CHAPTER 3 Exploring Global Business 3.7 TEXTBOOK ANSWER KEYS 3.7a Return to Inside Business Volkswagen 1. Can Volkswagen be considered a multinational firm? Explain your answer. Volkswagen fits the definition of a multinational enterprise. Although based in Germany, the company has manufacturing facilities in North and South America, Europe, and China. Also, it markets its vehicles in many countries and operates on a worldwide basis, equally “at home” everywhere. 2. Do you agree with Volkswagen’s CEO’s statement that a car company has to be successful in the United States if it wants to be number one in the industry? Why or why not? Students who agree with this statement may argue that the U.S. economy is very important to the global economy. If Volkswagen can be successful in the U.S. market, it can probably transfer some aspects of that success (such as technology or car design) to other markets. Another reason for agreeing with this statement is that customers in other areas may be more inclined to buy from Volkswagen if its vehicles are highly popular in the United States, where many trends are set. On the other hand, students who disagree may point out that each country has its own trends and tastes, and vehicles that are popular in the United States may not be suited to the driving habits or roads of other nations. Also, some consumers in the United States and elsewhere see European products (including cars) as sophisticated and stylish. Being successful in Europe is a good stepping-stone to market leadership, even if Volkswagen doesn’t wind up being among the top car companies in the United States. (Students may make other arguments for both sides of this question.) 3.7b Review Questions 1. Why do firms engage in international trade? Firms engage in international trade for the same reason they engage in domestic trade—to expand their business and profits. 2. What is the difference between an absolute and a comparative advantage in international trade? How are both types of advantages related to the concept of specialization? Absolute advantage is the ability to produce a specific product more efficiently than any other nation. Comparative advantage is the ability to produce a specific product more efficiently than any other products. Relating to the concept of specialization, a nation would be well off if it possessed both advantages. 3. What is a favorable balance of trade? In what way is it “favorable”? A favorable balance of trade results when a country exports more than it imports. That is, it sells more of its own products and services than it purchases, and thus greater profit is earned. 4. List and briefly describe the principal restrictions that may be applied to a nation’s imports. The restrictions that may be applied to a nation’s imports are as follows: a. Tariff (import duty)—a tax that is levied on a foreign product entering a country b. Quota—a limit on the amount of a particular good that may be imported into a country c. Embargo—a complete halt to trading with a particular nation or of a particular product d. Foreign-exchange control—a restriction on the amount of a particular foreign currency that can be purchased or sold e. Currency devaluation—reduction of the value of a nation’s currency relative to the currencies of other countries f. Cultural barriers and bureaucratic red tape 5. What reasons are generally given for imposing trade restrictions? Some of the reasons for trade restrictions are: a. To equalize a nation’s balance of payments b. To protect new or weak industries c. To protect national security d. To protect the health of citizens e. To retaliate for another nation’s trade restrictions f. To protect domestic jobs 6. What are the general effects of import restrictions on trade? Both within the restricting nation and in world trade patterns, import restrictions lead to certain immediate and long-term economic consequences such as (1) higher prices for consumers, (2) restriction of consumers’ choices, (3) misallocation of international resources, and (4) loss of jobs. 7. Define and describe the major objectives of the WTO and the international economic communities. The WTO was established by GATT to oversee the provisions of the Uruguay Round and to resolve any trade disputes among the member nations. All members are obligated to observe GATT rules. The primary objective of the WTO is to remove barriers to trade on a worldwide basis. An international economic community is an organization of nations to promote the free movement of resources and products among its members and to create common economic policies. Major international economic communities include the European Union, the North American Free Trade Agreement, the Association of Southeast Asian Nations, and the Organization of Petroleum Exporting Countries. 8. Which nations are the principal trading partners of the United States? What are the major U.S. imports and exports? Canada, Mexico, China, and Japan are the largest U.S. trading partners. The major U.S. exports and imports are manufactured goods, agricultural products, and mineral fuels. 9. The methods of engaging in international business may be categorized as either direct or indirect. How would you classify each of the methods described in this chapter? Why? The methods of engaging in international business are as follows: a. Licensing—indirect b. Exporting—indirect c. Joint venture—direct d. Totally owned facilities—direct e. Strategic alliances—direct f. Trading companies—indirect g. Countertrade—indirect h. Multinational enterprises—direct 10. In what ways is a multinational enterprise different from a large corporation that does business in several countries? The multinational enterprise operates on a worldwide basis and has no particular “home” country. 11. List some key sources of export assistance. How can these sources be useful to small business firms? Key sources of export assistance are U.S. Export Assistance Centers, the International Trade Administration, U.S. and Foreign Commercial Services, Export Legal Assistance Network, Advocacy Center, American Business Center, the Business Information Service for the Newly Independent States, Eastern Europe Business Information Center, and the National Trade Data Bank. All these sources can be useful to small business firms, especially the Export Legal Assistance Network. 12. In what ways do Ex-Im Bank, multilateral development banks, and the IMF enhance international trade? Ex-Im Bank extends and guarantees credit to overseas buyers of American goods and services, guarantees short-term financing for exports, and discounts negotiable instruments that arise from export transactions. The multilateral development banks are internationally supported banks that provide loans to developing countries to help them grow. The IMF is an international bank that makes short-term loans to countries experiencing balance-of-payment deficits. 3.7c Discussion Questions 1. The United States restricts imports but, at the same time, supports the WTO and international banks whose objective is to enhance world trade. As a member of Congress, how would you justify this contradiction to your constituents? Some quotas and other import restrictions are necessary for national security, health, competition, and safety. Other products, goods, and services need to be internationally promoted. 2. What effects might the devaluation of a nation’s currency have on its business firms, its consumers, and the debts it owes to other nations? The “price” of all goods and services increases, resulting in less-competitive, higher prices. The debts the nation owes to other nations become more difficult to retire. 