Session 3: INTERNATIONAL BUSINESS ENVIRONMENTS:

COUNTRY COMPETITIVENESS
Gross National Income

A yardstick for the economic activity of every country

Purchasing Power Parity (PPP)

Allows analyzing different countries living standards through direct comparison.

Human Development Index

HDI is based on three measures: life expectancy at birth, educational attainment and average incomes
that are enough to meet the basic needs of every person in a country.

Economic Risk

The likelihood that economic mismanagement will cause drastic changes in a country’s economic
environment that hurts the objectives of business entities.

Country Competitiveness

Country competitiveness is the ability of a country to compete in global market it also pertains
to the set of fiscal monetary policies that leads to growth and productivity.

Human Development Index 2015

It provides us an idea of the average lifespan of a human being in a certain territory part of it is
the average income of its citizens and it also includes the level of educational attainment.

Average annual growth rate in GDP (2007-2016)

Growth domestic product refers to all economic activities inside a particular country.

GNI per capita 2016

Freedom in the World 2017

87-free,59-partly free,49-not free

Country Competitiveness and Multinational Enterprises

Nations have become more influential in International Business Operations

The competitiveness of a country is interdependent on the success of multinational enterprises.

Impacts of country competitiveness on multinational enterprises

Country Competitiveness affects an MNE's:

1. Selection of its Global Operations

Which around the world will they actually go to?
2. Industry Selection
 What type of business would they bring with them?

3. Innovation and Capability Building

How are they going to adapt with their chosen destination?

4. Global Strategy
What specific strategy will they use among the time tested strategies that they
have used from their previous country that they decided to go to?

Country competitiveness is determined by four levels of factors

1. Country Level
2. Industry Level
3. Firm Level (Companies)
4. Individual Level (Talent pool)

Country-Level Determinants

Country level determinants include:

1. Science, Education, and Innovation

2. Macroeconomic Soundness
3. Finance
4. Internationalization

Industry-Level Determinants

Porter’s diamond framework

There are four attributes which constitutes the Diamond of National Advantage

1. Demand Conditions
2. Related and supporting industries
3. Firm Strategy, Structure and Rivalry
4. Factor Conditions – the general conditions that the business environment that we would like to
understand

Firm-Level Determinants

An economy’s product competitiveness stems from companies within a nation

1. Technological Innovation
2. Organizing Principles
3. Influencing Factor Creation

Individual-Level Determinants

Human resources affect the core of country competitiveness

1. Entrepreneurs
2. Workers
 3. Professional Managers
4. Designers and Engineers
5. Educators and Intellectuals
6. Government Officials

Nature of Economic Transformation

1. Deregulation
2. Privatization
3. Legal Systems

Government Role

Governments play an important role in shaping a country’s competitiveness

1. Through policy making and intervention, government can impact investment, savings, and trade
2. Through trade liberalization and exchange rate adjustment, government can strengthen the
balance of payments and improve international competitiveness

Session 6: INTERNATIONAL TRADE THEORIES & APPLICATION

International Trade Theories

1. Mercantilist Doctrine
2. Absolute Advantage
3. Comparative Advantage
4. Heckscher – Olin Theorem
5. Leontief Paradox
6. Product Life Cycle Model
7. New Trade Theory

Mercantilism

Mercantilism was based on the conviction that one nation can increase its trade only at the
expense of other nations. It is associated with policies which restrict imports, increase stocks of gold and
protect domestic industries. Encourage exports, discourage imports

Modern Day Mercantilism

America First

A surge of protectionist sentiment, e.g. US tariffs on Chinese imports, and US policies to “Buy
American”

What tariffs have been imposed?

1. Mr. Trump's tariffs policy aims to encourage consumers to buy American products by making
imported goods more expensive.
2. The US has imposed tariffs on more than $360bn (£268bn) of Chinese goods, and China has
retaliated with tariffs on more than $110bn of US products.
 3. Washington delivered three rounds of tariffs in 2018, and a fourth one in September last year.
The most recent round targeted Chinese imports, from meat to musical instruments, with a 15%
duty.
4. Beijing hit back with tariffs ranging from 5% to 25% on US goods.

