Com 361: International Business: September 12, 2022

Com 361: International Business
We acknowledge and respect the l k̓ʷ ŋ n peoples on whose

traditional territory the university stands and the Songhees,
Esquimalt and W̱SÁNEĆ peoples whose historical
relationships with the land continue to this day.
September 12, 2022

Welcome to International Business
Until mid-term exam After mid-term exam

Dr. Takahiro Endo Dr. Kristin Brandl
Logistical Matters
• Syllabus is on Brightspace – please read it.

• Office Hours: Tuesdays& Thursdays, on Zoom, link in
Brightspace
• Slides will be posted not later than 7pm the night before
• Assessment:
• Quizzes (15%)
• Exam #1 – October 11 (25%)
• Team Project – November 26 (25%)
• Exam #2 - in the December exam period (35%)
• Please adhere to the norms and expectations set out by
the BCom program
Textbook
“International Business Competing in the

Global Marketplace” by Charles Hill,
14th edition
Older editions are fine!
13th edition, 12th edition, 11th edition
Try amazon or other used sources
Any format is fine!
New, used, electronic, paper…
Access to Connect is not required
Quizzes & Exams
• There will be eight open book quizzes – only your best

six count
• 10 multiple choice questions each
• In weeks with a quiz, it will become available on
Brightspace at 8am on Thursday and must be completed
by 8pm on Saturday. Once you open the quiz you will
have 30 minutes to complete it.
• Quiz dates, content covered, and other details are in
your syllabus and on Brightspace.
• Two exams – October 11th and December Exam period
• Written questions
• Completed via Brightspace
What if…
• You are sick

• Do not panic! Take care of yourself. Do not come to class.
• Submit a self declaration form to the BCom office
• Get notes from a classmate if you miss class entirely
• I am sick
• No one panic
• I can not teach in person if ill, but if at all possible I will move all
sections to zoom for that day(s). An announcement will go out
on Brightspace – sign up for notifications!!
• The University (or program) can not continue in person
• Still, we shall not panic
• We will continue on zoom at your regular class time – links will
be posted on Brightspace
Globalization Introduction:
Globalization of Markets &
Production
Chapter One
International Business, Ancient Times
What is Globalization
General agreement that ‘something’ fundamental is

happening … the world has been, and continues to be,
undergoing profound changes in the way in which it is
structured and organized
However, the nature of these changes is contested

 There is very little agreement on what, exactly,
globalization is, and on what it implies …
- Globalization of markets
- Globalization of production
Globalization of Markets
“Merging of historically distinct and separate national

markets into one huge global marketplace.”
• Facilitated by offering standardized products

• Do not have to be a big company to participate:
• Firms with less than 500 employees account for about
30% of world trade (by value).
• Opportunities to expand internationally and
threats to your home market
Globalization of Production
“The sourcing of goods and services from locations

around the globe to take advantage of national
differences in the cost and quality of factors of
production (labor, energy, land and capital).”
• Companies hope to lower their overall cost structure

and/or improve the quality or functionality of their
product offering - increasing their competitiveness.
• Host governments have a stake in the successful
establishment of an MNE’s operations
Drivers of Globalization
Role of technological change
Declining trade and investment barriers

(politics and regulations)
-> Economic change

(changing nature of the global economy)
Technological Change
• Technological change has made the globalization of

markets and production a reality
• Important advances have occurred in:

• microprocessors and telecommunications
• the Internet
• transportation technology
Drivers of Globalization –
Politics and regulations
• The processes of ‘globalization’ that we see around us

cannot be separated from the capitalist context in which
it has emerged (Washington Consensus)
• The increasing significance of Multinational Enterprises
(MNEs)
• New ‘global’ division of labour and ‘global’
production chains (GVCs)
• Emergence of global institutions

• -> General Agreement on Tariffs and Trade (GATT),
World Trade Organization (WTO), International
Monetary Fund (IMF) and World Bank, UN, G20….
The Changing Nature of the
Global Economy
•Four trends are important:

• the Changing World Output and World Trade Picture
• the Changing Foreign Direct Investment Picture
• the Changing Nature of the Multinational Enterprise
• the Changing World Order
• And new in 2020: Issues surrounding the Global

Pandemic
The Changing Nature of Globalization
Foreign Direct Investment
• Another key aspect of the global economy is foreign

direct investment (FDI)
• FDI occurs when a firm invests directly in facilities to
produce and/or market a product in a foreign country.
•Once a firm undertakes FDI, it becomes a multinational
enterprise (MNE)
• Some firms are more FDI focused, some more trade
focused, but most global firms are engaged in both.
• FDI annual flows increased enormously in the last 40-50
years, but are also very volatile.
The Changing Nature of Globalization
Multinational Enterprises (MNE)
A multinational enterprise (MNE) is any business that

has productive activities in two or more countries
The national heritage of the largest MNEs

1976 1997 2017
United States 45% 25% 28%
Japan 4% 25% 11%
United Kingdom 19% 6% 4%
France 7% 8% 3%
Germany 8% 8% 3%
China 15%
“Mini-multinationals” a world economy factor
Globalization at a Cross Roads
• Globalization debate – environment, climate change,

labour standards, inequality…
• How has the pandemic changed the course of global
integration?
• Supply chains
• Protectionism and Nationalism
• Superpower frictions and fragility
• Ideological and technological shifts
https://www.youtube.com/watch?v=KJhlo6DtJIk
Coming up Next:
Political, Economic and Legal Systems
National Differences in Political and
Economic Systems

September 14, 2022

Where to do Business
• What makes a country attractive for business?

• Balance of benefits/costs/risks
• Evaluating these factors requires a knowledge of the
economics, politics, laws and culture present in a
potential market
Benefits
•The long-run benefits of doing business in a country

are a function of the size of the market, the present
wealth of consumers in that market, and the likely future
wealth of consumers, as well as stability, infrastructure…
•All of the above are strongly influenced by the political,

economic and legal systems present in a county.
Costs
•The costs of doing business in a country are

influenced by political, economic, and legal factors:
•Political costs include the cost of paying bribes or
lobbying for favorable or ‘fair’ treatment
•Economic costs relate primarily to the sophistication of
the economic system, including the infrastructure and
supporting businesses
•Legal costs occur when it is more costly to do business in
countries with dramatically different product, workplace,
and pollution standards, or where there is poor legal
protection for property rights
Risks
• Among the risks of doing business are a

number of political, economic, and legal factors:
• Political risk is the likelihood that political forces will
cause drastic changes in a country's business
environment that adversely affects the profit and other
goals of a business enterprise
• Economic risk is the likelihood that economic
mismanagement will cause drastic changes in a
country's business environment that adversely affects
the profit and other goals of a business enterprise
• Legal risk is the likelihood that a trading partner will
opportunistically break a contract or expropriate
property rights
Governments and Business
• Why do governments matter?

• Stability
• Laws and Regulations
• Development
• Taxation
• Corruption, “fairness”
Political Systems
• Collectivism
• The needs of society as a whole are generally viewed as
being more important than individual freedoms
• Socialist political systems are based on collectivism
• Individualism
• An individual should have freedom in his or her economic
and political pursuits
• Welfare of society best served by letting people pursue their
own economic self-interest
Political Systems
• Democracy
• Based on individualism, elected governments
• Totalitarianism
• Varies forms… communist, theocratic, tribal, right-wing
• Pseudo-democracies
• Lie between pure democracies and complete totalitarianism
systems
• Authoritarian elements have captured some or much of the
machinery of state and use this in an attempt to restrict
political and civil liberties
Bribe Payers Index 2011
Rank in
Country
CPI score CPI Score 2012-19 Corruption
2019 2012
2019
1 Denmark 87 90 Perception Index
1 New Zealand 87 90 Rank in Country
CPI score CPI Score
86 90 2019 2019 2012
3 Finland
85 87 162 Cambodia 20 22
4 Singapore
162 Chad 20 19
4 Sweden 85 88
162 Iraq 20 18
4 Switzerland 84 86 165 Burundi 19 0
7 Norway 85 85 165 Congo 19 26
8 Netherlands 82 84 165 Turkmenistan 19 17
9 Germany 80 79 168
Democratic Republic of
18 21
80 80 the Congo
9 Luxembourg
168 Guinea Bissau 18 25
11 Iceland 78 82
168 Haiti 18 19
12 Austria 77 69 168 Libya 18 21
12 Australia 77 85 172 Korea, North 17 8
12 Canada 77 84 173 Afghanistan 16 8
12 United Kingdom 77 74 173 Equatorial Guinea 16 20
16 Hong Kong 76 77 173 Sudan 16 13
17 Belgium 75 75 173 Venezuela 16 19
18 Estonia 74 177 Yemen 15 23
74 69 178 Syria 13 26
18 Ireland
179 South Sudan 12 n/a
20 Japan 73 74
180 Somalia 9 8
https://www.transparency.org/en/cpi
Economic Systems
• Market Economy
• Private ownership
• Supply & Demand
• Government encourages free and fair competition
• Command Economy
• State ownership
• Government planning determines production and pricing
• Incentives become problematic
• Mixed Economy
• Mix or private and government ownership
• Supply & Demand, but also regulation
Legal Costs & Risks
•Legal costs occur when it is more costly to do business

in countries with dramatically different product,
workplace, and pollution standards, or where there is
poor legal protection for property rights
•Legal risk is the likelihood that a trading partner will

opportunistically break a contract or expropriate
property rights
Legal Systems
• Common Law
• Based on cumulative wisdom and judges
decisions – differs from country to country
• Example: Defective products
• Statutory Law
• Enacted by legislative action
• Example: Legal fees
Legal Systems
• Civil Law
• Most common type of legal system
• Based on codification and detailed listings
• Religious Law
• Based on faith & practice of a particular religion “theocracy”
• Bureaucratic Law
• Law is what the bureaucrats say it is.
Laws affecting International
Business Transactions
• Sanctions
• Restraints against commerce
• Embargos
• Comprehensive sanction against ALL commerce with a
given country
• Dual Use
• Export controls for (usually) high tech
• Extraterritoriality
• Regulate business outside borders
More laws to watch out for…
• Nationalization
• Transfer of ownership from private to public
• Expropriation – compensated
• Confiscation – no compensation
• Repatriation
• Controls on return of profits to home country
Product Safety and Product Liability
• Property safety laws set certain standards to which a

product must adhere
• Product liability involves holding a firm and its
officers responsible when a product causes injury,
death, or damage
• When product safety laws are stricter in a firm’s
home country than in a foreign country, or when
liability laws are more lax, the firm has to decide
whether to adhere to home country or host country
standards
Domestically Oriented Laws
• Foreign ownership restrictions