3. Should imports to the United States be curtailed by, say, 20 percent to eliminate our trade deficit? What might happen if this were done? A trade deficit is not necessarily a bad state of affairs in the short term. Like all debt, it needs to be managed properly. Eliminating all of our deficit would remove some countries’ products from our shelves and would actually discourage U.S. competition and thus harm the consumer. 4. When should a firm consider expanding from strictly domestic trade to international trade? When should it consider becoming further involved in international trade? What factors might affect the firm’s decisions in each case? Expansion should be considered when a company expects to successfully compete within the international market of competitors. Finances, competition, laws, and customs all have an impact on international expansion decisions. 5. How can a firm obtain the expertise needed to produce and market its products in, for example, the EU? A firm can either hire outside agencies to assist in production and marketing, or acquire employees who will specialize in performing in-house services similar to those that outside agencies provide. A firm can also engage in joint ventures or strategic alliances with companies in the EU to obtain their production and marketing knowledge. 3.7d Comments on Video Case 3.1 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. Keeping Brazil’s Economy Hot 1. Do you think the efforts of Brazil’s government to keep the economy growing will be successful? Why or why not? Brazil’s population is the sixth-largest in the world and still growing fast. If its trade with other nations continues to expand, and its poor continue to rise up into the middle class, the nation is likely to keep growing for some time. Lower business taxes and less bureaucratic red tape should make the country more attractive to businesses around the world looking to expand. Investing in infrastructure such as ports, roads, and airports will also help Brazil attract businesses. Tariffs, quotas, and subsidies will protect some of Brazil’s burgeoning industries and could expand the country’s export base. However, Brazilian industries not protected will likely suffer due to the market distortions trade restrictions create. Devaluing the nation’s currency will help boost exports. However, like China, Brazil could find itself in a “currency war” with other nations as a result. 2. What downsides might Brazil experience by implementing quotas, tariffs, and measures to devalue its currency? Some of the downsides will be experienced by Brazilian consumers, who will have fewer products to choose from and will have to pay higher prices for imported products subject to the tariffs and quotas. The tariffs and quotas could also make Brazil a less-attractive market for some foreign firms. Finally, other nations could retaliate by imposing quotas and tariffs on Brazilian-made products. 3.7e Comments on Case 3.2 Global Profits Are a Menu Mainstay at McDonald’s 1. What are the advantages and disadvantages of McDonald’s ringing up sales in so many foreign currencies worldwide? One advantage to ringing up sales in various foreign currencies is that as the value of some currencies declines, the value of others will usually increase. This enables McDonald’s to balance the ups and downs of currencies over time as revenues are received. One disadvantage is that as a U.S. corporation, McDonald’s must report sales and expenses in U.S. dollars when it prepares legally required business documents, which means tracking financial transactions in local currencies as well as in U.S. dollars. 2. Why would McDonald’s use two joint ventures to operate restaurants in different regions of India? McDonald’s wants to work with companies that understand and can respond to the needs and tastes of local customers worldwide. Because customers in different regions of India have slightly different requirements and preferences, McDonald’s works through joint ventures with two different companies. This also allows McDonald’s to learn from the best practices and successes of both joint ventures—and, in turn, to share its lessons learned from other parts of the world with the managers of both joint ventures. 3. Discuss how being a multinational enterprise, with a presence in more than 170 countries, helps McDonald’s build its business regardless of the short-term global economic outlook. When the economy is strong in some parts of the world, it may grow more slowly or even stagnate in other areas. Therefore, McDonald’s global presence allows it to balance the short-term challenges of doing business in slow-growing economies with the short-term opportunities of doing business in fast-growing economies. It also minimizes McDonald’s exposure to the risk of unexpected restrictions to international business, such as sudden currency devaluation. 3.7f Building Skills for Career Success 1. Social Media Exercise Although Nike was founded in the Pacific Northwest and still has its corporate headquarters near Beaverton, Oregon, the company has become a multinational enterprise. The firm employs more than 35,000 people across six continents and is now a global marketer of footwear, apparel, and athletic equipment. Because it operates in 160 countries around the globe and manufactures products in over 900 factories in 47 different countries, sustainability is a big initiative for Nike. Today, Nike uses the YouTube social media site to share its sustainability message with consumers, employees, investors, politicians, and other interested stakeholders. To learn about the company’s efforts to sustain the planet, follow these steps: • Make an Internet connection and go to the YouTube Web site (www.youtube.com). • Enter the words “Nike” and “Sustainability” in the search window and click the search button. 1. View at least 3 different YouTube videos about Nike’s sustainability efforts. 2. Based on the information in the videos you watched, do you believe that Nike is a good corporate citizen because of its efforts to sustain the planet? Why or why not? Students’ answers will depend upon the videos they watch. As an example, if they watch the Nike-Responsibility video, they will learn about the Nike design tool which assists designers in making sustainable decisions. It provides a sustainability “score.” If they watch ReuseAShoebyNike, they will learn about Nike’s shoe recycling program where it breaks the shoe down into three parts and describes its use of recycled fabrics. They might learn about Nike’s waterless dye process through a strategic partnership with DyeCoo, or they might watch the video about Nike’s culture of sustainability, its support of athletes from less-developed countries, or its significant waste reduction in almost all of its products. Any of these should lead students to believe that Nike is a good corporate citizen; in fact, it is an industry leader in sustainability and has won awards because of its success in this area. 3. Prepare a one to two page report that describes how Nike is taking steps to reduce waste, improve the environment, and reduce its carbon footprint while manufacturing products around the globe. Students can expand on the concepts listed above for their paper. Report: Nike's Commitment to Sustainability Introduction Nike, a global leader in athletic footwear and apparel, is increasingly focused on sustainability by reducing waste, improving environmental practices, and lowering its carbon footprint in manufacturing processes worldwide. This report outlines Nike's key initiatives and strategies in these areas. Waste Reduction Initiatives 1. Circular Economy Model: Nike is embracing a circular economy by designing products that can be recycled and repurposed. Their "Move to Zero" campaign aims for zero waste and zero carbon emissions across the supply chain. 