Incoterms 2010 and International Business - 101
Incoterms 2010 and International Business - Wild - Quick Study - Chapter 5
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 5
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Quick Study
Quick Study 1
- Q: List several benefits of international trade?
A: International trade provides a country’s people with a greater choice of goods and services. International trade is also important in job creation in many countries.
- Q: World merchandise exports are valued at how many times the value of worldwide service exports?
A: World merchandise exports are valued at more than $14 trillion, and service exports are worth more than $4 trillion. Trade in services accounts for only around 20 percent of total world trade.
- Q: What portion of total world merchandise trade is accounted for by two way trade between high income economies?
A: Trade among the world’s high-income economies accounts for roughly 60 percent of total world merchandise trade. Two-way trade between high-income countries and low- and middle-income nations accounts for about 34 percent of world merchandise trade. Meanwhile, merchandise trade between low income and middle income nation’s accounts for only 6 percent of world trade.
- Q: What term often describes the nature of trade between a developing nation and a neighboring wealthy one?
A: Trade interdependence: emerging markets that share borders with developed countries are often dependent on their wealthier neighbors.
Quick Study 2
- Q: What did the successful implementation of mercantilism require?
A: The practice of mercantilism requires three key essentials: (1) trade surpluses, (2) active government intervention, and (3) practicing colonization.
- Q: Mercantilist nations acquired colonies around the world to serve as sources of what?
A: It was a source of a nation’s economic power that in turn increased political power relative to other countries.
- Q: What name is given to the belief that a nation can increase its wealth only at the expense of other nations?
A: Countries seen by others as trying to maintain a trade surplus and expand their national treasures at the expense of other nations are accused of practicing neo mercantilism or economic nationalism.
Quick Study 3
- Q: A nation that is able to produce a good more efficiently than other nations is said to have what?
A: An absolute advantage is the ability of a nation to produce a good more efficiently than any other nation.
- Q: What does a nation have when it is unable to produce a good more efficiently than other nations but it can produce the good more efficiently than it can any other good?
A: A comparative advantage is the inability of a nation to produce a good more efficiently than other nations, but an ability to produce that good more efficiently than it does any other good. This is different from an absolute advantage in that it focuses on production efficiency within nations, not just among nations.
- Q: The theories of absolute and comparative advantage say that nations benefit from trading because of the gains from what?
A: Trade between two nations can still be beneficial even if one country is less efficient in the production of two goods, so long as it is less inefficient in the production of one of the goods. Even when one country is more efficient at producing both of the goods in question, both nations benefit from trade because of the gains from specialization. The country more efficient at producing both goods still gets more after specialization and trade than it would if it were to produce both goods on its own.
Quick Study 4
- Q: What is the name of the theory that says countries produce and export goods that require resources that are abundant and import goods that require resources in short supply?
A: Factor proportions theory says countries produce and export goods that require resources that are abundant and import goods that require resources in short supply.
- Q: Factor proportions theory divides a nation’s resources into what two categories?
A: The theory states that a nation has two types of resources at its disposal: labor on the one hand and land and capital equipment on the other. The theory predicts that a country will specialize in products that require labor if the cost of labor is low relative to the cost of land and capital, and vice versa. The Leontief Paradox reflects the gap between the predictions using this theory and the actual trade flows in the world economy.
Quick Study 5
- Q: The international product life cycle theory says that a company will begin by exporting its product and later undertake “what” as the product moves through its life cycle?
A: The international product life cycle theory states that a company will begin exporting its product and later undertake foreign direct investment as the product moves through its life cycle.
- Q: List the three stages that a product goes through according to the international product life cycle theory.
A: The international product life cycle theory states that a company will begin by exporting its product and later undertake foreign direct investment as the product moves through its life cycle. In the new product stage, high purchasing power and demand of buyers in an industrialized country spurs a company to design and introduce a new product concept and production remains at home. In the maturing product stage, the domestic and markets abroad become aware of the existence of the product and its benefits. Exports rise and some production in markets abroad may begin. In the standardized product stage, competition from other companies selling similar products pressures companies to lower prices in order to maintain sales levels. An aggressive search for low-cost production bases abroad begins and the home market may even begin importing from these other markets.
