download instant at http://testbankinstant.

com

Instructor’s Manual
International Business
Sixth edition

Alan M. Rugman
Simon Collinson

For further instructor material

please visit:
www.pearsoned.co.uk/rugman
ISBN: 978-0-273-76098-6

 Pearson Education Limited 2013

Lecturers adopting the main text are permitted to download and photocopy the manual as required.
download instant at http://testbankinstant.com

PEARSON EDUCATION LIMITED

Edinburgh Gate
Harlow CM20 2JE
United Kingdom
Tel: +44 (0)1279 623623
Web: www.pearson.com/uk
________________________________

First published 2002 (print)

This edition published 2013 (electronic)

© Pearson Education Limited 2013 (electronic)

The rights of Alan M. Rugman and Simon Collinson to be identified as authors of this work
have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

ISBN 978-0-273-76098-6

All rights reserved. This ePublication is protected by copyright. Permission is hereby given for
the material in this publication to be reproduced for OHP transparencies and student handouts,
without express permission of the Publishers, for educational purposes only. In all other cases,
this ePublication must not be copied, reproduced, transferred, distributed, leased, licensed or
publicly performed or used in any way except as specifically permitted in writing by the
publishers (or, where applicable, a licence permitting restricted copying in the United Kingdom
should be obtained from the Copyright Licensing Agency Ltd, Saffron House, 6-10 Kirby
Street, London EC1N 8TS) as allowed under the terms and conditions under which it was
purchased, or as strictly permitted by applicable copyright law. Any unauthorised distribution or
use of this text may be a direct infringement of the author's and the publishers' rights and those
responsible may be liable in law accordingly.

Pearson Education is not responsible for the content of third-party internet sites.

2
download instant at http://testbankinstant.com

Contents

Chapters Pages
Chapter 1 Regional and global strategy 6
Chapter 2 The multinational enterprise 15
Chapter 3 The triad and international business 23
Chapter 4 International politics 29
Chapter 5 International culture 38
Chapter 6 International trade 49
Chapter 7 International financial markets and institutions 59
Chapter 8 Multinational strategy 69
Chapter 9 Organizing strategy 79
Chapter 10 Corporate strategy and national competitiveness 89
Chapter 11 Innovation, Entrepreneurship and ‘Born Global’ Firms 99
Chapter 12 Production strategy 112
Chapter 13 Marketing strategy 122
Chapter 14 Human resource management strategy 133
Chapter 15 Political risk and negotiation strategy 145
Chapter 16 International financial management 156
Chapter 17 European Union 167
Chapter 18 Japan 178
Chapter 19 North America 188
Chapter 20 Emerging economies 198
Chapter 21 China 206
Chapter 22 Corporate ethics and the natural environment 217

3
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

4
© Pearson Education Limited 2013
download instant at http://testbankinstant.com

Introduction

This resource manual has been developed as a teaching and examination aid for International
Business, Sixth edition (Pearson Education, 2012) by Alan M. Rugman and Simon Collinson. In
each section of the resource manual, there is detailed material that can be used in teaching each
chapter. This material includes (a) a list of the chapter’s objectives; (b) a summary of the
chapter material; (c) a chapter outline that presents all headings and subheadings in the chapter;
(d) a lecture outline that provides information and material related to each of the major areas of
the chapter outline; (e) answers to all the review and discussion questions at the end of the
chapter and (f) answers to all the questions that accompany the Real Cases at the end of the
chapter. We have made every effort to ensure that this resource manual is accurate and
complete. However, if you find any mistakes or inconsistencies, please convey the information
to the first author of this manual at:

Quyen T.K. Nguyen

c/o Professor- Alan M. Rugman
Henley Business School
International Business and Strategy
University of Reading
Greenlands Campus
Henley-on-Thames
RG9 3AU
OXON
UK

Thank you in advance for your comments and help.

