Incoterms 2010 and International Business - 101
Incoterms 2010 and International Business - Wild - Quick Study - Chapter 4
Incoterms 2010 and International Business - 101
International Business: The Challenges of Globalization, 8th Edition, Wild & Wild
Incoterms 2010 and International Business - Wild - Quick Study - Chapter 4
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Quick Study
Quick Study 1
- Q: An increase in the economic well-being, quality of life, and general welfare of a nation’s people is called what?
A: Economic development is a measure for gauging the economic well-being of one nation’s people, as compared to that of another nation’s people.
- Q: What are the drawbacks of using national production to measure economic development?
A: National production provides a good estimate of a nation’s overall wealth. It provides marketers with a broad indicator of whether a nation’s people are wealthy enough to purchase their products. It also gives managers an overall indicator of whether a nation has the level of development to support production facilities.
But there are problems with national production as an indicator of economic development. First, estimates for the wealth generated in the official economy can be almost meaningless for countries with large, shadow economies or those that extensively employ barter. Second, national production figures alone do not tell whether an economy is growing, static, or shrinking. Third, national averages ignore differences among different regions within a nation. Fourth, simply converting national production figures at official exchange rates does not provide any indication of the quantity of goods that money can actually buy in an economy. Finally, this indicator takes into account only the financial well-being of a people.
- Q: The human development index measures what aspects of a nation’s development.
A: The United Nations human development index (HDI) evaluates the extent to which a government equitably provides its people with a long and healthy life, an education, and a decent standard of living. This indicator goes beyond estimating only financial wealth and directly assesses human aspects of development.
Quick Study 2
- Q: What does the economic transition process involve?
A: Several reform measures include: (1) stabilize the economy, reduce budget deficits, and expand credit availability; (2) allow prices to reflect supply and demand; (3) legalize private business, sell state-owned companies, and support property rights; and (4) reduce barriers to trade and investment and allow currency convertibility.
- Q: What are the key obstacles for countries in transition?
A: (1) A lack of managerial expertise caused by the fact that central planners formerly decided nearly every aspect of the nation’s commercial activities hampers progress today. There was little need for managers to learn management skills including how to develop production, distribution, pricing, and marketing strategies. (2) A shortage of capital presents special problems because of the high cost of economic transition. Governments of nations in transition can often afford only a portion of the required investment. These nations lack capital because of the disastrous financial management during the years of central planning. (3) Economic transition can be especially slow when a nation’s people find reform difficult for cultural reasons. In addition, importing modern management practices without tailoring them to the local culture can have serious consequences. (4) Environmental degradation caused by the headlong rush among transition economies to catch up to developed countries is leaving serious environmental damage in its wake. The direct effects of environmental destruction are evident in increased levels of sickness and disease, including asthma, blood deficiencies, and cancer—which obviously negatively impact national productivity.
- Q: Transition replaces dependence on the government with greater emphasis on what?
A: The process involves several key reform measures to promote economic development. These include: (1) stabilizing the economy, reducing budget deficits, and expanding credit availability; (2) allowing prices to reflect supply and demand; (3) legalizing private business, selling state owned property rights; and (4) reducing barriers to trade and investment and allowing currency convertibility.
Quick Study 3
- Q: How does political abroad risk affect companies?
A: Terrorism aims to create fear and force change through the sudden and unpredictable destruction of life or property. Kidnapping and the taking of hostages may be used to fund a terrorist group’s activities. Each of these increases risks for international companies because expatriate executives are prime targets because their companies can afford large ransoms. Property seizure also increases the risks for international firms and can cause them to avoid investing in nations implementing such tactics. Policy changes can result from civil or social unrest or might represent the views of newly empowered political parties. They can cause managers to regard a nation’s business environment as one of a “field of moving goal posts.” Local content requirements are regulations that require international manufacturers to use a certain amount of local resources. They foster local business activity and ease regional or national unemployment, but can also force companies to invest elsewhere if they are too confining.
- Q: Companies fear open violence and conflict abroad because it can threaten to do what?
A: Conflict and violence can arise from people’s resentment toward their government or over territorial disputes between countries. Violent disturbances impair a company’s ability to manufacture and distribute products, obtain materials and equipment, and recruit talented personnel.
- Q: What is the name given to the forced transfer of assets from a company to the government with compensation?
A: Expropriation is the forced transfer of company assets with compensation.
Quick Study 4
- Q: How can a company incorporate political risk into its business strategies?
A: (1) Adaptation involves incorporating risk into business strategies—often with the help of local officials. Companies can incorporate risk by establishing partnerships, localizing operations, offering development assistance, and obtaining insurance. (2) Information gathering involves monitoring and even trying to predict political events that could threaten local operations and future earnings. (3) Political influence involves proposing changes that positively affect their local activities, often through lobbying.
- Q: What is a good source of information to help conduct accurate political risk forecasting?
A: There are two sources that companies use to conduct accurate political risk forecasting. Current employees who have worked in a country long enough to gain insight into local culture and politics are often a good source of information. Second, agencies specialized in providing political risk services include banks, political consultants, news publications, and risk assessment services.
- Q: What might result from unfavorable political relations among countries?
