International Business

This document provides study material on International Business, including answers to questions on outsourcing, comparative advantage, and the impact of trade facilitation mechanisms on export competitiveness.

Running head: INTERNATIONAL BUSINESS
International Business
Name of the Student
Name of the University
Student ID

1INTERNATIONAL BUSINESS
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................2
Answer 3....................................................................................................................................3
Answer 4....................................................................................................................................3
Answer 5....................................................................................................................................4
References..................................................................................................................................6

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Answer 1
a)
Outsource Insource Offshore Onshore
Apple # #
Samsung # # #
Xiaomi # # # #
b)
Samsung has comparative advantage in producing mobile phones in its own factories,
whereas, in the case of Apple there is no comparative advantage and thus production cost of
Samsung phones is lower in its own factories unlike the case of Apple. Thus, Apple takes
help of Foxconn for manufacturing its products.
c)
It is true that the export competitiveness of iPhone increases due to weakening of
yaun against US dollar1. As the weakening of yuan is greater than tariff imposed on the
import of iPhone, in US it will become cheaper and thus import increases causing an increase
in demand for iPhone in the US.
Answer 2
The decision of Honda regarding closure of the Swindon plant depends on three major
factors. The first factor is no-deal Brexit, due to this the cost of production increases as the
time for production per unit increases due to delay in delivery of parts to the plant. Secondly,
the trade agreement between Japan and EU will remove the tariff from Japanese cars, thus
1 Spence, Malcolm, and Stephen Karingi. "Impact of trade facilitation mechanisms on export
competitiveness in Africa." (2014).

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manufacturing cars in Japan is now profitable in Japan. Thirdly, weakening of pound will
increase the export competitiveness of cars. Hence, the cost benefit analysis is required in this
case, Honda should close its production in Swindon, UK if production in Japan is more
profitable and vice versa considering the cost benefit analysis of the above three options.
Answer 3
Support
The US government imposes tariff on the imported goods from other countries. This
policy would increase the price of imported goods and thus the competitiveness of
domestically produced goods will increase and the native manufacturers will gain from this
because sales of their product will rise and thus their revenue increases.
Oppose
The tariff imposition on imported goods will increase the price for the products that
native people use to buy. The price increase thus worse off the domestic customers and
reduces the consumer surplus. Therefore, the tariff imposition might increase the producer
surplus but decrease in consumer surplus is not desirable and thus the government should not
use tariff policy.
Answer 4
a)
The policy of the US to lower interest rate would depreciate its value as the liquidity
of the economy increases. On the other hand, if the interest rate in Japan remains the same
then it is true that the dollar will weaken against Japanese yen.
b)

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There is a positive relationship between exchange rate and inflation rate. Therefore, if
inflation rate is high then exchange rate will be high as well, that is the inflation weakens
domestic currency. Considering the case in the question, it is true that Japanese yen will
appreciate against the dollar.
c)
The current account balance is at deficit means there is more imports than exports and
it can happen for many reasons such as import demand, export supply and demand and many
other factors. Similarly, the case of Japan’s current account surplus depends on many factors
other than exchange rate. Hence, as per question it is uncertain that the dollar will weaken
against the yen.
Answer 5
a)
According to exchange rate trilemma three conditions a) Fixed exchange rate, b)
Independent monetary policy and c) Free capital flow cannot exist together, only two of them
can exist2. Hence, in the case of Hong Kong the choices of policy would be either
independent monetary policy or free capital flow given the pegged exchange rate.
b)
2 Rosamond, Ben. "Performing theory/theorizing performance in emergent supranational
governance: the ‘Live’knowledge archive of European Integration and the early European
Commission." Journal of European Integration 37.2 (2015): 175-191.

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In the given statement there is no information given about any of the policy of the US,
thus it is not certain which policy combination the US would take. However, it will take any
one of the three available options.

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References
Rosamond, Ben. "Performing theory/theorizing performance in emergent supranational
governance: the ‘Live’knowledge archive of European Integration and the early European
Commission." Journal of European Integration 37.2 (2015): 175-191.
Spence, Malcolm, and Stephen Karingi. "Impact of trade facilitation mechanisms on export
competitiveness in Africa." (2014).