5/15/2019

Bangladesh

MKT- 412:
INTERNATIONAL
BUSINESS
1

“ He who learns but does not think, is lost! He who

thinks but does not learn is in great danger.
-Confucius

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Course
Information
Course Text
Internal Business: Competing
in the Global Marketplace
Charles W L Hill &
Arun Kumar Jain
Mc Graw Hill Education
10th Edition
Credit: 3
Full Marks: 100
Internal Evaluation: 40
Final Examination: 60
Total Class: 25-26
Internal Evaluation
Attendance- 5
Class test- 5 (Two class tests &
best one will be counted)
Seminar- 10
Presentation- 10
B.C: Class participation
will be appreciated &
added more marks

hello!
This is Md. Sadiqul Azad
Lecturer
Department of Marketing
Islamic University, Bangladesh
+8801716280586
mdsadiqulazad@gmail.com

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1.Globalization

Agenda

What is Globalization?
Drivers of Globalization
The Changing Demographics of the
Global Economy
The Globalization Debate

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Globalization
It refers to the shift toward a
more integrated and
interdependent world economy.

Features of
Globalization

Globalization of Markets Globalization of Production

Dimensions of the national
markets include consumer
tastes and preferences,
distribution channels,
culturally embedded value
systems, business systems
and legal regulations.
Sourching of goods and
services from locations
around the globe to take
advantage of national
differences in the cost and
quality of factors of
production (such as labor,
energy, land and capital).

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Global
Institutions

□ WTO (previously GATT)

□ IMF
□ World Bank
□ United Nations

Drivers of
Globalization
Two factors underline the trend toward
greater globalization:
□ The first factor is the decline in
barriers to the free flow of goods,
services and capital (International
trade, FDI).
□ The second factor is technological
change (communication,
information processing and
transportation technologies).

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Average Tariff
Rates

1913 1950 1990 2010

United States 21% 18% 5.9% 3.9%
Germany 20 26 5.9 3.9
France 18 25 5.9 3.9
Italy 30 - 5.3 2.3
UK 5 11 5.9 3.9
Canada 20 9 4.4 3.9
Japan - 23 5.9 3.9
China 44 14 4.8 3.2

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Demographics
of World
Output & Trade

Share of World Share of World Share of World

Output, 1960 (%) Output, 2011 (%) Exports, 2012 (%)

United States 38.3 21.4 8.7

Germany 8.7 5.1 7.9
France 4.6 4.0 3.3
Italy 3.0 3.1 2.8
UK 5.3 3.5 2.6
Canada 3.0 2.5 2.5
Japan 3.3 8.4 4.5
China NA 10.5 11.4
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Percentage
Share of
Total FDI The Stock of FDI refers to the total
Stock cumulative value of foreign investments.

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FDI Inflows

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$60-$100 billion
China Fact! In a Year 2004 to
2011 FDI Inflow in China

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Percentage
Share of
Total FDI A Multinational Enterprise is any
Stock business that has productive activities in
two or more countries.

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The
Globalization
Debate

□ Globalization, Jobs and

Income
□ Globalization, Labor Politics
and The Environment
□ Globalization and National
Sovereignty
□ Globalization and the
World’s Poor

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2.National Differences
in Political Economy

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Agenda

Political Systems
Economic Systems
Legal Systems

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Political Economy
It underlines that the political,
economic and legal systems of a
country are interdependent; they
interact and influence each other
and doing so, they affect the level
of economic well-being.

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Political System (Collectivism

& Individualism)
Collectivism refers to a political system that stresses the primacy of
collective goals over individual goals.
□ Socialism:
 Communists belived that socialism could be achieved only
through violent revolution and totaltarian dictatorship.
 Social democrates committed themselves to achieving socialism
by democratic means, without violant revoulation or dictatorship.

Individualism refers to a philosophy that an individual should have

freedom in his or her economic and political pursuits.
□ Emphasis on the importance of guaranteeing individual freedom
and self-expression.
□ The welfare of society is best served by letting people pursue their
own economic self-interest.
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Political System (Democracy

& Totalitarianism)
Democracy refers to a political system in which govt. is by the
people, exercised either directly or through elected representatives.
□ An individual’s right to freedom of expression, opinion and
organization.
□ A free media.
□ Regular elections in which all eligible citizens are allowed to vote.
□ Universal adult suffrage.
□ Limited terms for elected representatives.
□ A fair court system that is independent from the political system.
□ A nonpolitical state bureaucracy.
□ A nonpolitical police force and armed service.
□ Relatively free access to state information.
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Political System (Democracy

& Totalitarianism)
Totalitarianism is a form of government in which one person or
political party exercises absolute control over all spheres of human life
and prohibits opposing political parties.

