, microfinance,

■ In addition to telecommunications, agriculture, and health care, private firms have an

■ Although Africa long stagnated in terms of trade, investment, and per capita income;

● APPLY YOUR UNDERSTANDING

8-16. Suppose you work at Microsoft in its Xbox video game console division.

Microsoft has long targeted Xbox to the advanced economies, especially in North

America and Europe. Management would like to sell more Xbox 360s to emerging

markets. What characteristics of emerging markets might make them attractive

for sales of the Xbox? Identify the major risks and challenges that Microsoft

might encounter in selling the Xbox 360 to emerging markets.

(LO 8.2; AACSB: Analytical Thinking)

■ Risks and challenges of doing business in emerging markets:

◘ One of the biggest risks for Microsoft stems from the inadequate legal and

◘ Per-capita income is relatively low in emerging markets, thus disposable

income, especially in non-urban areas, is quite modest.

■ Emerging markets provide unprecedented opportunities:

■ Emerging economies represent huge export markets for products such as Xbox,

■ Emerging markets also serve as platforms for manufacturing by global MNEs. The

8-17. CBKing has been trying to export its products to various emerging markets

and has enjoyed little success so far. You know a lot about emerging markets and

have been anxious to share your views with CBKing’s president, Mr. Roger Wilko.

What strategies would you recommend Roger pursue in doing business with

emerging markets? You conclude there is substantial demand among military and

government agencies. Explain how your firm should go about selling to emerging

market customers.

(LO 8.5; AACSB: Analytical Thinking)

TO: Mr. Roger Wilko, President CBKing

FROM: Sally Goodstudent

DATE: 07/07/16

RE: CBKing Strategies for International Business in Emerging Markets

■ Conducting business in emerging markets requires adaptation to suit unique market

■ Emerging markets are ripe as export destinations, direct investment targets, and

global sourcing. CBKing should start with exporting- it is the least costly and least risky

■ Some firms succeed in these markets by partnering with family conglomerates (FC).

FCs provide ideal partners or formidable competitors. It may be wise for CBKing to start

■ Governments and military agencies are often major buyers in emerging markets.

8-18. Ethical Dilemma:

One mission of the International Monetary Fund (IMF) is to help poor countries

overcome economic crises by providing loans and policy advice. During the

global financial crisis, many countries suffered corporate bankruptcies,

collapsing economies, and political turmoil. These effects particularly hurt

Ukraine, which requested massive loans and other financial assistance from the

IMF. Note, however, that taxpayers in advanced economies generally foot the bill

for IMF activities, which often run to billions of dollars. Critics argue the IMF

rescues countries that fail to put in place robust regulatory systems and

responsible fiscal and monetary policies. The critics assert that economic

prosperity is best determined by market forces and free enterprise. They claim

that reviving poor countries is too costly and discourages responsible behavior

because if local officials know they can count on bailouts from wealthy countries,

they are less likely to enact policies that ensure stable economic growth.

Suppose you are a financial officer at the IMF. Where do you stand? Use the

Ethical Framework in Chapter 4 and decide whether the IMF should bail out

Ukraine.

(LO 8.4; LO 8.6; AACSB: Analytical Thinking)

A FRAMEWORK FOR MAKING ETHICAL DECISIONS

■ Framework for making ethical decisions consists of five steps:

1. Identify the problem

2. Examine the facts

3. Create alternatives

Evaluate each proposed action to assess its consistency with accepted

ethical standards, using the approaches described earlier:

■ Utilitarian—which action results in the most good and least harm?

■ Rights—which action respects the rights of everyone involved?

■ Fairness—which action treats people most fairly?

■ Common good—which action contributes most to the overall quality

of life of the people affected?

■ Virtue—which action embodies the character strengths you value?

4. Implement course of action

5. Evaluate results

(1) Identify the Problem:

Managers must learn to recognize and manage ethical problems – proactively

anticipate, confront and scan for ethical challenges in all sourcing countries- address

(2) Examine the Facts:

Managers must systematically explore the ethical aspects of each decision the firm may

make, regarding its current and potential activities. Determine the nature and

dimensions of the situation. Have all the relevant persons and groups been consulted?

What individuals or groups have a stake in the outcome? How much weight should be

(3) Create Alternatives:

Consistent with the pyramid of ethical behavior, actions should be legal, i.e. it should not

violate host or home country laws or conflict with international treaties. Any proposed

action should be commensurate with company policy, the firm’s code of conduct, and its

Utilitarian – which action results in the most good and least harm?

This case- The greatest good for the greatest number would mean that the

Rights – which action respects the rights of everyone involved?

This case- The rights of the people of Ukraine vs. the rights of the

wealthier/responsible countries around the world would mean that the IMF

Fairness – which action treats people most fairly?

This case- Fairness is a function of the intersection of political ideology-

Totalitarianism

● Wealth is

all

Command

● Most government interference

● Least innovation

Culture:

Collectivist:

Socialism

Culture:

Democracy

● Wealth is

Market

● Least government interference

● Most innovation

Culture:

Individualistic:

Common Good – which action contributes most to the overall quality of life of the

people affected?

This case- Clearly the IMF rescuing Ukraine contributes significantly to the

This case- More than likely, the fact that saving people’s lives in Ukraine

trumps any political or economic philosophy, resulting in a decision to

(4) Implement Course of Action:

Implement your decision.

(5) Evaluate Results:

Then evaluate your decision to see how effective it was. How did it turn out? If you had

it to do again, would you do anything differently?