2. Recycling Programs: The "Reuse-A-Shoe" program collects old athletic shoes and recycles them into new products or materials for sports surfaces. This initiative has diverted millions of shoes from landfills. 3. Product Take-Back Schemes: Nike encourages consumers to return used products through various take-back programs, facilitating recycling and reducing waste. Environmental Improvements 1. Sustainable Materials: Nike is investing in sustainable materials, such as recycled polyester and organic cotton. By 2025, the company aims to source 100% of its cotton from sustainable sources. 2. Water Conservation: Nike has developed innovative techniques to reduce water usage in production. For instance, their dyeing processes have been optimized to minimize water consumption, reducing overall waste. 3. Energy Efficiency: The company is transitioning to renewable energy sources across its manufacturing facilities. As of 2020, Nike achieved 100% renewable energy in its global owned or operated facilities. Carbon Footprint Reduction 1. Sustainable Manufacturing: Nike partners with suppliers to implement sustainable manufacturing practices that lower carbon emissions. This includes optimizing logistics and reducing energy consumption in factories. 2. Carbon Neutral Goals: Nike aims to become carbon neutral across its global supply chain by 2025. This involves transitioning to electric vehicles for transportation and utilizing cleaner energy sources. 3. Innovative Product Design: Nike is integrating sustainability into product design. The "Flyleather" initiative uses at least 50% natural leather fiber, which reduces carbon emissions by 60% compared to traditional leather production methods. Conclusion Nike's proactive approach to sustainability highlights its commitment to reducing waste, improving environmental practices, and minimizing its carbon footprint. By integrating these strategies into its business model, Nike not only enhances its brand reputation but also contributes positively to global environmental efforts. Continued innovation and consumer engagement will be crucial in advancing these initiatives. 2. Journaling for Success 1. Assume that your friend, who recently lost his job in the automobile industry, is critical of imported Toyotas, Hondas, and Volkswagens. How would you respond to his resentment of imported goods? Student answers may include the following: • First, the friend deserves empathy for the loss of his job. • However, it is not clear that imports are the reason for his job loss. It may have had more to do with attempts by his former employer to be more efficient or to reduce costs. Unfortunately, in any dynamic, competitive environment, change happens and more efficient competitors who are abreast of consumer needs do better. • It might also make sense to ask the friend what other imported goods he purchases and why he does so. 2. What specific reasons will you offer to your friend in support of the fact that international trade is beneficial to society as a whole? • No one nation has an absolute or comparative advantage in the production of everything. • Taking advantage of each nation’s competencies will help everyone be more efficient and keep costs down. • Prices are kept down for consumers if competition is allowed to flourish. • Politically, impoverished nations are a source of unrest and other problems. • Consumers have more choices. 3. Ask your friend what might be some consequences if the trade among nations was banned. • In the United States, we would run out of fuel to run our cars, operate our factories, and warm our homes. Most of our oil comes from overseas. • American farmers would lose significant income from the inability to ship grain and other products overseas. • Island nations such as Japan and England would be unable to import needed materials and food. • Poorer nations might not be able to provide enough food to feed their citizens. 3. Developing Critical-Thinking Skills Students should understand that a number of issues and problems need exploring in this case. It is not simply a situation involving closing the doors of a plant in one country and opening the doors of a plant in another country. Issues that need investigating include: What is your current share of the market? With competition entering, how long can you retain the same share of the market and remain profitable? How much profit are you currently making? Where is the product in the product cycle? How is technology impacting the business, and what is predicted for the future? Can the product be made cheaper by modernizing the current plant? Can the quality of the product be retained after moving the plant to Mexico? How much will it cost to move the plant to Mexico and get it operating? How long will it take to break even? What about language barriers? What about traditions and customs of employees? How much will employee benefits cost? What laws and regulations are in force between Mexico and the United States? What are the political risks? Groups that can provide information include the Mexican Consulate, the Mexican Trade Commission, and the U.S. Department of Commerce. By moving the plant to Mexico, labor costs would be reduced which would make it easier to compete in the world marketplace. High-quality products—for which there is a market—could continue to be produced because the employees want to retain their jobs and they are eager to keep the company profitable. The plant would be providing employment to people in Mexico who need jobs. 4. Building Team Skills The North American Free Trade Agreement (NAFTA) is an agreement among the countries of Mexico, the United States, and Canada. The agreement took effect in January 1994. Its objectives are to phase out all tariffs and quotas over a 10-year period that formerly restricted trade within the bloc. In the first year, trade to North America increased 17 percent, the second year it increased 20 percent, and, in the third year, trade increased 29.9 percent. The heavy traffic from Mexico is impacting travel on our major highways, especially I-35 through the center of the United States. The improperly maintained trucks pose a danger to motorists. More agricultural products are entering the United States giving us more choices, but, at the same time, the safety of many foods and vegetables is being questioned. Officials say NAFTA is creating more jobs, but this may be debatable. For example, in El Paso, Texas, in late 1997 and early 1998, Hasbro, Inc., closed its plant and laid off over 850 workers. Levi Strauss & Company closed three of its seven El Paso plants, putting an additional 1,666 people out of work, and Sun Apparel laid off 250 El Paso workers. Dislocation caused by NAFTA has taken over 10,000 jobs across the Rio Grande to Mexico. Most of the area’s job losses involved primarily minimum-wage positions, but, at the same time, El Paso has attracted about 10,525 higher-skilled, higher-paying manufacturing jobs. Is the dislocation of workers increasing or decreasing jobs? Or are jobs simply changing and NAFTA is a force propelling this movement? 5. Researching Different Careers The country chosen will affect the answers to the questions posed in the exercise. 3.8 QUIZZES I AND II Quiz I True-False Questions Select the correct answer. 