□ Communist totalitarianism (China, Laos, North Korea, Cuba

and Vietnam).
□ Theocratic totalitarianism occurs where political power is
monopolized by religious principles (Iran, Saudi Arabia).
□ Tribal totalitarianism occurs when a political party that
represents the interests of a particular tribe (Kenya, Rwanda).
□ Right-wing totalitarianism generally permits some individual
economic freedom but restricts individual political freedom
(Germany and Italy in the 1930s and 1940s).

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Economic
Systems

Three broad types of economic systems:

□ In pure market economy all productive
activities are privately owned and
production is determined by the
interaction of supply and demand.
□ In pure command economy all
businesses are state-owned.
□ In mixed economy certain sectors of the
economy are left to private ownership
and while other sectors have significant
state ownership.
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Legal
Systems

A country’s laws regulate business practice, define the manner in

which business transactions are to be executed and set down the
rights and obligations of those involved in business transactions.
□ A common law system is based on tradition, precedent and
custom. Tradition refers to a country’s legal history,
precedent to cases that have come before the courts in the
past and custom to the ways in which laws are applied in
specific situations.
□ A civil law system is based on a detailed set of laws organized
into codes.
□ A theocratic law system is one in which the law is based on
religious teachings.

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Contract Law

□ A contract is a document that specifies the conditions

under which an exchange is to occur and details the rights
and obligations of the parties involved.
□ Contract law is the body of law that governs contract
enforcement.
□ To resolve contract disputes in international trade, a
number of countries have ratified the United Nations
Convention on Contracts for the International Sale of
Goods (CIGS).
□ The CIGS establishes a uniform set of rules governing
certain aspects of the making and performance of
everyday commercial contracts between sellers and buyers
who have their places of business in different nations.
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Terms in Legal
Systems
□ Property refers to a resource over which an individual or business
holds a legal title.
□ Property rights refers to the legal rights over the use to which a
resource is put and over the use made of any income that may be
derived from that resource.
□ Private action refers to theft, piracy, blackmail and the like by
private individuals or groups.
□ Public action to violate property rights occurs when public
officials such as politians and government bureaucrats extort
income, resources or the property itself from poperty holders.
□ Product safety laws set certain standards to which a product
must adhere.
□ Product liability involves holding a firm and its officers
27 responsible when a product causes injury, death.

$400 billion
Seriously! Worldwide spend on
bribe in a year (source: TI).

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The Protection of
Intellectual Property
Intellectual property refers to property that is the product of
intellectual activity. Patents, copyrights and trademarks establish
ownership rights over intellectual property.
□ A patent grants the inventor of a new product or process exclusive
rights for a defined period to the manufacture, use or sale of that
invention.
□ Copyrights are the exclusive legal rights of authors, composers,
playwrights, artists and publishers to publish and disperse their
work as they fit.
□ Trademarks are designs and names, officially registered by which
merchants or manufacturers designate and differentiate their
products.
□ World Intellectual Property Organization (WIPO) has 185 member
countries, all of which signed international treaties designed to
29 protect intellectual property.

3.Political Economy &

Economic Development

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Agenda

Differences in the Economic

Development
Political Economy and Economic
Progress
States in Transition
The Nature of Economic Transformation

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Differences in
Economic
Development

□ Gross National Income (GNI) measures the total annual income

received by residents of a nation. GNI does not consider
differences in the cost of living.
□ Purchasing Power Parity (PPP) allows a more direct
comparison of living standards in different countries.
□ The PPP for different countries is adjusted depending upon
whether the cost of living is lower or higher than in the USA.
□ In some countries large amount of economic activity may be in
the form of unrecorded cash transactions or barter agrrements
to avoid paying taxes which is known as Black Economy.
□ Estimates suggest that in India the black economy may be
around 50% of GDP.
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Economic Data

GNI PPP per Annual Average

GNI per Capita, Size of Economy
Country Capita, 2017 GDP Growth
2017 ($) GDP, 2017 ($)
($) Rate, 2017 (%)

