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Summary of InternationalBusiness
Chapters ( 5,7 – 13,14)
Best Wishs By :
oata! " Sha#$ey
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InternationalInternational
%ra&e %ra&e5
• Describe the relation between international trade volume and
world output and identify overall trade patterns
• Describe mercantilism and explain its impact on world powersand their colonies
• Explain the theories of absolute and comparative advantage
• Explain the factor proportions and international product life cycle
theories• Explain the new trade and national competitive advantage
theories
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Int" Business Summary '""Sha#$y
International %ra&e *1+3• urhase, sale or e-han.e of .oo&s an&
ser/ies aross national 0or&ers – eople ha/e lar.er seletion of pro&uts – Important en.ine for o0 reation
3
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Int" Business Summary '""Sha#$y
%ra&e 2epen&ene an&
In&epen&ene 1++• Countries ran.e from total&epen&ene to total in&epen&ene
•otential eets of &epen&ene: – Infuses nee&e& apital – Creates o0s an& raises #a.es
– Imports tehnolo.y an& s$ills
– onomi pro0lems transferre&
– olitial turmoil an spill o/er
4
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Int" Business Summary '""Sha#$y
2isussion uestion * 1• What are the patterns of .lo0al an& re.ional
tra&e 6o#s that #e see amon. nations
%ra&e amon. hi.h*inome eonomies aounts forrou.hly + perent of total #orl& merhan&ise tra&e"
%ra&e 0et#een hi.h*inome ountries an& lo#* an&mi&&le*inome nations aounts for a0out 34 perent of#orl& merhan&ise tra&e"
Intra*re.ional tra&e aounts for nearly 7 perent
of urope8s e-ports, 5+ perent of 9sia8s e-ports, an&3 perent of ;orth 9meria8s e-ports"
Some eonomists all this the referrin. to the e-pete& future .ro#th of 9sianeonomies an& e-pete& shift in tra&e 6o#s from the9tlanti to the ai= ?ean" 5
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Int" Business Summary '""Sha#$y
%ra&e %heory %imeline @1+
+
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Int" Business Summary '""Sha#$y
Aoun&ations of erantilism
• ;ations aumulate =nanial #ealth 0yenoura.in. e-ports an& &isoura.in. imports
• %hree pillars – aintain tra&e surplus
– o/ernment inter/ention – -ploit olonies
Ala#s of erantilism• Worl& tra&e is !ero*sum .ame• imits olonies8 mar$et potential
• Constrains output an& onsumption
7
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Int" Business Summary '""Sha#$y
90solute 9&/anta.e
• 90ility of a nation to pro&ue a .oo&more eDiently than any other nation(.reater output usin. same or fe#er
resoures)Eielan&:
1 resoure unit F 1 ton rie or 1'5 ton tea
%ealan&:
1 resoure unit F 1'+ ton rie or 1'3 ton tea
• Speiali!ation an& tra&e allo#s eah topro&ue an& onsume more
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Int" Business Summary '""Sha#$y
Comparati/e 9&/anta.e 1'G
• Ina0ility of a nation to pro&ue a .oo&more eDiently than other nations, 0utan a0ility to pro&ue that .oo& more
eDiently than it &oes any other .oo&Eielan&:
1 resoure unit F 1 ton rie or 1'G ton tea
%ealan&:
1 resoure unit F 1'+ ton rie or 1'3 ton tea
• Speiali!ation an& tra&e allo#s eah topro&ue an& onsume more
H
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Int" Business Summary '""Sha#$y
9ssumptions an&
imitations G'G1" ;ations stri/e only to ma-imi!e pro&utionan& onsumption
G" ?nly t#o ountries pro&ue an& onsume
ust t#o .oo&s
3" ;o transportation osts of tra&in. .oo&s
