International Business Theory: Essays on Capital Market, Joint Venture, Core Competence, and More

Running Head: INTERNATIONAL BUSINESS THEORY
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International business theory
12/9/2018

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Essay Questions
Q1. A capital market is a financial market in which a long-term debt (for more than a
year), or equity-backed securities are traded, i.e. bought and sold. The financial instruments
which are used in the capital market or loans in the capital market include majorly stock and
bonds. In addition, to these there are some other instruments also such as treasury bills,
foreign exchange, fixed deposits, debentures, involving debt and equity securities. The
purpose of the capital market is that it brings together the investors who hold the capital, and
companies seeking capital with the use of equity and debt instruments. These instruments are
also termed as securities and the market is referred to as securities market. It has been known
that investors can earn good amount by investing in stocks and bonds, however the risks of
investing in these instruments is considered higher than any financial instruments in the
capital market (Christensen, Hail & Leuz, 2016).
Q2. A borrower can hedge against the unpredictable movements in the exchange rates
through entering into the forward contract in order to purchase the required amount of
currency which has been borrowed at the exchange rate determined pre-hand, when the loan
becomes due. It has been found that this raises the costs of borrower’s cost of capital;
however the insurance limits the risk of insurance involved in cases of these transactions.
Risks are the aspect of every business and inherent in every trade, but if the risk is
measurable, it can be easily managed. In this context it can be stated that currency risks is
found to be the crucial risk and significant for the businesses that carry out indigenous
productions and their exports are minimal (Bluhm, Overbeck & Wagner, 2016).
Q3. Core competence refers to the concept in the management theory in context to the
business organisations which includes the combination of the multiple resources and skills
which helps in distinguishing a firm from others in the marketplace. It is considered as an
essential concept in every organisation as it defines the strengths and forms the base or
foundations of the company’s competitiveness in the industry. For an example, the core
competency or these skills may include precision mechanics, fine optics, and micro-
electronics.
Core competency of any organisation results from a specific skill or production
technique which delivers additional values to the customers as compared to other businesses.
In other words, a core competence or competency is for an example, ant specialised skill or

INTERNATIONAL BUSINESS THEORY
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knowledge required in carrying out operations. The advantage of core competency to a
business can be observed in many aspects, as it helps the business to build and raise the
values of customers and other stakeholders (West, Ford & Ibrahim, 2015).
Q4. Firms operating in the global marketplace face two types of competitive pressures
which affect and limit their abilities to realize location economies, and experience the effects,
and transferring skills within the firm. These two competitive pressures include pressures for
cost reductions, and the pressures to become locally responsive. Pressures for the cost
reductions force the business firms to lower their unit costs for the products. Whereas,
pressures to be locally responsive includes the need for the firm to adapt according to the
market, to meet local demands in each market. However, the strategy of local responsiveness
often increases the costs of the firm. Pressures for the firms in local responsiveness arise from
the differences in consumer taste or preferences and the differences in the infrastructure or
other traditional practices. The competitive pressure of cost reduction is found in the cases
where the major competitors are based in the low cost locations. Dealing with these two
pressures is challenging for the firms operating in the global marketplace (Meyer et al.,
2018).
Q5. In a meeting with the superiors to discuss about entering into a foreign market,
thus analysing the joint venture prospect it has been found that joint venture has many
disadvantage to start for any new business opportunity. Joint venture refers to the commercial
enterprise where two or more companies join their forces, in simple terms it is cooperative
enterprise formed by two or more business entities with the aim of completing any specific
project or any other business activity. BMW and Toyota is one example of the joint venture
business. The disadvantage may include the unlimited liability of the partners for the debts
and obligations of the company (Yan & Luo, 2016). The other aspects which may be referred
to as other disadvantages include taxes, conflicts, and considerations. Thus, considering the
disadvantages of the joint venture business it can be stated that I would not suggest my boss
about not entering into joint venture.
Q6. A wholly owned subsidiary is the company under the complete control of other
company, the company owning the subsidiary is called as parent company. The parent
company holds of all the common stocks of the subsidiary. Entering into a wholly owned
subsidiary will be beneficial to the firm to reduce the risks of control over their competence.