Quick Study Questions
Quick Study 1
1. Q: List several benefits of international trade?
A: International trade provides a country’s people with a greater choice of goods and services.
countries.
2. Q: World merchandise exports are valued at how many times the value of worldwide service
exports?
A: World merchandise exports are valued at more than $16.5 trillion, and service exports are
world trade.
3. Q: What portion of total world merchandise trade is accounted for by two way trade between
high income economies?
A: Trade among the world’s high-income economies accounts for roughly 60 percent of total
world merchandise trade. Two-way trade between high-income countries and low- and middle-
4. Q: What term often describes the nature of trade between a developing nation and a
neighboring wealthy one?
A: Trade interdependence: emerging markets that share borders with developed countries are
often dependent on their wealthier neighbors.
Quick Study 2
1. Q: What did the successful implementation of mercantilism require?
A: The practice of mercantilism requires three key essentials: (1) trade surpluses, (2) active
2. Q: Mercantilist nations acquired colonies around the world to serve as sources of what?
A: It was a source of a nation’s economic power that in turn increased political power relative
to other countries.
3. Q: What name is given to the belief that a nation can increase its wealth only at the expense of
other nations?
A: Countries seen by others as trying to maintain a trade surplus and expand their national
economic nationalism.
Quick Study 3
1. Q: A nation that is able to produce a good more efficiently than other nations is said to have
what?
A: An absolute advantage is the ability of a nation to produce a good more efficiently than any
other nation.
2. Q: What does a nation have when it is unable to produce a good more efficiently than other
nations but it can produce the good more efficiently than it can any other good?
A: A comparative advantage is the inability of a nation to produce a good more efficiently than
3. Q: The theories of absolute and comparative advantage say that nations benefit from trading
because of the gains from what?
A: Trade between two nations can still be beneficial even if one country is less efficient in the
production of two goods, so long as it is less inefficient in the production of one of the goods.
Quick Study 4
1. Q: What is the name of the theory that says countries produce and export goods that require
resources that are abundant and import goods that require resources in short supply?
A: Factor proportions theory says countries produce and export goods that require resources
that are abundant and import goods that require resources in short supply.
2. Q: Factor proportions theory divides a nation’s resources into what two categories?
A: The theory states that a nation has two types of resources at its disposal: labor on the one
hand and land and capital equipment on the other. The theory predicts that a country will
specialize in products that require labor if the cost of labor is low relative to the cost of land and
Quick Study 5
1. Q: The international product life cycle theory says that a company will begin by exporting its
product and later undertake “what” as the product moves through its life cycle?
A: The international product life cycle theory states that a company will begin exporting its
cycle.
2. Q: List the three stages that a product goes through according to the international product life
cycle theory.
A: The international product life cycle theory states that a company will begin by exporting its
product and later undertake foreign direct investment as the product moves through its life
cycle. In the new product stage, high purchasing power and demand of buyers in an
industrialized country spurs a company to design and introduce a new product concept and
3. Q: Whenever optimizing productivity determines where a product’s components are
manufactured and where it is assembled, the resulting pattern of activities resembled that
predicted by which theory?
A: This pattern resembles the theory of comparative advantage in that a product’s components
are made in the country that can produce them at a high level of productivity.
Quick Study 6
1. Q: What is the main thrust of new trade theory?
A: The new trade theory argues that: (1) there are gains to be had from specialization and
and (3) government may have a role to play in assisting its home-based companies.
2. Q: The economic and strategic advantage gained by being the first company to enter an
industry is called what?
A: A first-mover advantage is the economic and strategic advantage gained by being the first
companies.
Quick Study 7
1. Q: The national competitive advantage theory states that a nation’s competitiveness in an
industry depends on the capacity of the industry to do what?
A: National competitive advantage theory states that a nation’s competitiveness in an industry
indicative of factors such as skill levels of workers and the quality of technology in a nation.
2. Q: The four main components of the Porter diamond are: (1) factor conditions, (2) demand
conditions, (3) firm strategy, structure, and rivalry, and what else?
