International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-20
Whether a trade deficit creates more or fewer jobs depends on what the country with the
deficit does with the inflows of capital. Is the money being invested in activities with long–
lasting economic returns, such as better roads and ports, new factories and machinery,
improved worker education, and so forth? Is it helping to reduce the cost of debt, allowing
money to be redirected to other value- creating activities? Or does the money fuel
unsustainable bubbles in housing or financial markets, high levels of consumer spending fueled
by access to low-cost debt, or excessive public expenditures?
1. Why might a country be concerned about the level of its trade deficit?
2. What actions should a country encourage or discourage in order to minimize potential
concerns about a trade deficit?
A country should make sure that the capital flowing into the country as a result of the trade
deficit is used for investments that can grow the economy. Infrastructure, R&D, and education
GET THAT JOB! FROM BACKPACK TO BRIEFCASE: Mark Haupt: A Central California-Based
International Career
Mark Haupt discusses how he developed a career in international business while still living in
California. He discusses his preparation for international travel and gives advice for those that
1. What do you think of Haupt’s goal to be involved in international business while living in
California instead of abroad? What kinds of international jobs would require living in the U.S.
and what kinds would require living abroad? What qualifications would be the same and
what would be different for domestic-based and foreign-based jobs?
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-21
Student responses will vary, but some may think that you must live abroad to have an
international job, rather than living in your home country. Small companies often cannot afford
2. What do you think of Haupt’s efforts to prepare himself for international trips? Is there
anything else he should do? What does it mean to “assume nothing” about international
encounters?
Students will have various answers depending on their own experiences or those that they
know who travel. Other things one might do in preparing for a trip is to research more about
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-22
END OF MODULE EXERCISES
CRITICAL THINKING QUESTIONS
1. Discuss and explain how international trade in merchandise and services has changed over
the past two decades and what the major trends are. What future trends can you speculate
about? How might this information be of value to a manager?
The answers to this question may vary. The introductory vignette, “Firms invest overseas, but
they also export,” shows how exports of both goods and services have grown since 2000.
Except for a significant drop in 2009, and a slight decline during the 2000 to 2003 period, both
2. Where do merchandise exports come from, and where do they typically go? How and why
has this been changing over time, and do you think these trends are likely to continue? Why
or why not? Why might this information be valuable to a marketing analyst?
The answers to this question may vary. More than half the exports from developing nations go
to developed nations, but this proportion has been declining, from 72 percent in 1970 to about
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-23
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
well as to international customers. Some may argue that the pendulum may swing back from
international trade, due to protectionism, costs of transportation, and so forth, although
evidence suggests that growth of trade tends to be associated with economic and social
benefits for countries that have liberalized their trade policies. A marketing analyst could find
the information about not merely the level of trade but the regionalization of trade and the
internationalization of supply chains to be valuable when identifying where to focus efforts for
market development or expansion.
3. Describe mercantilism, and explain why some call it a poor approach to promoting
economic development and prosperity. Given the criticisms, why do some countries continue
to rely on practices based on mercantilism? 

4. Explain Adam Smith’s theory of absolute advantage. What are the potential limitations of
this theory for helping policy makers when making decisions related to international trade?
How does Ricardo’s theory of comparative advantage differ from the theory of absolute
advantage?
According to Adam Smith’s theory of absolute advantage, each nation should specialize in
producing the goods it can produce most efficiently. Some of them can be exported to pay for
5. “Sending service jobs to low–cost nations, such as India, is good for America.” What are the
arguments in support of such an assertion? Under what circumstances might such an
assertion be viewed as false?
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-24
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
activities are being outsourced to, and perhaps elsewhere as well. On the other hand,
outsourcing may result in job losses that cannot be quickly and fully replenished through the
creation of other jobs, due to the different skills required and the time needed to acquire such
skills. Job losses may also result in the loss of domestic competencies, and result in a continuing
migration of increasingly skilled jobs from America to the foreign locations, especially if the
destination nations have the policies and competencies to acquire and enhance their human
capital or otherwise enable the development of internationally competitive regional clusters.
6. Name some products that you believe have passed through the four stages of the
international product life cycle. Try to identify industries or products for which the
international product life cycle still helps explain international trade and investment. Can you
identify industries or products for which this concept does not apply?
7. Use Porter’s diamond model of national advantage to explain why an emerging market
such as Indonesia would be expected to experience great difficulty in achieving global
competitiveness in a new industry sector such as smartphones or hybrid electric-gasoline
automobile engines.
An emerging market such as Indonesia would be expected to experience great difficulty in
achieving global competitiveness in a new industry sector such as “smart” cell phones or hybrid
electric-gasoline automobile engines because: (a) The nature of demand conditions would be
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-25
8. What are the possible explanations for the observed decline in the proportion of FDI
accounted
for by the United States and Japan? What are the implications of such a decline?
Do you expect that this decline will continue in the future? Why or why not?
The answers to this question may vary quite a bit across students. The United States only
accounts for about 5 percent of the world’s population, and Japan only about half that much.