Quyen T.K. Nguyen

5
© Pearson Education Limited 2013
download instant at http://testbankinstant.com

CHAPTER 1

Regional and global strategy

Chapter objectives

1. Define the terms “international business” and “multinational enterprise”.

2. Discuss the two primary ways in which international business occurs – trade and foreign
direct investment.

3. Examine the impact of the triad on international trade and investment.

4. Describe the current state of world economies and the role of government and trade
regulations in the conduct of international business.

5. Discuss the importance of technology and the role of small and medium-sized enterprises in
the international business arena.

6. Examine how multinational enterprises use triad/regional strategies to compete effectively

in the international marketplace.

7. Discuss the determinants of national competitive advantage.

8. Present the model that will be used in this text for studying international business.

Chapter summary

1. International business is the study of transactions taking place across national borders for
the purpose of satisfying the needs of individuals and organizations. Two of the most
common types of international business activity are trade (exports and imports) and foreign
direct investment (FDI). In recent years, both have been on the rise. Much of this is a result
of large multinational enterprises (MNEs) headquartered in triad countries. Indeed, the triad
nations account for most of the world’s trade and FDI.

2. At the present time, the world’s most developed economies are slowing down and many
MNEs are cutting back their workforces in order to compete more effectively in this
environment. Small and medium-sized enterprises are also finding themselves being
challenged. Another important international business development is the emergence of trade
regulation. Today, the World Trade Organization (WTO) is the major group responsible for
governing the international trading system. A third major development that is changing the
way MNEs do business is technology as seen by the changes taking place in both
communication and production technologies.

6
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

3. One way in which these firms are competing is by drawing up strategies that focus on
regions and geographic areas, thus ensuring that they are addressing the needs of their local
customers. Another way is by continuing to be innovative. A third is by maintaining
position by addressing the determinants of national competitive advantage: (a) creating the
necessary factor conditions; (b) having strong local demand for the goods and services that
are being produced; (c) having related and supporting industries that are internationally
competitive and (d) having a suitable strategy and structure and domestic rivalry that
encourages continued innovation.

Chapter outline

Overview of the book

Country and firm factors
International competitiveness and firm strategy
Globalization
Regionalization

Introduction

World business: a brief overview

Exports and imports
Foreign direct investment
The triad

Today’s international environment

International trade regulation
Technology
Small and medium-sized enterprises (SMEs)

Globalization and strategic management

Regional triad strategies
Maintaining economic competitiveness
Factor conditions
Demand conditions
Related and supporting industries
Firm strategy, structure and rivalry
Porter’s determinant as a system

7
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

Multinationals in action
Volkswagen
Carrefour
Kawasaki and Suzuki

The study of international business

From general to strategic emphasis

Framework for this book

Lecture outline

A. Introduction
1. International business is the study of transactions taking place across national borders
for the purpose of satisfying the needs of individuals and organizations. These
economic transactions consist of trade, as in the case of exporting and importing, and
direct investment of funds in overseas operations.
2. Over half of all world trade and approximately 80 percent of all foreign direct
investment are made by the 500 largest firms in the world. The vast majority of these
are multinational enterprises, i.e. firms that are headquartered in one country but have
operations in one or more other countries. The headquarters of the world’s largest firms
are clustered inside the borders of the world’s three largest economies, the United
States, Japan and the European Union (EU).

B. World business: a brief overview

1. Exports are goods and services produced in one country and then sent to another
country. Imports are goods and services produced in one country and then brought in by
another country.
2. Foreign direct investment (FDI) is equity funds invested in other nations. Industrialized
countries have invested large amounts of money in other industrialized nations and
smaller amounts in less-developed countries (LDCs), such as those in Eastern Europe,
or in newly industrialized countries (NICs), such as Hong Kong (P.R. China), South
Korea and Singapore. Most of the world’s FDI is in the United States, the European
Union and Japan. As nations have become more affluent, they have pursued FDI in
geographic areas that have economic growth potential. The Japanese, for example, have
been investing heavily in the United States.
3. The world’s three largest economies, those of the United States, the European Union
and Japan, conduct most of the world’s trade and FDI. Collectively, these areas are
referred to as the “triad”. The triad is a group of three major trading and investment
blocs in the international arena.