Absolute advantage and Comparative Advantage

Absolute advantage refers to the ability to produce more or better goods and services than
somebody else while Comparative advantage refers to the ability to produce goods and services at a
lower opportunity cost, not necessarily at a greater volume or quality.

Heckscher-Olin Theory and Leontief Paradox

Heckscher – Olin Theory - states that countries in which capital is relatively plentiful and labor relatively
scarce will tend to export capital-intensive products and import labor-intensive products. However,
Wassily Leontief, a Russian-born U.S. economist pointed out, though the United States has more capital
than most other nations, the majority of its exports were of labor-intensive goods; conversely, the
majority of U.S. imports were of capital-intensive goods. This phenomenon came to be known as the
Leontief Paradox

Product Life Cycle Model

PLCM is an effective tool in gaining competitive advantage

Stages:

1. Market Development – When a product is first brought to the market because there is a
demand for it. In international trade, this is the stage when a new product is produced by an
innovative country.
2. Growth – As the demand begins to accelerate or grow in other countries it is strategic to begin
exporting the product to high income countries.
3. Maturity – Market maturity is when you have branch out because it has created a global
following a manufacturing locally where it’s demanded and in strategic location is a good idea ??
4. Decline - efcsd

New Trade Theory

New trade theory (NTT) suggests that a critical factor in determining international patterns of
trade are the very substantial economies of scale and network effects that can occur in key industries.
Another factor that is critical in this theory is the network effects in key industries example is geographic
location aspect.

International Trade Patterns

1. INTERNATIONAL TRADE VOLUME AND GROWTH

2. MAJOR EXPORTERS AND IMPORTERS
3. TRADE BALANCE

World Trade Organization in Brief

 In brief, the WTO is the only international organization dealing with the global rules of trade. Its
main function is to ensure that trade flows as smoothly, predictably and freely as possible.

World merchandise trade volume is forecast to grow 2.6% in 2019, accompanied by GDP growth of
2.6%.

Impact of the pandemic on trade and globalization

The WTO has predicted that the world merchandise trade could go down between 13-22% this
year because of the impacts of the Covid-19.

World’s Top Importers

1. USA
2. China
3. Germany
4. Japan
5. UK

Most imported goods around the world are petroleum and cars.

World’s Top Exports

1. China – due to population

2. USA
3. Germany - automobiles
4. Japan
5. Netherlands

The Balance of Trade

Trade balance is the difference between the amount of a country’s exports vs. imports. If
import>export then you have trade deficit if import<export then you have trade surplus. Economists use
the balance of trade to gage the relative strength of a country’s economy and how we as a country
should definitely be working on narrowing down our trade deficit because we do not want to be
dependent on foreign investors.

PH trade deficit narrows to $1.83 billion in July

Opposition to Free Trade: Prejudice and nationalism

Types of Trade Barriers

1. Tariff Barriers – Protect industries that are struggling or those that are new to the developing
countries or as what they called the infant industries. Types of tariff barriers are: Specific tariffs
Licenses and import quotas. Tariff is the tax on imported goods while quota is the limit on
importation of goods. Another form is export controls it is when the export of certain types of
products are limited. It is typically implemented on products with an implication to national
security such as military weapons and equipment.
2. Non-Tariff Barriers – The obstacles to trade that are not anchored on laws and official
regulations. Examples are administrative barriers, production subsidies, emergency import
 protection, foreign sales corporation?, embargos and boycotts, technical standards, and
corruption.

Administrative barriers are defined as measures that are used to block the entry of product

Production subsidies are payments given to boost domestic companies to produce more of certain
goods

Session 8: ENTRY MODE STRATEGIES & GLOBAL BRANDS

Strategic Management

Strategic management is the art and science of formulating, implementing and evaluating cross
functional decisions that enable an organization to achieve its objectives. It optimizes a business to gain
and sustain a competitive advantage. In a nutshell, it is to optimize your resources in accordance with
outside forces to maximize your profit as a business entity.