Brazil 8,600 15,160 1.1 2.056 trillion

China 8,690 16,760 6.9 12.238 trillion

Germany 43,490 51,760 2.2 3.677 trillion

India 1,800 7,060 6.7 2.601 trillion

Japan 38.550 45,470 1.9 4.872 trillion

Switzerland 80,560 65,910 1.1 678.887 billion

UK 40,530 43,160 1.8 2.622 trillion

USA 58,270 60,200 2.2 19.391 trillion

Bangladesh 1,470 4,040 7.3 249.724 billion

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Amartya Sen’s Conception

of Development
□ In Sen’s View, development is not just an economic process, but
it is a political one too and to succed requires the
“democratization” of political communities to give citizens a
voice in the important decisions made for the community.
□ Sen emphasize basic health care, especially for children and
basic education, especially for women.
□ UN has developed the Human Development Index (HDI) to
measure the quality of human life in different nations.
 Life expectancy at birth (a function of health care).
 Educational attainment (adult literacy rate and enrollment in
primary, secondary and tertiary education).
 Average incomes based on PPP estimates are sufficient to meet
the basic needs (food, shelter & health care) of life in a country.
34  The HDI is scaled from 0 (low) to 1 (High).

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Levels of Human Development

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Political Economy and

Economic Progress
□ Innovation and Entrepreneurship are the Engines of Growth
 Innovation includes not just new products but also new
processes, new organizations, new management practices and
new strategies.
 Entreprenuers first commercialize innovative new products and
processes and entrepreneurial activity provides much of the
dynamism in an economy.
□ Innovation and Entrepreneurship Require a Market Economy
□ Innovation and Entrepreneurship Require Strong Property
Rights
□ The Required Political System
□ Economic Progress Begets Democracy
36 □ Geography, Education and Economic Development

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States in
Transition
The political economy of many of the
world’s nation-states has changed radically
since the late 1980s which follow up two
trends:
□ First, a wave of democratic revolutions
swept the world where governments
were typically more committed to free
market capitalism.
□ Second, There has been a strong move
away from centrally planned and mixed
economics and toward a more free
market economic model.
37

States in
Transition

□ The Spread of Democracy

□ The New World Order and
Global Terrorism
□ The Spread of Market-Based
System

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The Spread of Democracy

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Market-Based Economy

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The Nature of
Economic
Transformation

Deregulation Privatization Legal Systems

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4.Differences in Culture

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Agenda

What is Culture?
The Determinants of Culture
Culture and The Workplace
Cultural Change

43

What is
Culture?
Culture as a system of values and norms that
are shared among a group of people and that
when taken together constitute a design for
living:
□ By values, we mean abstract ideas about
what a group belives to be good, right and
desirable.
□ By norms, we mean the social rules and
guidelines that prescribe appropriate
behavior in particular situations.
□ Society refers to a group of people sharing
a common set of values and norms.
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Religion

Social Political
Structure Philosophy
Culture
Norms &
Value
Language
Systems Economic
Philosophy

Education

The
Determinants 45

of Culture

Social
Structure

Social structure refers to its basic social

organization. Dimensions of social
structure:
□ First, the degree to which the basic unit
of social organizatiom is the individual
or the group.
□ Second, the degree to which a society is
stratified into classes or castes.

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Social
Stratification

□ All socities are stratified on a hierarchical basis into social

categories which is called social strata.
 Social strata are typically defined on the basis of characteristics
such as family background, occupation and income.
 Individuals born into a staratum toward the top of the social
hiercrachy tend to have better life chances (education, health,
standard of living & work opportunities) than born into a
startum toward the bottom of the hierarchy.
□ All socities differ in two related ways:
 First, they differ from each other with regard to the degree of
mobility between social strata.
 Second, they differ with regard to the significance attached to
social strata in business contexts.
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Social
Stratification

□ Social mobility refers to the extent to which individuals can

move out of the strata into which they are born.
 A caste system is a closed system of stratification in which social
position is determined by the family into which a person is born
and change in that position is usually not possible during an
individual’s lifetime.
 A class system is a less rigid form of social stratification in which
the position a person has by birth can be changed through his or
her own achievements or luck.
□ Class consciousness refers to a condition by which people
tend to perceive themselves in terms of their class
background and this shapes their relationships with members
of other classes.
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Religious &
Ethical systems

□ Religion may be defined as a system of shared beliefs and

rituals that are concerned with the realm of the sacred.
□ Ethical systems refer to a set of moral principles or values
that are used to guide and shape behavior.
□ Most of the world’s ethical systems are product of religions.
□ Dominant religions in terms of numbers of adherents in the
world are:
 Christianity
 Islam
 Hinduism
 Buddhism
 Confucianism

49

Language (Spoken
& Unspoken)

□ Language shapes the way people perceive

the world.
□ Countries with more than one language
often have more than one culture.
□ Unspoken language refers to nonverbal
communication.
□ Americans and Europeans use the thumbs-
up gesture to indicate that “it’s all right” but
in Bangladesh the gesture is a taunt.