- Q: Whenever optimizing productivity determines where a product’s components are manufactured and where it is assembled, the resulting pattern of activities resembled that predicted by which theory?
A: This pattern resembles the theory of comparative advantage in that a product’s components are made in the country that can produce them at a high level of productivity.
Quick Study 6
- Q: What is the main thrust of new trade theory?
A: The new trade theory argues that: (1) there are gains to be had from specialization and increasing economies of scale; (2) those companies first to market can create barriers to entry; and (3) government may have a role to play in assisting its home-based companies.
- Q: The economic and strategic advantage gained by being the first company to enter an industry is called what?
A: A first-mover advantage is the economic and strategic advantage gained by being the first company to enter an industry.
Quick Study 7
- Q: The national competitive advantage theory states that a nation’s competitiveness in an industry depends on the capacity of the industry to do what?
A: National competitive advantage theory states that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. An “advanced” factor is indicative of factors such as skill levels of workers and the quality of technology in a nation.
- Q: The four main components of the Porter diamond are: (1) factor conditions, (2) demand conditions, (3) firm strategy, structure, and rivalry, and what else?
A: The Porter diamond consists of four elements that form the basis of competitiveness, plus the roles of government and chance. Factor conditions include a nation’s basic factors (e.g., land, labor, and natural resources) and advanced factors (e.g., skills of the workforce, technological infrastructure). Today, advanced factors are increasingly important to competitiveness. Demand conditions refer to the sophistication of buyers in a market—finicky buyers help a nation to be more competitive. Related and supporting industries that spring up around a competitive industry form geographic clusters of related economic activity that reinforce productivity and competitiveness. Firm strategy, structure, and rivalry also influence competitiveness. Managers committed to producing quality products and an industry structure that intensifies firm rivalry will help improve competitiveness.
Government and chance play roles in fostering the competitiveness of industries. Government policies toward industry and export and import regulations can hurt or help competitiveness. Chance events also can influence national competitiveness.
- Q: A group of related industries that spring up in a geographic area to support a nation’s internationally competitive industry is called a what?
A: A cluster is a group of related industries that spring up in a geographic area to support a nation’s international competitive industry. Each industry in the cluster serves to reinforce the productivity, and therefore, competitiveness of every other industry within the cluster.
First in Asia and the World
5-16. Q: As the first to set up an international air express business in 1969, DHL had the first-mover advantage over other companies. Is being a first mover as advantageous for a service company such as DHL, as it is for a manufacturing company such as Boeing? Explain.
A: In theory, the principle of first-mover advantage is the same for a service firm and a manufacturer. The first-mover advantage is based on economies of scale and strategic benefits of being first. There are economies of scale in services as there are economies of scale in production and the strategic benefits of being first apply to services as well. Expedia is a prime example of this in Internet travel services.
5-17. Q: What elements are necessary for a service company to achieve global success?
A: Key to a service company’s success in markets abroad is the people that represent the company. Because services are provided and consumed simultaneously, a buyer’s impression of the provider is largely based on the experience it has during its interaction with the company. In contrast, a buyer can have an unpleasant purchase experience of a physical product but be so pleased with the product’s performance that repeat purchase is assured. Thus, the most important element or obstacle to a service firm operating internationally is the training of employees to supply the highest quality service experience as possible to buyers.
5-18. Q: Instead of relying on local agents, DHL prides itself on having its own staff of more than 300,000 people across the globe. What are the merits and drawbacks of this international staffing approach?
A: The potential problems of using this approach rest in effective training and management of employees in markets abroad. This approach can also increase the cost of providing a service, although it is believed that special employee training and oversight allows the company to provide higher quality service.
5-19. Q: What do you think are the dangers, if any, of being a first mover?
A: DHL largely overreached in its expansion throughout the United States. It underestimated its competition and faced a global recession after launching its expansion strategy. Perhaps the biggest danger of being a first mover is complacency. Companies can easily develop hubris at their rapid growth and dominance of the industry. New, more agile companies may come along and knock them off their pedestal by being more attuned to customers’ needs. Start-ups might also employ a new business model (approach to doing business in the industry) and take market share away from the leader.
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