Strategic Management is important for MNE’s because it provides a global direction to country
leaders and ensure a harmonious operational management among different business functions. For
MNE’s a strategic management plan is also a guide that gives the path towards achieving its objectives
and goals on an international level.

Basic Entry Decisions

1. WHICH FOREIGN MARKETS? Foreign expansions must be based on an assessment of a nation’s

long-run profit potential. Ultimately, the benefit– cost–risk trade-off is likely to be most
favorable in politically stable nations that have free market systems
2. TIMING OF ENTRY Entry is considered to be early when an international business enters a
foreign market before other foreign firms and late when it enters after other international
businesses have already established themselves in a market.
3. SCALE OF ENTRY AND STRATEGIC COMMITMENTS Entering a market on a large scale involves
the commitment of significant resources and implies rapid entry.

Entry Mode Strategies

1. EXPORTING – In most firms, creating an international presence begins with exporting

this is the option where costs can be at a minimum and substantial costs in establishing
operations can be avoided. Likewise in exporting the company can use this time to
establish the sales volume needed for this new market that way production forecasts
can be more efficient and more so …..
2. TURNKEY PROJECTS – In a turnkey project the contractor agrees to handle every detail
of the project for a foreign client including construction, setting up system. The reason it
is called turnkey is that once the contract is completed the contractor gives the key to
the foreign client or turnover the access of the plant hence the term turnkey was
coined.
3. LICENSING AGREEMENTS – A licensing agreement is an arrangement where a licensor
grants the rights to the company’s intellectual property to another entity or what we
called the licensee in exchange the licensee pays royalty fees to the licensor
 4. FRANCHISING – This is similar to licensing but long term. In this form of entry mode the
franchisor provides the use of its business model so that the franchisee can start an
independent branch of the company. It is independent is a sense that the franchisee is
given the liberty to run its daily operations but if the franchisee fails to adhere to the set
guidelines of the franchisor it may be penalized. Licensing is usually presumed by
manufacturing firms while franchising primarily by service firms.
5. JOINT VENTURES – In establishing a joint venture in a foreign country this is popular
mode for entering new market. In joint ventures where there are two parties each of
the parties owned a certain percentage or ownerships stake of the company and both
are contributing a team of managers to share operating control over the new entity.
6. WHOLLY OWNED SUBSIDIARIES – A subsidiary is a company that belongs to another
company. In wholly owned subsidiary the firm owns 100% of the stock the parent
company and its subsidiary are distinct legal entity they are separate from one another
which means they have independence on governance.

Reducing the risks of failure

asdausdh

Strategic Alliances

Strategic alliances is the cooperative agreement between companies or usually competitors.

Unlike in mergers where two or more entities merge as a new company strategic alliances retain their
independence.
Factors that Make Alliances Work

1. Partner Selection
2. Alliance Structure
3. Managing the Alliance

Interbrand

Interbrand is a New York based company who has been the world’s leading brand consultancy
for over 40 years. The company has an annual list of global brands which is a highly influential valuation.

Factors that influenced top global brands

1. Leadership – Direction, Alignment, Empathy, Agility

2. Engagement – Distinctiveness, Coherence, Participation
3. Relevance – Presence, Trust, Affinity

Session 9: INTERNATIONAL BUSINESS IN AN AGE OF

GLOBALIZATION
Globalization

Globalization refers to the shift toward a more integrated and interdependent world economy.
It has several facets, including the globalization of markets and the globalization of production. In a
nutshell, it is the trend to increase the trade of goods and services among countries to achieve a cheaper
commodity and or a specialized product quality.

Benefits of Globalization

1. Increased Investment / Economic Growth

2. Lower Capital Costs
3. Rapid Technological Transfer
4. Access to New Cultures & Talent
5. Access to New Markets

Emergence of International Institutions

1. World Trade Organization - Responsible for policing the world trading system and making sure
nation-states adhere to the rules laid down in trade treaties signed by WTO member states.
2. International Monetary Fund (IMF) & World Bank - IMF was established to maintain order in
the international monetary system while WB was created to promote economic development.
3. United Nations - Established in October 24, 1945, by 51 countries committed to preserving
peace through international cooperation and collective security
4. Group of twenty - G20 comprises the finance ministers & central bank governors of the 19
largest economies in the world, plus representatives from the EU & the European Central Bank.

