4SA3 INTERNATIONAL BUSINESS EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026

4SA3 INTERNATIONAL BUSINESS EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026 International business - Answers Commercial transactions that cross borders of two or more nations What are the two types of IB? - Answers international trade foreign direct investment Globalization - Answers the process by which businesses or other organizations develop international influence or start operating on an international scale. Two types of globalization - Answers globalization of markets (products, finance, human resources) globalization of production Drivers of globalization - Answers declining trade and investment barriers removal of restrictions to FDI technological change (the internet and lower transportation costs) Changing demographic of the global economy - Answers declining US dominance in the world economy and world trade increasing percentage share of FDI by developing economies changing nature of MNEs What does Trade % of GDP indicate? - Answers a country's dependence on trade (Luxembourg, Singapore, Switzerland are highly dependent; China, Japan, US are not very dependent; Canada lies somewhere in the middle) Mercantilism - Answers countries should try to increase their exports while reducing their imports; zero-sum game Theory of Absolute Advantage - Answers A country has an absolute advantage in the production of a product when it is more efficient than ANY OTHER country in producing it Implications of the theory of absolute advantage - Answers countries should specialize in the production of goods for which they have an absolute advantage and should never produce goods that they can buy at a lower cost from other countries Theory of comparative advantage - Answers a country has a comparative advantage in the production of a good if it products the good MOST efficiently among ALL the goods it is able to produce Implications of the theory of comparative advantage - Answers a country should export the goods that it produces most efficiently and import the goods that it produces less efficiently Factor Proportions Theory (Heckscher& Ohlin) - Answers comparative advantage arises from differences in national factor endowments: land, labour, and capital Implications of factor proportions theory - Answers a country has a comparative advantage in producing goods that use factors of production it has in abundance; countries will export goods that make intensive use of those factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce Under factor proportions theory, can you create a comparative advantage? - Answers through culture (breeds high-skilled labour) opportunity to create new industries favourable government policies can help firms integrate and gain an advantage New trade theory - Answers a comparative advantage may not be the result of initial factor endowments, but instead be a result of a company's first-mover advantage that leads to barriers to entry (scale economies and learning curve) Implications of new trade theory - Answers a country can create a comparative advantage for the country as a whole by moving into new industries early Policy implication of new trade theory - Answers strategic trade policy, which says that some firms in specific industries are favoured, nurtured, promoted, and protected from domestic and international competition National competitive advantage framework (Porter) - Answers Emphasizes four interdependent factors which can determine a firm's competitiveness in the global market: 1. factor (input) endowments 2. firm strategy, structure, and rivalry 3. demand conditions 4. related and supporting industries (includes clusters) Gains from free trade - Answers static benefits (higher level of domestic consumption and more efficient utilization of resources) and dynamic benefits (economic growth) Instruments of trade policy - Answers tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, antidumping policies Tariffs - Answers a tax levied on imports, taken in the form of percentage value of goods imported or a dollar amount on each good imported Who gains and who suffers under tariffs? - Answers Gains = government of the importing country and producers of the importing country Suffers = consumers of the importing country and producers of the exporting county Why do tariffs reduce the overall efficiency of the world economy? - Answers encourages less efficient producers to produce for their local markets and the tariff amount is up to the government (strategy in trade wars) Subsidies - Answers a government payment to a domestic producer in the form of cash grants, low-interest loans, or tax breaks Why are subsidies used and what happens? - Answers help domestic producers compete against foreign imports and gain export markets protects inefficient domestic producers and promotes excess production What industries should be subsidized? - Answers tech (start-ups, innovative companies), first-movers, manufacturing, telecommunications, and agriculture and farming Import quotas - Answers a direct restriction on the quantity of some good that may be imported into a country note: imposed by the importing country to protect their local producers Voluntary export restraint (VER) - Answers a quota on trade imposed by the exporting country, especially at the request of the importing country's government can be used to reduce the supply and inflate the price of an exported product Local content requirements - Answers a requirement that some specific fraction of a good be produced domestically Who uses local content requirements and why? - Answers in developing countries, used in simply assembly to encourage the local manufacture