4" a0or is the only resoure use& to pro&ue
.oo&s
5" I.nores eDieny an& impro/ement .ainsfrom pro&uin. ust one .oo&
1
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Int" Business Summary '""Sha#$y
2isussion uestion * G
When a nation annot pro&ue a .oo&more eDiently than other nations, 0utit an pro&ue that .oo& more
eDiently than it &oes any other .oo&,#e say this is a ase of @@@@@@@@@@"
a" 90solute a&/anta.e
0" Comparati/e a&/anta.e
" erantilism
11
t t
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Int" Business Summary '""Sha#$y
ator roport ons eory@173
• Countries pro&ue an& e-port .oo&s that reJuire
resoures (fators) in a0un&ane, an& import.oo&s that reJuire resoures in short supply
• %#o fator types : * a0or K * an& an& Capital
Leontief Paradox• Eesearh foun& e/i&ene opposite of that
pre&ite& 0y the fator proportions theory – L"S" e-ports are more la0or*intensi/e than L"S"
imports• ossi0le e-planations
- %heory assumes nation8s pro&ution fators to 0ehomo.eneous
- %heory is 0etter pre&itor #hen e-pen&itures on1G
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Int" Business Summary '""Sha#$y
2isussion uestion * 3
Brie6y &esri0e the ne# tra&e theory" 2oes its fouson pro&uti/ity put it at o&&s #ith the theory ofomparati/e a&/anta.e an& fator proportions theory
;e# tra&e theory says that:
%here are .ains to 0e ma&e from speiali!ation an&inreasin. eonomies of sale"9 ompany that is =rst to the mar$et an& ahie/es a
=rst*mo/er a&/anta.e an reate 0arriers to entry"9n& .o/ernment may play a role in assistin. its home*
0ase& ompanies"Beause ne# tra&e theory emphasi!es pro&uti/ityrather than a nation8s resoures, it is in line #ith thetheory of omparati/e a&/anta.e 0ut at o&&s #ith fatorproportions theory"
13
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Int" Business Summary '""Sha#$y
;ational Competiti/e
9&/anta.e @177• ;ation8s ompetiti/eness in an in&ustry&epen&s on the in&ustry8s apaity toinno/ate an& up.ra&e, #hih in turn
&epen&s on four main &eterminants (plus.o/ernment an& hane)
– Aator on&itions
– 2eman& on&itions
– Eelate& an& supportin. in&ustries
– Airm strate.y, struture, an& ri/alry
14
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Foreign DirectForeign Direct
InvestmentInvestment
7 M2esri0e #orli&e patterns of forei.n &iretin/estment (A2I) an& reasons for these patternsM2esri0e eah of the theories that attempt to
e-plain #hy forei.n &iret in/estment oursM2isuss the important mana.ement issues in the
forei.n &iret in/estment &eision
M-plain #hy .o/ernments inter/ene in the free
6o# of forei.n &iret in/estment
M2isuss the poliy instruments that .o/ernments
use to promote an& restrit forei.n &iret
in/estment
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Int" Business Summary '""Sha#$y
Aorei.n 2iret In/estment
(A2I) @G1• urhase of physial assets or si.ni=antamount of o#nership of a ompany inanother ountry to .ain some measure of
mana.ement ontrol• By ontrast, portfolio in/estment &oes not
in/ol/e o0tainin. a &e.ree of ontrol in aompanyEeasons for A2I ro#thM Inreasin. .lo0ali!ationM International mer.ers an& aJuisitions
1+
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Int" Business Summary '""Sha#$y
2isussion uestion * 1
• What is the &ierene 0et#een forei.n&iret in/estment an& portfolio in/estment
Foreign direct investment is thepurhase of physial assets or asi.ni=ant amount of the o#nership ofa ompany in another ountry to .aina measure of mana.ement ontrol" 9
portfolio investment is an in/estmentthat &oes not in/ol/e o0tainin. a