A: The Porter diamond consists of four elements that form the basis of competitiveness, plus
the roles of government and chance. Factor conditions include a nation’s basic factors (e.g.,
land, labor, and natural resources) and advanced factors (e.g., skills of the workforce,
reinforce productivity and competitiveness. Firm strategy, structure, and rivalry also influence
competitiveness. Managers committed to producing quality products and an industry structure
3. Q: A group of related industries that spring up in a geographic area to support a nation’s
internationally competitive industry is called a what?
A: A cluster is a group of related industries that spring up in a geographic area to support a
productivity, and therefore, competitiveness of every other industry within the cluster.
Ethical Challenge
You are a member of a World Trade Organization task force that is reviewing the recent banana
conflict between the United States and the European Union. The European Union and the United
States recently ended a nine-year battle over trade in bananas. The European Union was giving
preferential treatment to banana exporters from Africa, the Caribbean, and the Pacific island nations.
But the United States challenged what it saw as unfair trading practices, and the World Trade
Organization agreed. Large global fruit companies such as Dole, Chiquita, and Del Monte—which
alone account for nearly two-thirds of the fruit traded worldwide—supported the U.S. action. The
European Union argued it was trying to support struggling economies, for which bananas make up a
large portion of their income.
5-5 Should international trade be left to private enterprise only, or should governments openly
manage it to benefit poorer nations?
A: Students responses will vary. Free trade is an economic practice whereby countries can
import and export goods without fear of government intervention. Government intervention
includes tariffs and import/export bans or limitations. Free trade offers several benefits to
countries, especially those in the developing stage, a country with low levels of economic
5-6 Would you have argued on behalf of the United States or the European Union? Explain?
A. Students responses will vary.
5-7 What are the pros and cons of each side’s arguments?
A: Here is some background on the matter. The United States (backed by Mexico, Guatemala,
Ecuador, and Honduras) complained about the EU policy to the WTO, which awarded victory
to the plaintiffs in 1997. The EU made amendments to its banana policy, which the EU said
that U.S. companies such as Chiquita and Dole lost because of the EU banana quota system.
The tariffs affected a range of EU goods, from Belgian biscuits and Scottish cashmere sweaters
to Italian cheese and Spanish leather goods.
said in a statement. “We are asking them to show good faith and to reconsider this unacceptable
decision.” The World Trade Organization ruled in April 1999 that the European Union’s banana
import program violated international trade law and would have to change. Caribbean leaders
Teaming Up
Debate Project. Two groups of four students each will debate the advantages and disadvantages of
completely free international trade. After the first student from each side has spoken, the second
student will question the opponent’s arguments, looking for holes and inconsistencies. The third
student will attempt to answer these arguments. A fourth student will present a summary of each side’s
arguments. Finally, the class will vote on which team has offered the more compelling argument.
A: Students should be sure to support their arguments with aspects of the theories discussed in this
chapter. They should also be prepared to defend their positions, after the debate, if they are called on to
Practicing International Management Case
First in Asia and the World
5-16. Q: As the first to set up an international air express business in 1969, DHL had the first-mover
advantage over other companies. Is being a first mover as advantageous for a service company
such as DHL, as it is for a manufacturing company such as Boeing? Explain.
A: In theory, the principle of first-mover advantage is the same for a service firm and a
manufacturer. The first-mover advantage is based on economies of scale and strategic benefits
5-17. Q: What elements are necessary for a service company to achieve global success?
A: Key to a service company’s success in markets abroad is the people that represent the
company. Because services are provided and consumed simultaneously, a buyer’s impression of
the provider is largely based on the experience it has during its interaction with the company. In
5-18. Q: Instead of relying on local agents, DHL prides itself on having its own staff of more than
300,000 people across the globe. What are the merits and drawbacks of this international
staffing approach?
A: The potential problems of using this approach rest in effective training and management of
employees in markets abroad. This approach can also increase the cost of providing a service,
5-19. Q: What do you think are the dangers, if any, of being a first mover?
A: DHL largely overreached in its expansion throughout the United States. It underestimated its
competition and faced a global recession after launching its expansion strategy. Perhaps the
biggest danger of being a first mover is complacency. Companies can easily develop hubris at
their rapid growth and dominance of the industry. New, more agile companies may come along