• Health and Safety
• Environment
• Labour
• Criminal and Civil Liability
• Property Rights
Intellectual Property (IP)
• Patents, Copyrights and Trademarks
• IP laws exist, but enforcement is lax
• IP protection limits access
• IP protection creates opportunities

• Research and Development
• Protect inventors
Take a moment to discuss…
1. Why do multinational firms choose to enter corrupt

countries?
a) What are some of the ethical implications of this decision?
b) What steps can an MNE take to mitigate the difficulties
associated with corruption?
2. How has the pandemic changed the attractiveness of

different countries?
a) Think about how it has affected benefits, costs and risks
Dispute Resolution in International
Business
• Which Country’s law applies?

• In which country should the issue be resolved?
• Which technique should be used to resolve the
conflict: litigation, arbitration, mediation or
negotiation?
• How will settlement be enforced?
Coming up next:
International Trade
International Trade Theory

September 19, 2022

Schedule change
• ‘International Trade Theory’ (the content of this

file!) will be covered on September 26th
• Special Guest Lecture by our BCOM director, Dr. Jen
Baggs (originally planned on Sep/26) will be on
December 5th ‘Global Economic Policy Current
Events’ (reading materials already uploaded at
week 3)
International Trade
• International Trade refers to transactions that

occur across borders.
• Most businesses are engaged in trade either directly
or indirectly
• Many policies restrict trade:
• Tariffs are taxes on goods crossing national borders
• Quotas are quantitative limits on imports (or exports)
• Non-tariff barriers
• Trade in some goods is prohibited
• Trade agreements generally try to liberalize trade by
removing these restrictions
• WTO, NAFTA/USMCA, CETA, EU...
• Trade is also limited by things like shipping costs,
currency conversion, communication…
Why are economists such big fans of
free trade?
• “Tariffs and import quotas usually reduce general

economic welfare.” (93 percent agree with this)
• “The government should not restrict employers from
outsourcing work to foreign countries.” (90 percent
agree with this)
Mercantilism
• A Country’s wealth is measured by holdings of gold

and silver.
• Nations should strive to maximize exports and
minimize imports.
• Policy Implications:
•Export Subsidies
•Import Restrictions (quotas, tariffs)
• Who Benefits, Who loses:
•Exporters, Taxpayers, Import competing, Consumers
What’s Wrong with Mercantilism?
David Hume (1752)

• Balance of trade surplus leads to inflation
Adam Smith (1776)

• “zero sum game”
• Acquisition of treasure vs. acquisition of wealth
• Mercantilism actually harms a country:
•Import restrictions lead to inefficiencies
•Benefit of voluntary exchanges
David Hume
Absolute Advantage
• A country should export those goods and

services for which it is more productive than
other countries are and import those for which
the opposite is true.
• Both countries will be better off.
Adam Smith
Comparative Advantage
• What if a country has an absolute advantage in

both products?
• Are there gains from trade for things we can
produce efficiently ourselves?
• YES. This is the idea behind comparative advantage.
• Voluntary exchange is not a zero sum game.
Opportunity Cost
and Comparative Advantage
• Rather than comparing inputs required, we can

compare the opportunity costs.
• Opportunity cost: whatever must be given up to
obtain some item
• There is a mutual benefit to exchange when
individuals (or businesses or countries) have
different opportunity costs
David Ricardo
Comparative advantage and opportunity
cost: how economic sharing is caring
https://www.youtube.com/watch?v=ZfRS9X6ivl8
Comparative Advantage and Trade
• The gains from specialization and trade are based

not on absolute advantage but rather on
comparative advantage.
• When each country specializes in producing the
good or service for which it has a comparative
advantage (= a lower opportunity cost), total
production in the economy rises without adding
additional resources.
• Each benefits from trade by obtaining a good or
service at a price that is lower than his or her
opportunity cost of that good or service.
Heckscher-Ohlin
What determines the products for which a country

will have a comparative advantage?
• Ricardo says productivity.
H-O says:
1. Factor endowments vary among countries
2. Goods differ according to the types of factors that
are used to produce them.
“A country will have a comparative advantage in
producing products that intensively use the
resources (factors of production) it has in relative
abundance.”
New Trade Theory: Increasing Product
Variety and Reducing Costs
•Without trade, nations might not be able to produce

those products where economies of scale are important
•With trade, markets are large enough to support the

production necessary to achieve economies of scale
•So, trade is mutually beneficial because it allows for

the specialization of production, the realization of scale
economies, and the production of a greater variety of
products at lower prices
Implications Of New Trade Theory
•Nations may benefit from trade even when they do not

differ in resource endowments or technology
•A country may dominate in the export of a good simply
because it was lucky enough to have one or more firms
among the first to produce that good: first mover advantage
•Does not contradict comparative advantage theory, but
instead identifies a source of comparative advantage
• An extension of the theory is the implication that
governments could consider strategic trade policies that
nurture and protect firms and industries where first mover
advantages and economies of scale are important
Why do we have international trade?
• Trade is voluntary
• Businesses & individuals trade because they believe
that they will be better off by trading
• Individually, regionally and internationally
• Products or services which are unavailable locally, &/or are
more expensive locally, &/or are inferior locally
• Businesses use trade to globalize their markets and to
facilitate the globalization of production
• But…
Why do so many people dislike free
trade?
• Do all individuals gain from free(er) trade?

• Do all businesses gain from free(er) trade?
The costs and benefits of international trade are

unequally distributed
Who could object? Option #1
Domestic price is higher than world

price.
Country begins to import and domestic price falls.
Domestic consumers benefit.

Domestic producers are harmed.
Who could object? Option #2
Domestic price is lower than world price.
Country begins to export and domestic price rises.
Domestic producers benefit.

Domestic consumers are harmed.
Who could object?
• The total, or aggregate, gains from specialization and

trade are greater than the losses
• But those gains and losses are unevenly distributed
• This creates lobby initiative and complex policy choices
• The challenge becomes the willingness of “winners” to
compensate “losers”, via redistribution policies most often
• Plus… all of the issues surrounding:
• Security, sovereignty, nationalism, environmental
protection, inequality,…
National Competitive Advantage:
Porter’s Diamond
• Why does a nation achieve international success in a

particular industry?
• Four broad attributes of a nation shape the
environment in which local firms compete
1. Factor endowments
2. Demand conditions
3. Related and supporting industries
4. Firm strategy, structure, and rivalry
Michael Porter
Porter’s Diamond
Firm Strategy,
Structure and
Rivalry
Factor Conditions Demand Conditions
Related and
Supporting
Industries
Factor Endowments
Basic factors
• Natural resources, climate, location, demographics
Advanced factors
• Specialized factors which are created and therefore both
harder to imitate and more valuable
• Advanced factors are a product of investment by
individuals, companies, and governments
Selective factor disadvantage
• the absence of a basic factor that would be advantageous
to have in abundance
Demand Conditions
Picky buyers are a blessing
• Large, sophisticated domestic consumer base

compels innovation and quality improvements
• Picky buyers are valuable when they demand

produce attributes that are (will be) appealing also to
foreign consumers.
Related Industries
Competitiveness in related industries is mutually

reinforcing.
• Both for components and complements
Why?
• Communication
• transportation
• more/larger/competitive suppliers
• workforce
Strategy, Structure and Rivalry
“The more localized the rivalry, the more intense. And

the more intense, the better.”
Being close to your rivals keeps you at the cutting edge

of technology
• Domestic rivals more valuable than foreign
• A monopolist becomes complacent
• Rivalry may stimulate specific factor supply
The Competitive Advantage of
Nations
1. Embrace Adversity – seek out competition and

demanding consumers.
2. Quality not Quantity – abundance of general use
factors, large firms not important, but high quality
factors, suppliers, buyers and rivals are.
3. Agglomerate – Rather than seeking cheap labour or
land, locate in the middle of an industry cluster.
Coming up next:
Foreign exchange (28/September)
Government Policy and
International Trade

September 21, 2022

Schedule change
• ‘International Trade Theory’ will be covered on

September 26th
• Special Guest Lecture by our BCOM director, Dr. Jen
Baggs (originally planned on Sep/26) will be on
December 5th ‘Global Economic Policy Current
Events’ (reading materials already uploaded at
week 3)
Key Questions for Today
• Why do governments restrict trade?

