Essay: International Business Theory - Analysis of Key Concepts

This essay delves into several key concepts within international business theory. It begins by defining capital markets and their various loan types, followed by an explanation of how borrowers can mitigate risks associated with exchange rate fluctuations. The essay then explores core competence, its importance, and the competitive pressures firms face in the global marketplace. It examines the pros and cons of joint ventures and wholly owned subsidiaries as market entry strategies. Furthermore, the essay discusses the influence of product factors on production location decisions, using refined sugar production as an example. Finally, it contrasts push and pull promotional strategies, offering a comprehensive overview of crucial topics in international business.

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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

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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.

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In addition, a firm expanding to a wholly owned subsidiary exerts a tight control over their
business operations in multiple countries (White et al., 2014).
Advantages can be observed in a number of ways as the strategy offers an opportunity
for the businesses to manage and diversify risks. Diversification act as an advantage for the
company as it may occurs that one business may not succeed well, and others may run
efficiently. The strategy has some of the negative aspects also, as parent company pays higher
for the assets, especially when the companies bidding on the same business (Rothaermel,
2015).
Q7. The product factors of the production refer to the land, labour, capital, enterprise,
which are the basic factors or resources in producing a product. These factors tend to affect
the location of production, as an example availability of raw materials will determine where
to locate the production activities. It means, it can be stated that nearness to the sources of
raw material is considered important for every business. The other factors determining
location includes, availability of infrastructure facilities, availability of skilled or talented
workforce, proximity to market and other valuable resources (Kusumastuti, van Donk &
Teunter, 2016).
For an example, in case of the sugar factors suitable for the location of profitable
production of refined sugar will include selection of appropriate region which will provide
raw materials, easy transportation, availability of power, fuel or gas, water supply must be
adequate, disposal facility for waste products and availability of efficient labour. These are
the factors which will help in determining the location of refined sugar production (Chen et
al., 2015).
Q8. Push strategy is referred to as creating demands for the product or service through
promotion. It may include offering discounts to retailers and the trade promotions, and the
push strategy also uses appealing package design and maintaining good image for the
reliability, value, or style. Push strategy can be observed in the cases of sales of mobile
phones, where the manufacturers or the producers offer discounts on their mobiles phones so
as to attract the customers towards making purchase. Push promotional strategies focus on the
selling directly to the customers, which can be done through point of sale displays, and
directly approaching to the customers.

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Pull promotional strategy includes the use of advertising to build and increase the
demands of the customers for a product or service. The most common example of the pull
strategy can be observed for the advertisements of the toys of children which attract them
towards purchasing the product. Thus, to compare and contrast between these two strategies,
it has been analysed that marketing lies in determining the way how consumers are
approached (Verbeke & Asmussen, 2016).

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References
Bluhm, C., Overbeck, L. & Wagner, C. (2016). Introduction to credit risk modelling. United
States: CRC.
Chen, L. Q., Cheung, L. S., Feng, L., Tanner, W. & Frommer, W. B. (2015). Transport of
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Christensen, H. B., Hail, L. & Leuz, C. (2016). Capital-market effects of securities
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Kusumastuti, R. D., van Donk, D. P. & Teunter, R. (2016). Crop-related harvesting and
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Meyer, K. E., Ding, Y., Li, J. & Zhang, H. (2018). Overcoming distrust: How state-owned
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