&e.ree of ontrol in a ompany" 17
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Int" Business Summary '""Sha#$y
International ro&ut ifeCyle (NI) @G13
• 9 ompany 0e.ins 0y e-portin. its pro&utan& later un&erta$es forei.n &iretin/estment as a pro&ut mo/es throu.h its
life yle
Source: Eaymon& Nernon an& ouis %" Wells, Or", The Economic Environment of International Business, 5th e&" (Lpper Sa&&le Ei/er, ;"O": rentie Pall, 1HH1), p" 5"
1
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Int" Business Summary '""Sha#$y
ar$et Imperfetions
(Internali!ation)• 9 ompany un&erta$es A2I tointernali!e a transation that is ma&e
ineDient 0eause of a mar$etimperfetionM %ra&e 0arriers (e".", taris)
M LniJue a&/anta.e (e".", speial $no#le&.e)
1H
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Int" Business Summary '""Sha#$y
leti %heory
M 9 =rm un&erta$es A2I #hen loation,o#nership, an& internali!ationa&/anta.es om0ine to ma$e aloation appealin. – oation a&/anta.e (optimal loation)
– ?#nership a&/anta.e (speial asset)
– Internali!ation a&/anta.e (eDieny)
G
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Int" Business Summary '""Sha#$y
ar$et o#er
• 9 =rm un&erta$es A2I to esta0lish a&ominant presene in an in&ustry
– ar$et po#er F reater pro=ts
– Nertial inte.ration• -ten&s ompany8s ati/ities into sta.es of
pro&ution that pro/i&e its inputs (0a$#ar&inte.ration) or a0sor0 its outputs (for#ar&inte.ration)
G1
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Int" Business Summary '""Sha#$y
2isussion uestion * G
%he eclectic theory says that =rmsun&erta$e A2I #hen loation,o#nership, an& @@@@@@@@@@
a&/anta.es om0ine to ma$e aloation appealin. for in/estment"
a" Internali!ation
0" Airst*mo/er
" ife*yle
GG
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Int" Business Summary '""Sha#$y
2isussion uestion – 3 @G1H
• What &o #e mean 0y a ountry8s balanceof payments an& #hat is its usefulness
9 ountry8s balance of payments is anational aountin. system that reor&s allpayments to entities in other ountriesan& all reeipts omin. into the nation"
%he system helps a ountry monitor the6o#s of .oo&s, ser/ies, inome, an&transfer of assets 0et#een itself an& othernations" %he 0alane of payments position
sen&s #arnin. si.nals a0out tra&e &e=itsG3
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AnalyzingInternational
Opportunities ( المن (خرج 12
Sreenin. ar$ets an&
Sites
Step 1 : I&entify 0asi appeal
Step G : 9ssess national 0usinessen/ironments
Step 3 : easure mar$et or site
potential
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Int" Business Summary '""Sha#$y
2isussion uestion• What are the four main steps in the proess of sreenin.
potential ne# mar$ets an& sites for operations
• First , a ompany must i&entify a loation8s 0asiappeal, #hether this 0e pro&ut &eman& or
resoure a/aila0ility" Second, it must assess thenational 0usiness en/ironment, inlu&in. ultural,politial, le.al, an& eonomi fores, as #ell asthe ost of lo.istis an& the ima.e of a ountry"Third, it must measure the mar$et or sitepotential, #hih reJuires olletin. &etaile& &ataon eah mar$et an& site un&er onsi&eration" 9n&fourth, a ompany must selet the sin.le 0estmar$et or site 0y ta$in. =el& trips to sites ma$in.
the =nal uto an& performin. ompetiti/e G5
l i & i
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Seletin.Seletin. an& ana.in.an& ana.in.
ntry o&esntry o&es1•-plain ho# ompanies use e-portin.,importin., an& ountertra&e
•-plain the /arious means of =nanin.