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Education

□ Formal education is the medium through which individuals

learn many of the language, conceptual and mathematical
skills that are indispensable in a modern society.
□ Formal education also supplements the family’s role in
socializing the young into the values & norms of a society.
□ A good education system is the determinant of national
competitive advantage.
□ Education guide the location choices of international
business.
□ The general education level of a country is also a good index
of the kind of products that might sell in a country and of the
type of promotional material that should be used.
51

Power
Distance

Masculinity Hofstede’s Individualism

vs. Cultural vs.
Femininity Collectivism
Dimensions

Uncertainty
Avoidance

Culture & The 52

Workplace

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Cultural
Change
□ Culture is not a constant; it changes over time.
□ Changes in the value systems can be slow and painful for a
society.
□ Several studies have suggested that economic advancement and
globalization may be important factors in social change.
□ Economic progress is accompanied by a shift in values away from
collectivism toward individualism.
□ Increased urbanization and improvements in the quality and
availability of education are both a function of economic progress
and both can lead to declining emphasis on the traditional values
associated with poor rural socities.
□ As countries get richer, there seems to be a shift from
“traditional” to “secular rational” values and from “survival
53 values” to “well-being” values.

5.Ethics in
International Business

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Agenda

Ethical Issues in International Business

The Roots of Unethical Behavior
Philosophical Approaches to Ethics

55

Business Ethics &

Ethical Strategy

□ Business ethics are the accepted

principles of right or wrong
governing the conduct of business-
people.
□ An ethical strategy is a strategy or
course of action that does not
violate these accepted principles.

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Employment
Practices

Moral
Human Rights

Ethical
Obligations

Issues
Environmental
Corruption
Pollution

Ethical Issues
in International 57

Business

Decision-
Making
Processes

Personal Organization
Ethics Culture

Ethical
Behavior

Unrealistic
Societal
Performance
Culture
Goals

Leadership

The Roots of 58

Unethical Behavior

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Philosophical
Approaches to Ethics
□ The Friedman Doctrine
 There is one and only one social responsibility of business- to use its
resources and engage in activities designed to increase its profits so long
as it stays within the rules of the game, which is to say that it engages in
open and free competition without deception or fraud.
□ Cultural Relativism
 The belief that ethics are nothing more than the reflection of a culture-all
ethich are culturally determined-and that accordingly, a firm should
adopt the ethics of the culture in which it is operating.
□ The Righteous Moralist
 A multinational’s home-country standards of ethics are the appropriate
ones for companies to follow in foreign countries.
□ The Naive Immoralist
 If a manager of a multinational sees that firms from other nations are not
59 following ethical norms in a host nation, that manager should not either.

Philosophical
Approaches to Ethics
□ Utilitarian and Kantian Ethics
 Utilitarian approaches to ethics hold that the moral worth of actions or practices
is determined by their consequences.
 Kantian ethics argues that people have dignity and need to be respected as such.
□ Right Theories
 Human beings have fundamental rights and privileges that transcend national
boundaries and cultures.
 United Nations Universal Declaration of Human Rights has been ratified by
almost every country on the planet and lays down basic principles that should
always be adhered to irrespective of the culture in which one doing business.
□ Justice Theories
 John Rawls argues that all economic goods and services should be distributed
equally except when an unequal distribution would work to everyone’s advantage.
 Valid principles of justice are those with which all persons would agree if they
60 could freely and impartially consider the situation.

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6.International Trade
Theory

61

Agenda

Mercantilism
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin Theory
The Product Life-Cycle Theory
New Trade Theory
National Competitive Advantage:
Porter’s Diamond

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Mercantilism

□ Mercantilism emerged in England in the mid-sixteen century.