• How do governments manage and restrict trade?
• How does trade policy affect international
businesses?
Trade Theory to Policy
• Economists have posited that policies which make

trade freer are beneficial for the economy in aggregate,
since the days of David Ricardo
• Since WW2 we’ve seen policies which reflect this:
• Significant declines in tariffs
• More and more important regional trade agreements (eg.
EU, NAFTA/USMCA, ASEAN, TPP…)
• Multiple rounds of GATT/WTO liberalization
• We’ve also seen enormous increases in trade volumes
• Aggregate economic gains? Yes.
• Distributional concerns? Much larger than predicted.
Reasons for Intervention
• Free(er) international trade offers net economic

benefits
• Most, if not all, government interventions to restrict
international trade target other objectives
• Political
• Normative, social, distributional
• Environmental
National Security
• Belief that some industries should be self sufficient

• The pandemic has amplified this
• Belief that some technologies should be protected
• Dual use controls
• Some of foreign policy objectives
• Sanctions to encourage other countries to disarm

in order to protect home from nuclear threats
Foreign Policy, Environmental Policy
• Trade for political aims

• Embargos or sanctions
• “positive” methods
 Human Rights
 Trade policy to influence the domestic policy of a
foreign government
 Environmental protection
 Domestically (imports which pollute the domestic
environment)
 Or in response to the environmental costs of foreign
production
Domestic Protection
• Maintenance of existing jobs/industries

• Strong lobby groups
• Political costs, human costs
• Protecting consumers
• Restricting imports of dangerous products
• Lead paint
• Weapons
• Drugs
Instruments of Trade Policy:
Tariffs
• Tariffs are usually calculated in one of two ways

• Ad Valorem Tariff – assessed as a percentage of market
value
• Specific Tariff – monetary amount per unit
• Tariffs are usually applied in one of three ways

• Import Tariff – applies to goods entering a country
• Export Tariff – applies to goods leaving the country
• Transit Tariff – applies to goods passing through a country
Tariffs
1. Act as a trade barrier

2. Raise national revenue
Source: PIIE – Chad Brown & Douglas Irwin

Quantitative Restrictions
Quotas – quantity limit on imports
Tariff Rate Quota – low tariff on limited amount and

then higher tariff after a certain level.
Voluntary Export Restraint – promise to limit exports to

a certain amount
Other Non-Tariff Barriers
• Product Testing Standards

• Restricted Access to Distribution Networks
• Public Sector Procurement
• Local Content Requirements
• Regulatory Controls
• Investment Controls
Trade Policy is Difficult…
• Many different interest groups in many different

countries influence policy decisions
• Trade policy responds to both economic and political
concerns
Discuss…
One reason trade policy is difficult is that it almost

always creates gains for some and loses for others.
Should the Canadian government lower protection
for the Canadian Dairy Industry? Why or why
not? How are different stakeholders (consumers,
businesses, farmers…) affected? Whose interests
are most important?
Trade Policy is Difficult…
• Even if it might be economically beneficial,

governments are often unwilling to
unilaterally lower trade barriers – fearing
others may not follow
Multilateral Trade Policy
• In trade policy, there are considerable potential

benefits from multilateral coordination and
negotiation.
• In this section:
• GATT – WTO
• What happens when co-operation fails?
GATT
• Generalized Agreement on Tariffs and Trade

(1947 - 1994)
• Eight rounds focused on developing a free and

competitive international trading environment.
• Most Favoured Nation (MFN) – preferential

treatment given to one nation must be extended
to all members.
World Trade Organization (WTO)
• Successor of GATT
• Created in 1995 with the aim to build a trading
system:
• Without discrimination
• Freer
• Predictable
• More Competitive
• Beneficial for Less Developed Countries
Basic Rules
DO NOT Except for:

Antidumping,
Raise Tariffs above
Countervailing duties,
‘bindings” (MFN)
safeguards
Use Quantitative
Health protection,
Restrictions (quotas,
conservation
bans, boycotts..)
Treat imported goods
Health protection,
worse than domestic
conservation
“like products”
Discriminate between Regional Free Trade
WTO members Agreements
https://www.wto.org/english/tratop_e/dispu_e/dispu_maps_e.htm
Phil Hands for: madison.com
Source: Peterson Institute for International Economics
https://www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart
WTO Recently
• 164 members, ~98% of world trade

• Limited progress since the late 90s.
• Doha round is stalled
• The 2008/09 financial crisis
• Trade volume collapse (and subsequent recovery)
• Uptick in protectionism
• Pandemic trade collapse, trade disputes
• Nationalism
• Leadership (lack there of)
• Agriculture
• Intellectual Property
Implications of Trade Policy for Managers
• Trade barriers have significant implications for global

supply chains – the globalization of production
• Trade barriers also strongly influence the ability of
firms to globalize their markets via exports.
• Firm strategy can be greatly affected by changes in
trade policy
• Lobbying matters (regretfully perhaps, but it does)
• Protecting domestic market share
• Access to international markets
Coming up next: We will cover
‘International Trade Theory’
Foreign Currency and Exchange

September 28, 2022

Exchange Rates
• Exchange rates are fundamentally the price of one

country’s currency in terms of another.
• The Foreign Exchange Market functions to:
• Convert the currency of one country into another
• Provide instruments to hedge exposure to foreign exchange
risk
Definitions…
• The foreign exchange market is the market for

converting one currency into another, and for
currency instruments
• The exchange rate is the cost of one currency in terms
of another.
• Currency A appreciates relative to currency B, if the price of
A in terms of B increases.
• Currency A depreciates relative to currency B, if the price of
A in terms of B decreases
• Foreign exchange risk arises as a result of currency
appreciations and depreciations – changes in the
exchange rate.
Exchange Rates
A direct exchange rate is the price of the foreign

currency in terms of the home currency.
Example: $1 US costs $1.34 Canadian
An indirect exchange rate is the price of the home
currency in terms of the foreign currency.
Example: $1 Canadian costs $0.72 US
The spot exchange rate is the exchange rate on a
given day.
A forward exchange rate is the exchange rate for
some specified point in the future
How to convert?
• Suppose you know that $1 US = $1.10 Cdn.

• If you are buying something that costs $70US,
how much is that in Canadian $?
=$70US x $1.10CDN/$1US
=$77CDN
• If you are selling something for $86Cdn, how
much is that in US$?
=$86Cdn x $1US/$1.10Cdn
=$78US
Exchange Rates
• Exchange rates are fundamentally the price of one

country’s currency in terms of another.
• Today, the prices of most currencies are market driven
(ie, the exchange rate at any given time is determined by
the supply and demand for that currency). However,
the degree to which monetary authorities intervene in the
market to manage the value of their currency varies
considerably.
In the absence of monetary policy,
what would determine an exchange
rate?
• What determines the supply and demand of a

currency?
• Demand for the Canadian dollar is derived from
foreigner’s desire to acquire Canadian goods, services
and assets (anything purchased in Canadian $).
• Supply of Canadian dollars is driven by the desire of
Canadians to acquire foreign goods, services and
assets.
Foreign Exchange Market
• Global network of banks, brokers, foreign exchange

dealers.
• Businesses and individuals use the foreign exchange
market to:
• Convert payables/receivable from one currency to another
• Investment opportunities
• Currency Speculation
• Governments also use the foreign exchange market
Foreign Exchange Market
Consumption – businesses and individuals buy and

sell currency as a result of transactions for goods
or services.
Investment – search for the highest return
Arbitrage – attempts to exploit small differences in
the price of a currency between markets.
Speculation – deliberate assumption of exchange
rate risk in hopes of correctly predicting changes
in the value of a currency.
What determines the value of a
currency in the long run…
• Supply and demand.

• The long run economic health of an economy and
its assets (exports, firms, real estate, bonds,
stocks…)
• “Fundamentals”
• The long run stability of an economy
• Possibly purchasing power parity (PPP)
Purchasing Power Parity
Law of One Price:

• If the price of a good differs between two markets, arbitrage
will continue until the price of the good is identical in both
markets.
• This excludes transactions costs, transportation costs, taxes and
so on, and applies to tradables only.
Purchasing Power Parity (PPP):
• Exchange rates are determined by the relative prices of a
similar basket of goods.
• This occurs because the process of buying goods in the cheap
market and reselling them in the expensive market affects
the demand for, and thus the price of, the foreign currency.
Fundamentals:
• Consumer spending
• Unemployment Rate
• Productivity Indices
• GDP…
• Inflation Rate
• Interest Rate
Let us not underestimate: Investor
Psychology and Bandwagon Effects
• Expectations can be self fulfilling prophecies.
• When one trader moves, others often follow.
• Psychology and Bandwagon effects may be one

of the largest determinants of exchange rates in
the short run.
Monetary Policy
• Monetary authorities step in to influence the

value of an exchange rate by intervening in the
market:
• Shifting either the supply or demand curves for their
currency to change the price
Managerial Considerations
• Currency Convertibility
• Foreign Exchange Risk

• Transaction Exposure
• Translation Exposure
• Economic Exposure
Foreign Exchange Risk Exposure:
currency depreciation
• Exporters tend to be better off as their products are less

expensive in foreign currency
• Domestic firms competing with imports tend to be better off
because competing imports are relatively more expensive in
domestic currency
• Importers and consumers tend to be worse off as imported
products are more expensive in domestic currency
• Foreign debt becomes more expensive but foreign assets
become more valuable
• The larger, faster and more unexpected the depreciation, the
greater the turmoil associated with it.
Practice
Consider a business located in Country A. This business

exports 50% of its products to Country B, and imports 20%
of its inputs from Country C. The business sells the
remaining 50% of its output in Country A and sources the
remaining 80% of its inputs in Country A.
If Country A’s currency were to appreciate relative to

Country B’s currency and depreciate relative to Country C’s
currency, how might this business be affected?
currency appreciation
• Firms with what types of exposure will benefit?
• Firms with what types of exposure will be harmed?

Coming up next:
Global Capital Markets
Global Capital Markets

October 3, 2022
currency appreciation
• Firms with what types of exposure will benefit?
• Firms with what types of exposure will be harmed?

