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Summary of chapter 4

1 The main reasons U.S. firms engage in international business are to

attract foreign demand, capitalize on technology, use inexpensive resources, or diversify internationally.

The first two reasons reflect higher revenue, while the third reason reflects lower expenses. The fourth reason reflects less risk by reducing exposure to a single economy.

2 The primary ways in which firms conduct international business are: Importing, Exporting, direct foreign investment, Outsourcing, and strategic alliances. Many U.S. firms have used all of these strategies.

3 Even though barriers to international business have been reduced over time, some barriers to international business still exist. Some governments continue to impose barriers in order to protect their local firms or to punish countries for their actions. Barriers can either prevent firms from entering foreign markets or make it more expensive for them to do so. The status of barriers can change over time. Firms need to recognize the existing barriers so that they can decide whether entering a specific foreign market is worth-while.

4 When firms sell their products in international markets, they assess the cultures, economic systems and conditions, exchange rate risk, and political risk and regulations in those markets. A country’s economic conditions affect the demand by its citizens for the firm’s product. The larger the proportion of the firm’s total sales generated in a specific foreign country, the more sensitive is the firm’s revenue to that country’s economic conditions.

5 Exchange rate movements can affect U.S. firms in various ways, depending on their characteristics. U.S. importers benefit from a strong dollar. U.S. exporters benefit from a weak dollar but are adversely affected by a strong dollar. U.S. firms competing with foreign firms that export to the U.S. market are adversely affected by a strong dollar, because the products exported by foreign firms appear inexpensive to U.S. consumers when the dollar is strong.

How the Chapter Concepts Affect Business Performance

A firm’s decisions regarding the international business concepts summarized above affect its performance. Its decision regarding the countries where its products are produced affects its cost of production. Its decision regarding where its products are sold affects its revenue. Economic conditions in foreign countries influence the demand for the firm’s products and its cost of producing the products. The strategy(such as exporting, direct foreign in-vestment, etc.) a firm uses in an attempt to capitalize on international business opportunities can affect its cost of production and the demand for its products. The firm’s decision to hedge its exposure to exchange rate movements affects the amount of revenue it receives from its inter-national business.