of component parts to upgrade their manufacturing capabilities in developed countries, used to protect local jobs and industries Dumping - Answers selling goods in a foreign market at below their costs of production/"fair" market value Antidumping policies (aka countervailing duties) - Answers designed to punish foreign firms that engage in dumping and thus protect local producers from unfair foreign competition Exporting - Answers sending goods and services to another country for sale Licensing - Answers granting a foreign company (the licensee) the right to produce and sell the firm's product in return for a royalty fee Two main forms of FDI - Answers greenfield investment merger and acquisition Greenfield investment - Answers the establishment of a new operation in a foreign country used when trying to grow and establish a brand, when MNEs want more control over technology, capital, technical know-how, etc., or if there are no M&A opportunities Mergers and Acquisitions (M&A) - Answers A general term that refers to the consolidation of companies or assets used when the local company (aka the one being acquired) has valuable established resources that the foreign company can benefit from; easier for foreign companies to deal with foreign cultures, to grow and expand quickly, and allows for testing new waters Impediments to exporting - Answers high transportation costs high trade barriers Impediments to the sales of know-how (i.e., licensing) - Answers have to give away a firm's know-how to a potential foreign competitor tacitness of know-how Specialized assets - Answers assets that can only be used for specific purposes; investment risk Impact of FDI on host countries - Answers resource-transfer effects (capital, technology, and management skills) employment effects (can generate job opportunities) effects on competition (competition is good for innovation, quality improvement, and cost reduction) How can a host country encourage inward FDI? - Answers tax incentives low-interest loans infrastructure improvements How can a host country restrict inward FDI? - Answers ownership restrictions (related to economic stability and national security) performance requirements Performance requirements - Answers local content, exports, technology transfer, and local participation in top management Impact of FDI on home countries - Answers foreign earnings (MNEs send profits home) employment effects (negative when FDI is a substitute for home production, but positive when FDI creates demand for home-country exports of intermediate goods and complementary products) How can a home country encourage outward FDI? - Answers government-backed insurance programs loans (reduces the cost of doing business abroad) elimination of double taxation of foreign income political pressure on host country How can a home country restrict outward FDI? - Answers differential tax rates sanctions (can prohibit companies from investing in other countries) Culture - Answers system of values and norms that are shared among a group of people and that when taken together constitute a design for living Culture and the nation-state - Answers no strict one-to-one correspondence between a culture and a nation-state - multiple cultures in a nation-state and cultures embrace several nations Determinants of culture - Answers religion, political philosophy, economic philosophy, education, language, social structure Social structure - Answers a society's basic social organization (individual vs groups) Individualism - Answers the interests of the individual should take precedence over the interests of the state emphasis on individual performance (high in Western countries) Collectivism - Answers the needs of society as a whole are more important than individual freedom social status of an individual is determined by the standing of the group to which the individual belongs (high in Asian countries) Implications of social structure for business activities - Answers competition and collaboration mobility of managers and skilled workers innovation entrepreneurship dominance of family ownership Social strata - Answers social categories based on family background, occupation, and income Social mobility - Answers the extent to which individuals can move out of the strata into which they were born (India has the caste system, Britain has the class system) Class consciousness - Answers people tend to perceive themselves in terms of their class background, and this shapes their relationships of other classes Impact of Christian beliefs on business activities - Answers Protestant ethics influenced the spirit of capitalism - hard work, wealth creation (for the glory of God), and frugality facilitate the development of capitalism Impact of Islam beliefs on business activities - Answers Humans are part of a collective in which the wealthy and successful have obligations to help the disadvantaged (charitable giving based on one's accumulated wealth); a profit should be justly earned and not based on the exploitation of others Impact of Hindu beliefs on business activities - Answers Focuses on self-improvement with the general aim of attaining firsthand spiritual experiences; belief in rebirth guides spiritual achievements over material achievements Impact of Buddhist beliefs on business activities - Answers Stress the afterlife and spiritual achievement rather than involvement in this world, impacts wealth creation and entrepreneurial behaviour - run their businesses for others - if they are successful, they are able to offer a variety of benefits to their stakeholders Impact of Confucius beliefs on business activities - Answers Basic tenet is benevolence and righteousness Three values central to