How do businesses manage currency
risk?
• Understanding their exposure to currency changes

and making strategic decisions which consider that
exposure
• Anticipating shifts in currency values
• Hedging their exposure
• Forward contracts
• Currency options
• Lead or Lag Strategies
• Diversification
• Matching debt and income currencies
Hedging Exchange Rate Exposure:
Forward Contracts
• A contract to buy or sell foreign currency at a fixed

price sometime in the future.
• Forward exchange rates:
• exchange rate for a defined forward period.
• A forward premium (forward discount) is the
proportion by which a country's forward exchange
rate exceeds (falls below) its spot rate.
• A forward contract to purchase a currency is
beneficial if the spot rate at the date of transaction is
more expensive than that offered by the contract
(spot > forward).
• A forward contract to sell a currency is valuable if
the opposite is true (spot < forward).
Options
• Currency option:
• Call option: the right to BUY a specified amount of foreign
currency for a specific price any time up to a specified date.
• Put option: the right to SELL a specified amount of foreign
currency for a specific price any time up to a specified date.
• Options give you the option to buy or sell, not the obligation
to buy or sell.
Leads & Lags, Diversification,
Matching Debt and Income Currencies
• Lead or Lag strategies

• Diversification:
• Exposure to multiple currencies can act as a hedge
• Flexibility in locations can also act as a hedge
• Currency risk can be reduced if payables and receivables
are in the same currency (matching debt and income
currencies).
How do businesses manage currency
risk
• Identify where/how they are exposed

• Transaction, translation and economic exposure
• Quantify that exposure
• For example: if a particular exchange rate appreciates X%
this year, how will we be affected; or how much would a
particular exchange have to depreciate before a particular
choice is no longer viable
• Make strategic choices in hedging exposures
Practice
Consider a business located in Country A. This business

exports 50% of its products to Country B, and imports 20%
of its inputs from Country C. The business sells the
remaining 50% of its output in Country A and sources the
remaining 80% of its inputs in Country A.
What steps could this business consider in order to

manage its exposure to exchange rate fluctuations?
Carefully explain the advantages and disadvantages of
your suggestions.
Capital Markets
• Stock markets and Bond markets are capital markets

• Stocks are equities – a form of ownership
• Bonds are debt – a loan which must be repaid (to
lenders by borrowers)
• Businesses can use either or both stocks and bonds
to raise capital
• Consists of both primary and secondary markets
• Connecting investors and borrowers
• Cost of capital
Global Capital Market
• Different countries.
• Facilitates financing in a variety of currencies.

• Investors: opportunities & diversification
• More investment opportunities
• Portfolio diversification
• Borrowers: cost and availability of capital

• Search for lower cost of capital
Growth of the Global Capital
Market
• Technological Improvements
• Processing of large volumes of stock
and bond transaction information
(e.g., real-time updates).
• Trade information on a number of
exchanges can be accessed from
anywhere in the world.
• Deregulation
• Traditionally financial services have
been highly regulated.
• Restrictions have rapidly decreased
(e.g., foreign ownership of domestic
assets and domestic capital
investment abroad)
Global Capital Market Risks
• Foreign Exchange Risk (in general)

• Nations more vulnerable to speculative capital
flows
• Lack of quality information
• (Regardless of the quality of information) Investors
react quickly to news events, which may encourage
speculation
• Capital seeking short term gains
• Potential destabilization of economies
Eurocurrency
(completely unrelated to the Euro!)
• A eurocurrency is a currency banked outside its

country of origin.
• Example: A Japanese currency account held at the
TD in Victoria. (this is a euro-yen)
• Euro-dollars, euro-pounds… euro-canadian
dollars.
Why Eurocurrency?
• Few regulations
• Absence or near absence of reserve requirements make
euro loans and euro deposits attractive
• Lowers cost of capital
Global Bond Market
• Bonds are an important means of financing for global

firms
• Two types of bonds – foreign bonds and Eurobonds
• Foreign Bonds
• Bond issued by a resident of Country A but sold to residents of
Country B, denominated in the currency of Country B and
subject to Country B’s regulations.
• Example: British bank Lloyds sells Japanese yen denominated
bonds in Japan (under Japanese regulations).
Global Bond Market continued.
• Eurobonds
• Bond denominated in Currency A but sold outside of
Country A
• Example: American Airlines borrows $500 million US
to finance new aircraft purchases by selling
Eurobonds denominated in US dollars to residents of
Germany and France.
• No fancy names 
Why might Eurobonds be appealing to
international businesses?
• Regulatory costs
• Outside the regulatory domain of any single nation
• Eurobonds avoid most domestic regulations.
• Avoids tight controls often placed on foreign bond issues.
• Disclosure costs
• If you wish to offer USD denominated bonds in the US, you
must comply with SEC disclosure requirements
• SEC (Securities and Exchange Commission) as US regulator
• If you wish to offer USD denominated bonds in Japan, you do
not have to comply with SEC disclosure.
Global Stock (Equity) Market
Global Stock (Equity) Market
• Many stocks are listed on multiple exchanges and

stock ownership is increasingly international.
• Why would a company list/IPO its stock on a foreign
market?
• Liquidity of foreign markets – lowers the cost of capital
• Where to IPO? (higher share price)
• Satisfy the demand for local ownership.
• Visibility with local employees, customers, suppliers and
bankers.
• Stock options in compensation.
• Facilitate future acquisitions.
Practice
Bravono is a food service company currently operating

exclusively in Italy. Bravono is planning to increase its
production capacity in order to export to other European
countries and to North America. In order to raise funds
for an expansion, Bravono is considering two options:
(1) Issuing US dollar denominated bonds and selling them
in the EU.
(2) Issuing US dollar denominated bonds and selling them
in the US.
Discuss the pros and cons of these options. Which would
you recommend Maria Sophia choose?
Business and the Global Capital Market
• Borrowing on the global capital market may

save money.
• Lower interest rates, fewer regulations, higher share prices…
• International diversification changes your exchange
risks
• Lowers if you use global capital markets to borrow in the
same currency in which you are operating.
• Increases if you are now borrowing in a currency you are not
operating in.
Coming up next…
Mid-term exam preparation
COM 361 – International Business
Introduction to IB Activities and Operations

Dr. Kristin Brandl
kbrandl@uvic.ca
Office hours: Tuesday 1:30-2:30am, via ZOOM (link on Brightspace) or by appointment
What tree fits into a hand?

A palm tree!
Introduction to IB Activities
Teaching style and expectations
• Learning objectives for asynchronous sessions

• Explain the connection of firm level internationalization and country assessment
• Discuss the differences of economic developments and their impact on firms
• Prepare for sessions (read chapters, read/listen/watch cases to prepare for

discussions)
• Engage, engage, engage!!!
• Let me know if there is anything I can do to support your learning!!
2
Costs
Benefits
Corruption
Size of economy
Lack of infrastructure
Likely economic growth
Legal costs
Overall
attractiveness
Risks
Political risks: social unrest/antibusiness trends
Economic risks: economic mismanagement
Legal risks: failure to safeguard property rights
3
Why do firms become How do firms become

internationally active internationally active
Firm’s
international
activities and
operations
When do firms become

internationally active
4
Week Date Topic Reading
17-Oct Introduction to IB Activities Chapter 3
Talk by Kresse Wesling, CBE
Week 6 18-Oct Cinecenta 1-2:30pm
CEO of Elvis & Kresse
19-Oct Regional Economic Integration Chapter 9
24-Oct FDI (Inward FDI) Chapter 8
Week 7
26-Oct FDI (Outward FDI) Chapter 8
31-Oct Strategy of IB I Chapter 13 + additional material
Week 8
02-Nov Strategy of IB II Chapter 13 + additional material
07-Nov No class – no class in lieu of Kresse Wesling talk
Week 9
09-Nov No class - Reading Break
14-Nov Organization of IB Chapter 14
Week 10
16-Nov Market Entry Strategies Chapter 15
21-Nov Global Business Functions I Chapter 16
Week 11
23-Nov Global Business Functions II Chapter 17
28-Nov Global Business Functions III Chapter 18
Week 12
30-Nov Exam Prep and Wrap-up No new readings
Global Economic Policy Current
Week 13 5-Dec Class in lieu of cancelled class on 19-Sep
Guest lecture by Jen Baggs
5
Assessment - Quizzes
Quiz Material Covered: Quiz Available Starting: Quiz Closes At:
#4 Week 6/7 (Oct 19, 24 & 26) 8:00am PST on 10/27/2022 8:00pm PST on 10/29/2022
#5 Week 8 (Oct 31 & Nov 2) 8:00am PST on 11/03/2022 8:00pm PST on 11/05/2022
#6 Week 10 (Nov 14 & 16) 8:00am PST on 11/17/2022 8:00pm PST on 11/19/2022
#7 Week 11/12 (Nov 21, 23 & 28) 8:00am PST on 12/01/2022 8:00pm PST on 12/03/2022
6
Assessment - Exam
• Date and time: TBD
• Via Brightspace
• Covers all course material, i.e. mandatory readings, session content, discussions, videos,
learning exercises and the like
• Online open book, individual exam, and all students are expected to pursue the highest
standards of academic integrity
• Include cases and long written answer style questions, testing the application of course
content
• More information about the exam will be provided in a session closer to the exam date.
7
Assessment – Group assignment
Report task
Your consulting firm, ConsultingNow, was hired by [insert your assigned MNE’s name here] to provide an academic report on the
current and expected implications of a crisis (e.g., financial crisis, oil crisis, GVC disruptions, Ukrainian war, and global COVID-19
pandemic) on the MNE.
Report structure
1. Report introduction
• Provide a very brief background of the MNE and all international business activities and operations of the company
• Discuss what causes of turbulence you focus on in your report (e.g., financial crises, oil crises, GVC disruptions, Ukrainian war,
and global COVID-19 pandemic)
2. Two country assessments
• Provide an assessment of the business environments for A) the country of the firm’s headquarter location and B) one country
in which the firm is operating (at least one of these countries needs to be recognized as a developing country). Debate how
the current turbulent time (e.g., COVID-19 pandemic) has impacted these business environments.
3. Assess strategy implications
• Provide an analysis of the MNE’s internationalization strategy
• Debate how the turbulent times impact the strategy
4. Assess organizational implications
• Provide an analysis of the organizational structure
• Debate how the turbulent times impact the organizational structure
8
General information
• group report submission deadline is 26 November, 2022 at 8 pm
• submit via BrightSpace
• only one group member should submit the assignment
• late submission penalties apply as specified in the course syllabus
• the report accounts for 25% of your overall grade
• four-page report, aka min 1000 words and max 2500 words (excluding graphs, figures, tables and
references) (note: create your own graphs, figures, and tables)
• requires teams to use and apply course content up to the submission of the report
• use the appropriate referencing style
• your group will be assigned a multinational enterprise (see assigned groups on Brightspace)
• you have to analyze at least one developing country
-> I highly recommend that you set up an appointment and talk to me about your assignment at
least once before the submission deadline.
9
Report writing objective
This assignment aims to develop your research skills based on your ability to identify rigorous sources,
collect the relevant data and contrast different sources of information to formulate a robust judgment.
I encourage you to use:

• Company reports
• Sources detailed in your reading list
• Journals available via the library
• Data from supra-national organizations (e.g. EU, WTO, IMF, UNCTAD)
• Business press
• Industry reports
• Keep always in mind for what purpose and audience these documents/articles/sources are
written! Be critical and beware of ‘fake news’!
10
Report assessment criteria
 The group report is written together with your group members, and one group mark will be given
to all group members.
 You are expected to work together and submit one coherent report, not a compilation of different
independent sections.
 As the aim of the group report is to assess your knowledge of the course content and your
research skills, the assessment criteria are divided accordingly.
 Also, see the grading rubric for more information on grade distributions.
11
Differences in countries and business environments
12
Learning objectives for this session
After the session, you should be able to:

• Explain the connection between firm-level internationalization and country
assessment
• Discuss the differences in economic developments and their impact on firms
13
TASK
Discuss with your neighbor:

How does the internationalization of a firm into a developing country differ from
the internationalization into a developed country?
14
Political systems Economic systems

Authoritarian Centrally determined/
command economy
Mixed political/
economic systems
Democracy Market-driven economy
15
Types of capitalism Capitalism

• Laissez-faire “An economic system based on the
(private) ownership of capital and
• Liberal market economy
production inputs and on the production
• Corporate/big firm capitalism of goods and services for profit”
• Coordinated market economy
• Nordic capitalism
• Mediterranean capitalism
• Crony capitalism Economic interventionism/
state interventionism
• State/state-led capitalism
• Oligarchic capitalism
16
Source: IMF Datamapper(2022)
https://www.imf.org/external/datamapper/NGDPDPC@WEO/OEMDC/ADVEC/WEOWORLD
17
Source: IMF Datamapper(2022)

https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD
18
Indicators that allow determining the economy of a country:

- Economic indicators: Gross domestic product (GDP), GDP growth, Gross national
income (GNI), GNI by ppp, Gini, FDI, trade, capitalism
http://datatopics.worldbank.org/world-development-indicators/
- Socio-economic indicators: education, life expectancy, per capita income, access

to healthcare, infrastructure, voting rights, gender possibilities
http://hdr.undp.org/en/content/human-development-index-hdi
- Innovation (economic system/capitalism)

-> engine of growth, effective market economy, strong property rights
- Industry focus (high-tech vs low-tech)
19
Watch out for changes!
States in Transitions
-> spread of democracy
-> new world order and global terrorism
-> spread of market-based systems
Nature of economic transformation

-> deregulation
-> privatization
-> legal system changes
20
Why do firms become How do firms become

internationally active internationally active
Firm’s
international
activities and
operations
When do firms become

internationally active
21
Now, you should be able to:

• Explain the connection of firm-level internationalization and country assessment
22
Regional Economic Integration
Dr. Kristin Brandl

kbrandl@uvic.ca
Two windmills are standing on a wind farm.

One asks, “What’s your favourite kind of music?”
The other says, “I’m a big metal fan.”
Learning objectives from the last session
You should be able to:

-> takeaways from Kresse’s talk….
Monday
• Explain the connection between firm-level internationalization and country
assessment
2
Learning objectives for the session
• Discuss the different levels of economic integration and provide examples
• Debate the challenges when renegotiating trade agreements
• Discuss the challenges and opportunities in the creation and destruction

of new trade agreements
3
Levels of economic integration
4
• Large number of countries • Two countries

• Sponsored by WTO • Typically trade and
• Mainly trade liberalization Multilateral Bilateral investment
• WTO dispute settlements agreements agreements • Often includes
Investor-State Dispute
Settlement (ISDS)
• Many countries • Based on broad geographic

Plurilateral Regional trade region
• Trade and other issues, as in
agreements agreements • Free trade, economic ties
proposed CPTPP
• Can include ISDS • ISDS or formal institutions (EU)
http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
5
Source: World Bank (2022)

Source: World Bank (2022)

Levels of economic integration Free Trade Customs Common Economic

Area Union Market Union
Removal of trade restrictions between

member states
Common external trade policy towards
non-members
Free movement of factors of
production between member states
Harmonization of economic policies

under supra-national control
8
Task
• Discuss with your neighbor:

What are the arguments for and against economic integration from
a) a country perspective
b) a firm perspective
11
Trade creation: Creation of more trade between member states within the free trade area
Pre FTA: Post FTA:

Trade without tariff
Trade with
A B A B
10% tariff
Trade restrictions No trade restrictions
12
Trade diversion: Trade is diverted from non-member states to member states within the FTA
Pre FTA: Post FTA:

A A B
B
No trade restrictions
Trade with
10% tariff
Trade restrictions
C C
13
Trade diversion: Non-member states of the FTA re-route ‘deflect” their exports to member states
within the .
Pre FTA: Post FTA:

A A B
B
No trade restrictions
Trade with
20% tariff Trade with 5%
tariff
Trade restrictions
C C
-> Often countered with RULES OF ORIGIN, which detail the conditions under which a good is
14
classified as a member good or non-member good.
Renegotiations of trade agreements
15
NAFTA
The Canada-US FTA was implemented in 1989
• Gradually eliminated tariffs on most goods
• Some sectors still protected
• Softwood lumber, some agriculture, some media products
• Importance of rules of origin
• In 1994, the CUSFTA expanded to include Mexico, becoming NAFTA
• NAFTA is the largest free trade pact outside of the EU
16
https://oec.world/en/profile/country/can
https://oec.world/en/profile/country/usa
https://oec.world/en/profile/country/mex
17
• NAFTA is renegotiated and becomes the USMCA in principle 30 Sept 2018.
• Mexico ratified in June 2019, the US ratified in January 2020, and Canada ratified in April 2020
Comparing NAFTA with USMCA

• Substantial portions of NAFTA remain intact
• Some key provisions:
• Auto sector: North American content up from 62.5% to 75%, 45% of labour content must be at
wages $16 or more
• Notice is required if negotiating a trade agreement with any non-market economy
• New: Dairy quotas increased, Dispute Settlement, Sunset Clause
• Novel: General exception to protect indigenous peoples’ rights, digital trade, copyright and patents
18
Creation and destruction of trade agreements
19
• Entered into force in September 2017

• Prior to agreement 25% of Canadian goods entered EU tariff free, after agreement rises
to 98%
• Canada expected to gain through export expansion and diversification, as well as lower
consumer prices for EU imports
• Cheaper imports can threaten Canadian producers
• Wine, cheese, vehicles
• Drug patents extended 2 years (delayed generics)
• Public procurement
20
• Dec 2018 CPTPP enters into force for Canada,

Australia, Japan, Mexico, New Zealand,
Singapore, Vietnam, Peru (2021)
21
Source: Stephen Tapp, Export Development Canada 22

Task
Brexit, the EU, and firms
• Britain Post-Brexit in Hill (2021) pp. 261
• Is Brexit to Blame for Inflation?
Discuss with your neighbor:

a) Why did the UK decide to leave the EU and what impact does this decision have on the
EU and European countries? Who benefits and who loses out?
b) What impact has Brexit on the UK, European, and global firms?
http://rtais.wto.org/UI/P
ublicSearchByCrResult.as
px
Go to Graphs->
interactive Graph-> enter
country
24
http://rtais.wto.or
g/UI/PublicSearch
ByCrResult.aspx
Go to explore the
data -> Signatory -
> enter country
25
Learning objectives for the session
• Discuss the challenges and opportunities in the creation and destruction of new trade
agreements
-> no Quiz this week!
26
Foreign Direct Investment (Inward FDI)

Dr Kristin Brandl
kbrandl@uvic.ca
What do you call a bee that can’t make up its mind?