e-port an& import ati/ities•2esri0e the &ierent ontratualentry mo&es that are a/aila0le toompanies
•-plain the /arious types ofin/estment entry mo&es
•2isuss the important strate.i fatorsin seletin. an entry mo&e
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Int" Business Summary '""Sha#$y
2isussion uestion – 1 @35H
• What are the four steps ompanies anfollo# #hen 0uil&in. an e-port strate.y
• 9 ompany shoul& not simply respon& to
international reJuests for its pro&uts, 0ut shoul&follo# a four*step proe&ure to &e/elopin. ane-port strate.y" First , it shoul& i&entify a potentialmar$et throu.h areful mar$et researh an&
analysis" Second, it shoul& math the nee&s of themar$et to its a0ility to satisfy those nee&s" Third, itshoul& initiate meetin.s #ith potential &istri0utors,0uyers, an& others to 0uil& trust an& ooperation"9n& fourth, it must ommit the ompany8s human,=nanial, an& physial resoures to .ettin. the o0G7
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Int" Business Summary '""Sha#$y
Aorms of Countertra&e@3+G
• Barter – 2iret e-han.e #ithout money
• Counter purhase – Sale to a nation in return for promise of future purhase
from that nation
• ?set a.reement – ?set a har&*urreny sale to a nation #ith future har&*
urreny purhase
• S#ith tra&in. – Sale 0y a ompany of o0li.ation to purhase from a
ountry
• Buy0a$ – -port of in&ustrial eJuipment in return for pro&uts that
the eJuipment pro&ues
G
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Int" Business Summary '""Sha#$y
iensin. @3+7
• Company o#nin. intan.i0le property(liensor) .rants another =rm (liensee) theri.ht to use it for a spei= time – 9&/anta.es
• Ainane e-pansion• Ee&ue ris$s• Ee&ue ounterfeits• Lp.ra&e tehnolo.ies
– 2isa&/anta.es
• Eestrit liensor8s ati/ities• Ee&ue .lo0al onsisteny• en& strate.i property
GH
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Int" Business Summary '""Sha#$y
Aranhisin.
• Company (franhiser) supplies another(franhisee) #ith intan.i0le propertyo/er an e-ten&e& perio&
– 9&/anta.es• o# ost an& lo# ris$
• Eapi& e-pansion
• oal $no#le&.e
– 2isa&/anta.es• Cum0ersome
• ost 6e-i0ility
3
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Int" Business Summary '""Sha#$y
2isussion uestion * G
• In #hat #ays &oes franhisin. &ierfrom liensin.
• 9lthou.h franhisin. an& liensin. are 0oth
ontratual entry mo&es, se/eral $ey &ierenesset them apart"
• Airst, franhisin. .i/es a ompany .reater ontrolo/er the sale of its pro&ut in a tar.et mar$et
than &oes liensin."• Seon&, franhisin. is primarily use& in the
ser/ie setor, #hereas liensin. is ommon inmanufaturin. in&ustries
• %hir&, franhisin. reJuires on.oin. assistane 31
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Int" Business Summary '""Sha#$y
ana.ement Contrat@37
• Company supplies another #ithmana.erial e-pertise for a spei=perio& of time
– 9&/anta.es• Ae# assets ris$e&
• ;ations =nane proets
• 2e/elops loal #or$fore
– 2isa&/anta.es• ersonnel at ris$
• Create ompetitor
3G
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Int" Business Summary '""Sha#$y
%urn$ey roet
• Company &esi.ns, onstruts an&tests a pro&ution faility for a lient
– 9&/anta.es• Airms speiali!e in ompeteny
• ;ations o0tain infrastruture
– 2isa&/anta.es
• olitii!e& proess• Create ompetitor
33
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Int" Business Summary '""Sha#$y
Wholly ?#ne& Su0si&iary@37G
• Aaility entirely o#ne& an& ontrolle&0y a sin.le parent ompany
– 9&/anta.es• 2ay*to*&ay ontrol
• Coor&inate su0si&iaries
– 2isa&/anta.es
• -pensi/e• Pi.h ris$
34
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Int" Business Summary '""Sha#$y
Ooint Nenture
• Company reate& an& ointlyo#ne& 0y t#o or more entities toahie/e a ommon o0eti/e – 9&/anta.es
• Ee&ue ris$ le/el• enetrate mar$ets• 9ess hannels
– 2isa&/anta.es• artner on6it• ose ontrol
35
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Int" Business Summary '""Sha#$y
Strate.i 9lliane
M ntities ooperate (0ut &o not form aseparate ompany) to ahie/e strate.i.oals of eah
– 9&/anta.es• Share proet ost• %ap ompetitors8 stren.ths• ain hannel aess
– 2isa&/anta.es•
artner on6it• Create ompetitor
3+
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Int" Business Summary '""Sha#$y
2isussion uestion * 3
9n in/estment entry mo&e that .i/esa ompany the most ontrol o/er &ay*to*&ay ati/ities in a host ountry is
alle& a @@@@@@@@@@"
a" Ooint /enture
0" Strate.i alliane" Wholly o#ne& su0si&iary
37
l i &2 l i &
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2e/elopin. an&2e/elopin. an&
ar$etin. ro&utsar$etin. ro&uts1!