the Confucianism lower the costs of doing business: loyalty to one's superiors, reciprocal obligations (lifetime employment), honesty in dealing with others - western MNEs need to build up personal relationships and be honest Hofstede's framework - Answers Power Distance Individualism vs. Collectivism Masculinity vs. Femininity Uncertainty Avoidance Long-term vs. Short-term Orientation Critiques of Hofstede's framework - Answers assumes a one-to-one correspondence between culture and the nation-state research team was composed of Europeans and Americans based on informants within IBM cultures evolve slowly How do firms create value? - Answers by reducing the cost of production by increasing the value to the consumer (raise prices) Benefits of international expansion - Answers location economies and economies of scale Location economies - Answers economies arising from performing a value creation activity in the optimal location for that activity Economies of scale - Answers the reductions in unit cost achieved by producing a large volume of a product Cost of international expansion - Answers liability of foreignness: costs arising from the unfamiliarity of the environment, from cultural, political, and economic differences, and from the need for coordination across geographic distance Strategies of global expansion - Answers global strategy transnational strategy international strategy multidomestic strategy Global strategy - Answers offers the same products using the same marketing strategy in all nations occurs when there is a low pressure for national responsiveness (differentiation) but a high pressure for global integration (cost reduction) results in cost savings from standardization, but may overlook varying buyer preferences Multidomestic strategy - Answers Adapting products and their marketing strategies in each national market to suit local preferences occurs when there is a high pressure for national responsiveness (differentiation) but a low pressure for global integration (cost reduction) results in the ability to quickly respond to buyer preferences, but can be difficult to exploit economies of scale and location economies International strategy - Answers occurs when there is a low pressure for national responsiveness (differentiation) and a low pressure for global integration (cost reduction) Transnational strategy - Answers occurs when there is a high pressure for national responsiveness (differentiation) and a high pressure for global integration (cost reduction) a lot of firms have tried but struggled - usually requires deciding between differentiation and cost reduction Steps to selecting an international location - Answers 1. identify basic appeal (demand and availability of resources) 2. assess national business environment (distance matters) 3. measure the potential of target locations (country portfolio analysis, CPA) 4. make location choice Four dimensions of distance - Answers 1. culture distance - different languages, ethnicities, religions, social norms 2. administrative/political distance - absence of colonial ties and share monetary/political association, political hostility, government policies, institutional weakness 3. geographic distance - physical remoteness, size of country, weak transportation or communication links, lack of common border, differences in culture 4. economic distance - differences in consumer income, cost and quality of natural resources/financial resources/HR/infrastructure, etc. Country Portfolio Analysis (CPA) - Answers Assesses... 1) GDP and GDP per capita 2) Income growth rate 3) Exchange rates and purchasing power parity indices 4) Global Competitiveness Index 5) Political risk ratings 6) Corruption ratings 7) Distance between home country and host country Emerging markets - Answers low-income, rapid-growth countries using economic liberalization as their primary engine of growth BRICS countries - Answers Brazil, Russia, India, China, South Africa the biggest and fastest-growing emerging markets note that CPA is inadequate for emerging markets How are emerging markets unique? - Answers have institutional voids - the absence of specialized intermediaries, regulatory systems, and contract-enforced mechanisms Examples of institutional voids - Answers product market - no reliable information about consumers because databases are not updated in a timely manner labour market - trouble recruiting managers and skilled workers because MNEs don't understand the local education and labour system capital market - lack of reliable intermediaries which limits the investment opportunities and sources of capital for M&As political and economic systems - democratic vs authoritarianism and market vs centrally planned economy openness to FDI vs openness to ideas Strategies for emerging markets - Answers modify business models for each emerging market adapt to institutional voids in a country change the institutional context stay away Regional economic integration - Answers Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other Levels of regional economic integration - Answers (lowest to greatest integration) 1. Free Trade Area 2. Customs Union 3. Common Market 4. Economic Union 5. Political Union Free trade area - Answers all barriers to the trade of goods and services among member countries are removed but member countries maintain their own trade policies with regard to non-members e.g., NAFTA, EFTA (European Free Trade Association) Customs union - Answers no trade barriers between member countries and the adoption of a common external trade policy (e.g., could impose the same tariff rates or provide the same subsidies to domestic firms) e.g., Andean Pact (Bolivia, Colombia, Ecuador, and Peru)