A: Unfavorable political relations among countries will foster an unstable business environment, decreasing business opportunities, increasing risk, and hindering economic development.
Quick Study 5
- Q: During what time period did China undergo its most rigorous experience with central planning?
A: China began its experiment with central planning in 1949, after the communists defeated nationalists in a long and bloody civil war.
- Q: What challenges might pose a threat to China’s future economic performance?
A: Political and social problems pose threats to China’s future economic performance. The nation’s leadership has poor relations with ethnic minorities and skirmishes between secular and Muslim Chinese in western provinces still occur. For the most part, political leaders restrict advanced democratic reforms. Protests sporadically arise from time to time whenever ordinary Chinese citizens grow impatient with political progress.
Another potential problem is unemployment, largely the result of the collapse of state-owned industry, intensified competition, and entry of international companies into China.
- Q: Over what aspects of Russia’s centrally planned economy did planners exercise control?
A: Russia’s experience with Communism began in 1917. For the next 15 years, factories, distribution, and all other facets of operations, as well as the prices of labor, capital, and products were controlled by Russia’s government.
- Q: What might challenge Russia’s future economic prospects?
A: Political instability, especially in the form of intensified nationalist sentiment is a potential threat to progress; for example, The Russia–Georgia military confrontation and the Russian annexation of the Crimean peninsula in the Ukraine in 2014. Finally, Russia’s unstable investment climate is another concern among international business, which stems from the governments attacks on business owners who disagree with official policy and on firms that it wants to control.
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Ethical Challenge |
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You are managing director of your U.S. firm’s subsidiary in southern France. The social welfare states of Western Europe were founded in the Second World War with specific ethical considerations in mind: reduce social and economic inequality, improve living standards for the poor, and provide nearly free health care for all. Many countries in Western Europe have trimmed social welfare provisions, privatized businesses, and increased their reliance on market forces.
4-5 Do you think that the cultures of Western Europe have changed over the years and that such ethical concerns are a remnant of the past?
4-6 Do you think that free-market reforms will simply re-create the conditions that gave rise to the welfare state in the first place?
4-7 What can governments do for workers who become displaced, or perhaps obsolete, in a more open and competitive economy?
A: As a manager, you must convey to your workers that there are risks involved with capitalism, yet the potential rewards are great. Ethical issues never become dated. The dilemma of the role of the state in providing for its people was argued two thousand years ago by the great philosophers of the time. The issues remain the same, only the context is different. The reason many Western European nations are cutting back on corporate welfare is because they believe market forces are more efficient at allocating resources in most situations. They are also imposing austerity programs to reduce rising government debt levels since the global recession began in 2008–2009. The extent to which these nations cut back on social-welfare benefits for individuals is difficult to estimate. However, it is highly unlikely that we will anytime soon see the kinds of conditions that existed in Europe immediately following the Second World War.
Cuba Comes Off Its Sugar High
4-16 Q: Why do you think the Cuban government requires non-Cuban businesses to hire and pay workers only through the government?
A: The Cuban government is clearly skimming off the top the difference between what it is being paid for workers and what is actually paid to workers. This allows the government to keep the people under its thumb because they continue to feel powerless with little or no voice in matters. The practice also allows the government to control where these profits go such as into the military, infrastructure, or perhaps into the private offshore bank accounts of politicians and powerful business leaders.
4-17 Q: Suppose Cuba’s government collapses and the nation embarks on a path of economic transition. How might Cuba’s experience differ from that of Russia and China?
A: There are obviously a large number of possible scenarios. Students should be encouraged to be creative, yet realistic. They should recognize several important differences between these nations. First, Cuba became communist in 1959 (versus 1917 for Russia) and this might mean that the roots of communism are shallower. Second, the tie with the United States is very strong with there being a large Cuban-American population waiting for economic reform to begin in Cuba so they can invest and help their people’s development. Although there are many Russian- and Chinese-Americans, their proportion is not as great as the proportion of Cuban-Americans relative to the population of Cuba. Third, because of the difference in size between Cuba and the United States, U.S. companies will likely dominate the Cuban landscape very quickly—the scale of which could not occur in Russia or China.
4-18 Q: A U.S. law permits U.S. companies to sue firms from other nations that traffic in U.S. property nationalized by Cuba. The law also empowers the U.S. government to deny entry visas to the executives of such firms as well as their families. Why does the United States maintain such a hard line against doing business with Cuba?
A: Implementation and enforcement of this law, called the Helms-Burton Law, have been repeatedly suspended by the United States in fear of reprisals from Canada and European nations. Reasons for the continued embargo are rooted in politics and foreign relations. The main political argument is rooted in continued U.S. policy against allowing a communist nation to operate freely just 90 miles from the United States (the “not in this hemisphere” argument).
As far as whether it is in the best interest of the United States, there are again political and economic arguments involved. Obviously, there is no easy answer to such a question. Although U.S. companies cannot invest now, they will likely have little trouble catching up to others as soon as political and economic reforms occur. In discussing whether it is in the United States’ best interest, students might want to consider the perspective of many Cuban-Americans who themselves engage in debate over whether the embargo should continue because of the impact on ordinary citizens.
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