1. T F The ability to produce a specific product more efficiently than any other nation is called comparative advantage. 2. T F International business consists of all business activities that involve exchanges across national boundaries. 3. T F The balance of trade is the total value of a country’s exports less the total value of its imports over some period of time. 4. T F An argument for trade restriction is that it protects national security. 5. T F The General Agreement on Tariffs and Trade is an international organization whose goal is to reduce or eliminate tariffs and other barriers to world trade. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. The selling and shipping of raw materials or products to other nations is called a. importing. b. exporting. c. balance of trade. d. balance of payments. e. dumping. 7. A type of trade restriction that limits the amount of a particular good that may be imported into a country during a given period of time is a. a tariff. b. an import quota. c. an embargo. d. foreign-exchange control. e. currency devaluation. 8. An organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies is a. the European Free Trade Organization. b. a global community. c. an economic community. d. an international economic organization. e. a strategic alliance of nations. 9. A firm that operates on a worldwide scale is called a. a multinational enterprise. b. a multilateral development. c. the Export-Import Bank of the United States. d. the International Monetary Fund. e. a strategic alliance. 10. Which of the following arranges the sale of products to foreign intermediaries for a commission or fee? a. Export/import merchant b. Export/import agent c. Sales office or branches d. Joint venture e. Franchisor Quiz II True-False Questions Select the correct answer. 1. T F An absolute advantage is the ability to produce a specific product more efficiently than any other products. 2. T F The balance of payments is the total value of a country’s exports less the total value of its imports. 3. T F Exporting is purchasing raw materials or products in other nations and bringing them into one’s own country. 4. T F An argument against trade restrictions is that they limit consumers’ choices. 5. T F Licensing is a contractual agreement in which one firm permits another to produce and market its product and to use its brand name in return for a royalty or other compensation. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. A reduction of the value of a nation’s currency relative to the currencies of other countries is called a. an embargo. b. foreign-exchange control. c. currency devaluation. d. a quota. e. currency appreciation. 7. Which of the following extends and guarantees credit to overseas buyers of American goods and services, guarantees short-term financing for export, and discounts negotiable instruments that arise from export transactions? a. Ex-Im Bank b. International Monetary Fund c. Multilateral development banks d. Bank of Washington, D.C. e. National Trade Data Bank 8. An argument against trade restriction is a. to retaliate for another nation’s trade restrictions. b. to protect new or weak industries. c. to protect national security. d. misallocation of international resources. e. to protect the health of citizens. 9. An international bank that makes short-term loans to countries experiencing balance-of-payment deficits is the a. Ex-Im Bank. b. International Monetary Fund. c. Export-Import Bank of the United States. d. multilateral development bank. e. World Bank. 10. A partnership with a foreign country that can provide immediate market knowledge and access, reduced risk, and control over product attributes is a(n) a. multinational enterprise. b. economic community. c. joint venture. d. syndicate. e. countertrade. 3.9 ANSWER KEY FOR QUIZZES I AND II Quiz I True-False Multiple-Choice 1. F 6. b 2. T 7. b 3. T 8. c 4. T 9. a 5. T 10. b Quiz II True-False Multiple-Choice 1. F 6. c 2. F 7. a 3. F 8. d 4. T 9. b 5. T 10. c 3.10 CLASSROOM EXERCISES 3.10a Homework Activities • Article Report. Have students bring in an article that shows an example of a company that operates internationally. Have them describe the level of international involvement (licensing, exporting, etc.) and any challenges the company seems to be facing because of doing business internationally. • Where Do Your Products Come From? Have students generate a list of five products they use most frequently. Then have them research the national origin of the companies that make them. • Understanding Other Cultures. To help students understand cross-cultural training, have them research cultural mores and business practices in differing countries and report on their findings in the style of a briefing for employees who are going overseas. This can also take the form of a PowerPoint presentation assignment. 3.10b Classroom Activities • Using the Boxed Insert. Sustaining the Planet contains information about the organization 2degrees. This online global community of thousands of professionals from over 90 countries is wonderful example of globalization. Break the class into groups of three or four students. Students should click on the link from the text and pick one of the discussion topics, discuss it in their small groups for five minutes, and present to the class two new facts they learned from the site. • Match the Brand to the Country. In this fun quiz exercise, students are asked to guess the country of origin of 10 well-known products/companies. This is a five-minute discussion starter exercise that can be done individually or in groups. • Who Does What? This five-minute group exercise helps students understand the concept of comparative advantage (Learning Objective 1). This exercise is best done in small groups of two or three. • Let’s Negotiate! This is a fairly complex group and role-play activity that will take a minimum of 40 minutes. The class is divided into five groups, each of which has control over some necessary element of the learning process. In order to access all of the elements, the groups need to trade with each other. Each group has been assigned a bargaining position. After deciding on a strategy, each group will select two representatives to negotiate for them. This exercise is useful for Learning Objectives 2 and 3 and is especially relevant when discussing trade negotiations such as the Doha Round. This exercise may be combined with a homework assignment to research some of the most recent issues in international trade. Directions for Let’s Negotiate! The objective of the role-play is to demonstrate the difficulty of trade negotiation when different groups have different objectives. All five groups will have been given a different set of directions, which are not to be shared with the other groups until negotiations begin. Each group has discretion as to how much to share. IMPORTANT: Prior to class, separate and make copies of each group’s bargaining position (see handouts at the end of the chapter). These are not to be shared between groups. 1. Divide the class into five different groups: • The Alpha group owns all the writing implements. • The Beta group owns all the paper and notebooks. • The Chi group owns all the textbooks. • The Delta group owns all the computers. • The Epsilon group controls all the power (heat, light, electricity) in the classroom. 2. Hand out the role-play objectives to each group. 3. Arrange 10 chairs in a circle in the front of the room. 4. Each group is to select a negotiating team of two people to represent them. 5. Each group has 10 to 15 minutes to discuss negotiation strategy. 