□ At that time, gold and silver were the currency of trade.
□ According to this theory, a country’s best interests to
maintain a trade surplus, to export more than it imported. By
doing so, a country would accumulate gold and silver and
consequently increase its national wealth, prestige and power.
□ According to David Hume, in the long run no country could
sustain a surplus on the balance of trade and so accumulate
gold and silver as the mercantilists have envisaged.
□ Mercantilism viewed trade as a zero-sum game.

63

Absolute
Advantage

□ In the 1776, Adam Smith published the book ‘The Wealth of

Nations’ where he introduced the theory of Absolute
Advantage.
□ According to Smith, countries should specialize in the
production of goods for which they have an absolute
advantage and then trade these goods for those produced by
other countries.
□ Smith’s basic argument is that a country should never
produce goods at home that it can buy at a lower cost from
other countries.
□ Smith demonstrates that, by specializing in the production of
goods in which each has an absolute advantage, both
countries benefit engaging in trade.
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Comparative
Advantage

□ In 1817, in the book “Principles of Political Economy” David Ricardo

introduced the theory of Comparative advantage which was one step further
of Adam Smith’s theory.
□ According to Ricardo, it make sense for a country to specialize in the
production of those goods that it produces most efficiently and to buy the
goods that it produces less efficiently from other countries, even if this
means buying goods from other countries that it could produce more
efficiently itself.
□ The basic message of the theory is that potential world production is greater
with unrestrited free trade than it is with restricted trade.
□ The theory suggests that trade is a positive-sum game in which all countries
that participate realize economic gains.

Limitations of Absolute Advantage and Comparative Advantage

theory (See page no. 192- Qulifications and Assumptions)
65

Heckscher-Ohlin
Theory

□ Swedish Economists Eli Heckscher (in 1919) and Bertil Ohlin (in
1933) put forward a different explanation of comparative
advantage theory.
□ They argued that comparative advantage arises from differences in
national factor endowments. By factor endowments they meant the
extent to which a country is endowed with such resources as land,
labor and capital.
□ Nations have varyibf factor endowments and different factor
endowments explain differences in factor costs; specifically the
more abundant a factor, the lower its cost.
□ They predicts that countries will export those goods that make
intensive use of factors that are locally abundant, while importing
goods that make intensive use of factors that are locally scare.
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Limitations of
Heckscher-Ohlin Theory

□ The Leontief Paradox

 Using Hecksher-Ohlin theory, Wassily Leontief (in 1953)
postulated that because USA was relatively abundant in capital
compared to other nations, USA would be an exporter of capital-
intensive goods and an importer of labor-intensive goods but in
reality he found that USA exports were less capital-intensive than
USA imports.
□ This theory is a relatively poor predictor of real-world international
trade patterens.
□ Differences in technology may lead to differences in productivity,
which in turn, drives international trade patterns.

67

The Product Life-

Cycle Theory

□ Raymond Vernon initially proposed the product-life cycle theory in

the mid-1960.
□ Vernon argued that most new products were initially produced in
USA and sold first in the USA market.
□ Early in the life cycle of a typical new product, while demand is
staring to grow rapidly in USA, demand in other advanced
countries is limited to high income groups.
□ Thus, the locus of global production initially switches from USA to
other advanced nations and then from those nations to developing
countries.
□ Although Vernon’s theory may be useful for explaining the pattern
of international trade during the period of American global
dominance but now its relevance in the modern world seems more
68 limited.

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The Product Life-Cycle Theory

69

New Trade
Theory

□ During the 1980s economists such as Paul Krugman developed

the new trade theory.
□ This theory stresses that in some cases countries specialize in
the production and export of particular products not because of
underlying differences in factor endowments, but because in
certain industries the world market can support only a limited
number of firms.
□ Economics of scale are unit cost reductions associated with a
large scale of output.
(See the example; page no. 203, sports car & minivan)
□ First-mover advantages are the economic and strategic
advantages that accumulate to early entrants into an industry.
(See the example; page no. 204, Airbus & Boeing)
70

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Porter’s
Diamond

□ In 1990, Michael Porter published the result of an research to

determind why some nations succeed and others fail in
international competition.
□ He argues that firms are most likely to succeed in industries or
industry segments where the diamond is most favorable.
□ The effect of one attribute is contingent on the state of others.
□ Porter maintains two additional variables can influence the
national diamond in two important ways:
 First, chance events, such as major innovations can reshape
industry structure and provide the opportunity for one nation’s
firms to supplant another’s.
 Second, Government, by its choice of policies can detract from or
improve national advantage.
71

