Answer: 

a. A market economy is an economy in which most economic decisions are made in the marketplace. The marketplace may be found anywhere money changes hands in a capitalist economic system. Purchases are influenced by supply and demand in market economies.

b. Planned economic systems (or command economic systems) are when a central authority makes all key economic decisions. The government, or a national leader, decides what will be produced, how, and for whom. The two forms of command economies are strong and moderate.

c. Mixed systems are economic systems in which part is guided by the marketplace and part is run by the government. When part of an economic system guided by the marketplace and part is run by the government, the nation features a mixed economy. The government typically oversees defense, education, building and repairing roads, fire protection, and other general services. The marketplace vends other items, including necessities, sundries, and luxuries. Most countries are mixed economies. 

Answer: 

a. Capitalism is the basis of a market economy. Purchases are determined by supply and demand. Planned economic systems do run based upon capitalism, in the systems the governments sets prices and decides what will be made available for purchase. Mixed economies are partly guided by capitalism and partly by the government.

b. Socialism is comprised of economic systems in which the state owns at least some parts of industry. Socialism can be strong or moderate. Market economies have the least amount of socialism, industries are mainly run by private firms, not the state. Planned economic systems are run by socialism, the state owns almost everything. In mixed economies socialism can play a role, for example, the state may own the natural resources.

c. Communism is an extreme form of socialism where private ownership of property is outlawed. Communism does not play a role in market or mixed economic systems. Communism dictates the economies in planned economic systems.

Answer: 

a. Most developed countries are industrialized countries with high per capital incomes. Citizens in these economic systems enjoy abundance, prosperity, and a variety of purchasing choices.

b. Less developed countries are industrially developing with some world trade.

c. Least developed countries are industrially underdeveloped, agrarian, and subsistence. A majority of the population is often extremely poor.

Answer: 

Rostow stages of development

Traditional society

Preconditions for take-off

Take-off

The drive to maturity

The age of mass consumption

Answer: Countries moving through the transformation from developing to developed are termed emerging markets. Emerging markets have moved past the stage of a traditional society and preconditions for take-off. They are in the stage of take-off which may lead them to maturity and mass consumption stages in the future.

Answer: A newly industrialized country has experienced rapid economic expansion and industrialization. They are emerging markets. Examples include China, Taiwan, South Korea, Hong Kong, Mexico, and Brazil.

Answer: Transition economies occur in what were formally communist countries with centrally planned economies. During the past 20 years, many of these countries, particularly those in Eastern Europe, have undergone transitions from centrally planned communist states to free market economies. In some countries the transition was made rapidly and by design. Examples include Poland and Slovenia, which were both were behind the “Iron Curtain.”

Answer: 

a. The theory of national competitive advantage, introduced by Michael Porter, provides an explanation for why countries succeed at certain industries and at others. These factors move beyond the traditional focus on cost of labor, currency differences, or the natural resources in the country and instead concentrate on what leads countries to innovate. That ability to innovate then leads to national competitive advantage. The first four factors drive overall national competitive advantage. The fifth factor, the government, indicates how governmental activities can leverage and encourage the development of the first four factors.

b.  National competitive advantage factors: Demand conditions, related and supporting industries, firm strategy, structure, and rivalry, factor conditions, and government

Answer: Threat of new entrants, threat of substitute products, bargaining power of suppliers, bargaining power of consumers, and rivalry among competitors

Answer: Exporting is the mode of entry in which the product is shipped in one manner or another into a foreign market. When a company exports, they simply take their product, manufactured in their home country and send it to another country to sell. This is the cheapest and least risky international marketing option because they are only shipping the goods. The company doesn’t have to set up operations or employ people in the new country. With no large purchases made or long-term obligations to local partners, exporting represents the easiest form of market entry. However, after producing the product the company loses all control. The manufacturer has no input into matters such as product displays or other important elements involved in consumer choice and satisfaction.

Answer: Licensing refers to a contract that grants a company the legal right to use another company’s brand, image, and other marketing components. Licensing is different from exporting because the company is not producing the good when they use licensing. The company gives someone else the rights to produce the good with their name. Whereas in exporting the company still produces the good.

Answer: Franchising involves the contractual agreement to implement a business model. The contract describes the business model in a franchising relationship. In return for an upfront fee, signees obtain access to the company’s colors, images, and products, which offers greater control over the marketing process by the parent company.

Answer: When a company enters a country by establishing a 100% ownership stake in a business in that country, the company has created a wholly-owned subsidiary (WOS). Thus, the company maintains all control of their company. The time and money needed to enter another country with a wholly-owned subsidiary creates risk. Any failures must be absorbed by the company alone. Without a local partner, the entire cost of entry rests on the shoulders of the parent company. Some control may be lost when local expertise is required to help with the transition to the new country. In addition, any learning costs associated with acclimating to the local culture and regulatory environment must be absorbed.

Answer: Some companies chose to partner with local businesses when entering a country. When these legal partnerships involve an investment, a division of ownership, and the creation of a new legal entity, the newly created business is called a joint venture. A second form of joint venture involves two companies combining to create and sell a product, creating a partnership.