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

8-19. The World Bank sponsors the Doing Business database

(www.doingbusiness.org), which provides measures of business regulations and

their enforcement for countries worldwide. Firms can use these measures to

analyze specific regulations that enhance or constrain investment, productivity,

and growth. Visit the site and choose two emerging markets. Then answer the

following questions: (a) How well does each country rank in terms of ease of

starting a business, employing workers, and trading across borders? (b) How

long does it take to start a business? (c) How much time does it take to pay

taxes? (d) Review other statistics and identify which country is most friendly for

doing business.

(LO 8.3; LO 8.4; AACSB: Analytical Thinking)

I chose Brazil and Thailand. In the table, below, numbers are index values, except as

indicated.

Brazil Thailand

Ease of doing business (overall rank, suggesting Thailand is

superior):

121 18

Starting a business

• number of procedures

115

28

Employing workers

• difficulty of hiring index (0-100)

• rigidity of employment index (0-100)

99

67

60

46

33

20

Dealing with licenses

• days (time)

• cost (% of income per capita)

139

460

179.9

3

127

11.1

Registering property

124

18

Getting credit 83 33

Protecting investors

60

33

Paying taxes

151

57

Enforcing contracts

120

44

Closing a business 135 38

The table reveals it is easier, overall, for foreign enterprises to do business in Thailand

than in Brazil, given an economic rank of 18 and 121 respectively. Specifically, business

managers perceive that it is easier to start a business and employ workers in Thailand.

8-20. Using globalEDGE™, find the “country commercial guide” for two emerging

markets of your choice. Compare the two countries on the following dimensions:

“leading sectors for exports and investment” and “marketing products and

services.” (a) Which of the two countries is more promising for marketing laptop

computers? (b) Which of the two countries is promising for sales of portable

electrical power generators? (c) Which of the two countries is promising for

sales of telecommunications equipment? Justify your answers.

(LO 8.2; LO 8.4; AACSB: Analytical Thinking)

Poland and Indonesia were chosen. The questions were addressed using information

obtained from each country’s commercial guide, published by the U.S. Commercial

Service.

Which of the countries is more promising for marketing laptop computers? In

Poland, the computer segment was worth US$1.92 billion and is forecast to be worth

US$2.24 billion. On average, computer sales are expected to increase 20%

year-to-year. Notebook personal computer sales increased about 28% and currently

Which of the two countries is promising for sales of portable electrical power

generator? The power generator, transmission, distribution, and trading systems of

Poland’s electrical power sector is vast by most standards. According to one report, the

Polish electrical power system is the largest in Central and Eastern Europe, with a gross

domestic electrical production of 145,400 gigawatt hours (GWh). Although the

Which of the two countries is promising for sales of telecommunication

equipment?

In Poland, fixed-line telecommunication services is still dominated (over 80%) by the

recently privatized national operator. However, demand for fixed-line phone service is

declining (and therefore declining for communication equipment in this segment) in the

The Indonesian government has restructured regulations for the country’s

telecommunications sector. It has become more open to private investment and has

witnessed a growth in fixed-line and mobile wireless voice services. The estimated total

market size for telecommunications is US$3.9 billion. Imports comprised approximately

90% of the total. The country’s cellular market is growing as demand for mobile phones

8-21. The three groups of countries described in this chapter can be contrasted in

terms of degree of economic freedom. It refers to the extent to which economic

activities in a nation can take place freely and without government restrictions.

Various organizations have developed indexes of economic freedom, including:

The Cato Institute (www.cato.org),

The Heritage Foundation (www.heritage.org),

The Fraser Institute (www.fraserinstitute.org).

In measuring economic freedom, such indexes consider factors such as trade

policies, extent of government intervention, monetary policies, inward foreign

direct investment, property rights, and commercial infrastructure. Countries are

classified into categories such as free, mostly free, mostly unfree, and repressed.

Explore one of the economic freedom indexes by visiting one of the mentioned

sites and entering “economic freedom” in the search engine. How are emerging

market and developing economies classified? What is the relationship between

market liberalization and economic development? How might market

liberalization contribute to reducing poverty in developing economies?

(LO 8.2; LO 8.4; AACSB: Analytical Thinking)

The following table shows that the degree of overall economic freedom in emerging

market economies ranges from free to repressed, with most countries offering

moderately free to mostly unfree business environments.

Emerging Markets

(The Economist’s

classification)

Economic Freedom

(Rank, Freedom %)

Classification

China 139 (52.7) Mostly unfree

Israel 33 (70.5) Mostly free

Brazil 118 (56.6) Mostly unfree

South Africa 72 (62.6) Moderately free

Venezuela 176 (34.3) Repressed

Colombia 28 (71.7) Mostly free

Source: globalEDGE™ (www.globaledge.msu.edu)

Source: Heritage Foundation, The Index of Economic Freedom, 2015

In the case of developing economies, the data show that these countries are classified

as “moderately free” to “repressed”. These findings generally suggest that emerging

markets and developing economies in particular, are characterized by low levels of

CAREER TOOLBOX EXERCISE

LEARNING ABOUT AND ASSESSING EMERGING MARKETS

Visit MyManagementLab for more information.

MyManagementLab

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

following Assisted-graded writing questions.

 8-22. How can managers estimate the true market potential of emerging

markets?

 8-23. For entering an emerging market, what benefits can an MNE obtain by

partnering with a local family conglomerate? What are the disadvantages of

such a partnership

 8-24. MyManagementLab Only– comprehensive writing assignment for this

chapter.

Visit MyManagementLab for suggested answers.