Tutorial 1 QnA.doc - TROY International Trade and Finance(ECO 451 Tutorial 1 Multinational Financial Goals Q1 Difference between multinational and

Tutorial 1 QnA.doc - TROY International Trade and...

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TROY International Trade and Finance (ECO 451) Tutorial 1 Multinational Financial Goals Q1. Difference between multinational and domestic business. Answer Q2. Coca-Cola has overseas sales at about 66% of its total company sales. It has been quite successful in expanding into mainland China, Russia, and African countries. When Coca-Cola sells its drinks overseas, it does not produce the drinks in the US and export them to foreign countries. Instead, it makes the drinks in foreign host countries and sells the drinks locally. Briefly use one of the theories of international business to explain such a phenomenon. Answer The imperfect markets theory explains the phenomenon. It would be cost effective to make the soft drinks in the host countries. The raw materials (sugar and water) are much cheaper in the host countries as compared with the US (after the inclusion of transportation costs). 1
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Q3. What factors cause some firms to become more internationalized than others? Answer Theory of Comparative Advantage - Specialization by countries can increase production efficiency (further explain the factors) Imperfect Markets Theory - The markets for the various resources used in production are “imperfect” – availability and lower cost (further explain the factors)
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