Answer: A strategic alliance is a formal agreement between companies to work together to achieve a common goal. Under this model, the companies do not have to create a joint venture. With less financial commitment than either a wholly-owned subsidiary or joint venture and with fewer formal legal ties between companies than a joint venture, strategic alliances contain less risk. The entry mode also allows for less control by the parent company.

Answer: The theory states that companies go through four stages during the move to becoming a completely global company: (1) no regular export activities, (2) export via independent representatives, (3) establishment of an overseas sales subsidiary, and (4) foreign production. 

Answer: The model emphasizes that going global will be an incremental process. A company begins by exporting to close, familiar markets. Through these exporting activities, the company’s managers gain the knowledge needed to export to other close similar markets. Eventually, sufficient market experience and market knowledge accumulates to increase commitments and resources given to expanding internationally. Over time this leads companies to open overseas sales subsidiaries and eventually start producing in foreign markets.

Answer: As with some of the other theories, the Eclectic Theory assumes that exporting will be the most efficient and preferred form of entry but that inefficiencies or problems in the market mean that in many cases the best decision is other forms of entry. These best decisions are based on three factors: Ownership Advantages, Location Advantages, and Internalization advantages. Ownership advantages can be thought of as the “why” for MNC foreign activities. These advantages represent the reasons why marketers spend the time and effort to enter a foreign country. Eclectic theory explains the “where” of entry location advantages. Some markets are more attractive than others and are entered first. Local resources, natural and human, governmental activities, market potential, and lower political risk make them more alluring. The last advantages suggested by the Eclectic or OLI theory are internalization advantages. These are the “how” of market entry, and the advantages that come from making the correct entry decision. To select the right type of entry mode, companies need to balance risk, uncertainty, the ability to exploit economies of scale, and cost

Answer: 

• Private property rights allow individuals to buy land, machinery, and other goods. Property rights are not universal. In market economies individuals are allowed to own property whereas in command economies this is not guaranteed. By being able to own private property rights individuals in market economies can own and start businesses.
• In a strong command economy, heavy governmental control will be present, which may not allow for ownership of property. Whereas in moderate command economies property ownership may be allowed.
• This would absolutely influence the rate of development in less or least developed countries. Not having the opportunity to own property or businesses limits the opportunities and business practices individuals can engage in.

Answer: 

• BRIC countries offer international marketers large markets, lower costs relating to production, and opportunities to learn about rapidly changing marketplaces. There may be many opportunities to introduce new products into these markets, products that are already in more developed nations.
• The number of bottom-of-the-pyramid consumers would definitely influence the country’s ability to move towards becoming more developed. When a substantial cluster of low-income individuals are present in a geographic area, it is likely that the infrastructure has not been advanced, that the culture revolves around agrarian life and poverty; that skill sets are low among the majority of citizens; and that the political and legal system does little to improve living conditions for persons in the area.
• Other factors that make it harder or easier for a national economy to grow and expand include the political stability, strong savings rates, outward orientation to expand into foreign markets, advantage in one or more factors of production (land, labor, raw materials, technology), presence of growth industries, emphasis on entrepreneurship, economic and legal reforms and infrastructure of a country.

Answer: 

• Denim jeans for middle-aged consumers
  • The five main industry level competitive factors would affect the marketing of jeans for middle-aged consumers in many ways. The threat of substitute products would mean the marketing program would need to differentiate their jeans from other makers of jeans – letting consumers know why these jeans were better. The threat of new entrants could also be lessened by the differentiation created by the marketing program. The bargaining power of suppliers would influence the cost of production of the jeans. The manufacturer may decide to supply their own denim. The bargaining power of consumers can influence the price of the jeans, the company can try to increase the number of consumers. The company can try and protect their jeans from being copied by other competitors to reduce the rivalry among competitors.

These answers apply to the products below also.

• Motorbike manufacturers
  • The bargaining power of suppliers would have a big influence the cost of production of the motorbikes. The manufacturers of motorbikes would need to work with many suppliers to control these costs.
• Cell phone service providers
  • Cell phone service is often very hard to differentiate. The company would need to try and either enhance coverage or compete on price.
• Fast food chain restaurants
  • New entrants would be a strong competitive force with fast food restaurants. The company would need to differentiate their product and have a competitive advantage.

In each instance, how would a nation’s economic system impact the five competitive forces?

The nation’s economic system would affect each product’s ability to enter into a market, the way they are able to set their prices, bargain with suppliers, and produce a product. The economic system would also influence the infrastructure in place. And finally, it would influence the demand for the products.

Answer: 

• A Mexican salsa product to be exported to Paraguay
• Automobile batteries exported from France to Turkey
• Tennis equipment exported from Japan to South Korea

The mode of entry for each product is listed – as exported. This question needs to be rephrased.

For Mexican salsa I would chose to export it – this is the cheapest and least risky way and can make the product seem more authentic if produced in Mexico.

For automobile batteries I would also export to Turkey – this is the cheapest and least risky mode of entry. The company doesn’t risk losing industry secrets by partnering with another country.

For tennis equipment I would license the rights to a South Korean company to produce the goods. Licensing provides a quick, low-cost method for entering a foreign market.