Firm Strategy,
Structure &
Rivalry

Factor Demand
Endowments Conditions
(basic & advanced) (home demand)

Related &
Supporting
Industries

National Competitive 72

Advantage: Porter’s Diamond

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7.The Political
Economy of
International Trade

73

Agenda

Instruments of Trade Policy

The Case for Government Intervention
Development of the World Trading
System

74

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Instruments of
Trade Policy
□ A tariff is a tax levied on imports or exports. In most cases, tariffs are
placed on imports to protect domestic producers from foreign
competition by raising the price of imported goods. Tariff has two types:
 Specific tariffs are levied as a fixed charge for each unit of a good
imported.
 Ad valorem tariffs are levied as a promotion of the value of the imported
goods.
□ A subsidy is a govt. payment to domestic producer.
 Forms of subsidies are cash grants, low-interest loans, tax breaks and
govt. participation in domestic firms.
 Agriculture tends to be one of the largest beneficiaries of subsidies in
most countries.
 The main gains of subsidies accumulate to domestic producers, whose
international competitiveness is increased as a result.
75

Instruments of
Trade Policy
□ An import quota is a direct restriction on the quantity of some good that
may be imported into a country.
 The restriction is usually enforced by issuing import licenses to a group
of individuals or firms.
 Under a tariff rate quota, a lower tariff rate is applied to imports within
the quota than those over the quota.
□ A voluntary export restraint (VER) is a quota on trade imposed by the
exporting country, typically at the request of the importing country’s
government.
 Like tariffs and subsidies, both import quotas and VERs benefit
domestic producers by limiting import competition but they do not
benefit consumers.
 An import quota or VER always raises the domestic price of an imported
good.
76

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Instruments of
Trade Policy
□ A local content requirement is a requirement that some specific fraction
of a good be produced domestically which can be expressed either in
physical terms or in value terms.
 Local content regulations have been widely used by developing
countries to try to protect local jobs and industry from foreign
competition.
□ Administrative trade policies are bureaucratic rules designed to make it
difficult for imports to enter a country.
□ Dumping is defined as selling goods in a foreign market at below their
costs of production or as selling goods in a foreign market at below their
fair market value.
 Antidumping policies are designed to punish foreign firms that engage
in dumping.
 The ultimate objective is to protect domestic producers from unfair
77 foreign competition.

The Case for Government

Intervention

Arguments for government intervetion take two paths:

□ Political arguments for intervention are concerned
with protectiong the interests of certain groups
within a nation (normally producers), often at the
expense of other groups (normally consumers) or
with achieving some political objective (protecting
the environment or human rights).
□ Economic arguments for intervention are typically
concerned with boosting the overall wealth of a
nation.

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Protecting
Jobs &
Industries

Protecting
National
Human
Security
Rights

Political
Arguments

Foreign
Policy Retaliation
Objectives

Protecting
Consumers

Political Arguments 79

for Intervention

Economic Arguments
for Intervention

□ The infant Industry Argument

 Governments temporarily support
new manufacturing industries to
compete with established industries.
□ Strategic Trade Policy
 First mover advantages
 Subsidies

80

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Development of the
World Trading System

□ From Smith to the Great Depression

□ 1947-1979: GATT, Trade
Liberalization & Economic Growth
□ 1980-1993: Protectionist Trends
□ The Uruguay Round & the World
Trade Organization
□ WTO: Experience to Date
□ The Future of the WTO: Unresolved
Issues & the Doha Round

81

8.Foreign Direct
Investment (FDI)

82

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Agenda

Foreign Direct Investment in the World

Economy
Theories of Foreign Direct Investment
Political Ideology and Foreign Direct
Investment
Benefits and Costs of FDI
Government Policy Instruments and FDI

83

Foreign Direct
Investment (FDI)

Foreign Direct Investment (FDI) occurs

when a firm invests directly in facilities to
produce or market a product in a foreign
country. FDI takes on two main forms:
□ Greenfield investment involves the
establishment of a new operation in a
foreign country.
□ Acquisition involves acquiring or merging
with an existing firm.

84

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Trends in FDI

The average yearly outflow of FDI

increased from $25 billion in 1975 to
$1.6 trillion in 2012.

85

The Direction
of FDI
In 2011, the inward investment into USA
and China was $227 billion and $124
billion respectively.

86

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The Source
of FDI
Collectively, these six countries accounted
for 60% of all FDI outflow.