Therefore, as economic development occurs around the world, it can be expected that more
9. How has the level and direction of FDI changed over the past two to three decades, both
overall and in terms of annual outflows and inflows? What might explain why these changes
have occurred? Why would this information be of relevance to managers?
The answers to this question may vary. The proportion accounted for by the United States has
declined by over 1/3 during the past 20 years, although the U.S. still accounts for more than 3
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-26
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
potential value to managers, in terms of identifying potential sources of new or increased
competition (or collaboration) as well as new sources of supply or of customers.
10. According to theories presented in this module, why might companies engage in foreign
direct investment rather than international trade?
The answers to this question may vary. Each of the trade theories presented in this chapter
offer an explanation for why companies engage in foreign direct investment, because each of
the theories helps to explain why production costs differ across national borders or how
GLOBALEDGE RESEARCH TASK
Exercise 1
globalEDGE ‘Global Insights’ is where profiles of trade blocs, countries, U.S. states, and
industries can be found. When navigated as described in the exercise (i.e. globalEDGE >
Exercise 2
globalEDGE ‘Global Insights’ is where profiles of trade blocs, countries, U.S. states, and
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-27
Resource Name: Global Insights by Country
MINICASE: Brazil: A Global Competitor in Information Technology Outsourcing?
This minicase explores the issue of outsourcing and how countries may compete to be the
destination for outsourced activities. The specific example is of Brazil and how it has emerged
as an alternative to countries such as India, China, or various Central or Eastern European
1. Use the theories of international trade and investment in this module to help explain
Brazil’s intentions and actions regarding the international information technology sector.
Answers are likely to vary quite a bit on this question. Students may refer to absolute or
comparative advantage theories to show why Brazil is a superior site to the U.S. (absolute
advantage), and to other potential offshoring sites (e.g., China, India), based on labor cost, labor
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-28
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Education.
and exploitation of cost competitive centers of excellence in emerging markets such as Brazil.
The variety of positions and theoretical perspectives that are likely to be presented can provide
the basis for a lively discussion or even debate within the classroom and provide a strong link to
the concepts of internationalization of businesses, economic globalization, and offshoring.
2. What recommendations would you give to the Brazilian government and its outsourcing
industry in order to improve their prospects for success in building a strong international
competitive position in the information technology outsourcing business?
This question can prove to be difficult for some students to answer, and there can be a range of
alternative responses. Policy actions might be taken to enhance the absolute advantage of
Brazil versus the U.S., through continued investment in skilled labor, or encouragement of
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-29
BONUS ACTIVITIES
This section provides you with support of your course above and beyond what is found in the
text. We have developed these resources to support your course, to support your traditional,
hybrid, online, or flipped class.
VIDEO SUGGESTIONS
McGraw Hill’s collection of international business videos is available at
social welfare.
MapsofWorld.com has an interesting series of facts and discussion about international trade,
TEAM EXERCISES
These may be done individually or in groups or teams, either in or out of class, for later class
presentation. Some are also appropriate for hybrid and online courses.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-30
1. Investment Inducements
Ask the students to check advertisements in The Wall Street Journal, the Financial Times and
New York Times, for ads in which investment inducements are offered by foreign governments.
2. Importing and Exporting Services
Students typically understand that products are exported and imported because of their
tangible nature and the benefits derived through their consumption are apparent. The import
3. Trade Theory Activity
You can check the students’ comprehension of trade theory through the following activity:
This is the output of cigars and calculators for countries A and B.
Output/Man/Day
Country:
A
B
Calculators:
6
2
Cigars:
20
10
Country A:
Calculators:
$30
6 calculators
=
Cigars:
cigars 20
$30
=
Country B:
Calculators:
120 pesos
2
=
Cigars:
120 pesos
10
=
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-31
a. Would it be advantageous for B and A to trade?
b. What would be the range of values within which trading of cigars for calculators
would make economic sense?
c. Total production costs per day are $30 in A and 120 pesos in B. If the exchange rate
is 10 pesos in B = $1 in A, will trade still place in the same direction as for part a?
Converting to dollars:
Country:
A
B
Calculators:
$5/Calculator
$6/calculator
Cigars:
$1.50/cigar
$1.20/cigar
d. What change must be made in the exchange rate to change the flow of trade?
• Answer:
(1) If rate goes to 12 pesos = $1, calculator will cost $5 in B, which is the same
e. If rate goes to 8 pesos or even 7 pesos = $1, will B sell any cigars to A?
SUPPLEMENTAL ACTIVITIES
Case Studies
Case studies that focus on intercultural issues and their effects in business environments are
Harvard Cases
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-32
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Education.
Britain. The Corn Laws were a series of acts that protected British agricultural interests for
nearly 200 years, and the decision on whether to repeal the acts had significant implications for
industrialists and landowners. There is also an abridged version available.
“Yue Yuen Industrial (Holdings) Limited: (A) Making 200 Million Pair of Shoes a Year and
Growing” describes the industry for outsourcing shoes by companies such as Nike and Adidas.