8
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

C. Today’s international environment

1. Over the last few decades, an increasing number of countries have embraced trade and
investment liberalization. Despite disagreements about how to implement trade and
investment agreements, countries continue to enter into bilateral and multilateral
contracts to liberalize trade and investment. The most inclusive of such agreements is
the WTO, established in 1995. Today, the WTO is the umbrella organization that
governs the international trading system for most countries of the world. When member
countries have a dispute, they turn to the WTO’s dispute-settlement mechanism to help
resolve it. For example, the United States and the European Union have brought cases
against each other in such matters as banana imports, beef hormones, steel and foreign
sales corporations. The WTO can enforce its decisions. Countries that refuse to comply
can find themselves suffering severe consequences in the form of trade retaliation.
2. Technology has a major impact on the way MNEs do business. Over the last few years,
communication technology has allowed all businesses to use computers and mobile
phones and to rely on the World Wide Web to access and send information. New
technological developments have also been applied to the production of goods and
services. Companies can now implement quality programs and improve manufacturing
flexibility, among other things.
3. International business is not limited to giant multinational enterprises. Many small and
medium-sized businesses are also involved in this arena. Most of these companies have
annual sales of less than $5 million, but thanks to innovation, technology and a
well-trained workforce that is focused on their particular needs, they are able to
compete effectively and to perform functions that multinationals cannot do as
efficiently.

D. Globalization and strategic management

1. A common misconception about international business is that MNEs have far-flung
operations and earn most of their revenues overseas. In fact, most MNEs earn the bulk
of their revenues either within their home country or by selling in nearby locales. Of the
largest 500 MNEs, 152 are headquartered in North America (the United States, Canada
and Mexico), 160 are in the European Union (EU15) and 155 are in Japan/Asia. These
firms are not spread around the world but are clustered in the triad and engage in
triad/regional competition. Multinational enterprises (MNEs) do not develop
homogeneous products for the world market but must adapt their product to local
markets. For example, there is no global car but regional-based auto factories that are
supported by regional/local suppliers and design cars to meet the preferences of
local/regional customers.
2. There are three things a nation must do to gain and hold strong international trading and
investment positions: (a) maintain economic competitiveness; (b) influence trade
regulations so that other countries open their doors for its goods and services and
(c) develop a global orientation that allows firms to operate as MNEs, not just as local
firms doing business overseas.
3. Research shows that the best way for companies to achieve competitive advantage is
through innovation. Often, this is accomplished through ongoing improvement of goods
or services. A second way is by making existing products obsolete, by developing new
and better products that replace old ones.

9
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

4. Why can some firms innovate consistently while others cannot? According to Porter,
the answer rests in four broad attributes that individually and interactively determine
national competitive advantage: factor conditions, demand conditions, related
supporting industries and firm strategy, structure and rivalry.
5. Factor conditions include land, labor and capital that are used to develop international
market niches and tap world markets. Demand conditions require a sophisticated local
demand that helps businesses fashion and shape the goods and services that will later be
offered on the world market. Related and supporting industries help MNEs remain
abreast of low-cost inputs and knowledge regarding what is happening in their industry.
Firm strategy, structure and rivalry help organizations create, organize and manage their
operations in the face of competitiveness.
6. Each of the four determinants in Porter’s model often depends on the others. For
example, if a country has sophisticated buyers that can provide a company with
feedback regarding how to modify or improve its product (demand conditions), this
information will not be useful if the firm lacks personnel with the skills to carry out
these functions (factor conditions). Similarly, even though suppliers can and are willing
to provide the company with low-cost inputs and fresh ideas for innovation (related and
supporting industries), but if the firm clearly and easily dominates the industry (firm
strategy, structure and rivalry) and does not feel the need to upgrade the quality of its
products and services, it will eventually lose this competitive advantage.
7. Porter notes that government and chance influence the four determinants of competitive
advantage. Government policies, for example, can have serious consequences for
international trade, since government intervention for the purpose of protecting home
industries usually results in less competitive national companies. There is often strong
domestic pressure to provide such protection. Yet, research shows that a government’s
major role in international business may well be that of a world trade negotiator.

