Management Chapter 3 Ferrell Hirt Ferrell Instructors Manual Business Why Did The United States

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LO 3-6

Assess the opportunities and problems facing a small business that

is considering expanding into international markets.

Key Terms:

PPT 3.42

VI. Solve the Dilemma—Global Expansion or Business as Usual?

A. Audiotech Electronics currently operates a 35,000 square foot factory

with 75 employees

1. Produces control consoles for TV and radio stations and recording

studios

2. Products are used by all the major broadcast and cable networks

3. Newest products allow TV correspondents to simultaneously hear

and communicate with their counterparts in different geographic

locations

4. Very successful meeting its customers’ needs efficiently

1. Audiotech sales have historically been strong in the U.S.

2. Even though Audiotech is a small family-owned firm, it believes it

should evaluate and consider global expansion

1. What are the key issues that need to be considered in determining

global expansion?

Audiotech needs to assess whether there is a demand for its

products in different countries. It also has to inquire about the

considered has to be examined to determine whether it allows for

the use of Audiotech’s products. For example, many countries do

not have cable networks, and thus could not accommodate a

product based on this technology. The level of economic

development of the countries could also be an important barrier. For

example, television remains essentially a luxury item in some

countries.

Legal and political barriers may also exist in countries where

television and radio activities are highly regulated. Tariffs and trade

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2. What are some of the unique problems that a small firm might face

in global expansion that larger firms would not?

Smaller firms are more likely to find the costs of launching

international operations inhibiting. They may find it difficult to

finance the research needed to make the first investigations about

international market conditions. Business trips abroad may also be

too costly. Small businesses may encounter more difficulties in hiring

sufficiently skilled personnel to make negotiations abroad. Personnel

with foreign language proficiency and past experiences abroad are

desirable. It may also be more difficult for small businesses to find

local partners. Local companies are less likely to be interested in

reluctant to have such a partnership for fear of having its knowledge

stolen.

Audiotech could hire a sales force of people native to the countries it

enters to become more knowledgeable about the local conditions

and to overcome the language barrier. However, this solution may be

very expensive, and it may be difficult to find the appropriate

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B O X E D T E X T D I S C U S S I O N Q U E S T I O N S

ENTER THE WORLD OF BUSINESS—Chinese Smartphone Company Faces Challenges in Expansion

Xiaomi, China’s hottest smartphone company, has established itself as an icon of innovation. The company is

1. Why does Xiaomi appeal to the average Chinese consumer?

2. Why might Xiaomi’s cool, hip image in China be tarnished if it goes global?

3. Describe the barriers Xiaomi will likely face as it expands into the United States.

Many Americans are willing to pay premiums for Apple and Samsung brands and may not be as drawn to

GOING GREEN—China’s Sustainability Initiatives

As a country that is home to much of the world’s industrial production, China began experiencing an

onslaught of detrimental consequences. As people move into cities and grow into the middle class, they tend

to purchase larger houses and more automobiles that demand the use of more energy.

1. What are some of the problems China has faced due to pollution?

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2. Why does a rising middle class potentially threaten the environment?

3. Describe some of the ways that the Chinese government is tackling the pollution issue.

China has begun many sustainable initiatives to diversify its energy sources from coal to cleaner

alternatives. The government has eliminated inefficient industrial programs, raised the minimum

CONSIDER ETHICS AND SOCIAL RESPONSIBILITY—Bangladesh Factory Disasters Prompt Better Safety

Standards

A fire at one Bangladesh factory killed 112 workers, and a building collapse at another factory killed more

than 1,100 workers. Many of the companies that use factories in Bangladesh are joining together with

1. Why are suppliers finding the need to develop a global agreement improving worker safety conditions

in Bangladesh?

2. Describe some ways that IndustriALL will improve worker safety.

The proposal, crafted for the purposes of global agreement, requires that companies conduct and pay for

3. Why are companies like Walmart and Gap developing their own supplier agreements?

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S U P P L E M E N T A L L E C T U R E

Effects of Trade Legislation

This textbook emphasizes that free and open trade between nations is healthy for the economies of most

nations. Reviewing historical events will not necessarily indicate a cause-and-effect relationship, but insight

can be gained by studying trade legislation of the past.