6. Begin the role-play. Each group should have two minutes to express their position before negotiations begin. Non-negotiating members may send notes in to their representatives. Each negotiating team has two one-minute time-outs to confer with the whole group. Approximately 20 minutes should be allowed for the role-play. 7. Debrief the role-play. Obviously, the stumbling block in the negotiations is Delta. Ask students to discuss any parallels they may have read about in the Doha Round. Note: You may wish to ask the class to do homework on the problems of the Doha Round prior to the class when the role-play is held. • Culture Quiz Exercise. Have students take the culture quiz at the end of the chapter. The objectives of the quiz are to stimulate awareness of cultural differences and to promote consideration of the impact of cultural differences in a global economy. This is a self-scored quiz developed to encourage students to explore cultural differences from country to country and to do additional reading about conducting business outside their own country. • Choose Your Country Exercise. Have students analyze the fact sheet about Finland and Brazil, and report on what these factors mean for each country. Students should be able to surmise what products or services might best be exported to these countries from their home country. 3.10c Exercise Handouts Follow on Next Pages Fun Quiz: Match the Brand to the Country If the following brands or product carried a passport, in what country would it be issued? Mack Trucks _______________________________ Bic Pens _______________________________ Grey Goose Vodka _______________________________ Nokia _______________________________ Nestle _______________________________ Nintendo _______________________________ Yahoo! _______________________________ Adidas _______________________________ Heineken _______________________________ Dr. Martens _______________________________ Answers to Fun Quiz Mack Trucks Sweden _ Bic Pens France Grey Goose Vodka United States Nokia Finland Nestle Switzerland Nintendo Japan Yahoo! United States Adidas Germany Heineken Netherlands Dr. Martens United Kingdom Who Does What? In your groups, take 10 minutes to read the following information and answer the questions. Suzy and Heather are twin sisters at the local university. To save money, they have decided to live in university housing together. Both young women have heavy class loads and work part time as well. They need to make the most of their time. Heather is a superb cook. Suzy is great at housekeeping. Unfortunately, Heather is recovering from a broken ankle and moves slowly due to a cast that will be on her leg for the next six weeks. Suzy and Heather calculated how much time it would take them to perform household tasks. Task Time Required to Complete Task Suzy Heather Shopping for groceries 45 minutes 80 minutes Cooking dinner 40 minutes 45 minutes Daily cleaning tasks 60 minutes 90 minutes In your groups, answer the following questions: 1. In which area does Suzy have an absolute advantage? 2. In which area does Heather have an absolute advantage? 3. Based on the above, Suzy should do everything as she can do it faster. Using the concept of comparative advantage, indicate whether you agree or disagree with that statement. If you disagree, what would you recommend to Suzy and Heather? Answers to Who Does What? 1. Suzy has an absolute advantage in everything. 2. Heather has an absolute advantage in nothing. 3. Based on comparative advantage, Heather should cook dinner. Some students may wish to build a case for Heather cleaning as well. Shopping is not an option. Let’s Negotiate! Role-Play Activity (Instructor should make copies of the directions below.) Alpha Group Directions Alpha group believes in free trade. They are happy to share their writing instruments at no fee in order to get access to the other goods. Philosophically, Alpha believes that it is incorrect to charge for any of these materials. The objective of the Alpha group is to obtain free exchange of all academic resources for all. Alpha believes in cooperation and in maintaining relationships. Beta Group Directions Beta group believes in free trade. They are happy to share their paper at no fee in order to get access to the other goods. Philosophically, Beta believes that it is incorrect to charge for any of these materials. The objective of the Beta group is to obtain free exchange of all academic resources for all. Beta feels that it is in everyone’s best interest to have good, cooperative relationships. Chi Group Directions The Chi group believes it has the advantage in negotiations as they control the textbooks. Chi wants to charge a $1.00/day user fee for their textbooks. They realize that students don’t have a lot of discretionary income, however, and are willing to negotiate down from that fee if necessary. Getting a good grade is their first priority, and they will not let money get in the way of that. The objective of the Chi group is to get whatever they can for the use of their books without jeopardizing academics. Relationships and cooperation are more important than the money. Delta Group Directions Delta group believes they have an advantage in negotiations as they control the computers. They absolutely will not permit anyone to use their computers for less than $5.00 a day. They feel that is a small price to pay and will not waver from that position. The objective of the Delta group is to get their $5.00 fee, no matter what. They would rather not have the items from the other groups than give an inch. Relationships are not important to Delta. Epsilon Group Directions Epsilon group believes that because they control heat, light, and electricity in the room, they have an advantage in negotiations. They have no interest in a monetary return for their services. They do, however, want tutoring help from the other students. They are willing to grant power without charge as long as the other students are willing to help either tutor them or form study groups. The objective of Epsilon is to gain cooperation in learning from the other groups. Relationships in the classroom are important to Epsilon. Let’s Negotiate! Class Instructions The objective of negotiations is to come to a mutually acceptable solution, even if there are incompatible objectives. Step 1 Your instructor has handed out your assignment and role-play negotiating position. Your group has 10 minutes to decide what you want in exchange for your assets and to plan your strategy. In those 10 minutes, decide the following: • Whether your objective is victory or agreement • Whether the other participants are adversaries or friends • Whether you plan to offer concessions or dig in on your position • Whether you will make threats or offers • Whether you will disclose your final offer Step 2 Choose two people to represent your group in the role-play and give them instructions. You may wish to suggest that your representatives use the following principles of negotiation: • Determine what the issues are • Separate the issues from the person • Focus on interests, not positions • Try to use objective criteria where possible Step 3 Your representatives will have 20 minutes to achieve their goal. The rest of the group will observe and send in notes to help the representatives as needed. Each team of representatives has two one-minute time-outs to meet with the total group. Step 4 Your instructor will inform you when time is up. At the time, each group will report their success or lack thereof. Consider what behaviors were successful and which were not. The Culture Quiz Background Few, if any, traditions and values are universally held. Many business dealings have succeeded or failed because of a manager’s awareness or lack of understanding of the traditions and values of his or her foreign counterparts. With the world business community so closely intertwined and interdependent, it is critical that managers today become increasingly aware of the differences that exist. How culturally aware are you? Try the questions below. Instructions Working alone or with a small group, answer the questions (without peeking at the answers). When you do look at the answers, be sure to read the explanations. 