A maybe
Learning objectives of last week’s session
You should now be able to:
• Discuss the challenges and opportunities in the creation and destruction

of new trade agreements
2
3

• Discuss the current trends of FDI
• Debate the costs and benefits of FDI for host countries (inward FDI)
• Explain the policy instruments that governments can use to attract FDI
4
FDI in the world economy
5
FDI in the World Economy
• FDI = firm invests directly in facilities to produce and/or market a product in a foreign
country
-> it becomes a multinational enterprise (MNE = operates in more than one country
Outward FDI Inward FDI

$$$
Country A Country B
Home country Host country
6
Why???
- Globalization of markets
- Globalization of production
7
How???
Source: Peng (2014)

8
Although these are firm level activities, we measure them mainly on a country level:
• FDI stock - total accumulated value of foreign owned assets at a given time
• FDI flow - amount of FDI undertaken during a specific time period

• Inflows – flow of FDI into a country (country receives investment from foreign firm)
• Outflow – flow of FDI out of a country (domestic firm invests into another country)
9
https://unctad.org/publications
Source: WIR (2022) 10

11
Source: WIR (2022)
12
Source: WIR (2021) Source: WIR (2022)
13
Source: WIR (2021) Source: WIR (2022)
14
Source: WIR (2022)
15
Source: WIR (2021)
16
Source: WIR (2021)
Benefits/costs of FDI
$$$
Country A Country B
Political economy of FDI
The radical view The free market view
Pragmatic nationalism
The radical view
Roots in Marxist political & economic theory

MNE is an instrument of imperialist domination
•Host country does not benefit from FDI
•Key technologies kept secret No longer widely accepted
•Expatriates have most favorable jobs
•MNE’s interest is to restrict development
Policy implications:
•Do not permit FDI
•Nationalize any existing foreign owned businesses
Free market view
•International production should be distributed among

countries according to their comparative advantage.
•MNE should produce in most efficient location for their

product
•Could be extended to suggest that each component
of production should be produced in its comparative
advantage location
FDI is a benefit for home and host country

Pragmatic Nationalism
•View that FDI provides benefits and costs to host

country
•Government has a role in attempting to maximize
those benefits and minimize costs
• Restrict FDI in some areas, pursue aggressively in others
•Introduces bargaining to FDI decisions

Inward FDI
$$$
Country B
Host country
22
Inward FDI
Task
Discuss with your neighbour:
Why and how did Vietnam change its approach to inward FDI?
Source: WIR (2021) ODA = Official Development Assistance

Inward FDI
Host/receiving country impacts (inward FDI)
Benefits Costs
Resource-transfer effects Adverse effects on competition
• Supplies capital, technology, management resources • Drive domestic competitors out of the market
Employment effects (direct/indirect) Adverse effects on Balance-of-Payments
• Question of substitution and quality of jobs • Outflow of earnings to parent company,
• M&A vs. greenfield repatriation
• Foreign subsidiary imports from abroad
Effect on competition and economic growth (Possible effects of national sovereignty and
• Increased options for consumers, cheaper price autonomy)
• Incentive for innovation and efficiency for domestic firms • Loss of economic independence
• Growth related and supporting industries (indirect
employment)
Balance-of-Payments effects
• Aim for a current account surplus (purchase of assets,
substitutes imports & increasing exports)
25
Inward FDI 1) Resource-transfer effect: movement of supplies
capital, technology, management resources
Inward FDI
$ purchase of 2) Employment effects

assets (in/direct):
Country A Country B Creation of new jobs in same
Home country Host country industry or connected industries
exports
4) Balance-of-payment effects: 3) Effect on competition and economic

Purchase of assets, substitutes for imports and growth
increases exports • Increased options for consumers,
cheaper price
Balance-of-payment:
• Incentive for innovation and efficiency
Current account = exports – imports
Capital account = capital transfers for domestic firms
Financial account = purchase/sales of assets • Growth related and supporting industries
(indirect employment) 26
Inward FDI
Inward FDI
$ earnings
Country A Country B
1) Adverse effects on competition

2) Adverse effects on Balance-of-Payments • Drive domestic competitors out of the market
• Outflow of earnings to parent company,
repatriation
• Foreign subsidiary imports from abroad
3) (Possible effects of national sovereignty
and autonomy)
• Loss of economic independence
27
Inward FDI
Host country FDI policies
Encourage inward FDI Restrict inward FDI

• Duty-free import of inputs • Require permits or approval
• Tax concessions • Limits on foreign ownership/equity
• Infrastructure improvements participation
• Incentives, subsidies • Restrictions on repatriation, remittance
• Foreign Trade/Investment Zones of profits
• Stability, transparency, rule of law • Special taxes
• TRIMS (Agreement on Trade-Related
Investment Measures, see notes)
28

-> please prepare for Wednesday’s session!
29
Foreign Direct Investment (Outward FDI)

Dr Kristin Brandl
kbrandl@uvic.ca
Coffee beans are always late; they're chronic pro-caffeinators.

Learning objectives of the last session

2
Task
Talk to your neighbour:
Tesla’s FDI in China and Germany

• Tesla’s investment in China on pp. 231 in Hill (2022)/uploaded to Brightspace
• Elon Musk May Regret Putting Tesla’s First European Plant in Germany, Bloomberg
article/uploaded to Brightspace
What role do China and the USA play in Tesla’s decision to invest in a new auto plant
in Shanghai?
How do China’s and Germany’s FDI approach differently impact Tesla’s investments?
Learning objectives for today’s session
After the session you should be able to:

• Discuss the costs and benefits of outward FDI
• Explain the policy instruments that governments can use to influence outward FDI
• Debate the investment types and drivers of FDI for MNEs
4
Benefits/costs of outward FDI
$$$
Country A
Home country
5
Home/source country impacts
Benefits Costs
Balance-of-Payments effects Adverse Balance-of-Payment effects
• Inward flow of foreign earnings • Capital outflow to finance FDI
• Demand for home-country exports (capital, • Suffers if FDI purpose is low-cost production
intermediate/complementary goods) • Suffers if FDI substitutes for direct exports
Employment effects Adverse employment effects
• Demand for home-country exports • Reduced home country employment
Reverse resource-transfer effects
• Learning of valuable skills
6
1) Balance-of-payment effects:
Inward flow of foreign earnings and demand for
home-country exports
Outward FDI 3) Reverse resource-transfer effects
Balance-of-payment: Learning of valuable skills
Current account = exports – imports
Capital account = capital transfers
Financial account = purchase/sales of assets
skillset
2) Employment effects:
Demand for home-country $ earnings
exports
Country A Country B
7
1) Adverse balance-of-payment effects:
• Capital outflow to finance FDI
• Suffers if FDI purpose is low-cost production -> imports
• Suffers if FDI substitutes for direct exports
Outward FDI
2) Adverse employment effects

Reduced home country $ capital
employment
Country A Country B
Home country exports Host country
imports
8
Home/source country FDI policies

Encourage Outward FDI Restricting Outward FDI
• Insurance programs to cover risks • Tax policies that make it favorable to invest at
• Taxation treaties home
• Negotiation and political support • Restrictions for political or security reasons
• Local content regulations, incentives to
produce domestically
9
FDI and MNEs
10
FDI and MNEs
Source: Peng (2014)

11
Task
Talk to your neighbour:
Starbucks’ internationalization to Japan vs to Italy

• Starbucks' Foreign Direct Investment on pp. 231 in Hill (2021)/uploaded to Brightspace
• Starbucks in Italy clip https://www.youtube.com/watch?v=jf0ZtZ8CVkk&t=105s
What is the difference of Starbuck’s internationalization to Japan and its

internationalization to Italy? Discuss the reasons for the different FDI modes.
FDI and MNEs
Source: Peng (2014)

13
FDI and MNEs
Horizontal FDI Same industry/same activity

-> FDI in the same industry as the firm operates at home
Drivers for horizontal FDI

• Distance costs: transportation of heavy or large objects, perishable goods, proximity
• Market imperfections: tariffs, barriers to trade, maintain control over key
assets/technologies, incentive compatibility
• Strategic reasons: competing firms match each other’s moves to keep the competitor
in check on multiple markets, follow each others move
• Location-specific advantages: Advantages that arise from using resource endowments
or assets tied to a particular location
• Demand/market size: Suggests that foreign market demand leads to FDI - does not
imply that moving production is profitable
14
FDI and MNEs
Backward/
Vertical FDI upstream
-> FDI in an industry which is either up or down stream from the
firm’s operations in the home market
• Backward (Upstream): providing inputs (raw materials, parts)
for domestic production processes
• Forward (Downstream): industry abroad sells the outputs for Forward/
domestic production processes downstream
Drivers for vertical FDI

• Strategic reasons: Can raise entry barriers or shut out new competitors, or circumvent
barriers established by companies already doing business in the foreign country
• Market imperfections: Need to overcome lack of know-how or the firm must invest in
specialized assets whose value depend on inputs provided by a foreign supplier
15
FDI and MNEs
The Eclectic paradigm/OLI framework
Ownership (O) – firm specific advantages
– Firm specific knowledge
– Management, marketing, financial skills
– Vertical integration: control of resources, control of markets
– Risk diversification
Location (L) – location specific advantages

– National production functions
– Government controls and regulations
– Political risk; cultural values
Internalization (I) – internalization specific advantages

– Enforce property rights
– Reduce buyer uncertainty
– Overcome government regulations 16
FDI and MNEs
The OLI framework
no remain domestic
Ownership advantage
over foreign rivals?
yes
Locational advantage no
in foreign country? export
yes
Advantage from no contractual agreement

internalizing production?
yes FDI
17
Now you should be able to:

• Discuss the costs and benefits of outward FDI
• Explain the policy instruments that governments can use to influence outward
FDI
-> Don’t forget quiz #4! Submit by Saturday, 8pm!
18
The Strategy of IB I
Dr Kristin Brandl
kbrandl@uvic.ca
What's the best place to hide from ghosts?

The living room.