Secondly, in international trade, it has become an almost automatic reflex for a country whose firms are hurt

by high tariffs to retaliate by increasing its own tariffs. The passage of the Smoot-Hawley Act resulted in high

tariffs on an international scale. International trade became very difficult, and the United States had almost

no meaningful trade with other nations.

Legislation is frequently suggested to counter perceived unfair trade restrictions. But opponents of restrictive

legislation for the United States point out the results of the Smoot-Hawley Act and suggest a similar trade bill

would damage the nation’s economic health just as the 1930 act did. Many advocates of “freer” trade

believe the best way to deal with restrictive trade policies of other countries is to negotiate for freer markets.

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1. Why did the United States pass the Smoot-Hawley Act in 1930?

2. What interest groups would be interested in passing similar legislation today?

3. Other than tariff duties, what other trade restrictions could nations impose on the products of other

nations?

Quotas, or restrictions on the number of units of a particular product that can be imported into a

country, and embargoes, prohibitions on trade in a particular product, can limit the types and amounts

of products traded between countries as well.

C O N T R O V E R S I A L I S S U E

High Dollar, Low Dollar—Which Is Better?

In the 1950s, it took 4.2 German marks to equal a dollar. At that same time, a dollar was worth more than

350 Japanese yen. At this writing, a dollar is worth about 79 yen, and the German mark was replaced years

ago by the European Union’s euro. One dollar is equivalent to about 0.77 euros. These figures reflect radical

change. There are both benefits and negative consequences of this change.

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Today’s business firms must be competitive in the global economy. What is positive for one nation may be

negative for another. Thus, one nation’s exchange rate in relation to the value of another nation’s currency

continues to be a matter of debate. As arguments can be made for both the strong dollar and the weak

dollar, most trade negotiators will probably seek a middle–of-the-road position.

1. What are the effects of a strong dollar for the United States?

2. What are the effects of a relatively weak dollar for the United States?

3. Which do you think is better—a strong dollar or a relatively weak dollar?

students’ answers will vary.

S O Y O U W A N T A J O B I N G L O B A L B U S I N E S S

What are some of the skills required to be a successful businessperson in the borderless world of the 21st

century?

To be successful you must have an idea not only of the differing regulations from country to country, but of

different languages, ethics and communication styles, and the varying needs and wants of international

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C H E C K Y O U R P R O G R E S S

1. Distinguish between an absolute advantage and a comparative advantage. Cite an example of a

country that has an absolute advantage and one with a comparative advantage.

A nation with an absolute advantage is the only or most efficient producer of an item. A nation with a

2. What effect does devaluation have on a nation’s currency? Can you think of a country that has

devaluated or revaluated its currency? What have been the results?

3. What effect does a country’s economic development have on international business?

4. How do political issues affect international business?

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5. What is an import tariff? A quota? Dumping? How might a country use import tariffs and quotas to

control its balance of trade and payments? Why can dumping result in the imposition of tariffs and

quotas?

An import tariff is a duty levied by a nation on imported goods. A quota is the maximum number of units

of a particular product that can be imported into a country. Dumping occurs when a country or business

sells products at less than what it costs to produce them.

6. How do social and cultural differences create barriers to international trade? Can you think of any

social or cultural barriers (other than those mentioned in this chapter) that might inhibit international

business?

Social and cultural differences create barriers to international trade through:

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7. Explain how a countertrade agreement can be considered a trade promoter. How does the World

Trade Organization encourage trade?

A countertrade agreement is really a bartering agreement, which makes it possible for a nation with

8. At what levels might a firm get involved in international business? What level requires the least

commitment of resources? What level requires the most?

9. Compare and contrast licensing, franchising, contract manufacturing, and outsourcing.

Licensing is a trade arrangement in which a licensor allows a licensee to use its company name, products,

patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty.