1. In Japan, loudly slurping your soup is considered to be a. rude and obnoxious. b. a sign that you like the soup. c. okay at home but not in public. d. something only foreigners do. 2. In Korea, business leaders tend to a. encourage strong commitment to teamwork and cooperation. b. encourage competition among subordinates. c. discourage subordinates from reporting directly, preferring information to come through well-defined channels. d. encourage close relationships with their subordinates. 3. In Latin America, managers a. are most likely to hire members of their own families. b. consider hiring members of their own families to be inappropriate. c. stress the importance of hiring members of minority groups. d. usually hire more people than are actually needed to do a job. 4. In Latin America, businesspeople a. consider it impolite to make eye contact while talking to one another. b. always wait until the other person is finished speaking before starting to speak. c. touch each other more than North Americans do under similar circumstances. d. avoid touching one another as it is considered an invasion of privacy. 5. In Thailand, a. it is common to see men walking along holding hands. b. it is common to see a man and a woman holding hands in public. c. it is rude for men and women to walk together. d. men and women traditionally kiss each other upon meeting in the street. 6. When eating in India, it is appropriate to a. take food with your right hand and eat with your left. b. take food with your left hand and eat with your right. c. take food and eat it with your left hand. d. take food and eat it with your right hand. 7. Pointing your toes at someone in Thailand is a. a symbol of respect, much like the Japanese bow. b. considered rude even if it is done by accident. c. an invitation to dance. d. the standard public greeting. 8. American managers tend to base the performance appraisals of their subordinates on performance, while in Iran, managers are more likely to base their performance appraisals on a. religion. b. seniority. c. friendship. d. ability. 9. In China, the status of every business negotiation is a. reported daily in the press. b. private, and details are not discussed publicly. c. subjected to scrutiny by a public tribunal on a regular basis. d. directed by the elders of every commune. 10. When rewarding a Hispanic worker for a job well done, it is best not to a. praise him or her publicly. b. say “thank you.” c. offer a raise. d. offer a promotion. 11. In some South American countries, it is considered normal and acceptable to show up for a social appointment a. 10 to 15 minutes early. b. 10 to 15 minutes late. c. 15 minutes to an hour late. d. one to two hours late. 12. In France, when friends talk to one another a. they generally stand about three feet apart. b. it is typical to shout. c. they stand closer to one another than Americans do. d. it is always with a third party present. 13. The doors in German offices and homes are generally kept a. wide open to symbolize an acceptance and welcome of friends and strangers. b. slightly ajar to suggest that people should knock before entering. c. half-opened suggesting that some people are welcome and others are not. d. tightly shut to preserve privacy and personal space. 14. If you order “bubble and squeak” in a London pub, you will get a. two goldfish fried in olive oil. b. a very cold beer in a chilled glass, rather than the usual warm beer. c. Alka Seltzer® and a glass of water. d. chopped cabbage and mashed potatoes fried together. 15. When a stranger in India wants to know what you do for a living and how much you earn, he will a. ask your guide. b. invite you to his home and, after getting to know you, will ask. c. come over and ask you directly, without introduction. d. respect your privacy above all. Answers to The Culture Quiz 1. b. Slurping your soup or noodles in Japan is good manners in both public and private. It indicates enjoyment and appreciation of the quality. (Source: Eiji Kanno and Constance O’Keefe, New Japan Solo, Japan National Tourist Organization: Tokyo, 1990, p. 20.) 2. b. Korean managers use a “divide-and rule” method of leadership that encourages competition among subordinates. They do this to ensure that they can exercise maximum control. In addition, they stay informed by having individuals report directly to them. This way, they can know more than anyone else. (Source: Richard M. Castaldi and Tjipyanto Soerjanto, “Contrasts in East Asian Management Practices,” The Journal of Management in Practice, 2:1, 1990, pp. 25–27.) 3. a. Family is considered to be very important in Latin America, so managers are likely to hire their relatives more quickly than hiring strangers. (Source: Nancy J. Adler, International Dimensions of Organizational Behavior, 2nd ed., PWS-Kent: Boston, 1991.) 4. c. Touching one another during business negotiations is common practice. (Source: Nancy J. Adler, International Dimensions of Organizational Behavior, 2nd ed., PWS-Kent: Boston, 1991.) 5. a. Men holding hands is considered a sign of friendship. Public displays of affection between men and women, however, are unacceptable. (Source: William Warren, Star Black, and M. R. Priya Rangsit, eds., Thailand, Prentice Hall: Englewood Cliffs, N.J., 1985.) 6. d. In India, as in many Asian countries, toilet paper is not used. Instead, water and the left hand are used, after which the left hand is thoroughly cleaned. Still, the left hand is considered to be polluted and therefore inappropriate for use during eating or touching another person. (Source: Gitanjali Kolanad, Culture Shock! India, Graphic Arts Center Publishing Company: Portland, Oreg., 1996, p. 117.) 7. b. This is especially an insult if it is done deliberately, since the feet are the lowest part of the body. (Source: William Warren, Star Black, and M. R. Priya Rangsit, eds., Thailand, Prentice Hall: Englewood Cliffs, N.J., 1985.) 8. c. Adler suggests that friendship is valued over task competence in Iran. (Source: Nancy J. Adler, International Dimensions of Organizational Behavior, 2nd ed., PWS-Kent: Boston, 1991.) 9. b. Public discussion of business dealings is considered inappropriate. Kaplan, et al. report that, “the Chinese may even have used a premature announcement to extract better terms from executives,” who were too embarrassed to admit that there was never really a contract. (Source: Frederic Kaplan, Julian Sobin, Arne de Keijzer, The China Guidebook, Houghton Mifflin: Boston, 1987.) 10. a. Public praise for Hispanics and Asians is generally embarrassing because modesty is an important cultural value. (Source: Jim Braham, “No, You Don’t Manage Everyone the Same,” Industry Week, February 6, 1989.) In Japan, being singled out for praise is also an embarrassment. A common saying in that country is, “The nail that sticks up gets hammered down.” 11. d. Though being late is frowned upon in the United States, being late is not only accepted but expected in some South American countries. (Source: Lloyd S. Baird, James E. Post, and John F. Mahon, Management: Functions and Responsibilities, Harper & Row: New York, 1990.) 