END-OF-CHAPTER PROBLEMS
1.1) Describe the shifts in the world
economy over the last 30 years. What are
the implications of these shifts for international businesses based in Britain, North America, and Hong Kong?
Over the last 30 years, there has
been a shift away from a world in which national economies are relatively
self-contained entities, isolated by barriers to trade and investment, and
differences in government regulation, culture, and business systems and toward
a world where barriers to trade and investment are declining, cultures are
converging, and national economies are merging into an integrated,
interdependent global economic system.
As companies from Japan and emerging markets like China play a more vital role in
the world economy, the dominance of companies from the United States and Western Europe has diminished. Significant implications for British firms
involve their need to look beyond Europe and America for investment and
opportunities. Consumer spending power
is growing the most quickly in developing countries. British firms also face the opportunity (and
the threat) of attracting Asian firms interested in Britain as a launch pad for the
European market. For North American
firms, the same holds true, although the importance of the increasing prosperity
in Latin
America suggests a potentially huge market in “their backyard.” Hong Kong, while losing its
“independence”, is perceived as the gateway to the immense market of mainland China. While the free market freedoms Hong Kong firms have enjoyed are now
less taken for granted, access to China is improving along with
the move towards a market economy within China. International businesses based in all three
locations are facing new opportunities and threats.
1.6) If current trends continue, China may emerge as the world’s
largest economy by 2010. Discuss the
possible implications for such a development for a. the world trading system;
b. the world monetary system; c. the business strategy of today’s European and
US-based global corporations; and d. global commodity prices.
China is continuing to move
toward greater free market reforms, and if it stays on its present track, could
become an industrial superpower in the near future. China, with its 1 billion
people, is a largely untapped market for firms.
By some estimates, the Chinese economy could be larger than that of the United States on a purchasing power
parity basis. Already, annual foreign
direct investment has jumped from less than $2 billion in 1983 to $70 billion
in 2006. China is also making waves in
international markets as its firms like Hisense (see Management Focus: China’s Hisense—An Emerging
Multinational) prove to be world class competitors.
2.4) The Nobel prize-winning
economist Amartya Sen argues that the concept of development should be
broadened to include more than just economic development. What other factors
does Sen think should be included in an assessment of development? How might
adoption of Sen’s views influence government policy? Do you think Sen is
correct that development is about more than just economic development? Explain.
Sen argues that the ultimate goal of economic life is freedom. Hence, development requires the removal of
major impediments to freedom: poverty as well as tyranny, poor economic
opportunities as well as systematic social deprivation, neglect of public
facilities as well as the intolerance of repressive states. In Sen’s view,
development is not only an economic process, but a political one too, and to
succeed requires the democratization of political communities to give citizens
a voice. Sen’s philosophy forces us to confront the fact that economic
development is but one measure of a country’s overall development. Governments that are influenced by Sen’s
philosophy would value greater freedom for their citizens, usually by
exchanging economic development in favor of greater individual freedom. Sen is clearly right— a country that is
economically prosperous while still limiting or imprisoning its citizens will
ultimately wither because it will be stifling the individual entrepreneurship
that leads to economic vitality.
2.5) You are the CEO of a company
that has to choose between making a $100 million investment in Russia or the Czech Republic. Both investments promise
the same long-run return, so your choice is driven by risk considerations.
Assess the various risks of doing business in each of these nations. Which
investment would you favor and why?
When assessing the risks of investment, one should consider the political,
economic, and legal risks of doing business in both Russia and the Czech Republic. The political risk in Russia is still high but it is
undergoing continual governmental changes under Putin’s leadership, and
courting foreign investment. Relatively, the Czech Republic is more stable, but it may
have less potential. On the economic
front, both countries have inflation and high economic turmoil as unproductive
factories are still struggling. From the
legal perspective, the Czech Republic is making clear progress,
while the situation in Russia is unclear. Thus at this time, the risk in Russia would clearly be higher.
(For discussion or to modify this question, you might want to substitute other
countries into this question depending on current events and the countries with
which your students will be most familiar.)