International vs. Domestic Business

 International business is the outcome of a successful local operations.

Motivations for Expanding Internationally

1. Market Motives – Can be both offensive and defensive. Being in the offense means being
proactive in seizing opportunities while a defensive market motive is when a firm seeks to
protect its competitive position amidst domestic rivalries.
2. Economic Motives – This is when a firm seeks to venture out internationally to lower their costs
and increase their revenues. This strategy brings about uhm savings in labor costs, savings in raw
materials it also gives advantages on taxation and ease of regulations as developing countries
often times provide economic incentives for foreign entities to invest in their country.
3. Strategic Motives – Opening an international business is in some instances a strategic move to
capitalize on distinctive resources or develop capabilities of certain countries.

Customizing Global Marketing

Global marketing is a mixture of macro standardization and local adaptation.

4 Dimensions of Global Marketing

1. Business Functions - A company’s approach to global marketing depends, first, on its overall
business strategy. In many MNEs, some functional areas have greater program standardization
than others.
2. Products - Products that enjoy high scale economies or efficiencies and are not highly culture-
bound are easier to market globally than others. Is it a highly cultural bound product? Does your
product have a large economies of scale?
3. Marketing Mix Elements - For most products, the appropriate degree of standardization varies
from one element of the marketing mix to another. Strategic elements like product positioning
are more easily standardized than execution-sensitive elements like sales promotion.
4. Countries - How far a decentralized multinational wishes to pursue global marketing will often
vary from one country to another. Naturally, headquarters is likely to become more involved in
marketing decisions in countries where performance is poor.

Session 13: GLOBAL INTERNET AND E-COMMERCE DIFFUSION

“The internet is not a luxury, it is a necessity.” – Barrack Obama

E-Commerce
E-commerce, in full electronic commerce, is the sale or purchase of goods or services conducted
over computer networks by methods specifically designed for the purpose of receiving or placing of
orders. Even though goods or services are ordered electronically, the payment and the ultimate delivery
of the goods or services do not have to be conducted online.

E-commerce is the trading of goods and services over the internet. E-commerce are the
activities between a business and consumer (b-c), business and business (b-b), business and government
(b-g).

Internet
 The Internet is a worldwide system or a vast network that connects as all around the world thru
computers.

E-Commerce in Developed Countries

According to the United Nations Conference on Trade and Development, by most estimates,
over 95% of e-commerce takes place in developed countries, with Africa and Latin America combined
accounting for less than 1% of the total.

Internet and E-Commerce Diffusion E – Readiness factors by McConnell international

1. CONNECTIVITY - The existence & affordability of a communication & transportation network.

2. INFORMATION SECURITY - Security & other protections pertaining to information
dissemination. This concept is also known as info sec and these are set of practices, processes,
methodologies that are designed to protect confidential, private, sensitive information or data
from unauthorized usage or access.
3. E-BUSINESS CLIMATE - The institutional & regulatory frameworks that facilitate or hinder e-
commerce. Credit cards and other forms of e-payment are critical ingredient in digital
transactions.
4. E-LEADERSHIP - The extent to which e commerce is a national priority.
5. HUMAN CAPITAL - The availability of Human Resources to support e-commerce.

“Just something to ponder on, what do you think are the factors that these needs to be thoroughly
supported in our country? “

Cross-Border E-Commerce

Cross-border e-commerce is the e-commerce transaction among national borders. This concept
states that the sender and the buyer or the end user are in separate countries.

Cross - Border E-Commerce in the Philippines

It is estimated that 76 million of our fellow countrymen are active in various digital platforms
and there are even studies that show that about half of this are e-commerce participants.