12. c. Personal space in most European countries is much smaller than in the United States. Americans generally like at least two feet of space around themselves, while it is not unusual for Europeans to be virtually touching. (Source: Lloyd S. Baird, James E. Post, and John F. Mahon, Management: Functions and Responsibilities, Harper & Row: New York, 1990.) 13. d. Private space is considered so important in Germany that partitions are erected to separate people from one another. Privacy screens and walled gardens are the norm. (Source: Julius Fast, Subtext: Making Body Language Work, Viking Penguin Books: New York, 1991, p. 207.) 14. d. Other popular pub food includes Bangers and Mash (sausages and mashed potatoes), Ploughman’s lunch (bread, cheese, and pickled onions), and Cottage pie (baked minced meat with onions and topped with mashed potatoes). (Source: Ravi Desai, ed., Let’s Go: The Budget Guide to Britain and Ireland, Pan Books: London, 1990, p. 83.) 15. c. Indians are generally uninhibited about staring at strangers and asking them about personal details in their lives. Social distance and personal privacy are not common social conventions in India. (Source: Frank Kusy, India, The Globe Pequot Press: Chester, Conn., 1989, p. 27.) Choose Your Country Category Finland Brazil Location Northern Europe, bordering Baltic Eastern South America, bordering Atlantic Size Slightly smaller than Montana Slightly smaller than the United States Climate Cool, temperate Mostly tropical Natural Hazards None Recurring droughts in northeast, floods in south Population Size 5 million 201 million Median Age 42 29 Age Structure: 0–14 16% 27% 15–64 67% 67% 65+ 17% 6% Births per Woman 1.7% 2.2% Life Expectancy 79 72 Urban Population 63% 86% Language Finnish Portuguese GDP per Capita $34,000 $10,200 Population below Poverty Almost nonexistent 26% Population Using Internet 88% 32% Industries Metal, electronics, machinery, Textiles, shoes, chemicals, scientific instruments, ship- lumber, iron ore, tin, steel building, paper Agricultural Products Barley, wheat, sugar beets, potatoes, Coffee, soybeans, wheat, rice dairy cattle, fish corn, sugarcane, citrus, beef Choose Your Country Instructor Notes Classroom Activity: Divide the class into groups of four or five. Hand out the fact sheet, and give each group 10 minutes to analyze the facts for each country. For example, Brazilians as a group are younger and have more children than the Finns. The Finns have a significantly higher per capita income. Put together, what do these factors indicate about the country? Then, based on this assessment, ask students what types of products might best be exported to these countries from their home country. Remind them to consider not only consumer products or services. They should also discuss what products/services might be used in agriculture or industry. Finally, ask each group to briefly present their findings. A rationale based on the initial analysis for each product/service exported must be provided. Homework Activity: Choose Your Country may also be assigned as a homework project, similar to the activity above. It could also be expanded into a longer research project. See below for links to more complete data on each nation. Finland: https://www.cia.gov/library/publications/the-world-factbook/geos/fi.html#top Brazil: https://www.cia.gov/library/publications/the-world-factbook/geos/br.html RUNNING A BUSINESS—PART 1 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. Let’s Go Get a Graeter’s! 1. How have Graeter’s owners used the four factors of production to build the business over time? The four factors of production are land and natural resources, labor, capital, and entrepreneurship. Natural resources such as fresh cream and other ingredients are essential to producing premium-quality ice cream. Labor originally referred to the cofounders’ time and effort in making small batches of ice cream and selling it by themselves. Today, Graeter’s employs many people to operate its facilities and shops and has hired consultants as needed to obtain expert advice. Capital was vital to the company’s expansion in the twentieth century and, more recently, when the current owners decided to open a new production plant. Graeter’s owners have skillfully used entrepreneurship to build the family business over time. The cofounders who started the business, especially Regina Graeter, successfully used their knowledge and skill to coordinate the other three factors when expanding to new ice-cream shops and investing in larger production facilities, despite the considerable risks. Richard Graeter refers to the need for innovation to keep the business growing, a key element in entrepreneurship. 2. Which of Graeter’s stakeholders are most affected by the family’s decision to take a long-term view of the business rather than aiming for short-term profit? Explain your answer. Stakeholders are people or groups affected by Graeter’s policies, decisions, and activities. Because Graeter’s is creating new jobs by deciding to expand for long-term growth, its employees and managers are greatly affected. The local community is affected because it benefits from Graeter’s investment in facilities and Graeter’s paying more in taxes as it expands, although the neighborhood must also put up with increased traffic and other negatives. The company’s suppliers are greatly affected because they are able to sell Graeter’s more ingredients and other materials and equipment needed as a result of the expansion. Students may indicate that other stakeholders are being affected, as well. 3. Knowing that Graeter’s competes with multinational corporations as well as small businesses, would you recommend that Graeter’s expand by licensing its brand to a company in another country? Why or why not? Students who believe Graeter’s should license its brand may say that this is a way for Graeter’s to profit from globalization and learn something about other markets without risking a lot of money. Safeguards must be built into the agreement to protect the quality of the ice creams produced by the company that receives the license. Otherwise, Graeter’s brand may suffer. These students may also point out that Graeter’s could be sure that the firms to which it licenses the brand will not compete with Graeter’s or with each other. On the other hand, students who disagree with the idea of licensing in this situation may emphasize that Graeter’s is extremely protective of product quality and can’t afford to have anything less than premium quality ice cream produced anywhere. These students may also note that monitoring the quality and operations of firms in other countries is not easy, especially for a small family firm with limited resources. BUILDING A BUSINESS PLAN Project Overview The Building a Business Plan project appearing at the end of each part in Business, 12e, offers students a unique opportunity to create an actual business plan document. The goal is to help your students work through the process of creating a business plan by directing them to research and write parts of their plan as they work their way through the textbook and your course. There are seven exercises that appear at the end of each part of the textbook. You may choose to assign the project as individual or group work. Either way, this can be a large undertaking, so we recommend that you assess each part of the plan as your