E. The study of international business

1. During the 1970s, 1980s, 1990s and 2000s the field of international business changed
dramatically. The new millennium is seeing the emergence of a strategic management
focus for drawing together the field of international business. The descriptive ideas of
the 1950s and 1960s and the analytical ideas of the 1970s, 1980s, 1990s and 2000s are
being combined into an integrative approach in the new century.
2. This book employs a strategic management approach to the study of international
business. There are four major parts in the text. Part One is an introduction; Part Two
examines the environment of international business; Part Three focuses on the strategic
planning of MNEs and the major components of their overall strategy; Part Four
focuses on functional area strategies; and Part Five examines the ways in which the
information presented thus far can be used in doing business throughout the world.

10
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

Answers to review and discussion questions

1. What is international business all about? In your answer, be sure to include a

definition of the term.

International business is all transactions taking place across national borders for the purpose of
satisfying the needs of individuals and organizations. This study includes areas such as
exporting, importing and foreign direct investment.

2. What are the two primary ways in which world trade is conducted?

The two primary ways in which world trade is conducted are exports and imports. Exports are
goods and services produced in one country and then sent to another country. Imports are goods
and services produced in one country and then brought in by another country.

3. What does international trade consist of?

International trade consists of imports and exports of goods and services.

4. What is the difference between international business and international trade?

International business refers to all transactions that take place across national borders.
International trade consists only of trade (exports and imports) of goods and services across
national borders.

5. Will foreign direct investment increase or decrease in the current decade? Why?

It is highly likely that FDI will increase in the future. One of the most compelling reasons is that
FDI has been continually increasing decade after decade and the current decade is likely to
attract even greater FDI. A second reason is that international trade is increasing on an annual
basis and FDI is an important element in this development.

6. How important are the triad nations in promoting international commerce? Explain.

Triad nations are the engines of international commerce, accounting for most of the world’s
trade and foreign direct investment. Over 90 percent of the world’s 500 largest multinationals
have their home base in the triad and it is these companies that are responsible for the bulk of
international business. These companies lobby their governments and foreign governments for
favorable trade conditions. In fact, the triad governments are very active in promoting
international business. They promote the interests of domestic companies overseas and
encourage inward foreign investment by foreign MNEs. They also participate in international
trade agreements.

7. What role does the World Trade Organization play in the international business
arena? Is the WTO helpful to international trade or is it a hindrance? Why?

The World Trade Organization has two main functions. First, it acts as a conference organizer
for trade-related discussions among member countries. In this function, it provides research
information and the means to enact trade legislation. Second, the WTO acts as a dispute-
settlement mechanism with the ability to impose sanctions on member nations that do not
comply with its resolutions.

11
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

8. Multinational enterprises do not formulate worldwide strategies but rather regional

strategies. What does this statement mean and how does it help us better understand
international business?

MNEs see the world as a set of segmented markets with different factor conditions, demand
conditions, related and supporting industries and structure of firms and rivalry. For instance,
while a strategy of producing spacious cars might be successful in the United States, auto
manufacturers must look at the particular demand conditions in Europe and Japan and adapt to
the particular preferences of these customers. In the case of food, most MNEs will adapt their
ingredients and menus to respond to cultural and religious factors in the regions in which they
operate. Similarly, an input that is available in one region might have to be substituted for a
similar input in another region (related and supported industries). For MNEs, regional strategies
help them better compete in foreign markets. Understanding that MNEs formulate regional (not
global) strategies allows us to see the different factors that influence the production and
marketing of nonhomogenous products across the world.

9. How do the four determinants of national competitive advantage help explain how
companies can maintain their economic competitiveness? Be complete in your answer.