Global E-Commerce Challenges

1. Standardization Forces – about 96% of e-commerce sites use the English language but only half
of the world’s internet users are native-English speakers
2. Localization Challenges – the two (2) things to consider in this factor are (a) Website
Localization and (b) Logistics
3. Taxation Issues – The implications of e-commerce taxations are very ominous. Governments
around the world face a difficult task of protecting national revenue without hindering the
development in digital transactions.

Impact of the Covid-19 pandemic to E-commerce

Session 14: BUSINESS ETHICS, SOCIAL RESPONSIBILITY &
CORRUPTION IN THE GLOBAL MARTKETPLACE
Ethics is a branch of philosophy that examines the moral standards of an individual or a society and
asking how these standards apply to our lives and whether it’s reasonable or not.

Business Ethics and its Importance

Business ethics is the application of moral and ethical considerations in a business setting.
Business ethics can be defined as principles of conduct within organizations that guide decision making
and behavior.

Good business ethics is a prerequisite for good strategic management.

“Good ethics is just good business”-Fred David

Unethical practices would eventually lead to legal problems which in turn may result in fines and
penalties which obviously are monetary losses but the worst threat that can arise out of bad business
practices is the danger of a reputational risk which can turn in million dollar or even a billion dollar
company into failure and bankruptcy as to the case of Enron’s accounting scandal in 2001.

Enhancing the balanced scorecard

The balance scorecard is an important strategy evaluation tool in strategic management that is
also used to evaluate strategies from 4 perspectives:

1. Financial Performance
2. Customer Knowledge
3. Internal Business Processes
4. Learning & Growth
5. Social Responsibility – Social responsibility is an ethical framework and suggests that individuals
and corporations have a duty to act the best interest of the society. It is important for
businesses because it demonstrates to both its consumers and the media that the company
takes an interest in wider social issues that have no direct impact to profit margin and while
social responsibility has no immediate effect on profit margins being socially responsible is also
an effective tool in building a great brand. Good strategists should also consider the fact that
there are many evidences that a healthy social responsibility policy of a company can actually
impact buying decisions because modern day customers now seek to have ethical purchases.

These tools help ensure that companies are on the right track to pursue their strategies.

Thomson Reuters Global Diversity and Inclusion Index

Being social responsible can boost a company’s image and build its trend the effect is that
customers trust them more and value them more as a company and likewise this business practice
empowers employees to use corporate resources for better results. 4 pillars are:

1. Diversity
2. Inclusion
3. News & Controversies
 4. People Development.

Corruption in the Global Marketplace

We define corruption as the abuse of entrusted power for private gain. Corruption erodes trust,
weakens democracy, hampers economic development and further exacerbates inequality, poverty,
social division and the environmental crisis. Exposing corruption and holding the corrupt to account can
only happen if we understand the way corruption works and the system enable it.

International Business Corruption

Common Forms of Corruption in the Global Marketplace

1. SMUGGLING - The illegal trade and transportation of goods devised to circumvent customs
duties & taxes.
2. MONEY LAUNDERING - Involves concealing the original source of ill-gotten funds by channeling
them into legitimate business activities and bank deposits in other countries. The process of
money laundering involves three stages: Placement, Layering and Integration
3. PIRACY AND COUNTERFEITING - Piracy is the unauthorized duplication of copyrighted content
with the intent of selling at a substantially lower price while Counterfeiting goes a step beyond
piracy and attempts to pass the copied product as an original.
4. BRIBERY - The offering/giving of any item that is of value with the intent of influencing actions.

The Global Cost of Corruption

Corruption costs at least $2 trillion worldwide every year-world economic forum

Transparency International

In 1993 retired World Bank official Peter Egen and his allies founded transparency international
to tackle corruption due to his experiences in Africa. “We have one vision, a world free of corruption”
Our global movement works in over 100 countries to end the injustice of corruption by promoting
transparency, accountability and integrity

Corruption Perceptions Index (CPI)

CPI is the global leading indicator of public sector corruption and provides an annual report of
the relative degree of corruption in 180 countries.