students complete it so that you can redirect them in case they veer off in an inappropriate direction. As students approach each new section of the plan, encourage them to revisit the sections they wrote earlier so that they can refine their plan based on their new knowledge and on their continuing research about their business. In addition to assessing the written document in pieces and in its entirety at the end of the course, you may wish to require that students present their completed business plans to the class as if they were applying for loans to start their businesses. Be sure to make your expectations for the completed business plans clear at the beginning of the course by telling students how and when you plan to evaluate their work. Before you assign the project, we suggest you read through all the exercises and the notes that follow so that you can point out potential trouble spots to your students along the way. To help give your students an overview of the project, refer them to Chapter 5 and to Table 5.3, Components of a Business Plan, and Table 5.4, Business Plan Checklist. You might also tell them that, although the exercises include questions that should be addressed in the business plan, the final document should not be written in question/answer format. The final business plan should be a comprehensive document, written in paragraph form (with bulleted and/or numbered lists where appropriate), including the major sections noted in the exercises. Building a Business Plan—Part 1 The exercise for this part should help students make some basic decisions and complete the research for the Introduction and The Benefits-to-the-Community components of the business plan. The First Step: Choosing Your Business In this section, students should adequately address why they chose their particular type of business, why it will be successful, and why they would enjoy owning and operating this type of business. Caution students not to rush through this first step. The Introduction Component Students should begin with the cover page, provide background information on the proposed company including the general nature of the business, include a summary statement of the financial needs, and write a statement of confidentiality. The Benefits-to-the-Community Component Students should describe the potential benefits to the community. Refer students to the content of Chapter 2 to help them with this section. Review of Business Plan Activities Remind students that a business plan is a living document that should be referred to continuously to ensure that plans are being carried through appropriately. As the business environment changes, the business plan should be fine-tuned accordingly. Also, remind students to continually revisit parts of the plan already written and refine them as they acquire more comprehensive knowledge about business. Point out that the second component—the Executive Summary—should be written last, but because of its importance to potential investors, it appears after the introduction in the final business plan. Finally, make sure that students resolve any issues in these early components of their business plans before beginning Part 2. Also, students should write a brief statement that summarizes all the information for this part of the business plan. Chapter 3 Video Case: Keep Brazil’s Economy Hot RUNNING TIME: 2:46 Chapter 3 introduces the world of global business. International business encompasses all business activities that involve exchanges across national boundaries. A nation’s balance of trade is the difference between the value of its exports and the value of its imports. Its balance of payments is the difference between the flow of money into and out of the nation. Nations tend to use tariffs and nontariff barriers (import quotas, embargoes, and other restrictions) to limit trade. A firm can enter international markets in several ways, and each of these methods represents an increasingly deeper level of involvement in international business. Concepts Illustrated in the Video • Exporting • Importing • International Business • Balance of Trade • Currency Valuation • Tariffs • Quotas • Global Economy • Emerging Market VIDEO CASE SUMMARY Brazil is considered an emerging market; the country is going through economic development and economic reform. Imports from China have increased 60 percent, and Brazil, with its abundant supply of natural resources, will supply China with iron ore and other raw materials. To that end, the Açu Superport, also known as the “Highway to China,” located off the coast of Rio de Janeiro will be able to service the Chinamax, a vessel capable of shipping huge amounts of natural resources. Having experienced economic growth for several years in a row, more Brazilians have moved out of poverty and have become consumers with money to spend. Many of the goods being purchased are imported goods from China. In addition, people of all income levels are purchasing homes. Those at lower income levels may pay mortgage interest rates of up to 25 percent. They are willing to pay the high interest rates because they view home ownership as “achieving the dream.” Critical-Thinking Questions Using information from the case and the video, answer the following questions: 1. What are some of the advantages that a strong Brazilian currency does for its population, and what are some of the challenges of having a strong currency relative to another currency? A strong Brazilian “real” means that this currency buys more of a foreign country’s goods when that country’s currency relative to the “real” is weaker. This can be good for consumers and international travelers because goods and services they want to buy are less expensive and places where they want to travel are a better value. The downside is that Brazilian companies that sell goods to foreign customers suffer, because, relative to a weaker currency, their goods and services cost more. 2. Explain why the Brazilian government is concerned about its balance of trade with China. If a country exports fewer goods than it imports, it experiences a negative balance of trade. This is not good for job creation or economic growth. Two serious economic consequences of a negative balance of trade are higher unemployment and slower economic growth for the country running the deficit. 3. What does a higher external demand for goods and services in a country do for the standard of living of its citizens? A higher external demand for a country’s goods and services means the country would increase the export of goods. Increased demand means more capital flows into the country, more jobs are created, and more citizens have an opportunity to raise their standard of living. Chapter 3 Lecture Launcher: Urban Farmz Goes Global VIDEO SUMMARY Urban Farmz “goes global” after Grandpa and Jake make a trip to Paris. There they meet a woman, Ami, who makes delectable jams and mustards for her café. She would like to export them to America. Better yet, after looking at Urban Farmz’s products on its Web site, Ami decides she wants to import some of them to Paris as part of her business. So, not only will Urban Farmz be directly importing products, but it will also be directly exporting them. Now the business needs to jump through regulatory import-export hoops it hasn’t encountered before. Grandpa explains to Caleb what they must do. Solution Manual for Business William M. Pride, Robert J. Hughes, Jack R. Kapoor 9781133595854, 9780538478083, 9781285095158, 9781285555485, 9781133936671, 9781305037083
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