INTERNATIONAL BUSINESS Wednesday 24 Nov 2010 09:30 – 12:30 Hours 7





3 Hours


INSTRUCTIONS TO CANDIDATES There are 2 Sections in this paper : Section A and Section B. Section A is COMPULSORY and carries 40 marks. Section B consists of SIX questions. Answer ANY THREE (3) questions from Section B. Each question carries 20 marks.

5% between 1993 and 2001. reflecting a 10 percentage point average tariff advantage over foreign suppliers. which started with much lower tariffs. Mexico reduced its trade barriers on US exports significantly and dismantled a variety of protectionist measures and regulations. an increase in manufacturing productivity led to a decrease in wages. the real value of the minimum wage decreased by 18 percent and the average manufacturing wage by 21 percent. The formation of NAFTA led to the lifting of trade barriers between the three countries.INTERNATIONAL BUSINESS MANAGEMENT – MGT 3059Y(5) SECTION A Question 1 [COMPULSORY] Effects of NAFTA The North America Free Trade Agreement (NAFTA) came into force on January 1. However.3 percent to 75.97 percent in 1994 to 58. Page 1 of 4 . the US and Canada.4 billion in 1994 to $134. while the United States. many US companies made long-term investments in Mexican factories and businesses. Poverty increased from 50. There were also some short-term. Since NAFTA came into effect.9 billion in 2000. 1994. US suppliers saw their share of Mexico’s import market grow from 69. Though economists argue that a rise in productivity leads to higher wages. free trade had a negative impact on the Mexican economy.5 percent. Mexican exports to the US increased from $49. made only slight reductions. speculative investments in the Mexican stock market because of NAFTA. to promote trade between Mexico. Mexican exports increased.40% in 2001. As trade barriers between the countries were lifted. Under NAFTA. After the enforcement of NAFTA. in the case of Mexico. While productivity increased by 47.

000 US jobs. this restriction was removed. The NAFTA provisions. This resulted in an increase in interest rates. failed to do so. With NAFTA. (Source : ICFAI Centre for Management Research) Required : Page 2 of 4 . the peso. which promised to increase the employment in the United States. In late 1994. Further. Under NAFTA import barriers on corn from the US were lifted and the small producers in Mexico were hit hard. Many people lost their jobs in the US because manufacturing facilities were shifted from the US to Mexico or Canada. Certain problems arose out of NAFTA for the US economy too. NAFTA had cost more than 600. Prior to NAFTA. Within three years of its implementation. The US trade deficit with Mexico increased significantly after NAFTA came into being. also made possible the flight of capital from Mexico. and a drop in purchasing power. a heavy concentration of industries along the US-Mexico border increased environmental pollution to worrying levels. which gave people rights to communal property. investors started pulling out billions of dollars invested in the Mexican stock market. which allowed flow of capital into Mexico. foreign ownership of property in Mexico was limited to 49%. This created instability in the economy and the government devalued the Mexican currency. Subsequently. existing barriers to foreign investment were also removed. In 1999. The cheaper imports from Canada and Mexico also affected American industries.INTERNATIONAL BUSINESS MANAGEMENT – MGT 3059Y(5) Mexico repealed Article 27 of its constitution. US investment in Mexico’s forestry sector also increased. widespread bankruptcies in state-owned businesses. Even the bigger companies. The government had to pay nearly $44 billion just to service the debt. Mexico’s total debt burden was $25 billion more than what it was in 1994. The trade imbalance widened because US exports to Mexico did not grow as fast as Mexican exports to the US.

In addition. the environment. [20 marks] Question 3 ‘With the advent of the WTO and the impact of technological advancements. under certain circumstances. This has led to the proliferation of what is known as alliance capitalism’. workers. There is a growing appreciation by firms of the need to form close and ongoing relationships with other firms to fully capture the benefits of their own competencies. Canada and Mexico. [40 marks] SECTION B Answer ANY THREE (3) Questions Question 2 “Entering a foreign market via a joint venture may allow the investing firm to limit their financial exposure while at the same time gaining experience in a new market. the risk sharing function is deemed more important in research intensive industries where successive generation of technology tends to cost much more to develop while at the same time life cycles are shrinking” (Friedmann et al. and animal welfare. women and other social groups. firms are increasingly entering into strategic alliances.INTERNATIONAL BUSINESS MANAGEMENT – MGT 3059Y(5) Discuss whether the free trade agreement has benefited the USA.. rules and procedures are undemocratic. to penetrate a foreign market through the joint venture mode. Nevertheless. farmers. 1979). indigenous peoples. untransparent and non-accountable and have operated to marginalize the majority of the world's people’. health and safety. Discuss why companies may choose. the WTO system. [20 marks] Question 4 ‘It is argued that the WTO and GATT Uruguay Round Agreements have functioned principally to pry open markets for the benefit of transnational corporations at the expense of national and local economies. Discuss the above statement in the light of the growing interaction between firms operating in the same industry. Page 3 of 4 .

more particularly developing countries or LDCs has been the subject of much debate over the years. landlessness. 1995:16) Page 4 of 4 .”(Extract from Sienna Declaration prepared by the board of directors of the international forum on globalisation (IFG) and signed by over 40 organisations in 20 countries (World Bank 2000). Hampden-Turner and Trompenaars and other contributors to the rapidly developing body of experience and knowledge about international culture and management is that cultural interpretation and adaptation are a prerequisite to the comparative understanding of national and international management practice. However. Whilst it is generally accepted that MNEs do contribute by way of technology transfer. The latter process is usually done by way of an Evaluation Framework’. Discuss whether Globalisation has led to a widening of the poverty gap. [20 marks] Question 6 ‘The contribution of MNEs to the development of the host nation. an increase in poverty. social unrest that is unprecedented. hunger. skills diffusion and by bringing much needed finance capital. they transfer outdated technology. especially for developing countries. and they strip the LDCs of much needed resources. The experiment may now be called a failure. [20 marks] Question 5 “Rather than leading to economic benefits for all people.” (Morden. MNEs were and still remain a very important ingredient of growth.INTERNATIONAL BUSINESS MANAGEMENT – MGT 3059Y(5) Evaluate the truth of the above statement by focussing whether the WTO has indeed failed to attain its objectives. economies of most countries in shambles. migration and social dislocation. [20 marks] Question 7 “A crucial implication of the work of Hofstede. This is why it is crucial for a host country’s government that it should be able to assess FDI in a policy context. globalisation has brought the planet to the brink of environmental catastrophe. Discuss the four (4) criteria of the evaluation framework with special emphasis on how the potential contribution of MNEs may be influenced by the industrialisation strategy adopted by the host country. nevertheless criticisms abound as to the negative impact of MNEs in that they are viewed as exploiting the local labour force.

[20 marks] . explain how an understanding of the national culture may help managers on international assignments.INTERNATIONAL BUSINESS MANAGEMENT – MGT 3059Y(5) With reference a culture framework.END OF QUESTION PAPER - Page 5 of 4 .

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