87

Theories of Foreign
Direct Investment

Three theories of foreign direct investment are:

□ Why a firm will favor direct investment as a
means of entering a foreign market when two
other alternatives, exporting and licensing, are
open to it.
□ Why firms in the same industry often undertake
foreign direct investment at the same time and
why they favor certain locations over others as
targets for FDI flows.
□ Eclectic paradigm attempts to combine the two
other perspectives into a single holistic
explanation of FDI.
88

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Political
Ideology & FDI

Political Ideology and Foreign Direct Investment

The Free
The Radical Pragmatic Shifting
Market
View Nationalism Ideology
View

89

Benefits &
Costs of FDI

Host-Country Benefits Host-Country Costs

Resource-Transfer Adverse Effects on
Effects Competition
Employment Effects Adverse Effects on the
Balance-of-Payments Balance-of-Payments
Effects National Sovereignty
Effect on Competition and Autonomy
and Economic Growth
Home-Country Benefits Home-Country Costs
Balance-of-Payments Balance-of-Payments
(trade surplus) (trade deficit)
Employment Effects
90 Valuable Skills

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Government Policy
Instruments & FDI

Government
Policy
Instruments

Home- Host-
Country Country
Policies Policies

Encouraging Restricting Encouraging Restricting

Outward FDI Outward FDI Inward FDI Inward FDI

91

9.Regional Economic
Integration

92

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Agenda

EU & Euro, NAFTA, SAFTA, BIMSTEC

and ASEAN

93

10.The Foreign
Exchange Market

94

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Agenda

The Functions of the Foreign Exchange

Market
Economic Theories of Exchange Rate
Determination

95

The Foreign
Exchange Market

□ The foreign exchange market is a

market for converting the currency
of one country into that of another
country.
□ An Exchange rate is simply the rate
at which one currency is converted
into another.

96

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The Functions of the

Foreign Exchange Market

The Functions

Insuring
Currency Against
Conversion Foreign
Exchange Risk

Forward
Spot Exchange Currency
Exchange
Rates Swaps
Rates

97

Economic Theories of
Exchange Rate Determination

The Law of One

Price

Prices and Purchasing

Exchange Rates Power Parity
Economic
Theories
Interest Rates &
Money Supply &
Exchange Rates
Price Inflation
(Fisher Effect)

98

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11.The International
Monetary System

99

Agenda

What is International Monetary System?

The Gold Standard
The Bretton Woods System
The Collapse of the Fixed Exchange Rate
System
The Floating Exchange Rate Regime
Fixed vs. Floating Exchange Rates

100

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13.The Strategy of
International Business

101

Agenda

Strategy and The Firm

Global Expansion, Profitability and
Profit Growth
Cost Pressures and Pressures for Local
Responsiveness
Choosing a Strategy

102

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Strategy and
The Firm

Value
Creation

Strategy and Strategic

the Firm Positioning
Primary
Activities
Operations
Support
Activities

103

Global Expansion,
Profitability and Profit Growth
Global Expansion,
Profitability &
Profit Growth

Expand the Location Experience Leveraging

Market Economics Effects Subsidiary Skills

Creating a Global
Learning Effects
Web

Economics of
Some Caveats
Scale

Strategic
Significance
104

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Cost Pressures & Pressures

for Local Responsiveness

Differences in
Pressures for Cost
Customer Tastes
Reductions
and Preferences
Pressures
Differences in
Pressures for Local infrastructure and
Responsiveness Traditional
Practices

High- Government
Demands

105

Four Basic
Strategies

106

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The Evolution
of Strategy

107

15.Entry Strategy and

Strategic Alliances

108

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Agenda

Basic Entry Decisions

Entry Modes
Selecting an Entry Mode
Greenfield Venture or Acquisition
Strategic Alliances

109

Basic Entry
Decisions

Scale of Entry
Which Foreign Timing of
& Strategic
Markets? Entry
Commitments

110

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Turnkey
Exporting Projects Licensing

Wholly
Joint
Franchising Owned
Ventures
Subsidiary

Entry Modes in 111

International Business

Selecting an
Entry Mode

Selecting an Entry Mode

Core Competencies and Entry The
Mode Disadvantages

Core
Management
Competencies
Know-How
and Entry Mode

112

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Strategic
Alliances
Strategic
Alliances

The The Making

Advantages Disadvantages Alliances Work

Partner Alliance Managing the

Selection Structure Alliance

113

thanks!
📖
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