Yue Yuen has become the largest contract footwear maker in the world, five times larger than
its next largest competitor. The case allows students to understand the decisions for offshoring
parts of a company’s value chain, such as manufacturing, and the challenges that a company
faces in not only achieving competitiveness as an offshore supplier but being able to remain
competitive as the environment changes over time. This is a University of Hong Kong case
distributed by Harvard.
“Background and Agreements on Foreign Direct Investment” provides a brief history of foreign
direct investment, including various conflicts, issues associated with FDI-related legal
CONTROVERSIAL ISSUES
1. Global Debate: Comparative Advantage: Should the United States be Sending Service Jobs
to India?
This boxed feature described earlier in this module’s Instructor Guide provides an excellent
foundation for debating some of the issues raised in the text.
2. Debate on Whether Deficits Are Good or Bad for a Country
Drawing from the content in the IB in Practice box, “Are Trade Deficits Good or Bad for a
Country?,” you can ask students to take opposing perspectives to argue that trade deficits
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-33
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Education.
Online and Hybrid: Virtual teams can be assigned to take different perspectives to argue if trade
deficits are good or bad and these assignments can be submitted as a group and then opened
up to discussion and debate on an online class discussion site or blog, or presented and
debated in a face-to-face setting.
Face-to-Face: Students can be assigned to take different perspectives to argue the pros and
cons of trade deficits and then they can be asked to argue their positions within an in-class
debate and discussion.
3. Current Events
A focus on current events that are relevant to the module’s topics is a good way to bring home
the concepts, review their application, and build news-review habits. Ask everyone to come
TEACHING SUGGESTIONS
1. Students often are unaware of the rapid growth of international trade, so we discuss Figure
2.1 in class. We point out that there have been numerous changes in trade relationships as
2. The material on Theories of International Trade is somewhat difficult for many students and
it is easy to lose their interest when discussing theories from the 17th century. We emphasize in
3. We find it advantageous to follow the discussion of comparative advantage with the example
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-34
4. Generally students are surprised to learn that the United States’ share in total foreign
investment is still as large as it is (see Figure 2.5). They often believe that China’s share is
largest, due to all of the press that China’s growth has received and the number of Chinese
firms that have entered foreign markets through acquisitions. Do you want to see how many
5. The Global Debate box, “Comparative Advantage: Should Service Jobs Be Offshored to
6. We often find it useful to use the International Product Life Cycle, illustrated in Figure 2.3, to
stimulate discussion. We ask questions such as, “Can you identify any products or services that
have completed the IPLC?” “Can you identify any products or services which are still in the early
stages of the IPLC but that you would expect to continue evolving along the lines of this model?
7. You may be interested in discussing the IB in Practice box, “Are Trade Deficits Good or Bad
for a Country?” Many students think that a trade deficit is automatically bad and that a trade
8. Guest lecturer who could contribute to the material in this module would be:
• Someone in the technical department of a multinational to talk about licensing and
contract manufacturing arrangements that the firm has with overseas licensees.
• Product manager of the international division of a multinational who should be
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-35
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
country. The representative could also be asked about that government’s efforts to
promote foreign trade.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-36
CONNECT TOOLS FOR ASSESSEMENT OF LEARNING
Connect Content Matrix
For every chapter, please refer to the Connect Content Matrix to see what application exercises
are available, what Learning Objectives they help reinforce/assess.
Title
Assignment
Type
Topic(s)
Learning
Objective(s)
AACSB
Accreditation
Tagging
Bloom’s
Taxonomy
Volume and
Direction of
International Trade
Case Analysis
Overview of Trade
02-01; 02-02;
02–04
Analytical
Thinking
Remember
International Trade
Theories
Click and Drag
Trade Theories and
Their Implications
02–03
Reflective
Thinking
Understand
Trade, Investment,
and Economic and
Social Development
in Ethiopia
Video Case
Overview of
Foreign Direct
Investment
02-04; 02-05
Analytical
Thinking
Understand
Exporting, Licensing,
or FDI
Case Analysis
Theories of Foreign
Direct Investment
02-04; 02-05
Analytical
Thinking
Apply
International Trade
Click and Drag
International Trade
02-01; 02-02
Reflective
Thinking
Remember/
Understand
CONNECT ACTIVITIES
1. Volume and Direction of International Trade
Activity Summary: This case analysis activity describes an undergraduate business student
How to Use Activity: For online and hybrid classes, assign this as part of the module’s
2. International Trade Theories
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 2
02-37
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Education.
How to Use Activity: This can be given for individual work at home for online or live classes. For
live classes, have students do this in teams in class. Walk around to the various teams to answer
any questions that arise. Then lead a general class discussion, focusing on those theories that
the individual groups struggled with.
3. Trade, Investment, and Development in Ethiopia
Activity Summary: This is a video case on foreign direct investment in Ethiopia’s agricultural
sector, with accompanying multiple-choice questions.
How to Use Activity: This can be assigned for students to do at home, where in an online or live
4. Exporting, Licensing, or FDI
Activity Summary: This is a case analysis activity in which students are asked to decide whether
5. International Trade
Activity Summary: This is a click and drag activity in which boxes of statements about