• -plain the impat .lo0ali!ation is ha/in. oninternational mar$etin. ati/ities
• 2esri0e the types of thin.s mana.ers must
onsi&er #hen &e/elopin. international product strate.ies
• 2isuss the fators that in6uene internationalpromotional strate.ies an& the 0len&in. of
pro&ut an& promotional strate.ies• -plain the elements that mana.ers must ta$e
into aount #hen &esi.nin. internationaldistribution strate.ies
• 2isuss the elements that in6uene international
pricing strate.ies
ro ut
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Int" Business Summary '""Sha#$y
* ro utlo0ali!ation an& ar$etin.
@3+• Stan&ar&i!e& pro&ut an& promotion – Consistent ima.e ' messa.e
– Contain osts
• 9&apte& pro&ut an& ' or mar$etin.
– Eespon& to loal nee&s
– -ploit uniJue ima.e
3H
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Int" Business Summary '""Sha#$y
2isussion uestion * 1
• What elements in the national 0usiness en/ironmentin6uene &eisions a0out #hether to stan&ar&i!e ora&apt international mar$etin. eorts
• Laws and regulations of the tar.et mar$et an forepro&ut alteration" Cultural dierences 0et#een homean& tar.et mar$ets an fore a&aptations to 0etter suitloal 0uyers8 pro&ut preferenes" !ational image of theountry in #hih a pro&ut is &esi.ne&, manufature&,or assem0le& an ha/e a stron. in6uene on 0uyers8pereptions of Juality an& /alue" Counterfeit goods an&ama.e 0uyers8 ima.e of a 0ran&" 9n& a&/anementsin .lo0al ommuniations an& the rapi& pae of ne#
pro&ut &e/elopment is shortening product life cycles"4
G* romotion
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Int" Business Summary '""Sha#$y
G* romotionChoosin. ush or ull @3H1
• ush Strate.y – ressure hannel mem0ers to arry a pro&ut an&
promote it to =nal users
– o#erful hannel mem0ers ma$e push &iDult
• ull Strate.y
– Create 0uyer &eman& that #ill enoura.e hannelmem0ers to sto$ a pro&ut
–Ae#er me&ia outlets in emer.in. mar$ets ma$es pull&iDult
– Bran& loyalty ma$es pull easier
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Int" Business Summary '""Sha#$y
International 9&/ertisin.
• Consi&er ultural nuanes
• Stan&ar&i!e #here possi0le
• -ploit .lo0al a&/ertisin. outlets• essons from the uropean Lnion
4G
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Int" Business Summary '""Sha#$y
ar$etin. Communiations
43
3 l
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Int" Business Summary '""Sha#$y
3* lae2istri0ution Strate.y @3H7
• lannin., implementin., an&ontrollin. the physial 6o# of apro&ut from ori.in to onsumption
– hysial .oo&s
– Consultin. ser/ies
– ;e#s pro/i&ers
44
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Int" Business Summary '""Sha#$y
2isussion uestion * G
• In #hat #ays &o e-lusi/e an& intensi/ehannels of &istri0ution &ier
• 9n e-lusi/e hannel is one in #hih
a manufaturer .rants the ri.ht tosell its pro&ut to only one or alimite& num0er of resellers, as in the
ase of ne# automo0iles" 9nintensi/e hannel is one in #hih apro&uer .rants the ri.ht to sell itspro&ut to many resellers, as in thease of eneral oDe su lies" 45
4 i
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Int" Business Summary '""Sha#$y
4* rieriin. Strate.y @3HH
• ust math o/erall =rm strate.y
– o#*ost lea&ership ' 2ierentiation ' Aous
Worli&e riin.• Sin.le sellin. prie for all international mar$ets• 2iDulties
– oal pro&ution ost
– -port an& &istri0ution ost
– oal purhasin. po#er
– -han.e rates
4+
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2isussion uestion * 3
9 priin. strate.y in #hih a ompany
must $eep its &omesti an&
international 0uyers separate is alle&
@@@@@@@@@@"
a" 2ual priin.
0" Worli&e priin." 9rm8s len.th priin.