• Discuss the costs and benefits of inward and outward FDI
• Explain the policy instruments that governments can use to influence inward and
outward FDI
2

• Debate the concept of strategy formation, especially the
• Goals and values
• Resources and capabilities
• Structure and systems
• Identify the strategy formation of MNEs
3
Strategy formation
4
Strategy formation
Strategy: actions managers take to attain the goals of the firm

Goals: maximize the value of the firm for its owners and its shareholders
THE INDUSTRY THE COUNTRY

THE FIRM ENVIRONMENT ENVIRONMENT
• Goals and Values • Competitors • Benefits
Strategy
• Resources and Capabilities • Customers • Costs
• Structure and Systems • Suppliers • Risks
The Firm-strategy The Environment-

interface strategy interface
5
Strategy formation
THE FIRM
GOALS AND VALUES
RESOURCES ORGANIZATIONAL COMPETITIVE

CAPABILITIES STRATEGY ADVANTAGE
STRUCTURE AND SYSTEMS
INDUSTRY/COUNTRY
ENVIRONMENT
6
Strategy formation
GOALS AND VALUES
Source: Hill (2022), pp. 378
Profitability: the rate of return the firm makes on its invested capital (ROI)
Profit growth: the percentage increase in net profits over time
7
Strategy formation
GOALS AND VALUES

-> Low cost vs. differentiation
8
Strategy formation
1) Pick a position on efficiency frontier that is viable in the

GOALS AND VALUES sense that there is enough demand to support that choice
2) Configure its internal operations
3) Ensure right organizational structure to execute strategy
Source: Hill (2022), pp. 380 9

Strategy formation
GOALS AND VALUES - What are Starbucks’ goals and values?
10
Strategy formation
THE FIRM
GOALS AND VALUES

INDUSTRY/COUNTRY
ENVIRONMENT
11
Strategy formation
RESOURCES – the productive assets owned by the firm
TANGIBLE INTANGIBLE HUMAN

Financial (cash, securities, Technology/intellectual property (R&D Skills/know-how
borrowing capacity) knowledge, patents, copyrights, trade (competencies modelling)
secrets)
Physical (plant, equipment, Reputation (brands, relationships, Capacity for communication
land, mineral reserves) formal and informal networks) and collaboration (emotional
intelligence)
Organizational culture: values, norms, Motivation
tradition
Customer/supplier portfolio: exclusive
contracts
12
Strategy formation Different types of trust: overall trust, value-based trust
(brand’s social responsibility, relationship trust (brand
interactions with consumers), functional trust (brand
Canada’s most trusted brands 2022 performs its core functions)
Source: Gustavson Brand Trust Index https://www.uvic.ca/gustavson/brandtrust/assets/docs/final--gbti-2022-main-report.pdf
13
Strategy formation
RESOURCES AND CAPABILITIES - What are Starbucks’ resources and capabilities?
Resources (tangible, intangible, Valuable? Rare? Costly to Exploited in Competitive implication
human) and Capabilities imitate? organization?
Remember that each resource needs to be explained and reasoned and that they are subjective
interpretations based on provided information, own knowledge, and analytical skills. 14
Strategy formation
Organizational capabilities - a firms capacity to deploy resources for a desired end result
-> based on routines
Core competence
• Make a disproportionate contribution to ultimate customer value, or to efficiency with
which that value is delivered
• Provide a basis for entering new markets
15
Strategy formation
R&D and innovation • R&D skills in new product and service development (design capabilities)
capabilities • Innovative organizational skills (innovative or fast-cycle products/services)
Operational capabilities • Process efficiency: Six Sigma, Just in time, Lean manufacturing, automation
• Efficiency in volume production, improved operations, flexibility and speed
Marketing capabilities • Market knowledge and responsiveness
• Product development/adaptation to respond to local market trends
• Communication with consumer
• Brand management
Sales and distribution • Sales skills and knowledge (sales promotion and execution)
capabilities • Innovative sales channels
• Efficient distribution model (speed of order processing and distribution)
Corporate management • Strategy development and implementation structure (financial control,
capabilities management development, strategic innovation, multidivisional
coordination, acquisition management, international management)
• Leadership
• Risk management
Dynamic capabilities • Organizational ability to respond and adjust to internal and external shifts
16
Strategy formation
Strategy formation
RESOURCES AND CAPABILITIES
Are resources and capabilities – valuable, rare, imitable, integrated in

the organization? 18
Strategy formation
RESOURCES AND CAPABILITIES
19
Strategy formation
Strategy formation
THE FIRM
GOALS AND VALUES

INDUSTRY/COUNTRY
ENVIRONMENT
21
Strategy formation
Value chain
22
Strategy formation
Source: Porter (1985)

McDonalds’ Value chain: https://www.youtube.com/watch?v=QU3dRhXmC_8 23
Strategy formation
STRUCTURE AND SYSTEMS - What are Starbucks’ structure and systems?

24
Starbucks’ Value Chain: https://www.youtube.com/watch?v=caKQ2Qtyuxk
Strategy formation
THE FIRM
GOALS AND VALUES

INDUSTRY/COUNTRY
ENVIRONMENT
25

26
The Strategy of IB II
Dr Kristin Brandl
kbrandl@uvic.ca
How do you fix a broken pumpkin?

With a pumpkin patch.
Learning objectives of last session

2

• Explain the concept of global/internationalization strategy
• Debate how pressures of cost reduction and local responsiveness influence

strategy and strategic choices
• Discuss different strategies to compete globally
3
Global/internationalization strategy
4

Strategy

5
GOALS AND VALUES

6
Search for sustainable competitive advantages
RESOURCES AND CAPABILITIES -> using the VRIO framework on resources and capabilities
Core competencies: skills/capabilities competitors cannot

match and imitate
THE FIRM
GOALS AND VALUES
Core competencies
7
STRUCTURES AND SYSTEMS
8
What can firms gain from global operations:

1) Expanding the market: Expand the potential size of the market for their products by selling them in
the global marketplace
2) Location economies: Realizing location economies by dispersing value creation activities to global
locations where they can be performed most effectively and efficiently
3) Experience effects: Realizing greater cost economies from experience effects by serving a global
market from one geographically central location
4) Leveraging subsidiary skills: Earn greater ROI by leveraging valuable skills developed in international
operations and transferring them to other entities within the firm.
9
1) Expanding the market

- expand to sell products (market-seeking internationalization)
10
2) Location economies
- get access to resources that firms do not have in their domestic market
(resource-seeking internationalization)
- acquiring strategic assets (e.g. brands, human capital, distribution networks)
that enable easier operations in a foreign market (strategic asset-seeking
internationalization)
-> creating a local web!
11
3) Experience effects moving down the

experience curve, cost
• Learning effects reduction
-> cost savings that come from learning
by doing
• Economies of scale
-> reductions in unit costs achieved by
producing a large volume of a product
- dispersing activities to the location where production is most

efficient and effective (efficiency-seeking internationalization)
12
4) Leveraging subsidiaries
- get access to knowledge helping firms in their international operations (knowledge-seeking

internationalization)
13
Cost reduction and local responsiveness pressures
Local
responsiveness
Cost reduction
14

15
Pressures of cost reduction Pressures of local responsiveness

• A product or service is under pressure to be • A product or service is under pressure to adapted to:
produced as cost-efficient as possible • Differences in consumer tastes and preferences
• Differences in traditional practices and
-> products that can be produced using infrastructures
economies of scale (mass-production of • Differences in distribution channels
standardized products) • Different host government demands
-> competition from low-cost locations, excess • Rise of regionalism
capacity available, and consumers have low
switching costs
16
17
Global standardization strategy

Cost reduction pressures: high
Local responsiveness pressures: low
Focus: on increasing profitability by reaping the cost reductions that come from
economies of scale, learning effects and location economies
• The goal is to pursue a low-cost strategy on a global scale
Examples: industrial goods, semiconductor industry, consumer electronics
18
Localization strategy
Cost reduction pressures: low
Local responsiveness pressures: high
Focus: on increasing profitability and profit growth by customizing goods or

services so that they provide a good match to tastes and preferences in different
national markets
• Beneficial when there are substantial differences in consumer tastes and
preferences across nations
Examples: car industry, consumer goods, restaurants
19
Transnational strategy
Cost reduction pressures: high
Local responsiveness pressures: high
Focus: simultaneously on
• low cost through location economies, economies of scale and learning effects
• differentiation of products across geographies
• multidirectional flow of skills between different subsidiaries
Example: standardized consumer goods, heavy machines/equipment
20
Note: internationalization
strategy is not the same as
International strategy international strategy!!!
Cost reduction pressures: low
Local responsiveness pressures: low
Focus: on products with minimal global competition that are produced for the
domestic market. Minimal local adaptations when taken internationally.
• Often monopolies based on R&D and innovation.
Examples: innovative products, luxury goods
21
Global strategy/internationalization strategy
Task
What internationalization strategy is Procter & Gamble following and why?

Discuss the reasons for this choice.
https://www.youtube.com/watch?v=9EC58heUTSw
22
Source: Hill (2021), pp. 387 23


• Explain the concept of global/internationalization strategy
• Debate how pressures of cost reduction and local responsiveness influence

strategy and strategic choices
Don’t forget quiz #5!

There are NO Com 361 sessions next week!
24
The Organization of IB
Dr Kristin Brandl
kbrandl@uvic.ca
Why wouldn’t anyone want to buy a car made by Apple?