The four determinants of national competitive advantage are factor conditions; demand
conditions; related and supporting industries and structure of firms and rivalry. A country or
business makes effective use of factor conditions to maintain economic competitiveness in a
number of ways. One is by training and educating the work force so that these people are able to
produce more efficient and/or high-tech goods. A second is by investing capital in high-tech
discoveries and developing robots and other machines that can produce goods and services more
efficiently than before. Demand conditions are important for the maintenance of economic
effectiveness because a strong local market helps a company better develop goods and services
for the international arena. For example, French customers help the local wine makers produce
wine for the world market by providing the companies with sophisticated feedback regarding
the quality of their output. Related and supporting industries are important because they assist
MNEs by providing low-cost inputs and by supplying the company with information regarding
the industry environment and changes that are taking place. For example, suppliers to Italian tile
firms keep these companies abreast of changes in technology, factor inputs and developments in
the industry.

Firm strategy is important because it helps dictate to the competitors against whom the firm will
fight and the market niche it will choose. The experience the company obtains from these
decisions helps it to become more economically viable. Company competitiveness in the
German chemical industry is an example. The structure is important because some firms need
simple structures, while others require more complex ones; some need bureaucratic designs,
while others succeed with simpler, more participative forms. In the case of German firms, for
example, many companies are hierarchical because this approach best suits the needs of the
personnel. Firm rivalry is important because, by competing against others, a firm hones its skills
and becomes more internationally competitive. A good example is the way that the Japanese
automakers have become competitive in the world market by taking on the major US and
European auto producers.

The four determinants are interrelated. Each is influenced by the others and, in turn, influences
the others. For example, demand conditions help to influence the firm’s rivalry, and factor
conditions affect the number and type of related and supporting industries.

12
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

10. What are two of the advantages associated with using strategic alliances?

A foreign company that enters into a strategic alliance with a local company can access
important cultural and market information through its partner. The local partner thus shields the
foreign company from the uncertainties of the local environment. Strategic alliances between
two companies with complementary proprietary information can allow both companies to
develop these complementarities.

Answers to Real Cases

Big oil gets bigger

1. Are companies such as Exxon Mobil, BP and Royal Dutch/Shell MNEs? What criteria
do they meet that makes them MNEs?

Exxon Mobil, BP and Royal Dutch/Shell are MNEs because they are headquartered in one
nation but have operations in many other nations. For instance, Exxon Mobil has exploration
and/or production operations in all five continents but is headquartered in the United States. BP
is headquartered in the United Kingdom but does exploration and refining in the United States
and is the largest offshore gas producer in China. Royal Dutch/Shell is headquartered in the
Netherlands but has operations in 140 countries and territories.

2. How important is an understanding of governmental regulation to success in this

industry?

The energy industry is heavily regulated across the world. To succeed, oil companies must be
aware of market regulations, environmental regulations and health and safety regulations. In
addition, since foreign companies are often competing against national companies for
exploration rights, companies must also have a good understanding of the regulations
surrounding the bidding process.

3. In terms of Porter’s determinants of national competitive advantage, which one of

these four determinants is most important for these oil companies? Why?

All four determinants are important to these companies. Factor conditions include
considerations such as oil and gas deposits, the quality, quantity and cost of the labor force and
the availability of necessary capital equipment. Demand conditions include the preference of
their customers. A country where the population puts a strong value on air quality will push
companies doing business to create better and cleaner fuels. The structure of firms will reflect
on the cultures of both the host and home countries. Strong firm rivalry will increase the quality
of their products, thus making them more competitive overall. Finally, related and supporting
industries, such as a strong auto industry, will increase the flow of information and cooperation
for the development of better products.

13
© Pearson Education Limited 2013
download instant at http://testbankinstant.com
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual

Wal-Mart

1. Is Wal-Mart a multinational enterprise? Why?

Yes, Wal-Mart is a multinational enterprise because it is headquartered in the United States but
has operations in Canada, Mexico, the United Kingdom and Japan.