Franchising is a form of licensing in which the franchiser has a tighter control over the activities of the

franchisee. The franchisee is provided with more support from the franchiser than the licensee. This

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10. Compare multinational and global strategies. Which is best? Under what circumstances might each be

used?

A multinational strategy involves customizing products and promotion to local conditions; a global

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G E T I N V O L V E D

1. If the United States were to impose additional tariffs on cars imported from Japan, what would

happen to the price of Japanese cars sold in the United States? What would happen to the price of

American cars? What action might Japan take to continue to compete in the U.S. automobile market?

2. Although NAFTA has been controversial, it has been a positive factor for U.S. firms desiring to engage

in international business. What industries and specific companies have had the greatest potential for

expanding into Canada and Mexico? What opportunities exist for small businesses that cannot afford

direct investment in Mexico and Canada?

3. Identify a local company that is active in international trade. What is its level of international business

involvement and why? Analyze the threats and opportunities it faces in foreign markets, as well as its

strengths and weaknesses in meeting those challenges. Based on your analysis, make some

recommendations for the business’s future involvement in international trade. (Your instructor may

ask you to share your report with the business.)

B U I L D Y O U R S K I L L S

Answers to this exercise are as follows.

2. B

4. D

7. F

9. I

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B U I L D Y O U R B U S I N E S S P L A N

This chapter allows students to have fun as they learn about living in a global environment. Ask the students

where they have traveled outside the United States. What cultural differences did they notice? Did they

have any problems communicating with the locals?

S E E F O R Y O U R S E L F V I D E O C A S E:

W A L T D I S N E Y A R O U N D T H E G L O B E

Case Overview

This case explores Disney’s road to globalization. Disney’s first international foray came in 1983 in Japan with

the opening of Disneyland in Tokyo. Since then, Disney has opened parks in France and Hong Kong and has

announced that it will open up a large park in Shanghai. This case outlines how Disney had to change its

approach and strategy in order to be successful in international markets. Although the Disney brand is

recognizable the world over, adaptations must always be made to accommodate different tastes,

preferences, and beliefs. Economic, legal, political, and social barriers are difficult to overcome—even for the

most successful corporations. Disney discovered this as its international parks experienced rocky beginnings.

1. What led The Walt Disney Company to believe that its theme parks would be successful

internationally?

Since first opening in California in 1955, Disney theme parks were wildly popular. Americans and tourists

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2. What stumbling blocks did Disney encounter at the France and Hong Kong theme parks?

3. What are some of the factors complicating international expansion for a brand like Disney? What can a

multinational corporation do to mitigate these issues?

T E A M E X E R C I S E

Visit Transparency International’s Country Corruption Index Web site:

T E R M P A P E R O R P R O J E C T T O P I C S

These topics may be assigned as individual or collaborative projects:

2. Business Opportunities and Barriers to Entry in China

4. Case Study of United States Businesses Engaged in International Trade

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G U E S T S P E A K E R S U G G E S T I O N S

1. A representative of the International Trade Administration (part of the Department of Commerce) to

2. An executive from a local firm to describe doing business overseas—advantages, benefits, and problems.

4. A professor or representative of a campus international association to speak on differences in American

business practices and those of other cultures.

T E A C H I N G S U G G E S T I O N S

1. This chapter has much information and many terms to be mastered. Consider different approaches for

imparting information to students. One outside assignment is to have students write the definitions of

2. Because of the number of terms in this chapter, another possibility is to have each student submit two

test questions they have developed from the chapter content. The one restriction to the test questions is

3. Also, for mastery of the information and terms of the chapter, instructors may wish to very carefully

cover all content in a lecture using the PowerPoint slides to reinforce main points.

5. Students should have read the additional boxed material. Discussion questions are given in this

Instructor’s Manual and are available on a slide and transparency master. Break the class into small

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6. The video case can be an outside assignment. One solution is to divide the class in three groups and

assign a question to each group. Discuss written answers to cases. Examples of answers are provided in

this Instructor’s Manual.

7. A list of suggestions for guest speakers and term papers or project topics is provided for each chapter in

this Instructor’s Manual.