Lesson1

Answer the following questions:

1.What does international business refer to? Please tell the difference between international business and

domestic business.

A: International business refers to transaction between parties from different countries. Sometimes business across the borders of different customs areas of the same country is also regarded as import and export.

Some major differences between international business and domestic business is following:

(1)Differences in legal systems

(2)Differences in currencies

(3)Differences in cultural background

(4)Different in natural and economic conditions

2.Please explain the differences between visible trade and invisible trade. Which is becoming more and

more important and accounts for an increasing proportion in international trade?

A: Visible trade is the form of commodity trade. The form of transportation, communication, banking, insurance, consulting, information etc. is called invisible trade or service industries. The later is become more and more important.

3.Can you cite some examples to illustrate cultural differences in international business?

A: Cultural differences including language, customs, traditions, religion, value, behavior etc.

4.Please elaborate on the two categories of international investment. What is their major difference?

A: FDI (Foreign direct investment) is made for returns through controlling the enterprises or assets invested in in a host country. Portfolio investment refers to purchases of foreign financial assets for a purpose other than controlling. Such financial assets may be stocks, bonds or certificates of deposit.

5.What is licensing? Why do firms sometimes choose it as a means of entering a foreign market?

A: In licensing, a firm leases the right to use its intellectual property to a firm in another country. They choose licensing because they do not have to make cash payments to stat business, and can simply receive income in the form of royalty. Besides, they can benefit from locational advantages of foreign operation without any obligations in ownership or management. The use of licensing is particularly encouraged by high customs duty and non-tariff barriers on the part of the host country.

6.What is franchising? How is it different from licensing?

A: Under franchising, franchisee is allowed to operate in the name of another, franchiser who provides the former with trademarks, brand names, logos and operating techniques for royalty. In comparison with the relation between the licenser and the licensee, the franchiser has more control over and provides more support for the franchisee.

7.What is a management contract? Under what conditions is it most applicable?

A: Under a management contract, one company offers managerial or other specialized services to another within a particular period for a flat payment or a percentage of the relevant business volume. When a government forbids