2. Why is Wal-Mart making foreign direct investments in Europe?

Wal-Mart is engaged in foreign direct investment in Europe to increase its sales and profits
outside its home market. Wal-Mart’s North American expansion is almost saturated. Had Wal-
Mart been able to replicate its success in North America in Europe, it would have been able to
take advantage of inefficiencies in the retail sector to dominate the landscape. This did not
happen in Germany, where retailers had emulated Wal-Mart’s best practices. In the United
Kingdom, however, the company was able to take advantage of the relatively higher prices for
retail products to successfully expand.

3. Using the Porter model, what are the determinants of Wal-Mart’s competitive
advantage?

In terms of factor conditions in the United States, Wal-Mart has access to cheap suburban land
where it can build warehouse-style retail outlets with large parking lots as well as relatively
inexpensive retail labor. Complementing these factor conditions are the demand conditions of
suburban customers in the United States, relative wealth and price consciousness. Related and
supporting industries allow Wal-Mart’s logistics system to work. For example, an efficient
transportation system allows Chinese-made goods to quickly clear customs and be transported
by truck to retail outlets across the country. The US IT sector provides the software that allows
Wal-Mart to manage its inventory. Wal-Mart’s decentralized structure allows individual US
outlets to compete more effectively with nearby retailers by offering goods that best reflect the
needs of the communities in which they operate.

4. Is Wal-Mart’s competitiveness in Europe dependent on the same determinants listed

in Question 3? Why?

No, the determinants in Europe are different. For example, Wal-Mart found its equal in German
competitors that had emulated its practices, eroding the possibilities of gains due to efficiency.
In addition, real estate is more expensive than in the United States in many parts of suburban
Europe. Labor is also more expensive. The firm also found that its size in the German market, as
well as the supply system, made it impossible to achieve the same level of scale economies. In
Britain, Wal-Mart found that price competitiveness was secondary to being able to develop
relationships with suppliers of quality brands. British consumers are more brand conscious than
their counterparts.

14
© Pearson Education Limited 2013
download instant at http://testbankinstant.com

CHAPTER 2

The multinational enterprise

Chapter objectives

1. Describe the characteristics of multinational enterprises.

2. Explain the internationalization process.

3. Explain why firms become multinational enterprises.

4. Discuss the strategic philosophy of these firms.

5. Introduce a country/firm framework for examining a firm’s competitiveness.

6. Study some of the ways in which these firms use strategic management.

Chapter summary

1. A multinational enterprise is a company that is headquartered in one country but has

operations in two or more countries. There are a series of characteristics that are common to
multinational enterprises. These include: (a) affiliated firms that are linked by ties of
common ownership; (b) a common pool of resources and (c) a strategic vision that guides
all the affiliates.

2. Multinationals, especially large industrial enterprises, account for a large percentage of

world sales and employment. Multinational enterprises (MNEs), large or small, also engage
in a wide variety of business activities, ranging from manufacturing to retailing to
consulting services.

3. The internationalization process is one of going abroad at incremental stages, on the premise
that foreign markets are risky. Thus, a typical process is license, export, sales office and
finally foreign direct investment (FDI).

4. Companies become MNEs for a number of reasons: (a) a desire to protect themselves from
the risks and uncertainties of the domestic business cycle; (b) a growing world market for
their goods or services; (c) a response to increased foreign competition; (d) a desire to
internalize in order to reduce costs; (e) a desire to overcome tariff barriers and (f) a desire to
take advantage of technological expertise by manufacturing goods directly rather than
allowing others to do it under a license agreement.

5. Multinational enterprises have a strategic philosophy that is different from that of home
country businesses. In particular, MNEs do not see their company as an extension of the
domestic roots. They hire the personnel, fire and transfer them to meet global needs, even if
this means laying off home country employees. They also combine their talents with those
of other MNEs in creating, financing and managing joint ventures.

15
© Pearson Education Limited 2013
download instant at http://testbankinstant.com