It wouldn’t have Windows.
Group assignment
General comments:
-> country comparisons (broad to narrow)

-> strategy formation and pressures
-> conclusion
-> connection of sections!!!
2
Learning objectives of last weeks session

• Explain the concept of global/internationalization strategies
• Debate how pressures of cost reduction and local responsiveness influence strategy and strategic
choices
3
Global strategy/internationalization strategy
Task
What internationalization strategy was/is Philips following and why?
4

• Explain the different components of an organizational architecture
• Discuss different organizational structures and how they match with

global/internationalization strategies
• Debate the characteristics of vertical differentiation in organizational structures
• Debate the characteristics of horizontal differentiation in organizational structures
• Debate the characteristics of integrating mechanisms in organizational structures
• Debate global control systems and incentives
5
Organizational architecture
Structure
Organizational Incentives
Processes People
architecture & controls
Culture
6
Structure
Organizational structure Incentives

Processes People
& controls
Culture
7
Organizational structure
Organizational structure:
1) Vertical differentiation – location of decision-making in an organization
2) Horizontal differentiation – the formal division of organizations into subunits
3) Integrating mechanisms – formal/informal mechanisms to coordinate activities
8
1) Vertical differentiation – location of decision making in organization
Decentralization
Centralization
9
Task
Where was/is the decision-making power located in Philips, and why?
10
1) Vertical differentiation – location of decision making in organization
Arguments for centralization Arguments for decentralization

Can facilitate coordination and integration Reduces overburdened of top management
Can ensure that decisions are consistent Favoured by motivational research (individual
with organizational objectives freedom and control)
Concentrating power and authority in one Permits greater flexibility
individual or a management team
Can avoid duplications Can increase subunit performance (more
responsibility leads to higher performance)
strategic mgmt., financial mgmt. operating decisions and mgmt., i.e. production,
(expenditures & objectives), legal mgmt. marketing, R&D, and HR mgmt.
11
Vertical differentiation?
12
Global/internationalization Strategy
Structure and Localization International Global Transnational
controls standardization
Vertical Mostly Core competency Mostly Mixed centralization

differentiation decentralized mostly centralized, rest centralization and decentralization
decentralized
13
2) Horizontal differentiation – formal division of the organization into subunits
14
Functional structure
Headquarters
Purchasing Manufacturing Marketing Finance
Buying Units Plants Branch Sales Units Accounting Units
15
Product division structure
Headquarters
Division Division Division Division

Product A Product B Product C Product D
Department Department Department Department

Buying Units Plants Branch Accounting Units

Sales Units 16
International division structure
Headquarters
International Division Domestic Division Domestic Division Domestic Division

Area line Product A Product B Product C
Country 1 Country 2
Product A, B, Product A, B,
and/or C and/or C Functional units
Functional units 17
International division structure
18
Worldwide area structure
Headquarters
Area A Area B Area C Area D
19
Worldwide product division structure
Headquarters
Worldwide Worldwide Worldwide Worldwide

Product Group or Product Group or Product Group or Product Group or
Division A Division B Division C Division D
Area 1 Area 2
(domestic) (international)
Functional units Functional units

20
Global matrix structure
Headquarter
Area 1 Area 2 Area 3 Area 4 Area 5
Product
Division A
Product
Division B
Product
Division C
Product
Division D
21
GE Healthcare’s Global Matrix Structure
22
Horizontal differentiation?
23
Structure and Localization International Global Transnational
controls standard
Horizontal Worldwide Worldwide product Worldwide Informal matrix
differentiation area divisions product
structure or divisions
International
division structure
24
Task
What subunits was/is Philips divided into, and why?
25
3) Integrating mechanisms – formal/informal mechanisms to coordinate activities
1) Coordination
challenged by communication/transfer of knowledge and different goal setting, which are
enhanced in internationalized firms (time zones, distance, nationality)
2) Formal/informal integrating mechanisms

Formal integration: the greater the need for coordination, the more complex the formal
integrating mechanisms, i.e. direct contact, liaison roles, teams, matrix structure
Informal integration: informal integration is achieved through networks, but a strong
organizational culture is needed (organizational norms and values). Two techniques to
establish networks are 1) information systems and 2) management development policies.
26
Need for coordination?

Integrating mechanism?
27
Structure and Localization International Global standard Transnational
controls
Need for Low Moderate High Very high

coordination
Integrating None Few Many Very many

mechanism
28
Structure
Control systems and incentives Incentives

Processes People
& controls
Culture
29
Control systems and incentives
Types of control systems:

• Personal controls: personal contact
• Bureaucratic controls: a system of rules
• Output controls: goal setting
• Cultural controls: norms and value systems
Incentive systems: Performance ambiguity:

when the cause of the
• Vary depending on employees and their tasks
subunit’s poor performance is
• Requires cooperation - linking incentives and not clear
performance
• Need to account for national differences in country
policies and cultures
• Can have unintended consequences (which behaviour is Interdependence: Costs of control:
dependence of subunits Time spent to
encouraged)
on each other control subunits’
performances
30
Control systems, incentives, and strategy
Interdependence?
Costs of control?
Performance ambiguity?
31
Control systems, incentives, and strategy
controls
Interdependence Low Moderate High Very high

Costs of control Low Moderate High Very high
Performance Low Moderate High Very high
ambiguity
32


33
Entry strategy and strategic alliances

Dr Kristin Brandl
kbrandl@uvic.ca
Did you hear about the pessimist who hates German sausages?
He always fears the Wurst.
Learning objectives for Monday’s session


2

• Explain the basic entry decisions firms need to take before entering a foreign
market
• Outline the advantages and disadvantages of different foreign market entry

modes
• Debate how firm strategy impacts foreign entry modes
3
Foreign market entry modes
4
The Eclectic paradigm/OLI framework
Ownership (O) – firm specific advantages
– Firm specific knowledge
– Management, marketing, financial skills
– Vertical integration: control of resources, control of markets
– Risk diversification
Location (L) – location specific advantages

– National production functions
– Government controls and regulations
– Political risk; cultural values
Internalization (I) – internalization specific advantages

– Enforce property rights
– Reduce buyer uncertainty
– Overcome government regulations 5
The OLI framework
no remain domestic
Ownership advantage
over foreign rivals?
yes
Locational advantage no
in foreign country? export
yes
Advantage from no contractual agreement

internalizing production?
yes FDI
6
Basic entry decisions:

Ownership advantage
Why internationalize? -> Firm-specific advantage, based on the values and goals, resources and
capabilities, also on products/services
When to internationalize? -> Times of entry – First-mover advantages vs late-mover advantages
Location advantage
Where to internationalize? -> Foreign market/country choice, possibilities of gains
Advantage from internalization

How to international? -> Scale of entry, market entry mode
7
Market Foreign market entry modes – Why
Firm-specific advantage
GOALS AND VALUES

INDUSTRY/COUNTRY
ENVIRONMENT
8
Market Foreign market entry modes – When
First mover advantages First mover disadvantages/pioneering costs
Pre-empt rivals and capture demand Differences in business models too big
-> establishing a strong brand name and -> costs due to differences, i.e. effort, time and
customer satisfaction expenses to learn rules of the game
Ability to build sales volume and gain Liability of foreignness
experience ahead of rivals -> liability associated with being a foreigner
-> enables to cut prices
Enables the creation of switching costs that Costs of promoting and establishing a product
tie customers to their products and services offering
-> make it difficult for them -> includes the costs of educating consumers
Difficult to react to changing regulations that
diminish the value of an early investment
-> serious risk in developing countries with policy
uncertainty
9
Market Foreign market entry modes - Where
Location advantages
-> the advantages of a country, region, city etc…
For example, a choice based on the assessment of a nation’s long-run profit
potential
• Size of the market
• Present and likely future wealth of consumers
• Costs and risks
• Value an international business can create in a foreign market depends on
the suitability of its products to that market and the nature of existing
competition.
10
• Large scale advantages
Market Foreign market entry modes - How
• Strategic commitment
Scale
High • Small scale advantages
• Strategic flexibility
Wholly • Lower risk
owned subs
Extent of investment risk JVs
Contractual
agreements
Exports
Low
Low Control and ownership High
11
Task
Uber’s Foreign Market Entry Strategy
https://www.youtube.com/watch?v=M1VQ_bQpO0Y

1) What are Uber’s ownership advantages?
2) What location advantages is Uber looking for?
3) What market entry strategies (internalization advantages) is Uber utilizing?
12
Foreign market entry modes - How
13
Source: Peng (2014)
Entry mode Advantage Disadvantage
Exports • Relatively low financial • Tariffs and transportation costs
Direct: Selling exposure and risk • Potential conflicts with local
goods/services in a • Permits gradual entry into agents or distributors
foreign market foreign market • Fewer opportunities to learn from
directly to the • Avoids restrictions on FDI foreign market
consumer • Allows production to be • Low proximity to customers,
Indirect: Selling located at comparative regulators, etc
goods /service in a advantage location
foreign market • Maintains control of
indirectly to the production process
consumer
14
15
Source: Peng (2014)

Licensing • Low financial risk • Limited market opportunities/profits
A licensor grants • Low-cost way to assess • Dependence on Licensee – loss of
the rights to market potential control over operations.
intangible • Avoids tariffs, • Possibly creating a future competitor
property to a transportation costs, • Does not add location/experience
licensee for a restrictions on FDI economies, difficult to co-ordinate
royalty fee • Licensee provides international strategy
(short term, knowledge of local market • Potential loss of control over
trademarks/goods) quality/service
18

Franchising • Low exposure to • Limited market
Specialized form political/economic risks opportunities/profits
of licensing • Quick and low cost, low • Dependence on Franchisee –
including that the financial risk possible conflicts
franchisees agrees • Capitalizes on local • Possibly creating a future
to abide by strict expertise competitor
rules • Avoids tariffs and • Does not add location/experience
(long-term, transportation costs economies, difficult to co-ordinate
services) • More control than international strategy
licensing • Potential loss of control over
quality/service
19

Turnkey projects - Ability to earn returns - Lack of long-term market presence
Design, from process technology - May create competitors (turkey project
construction, and - Used in countries where partner)
start-up of FDI is restricted - If process technology is competitive
turnkey plants - Less risky than FDI advantage, potential loss of set advantage
(chemical, (political/economic risk)
pharma,
metal/petroleum
refinement)
21
22
Source: Peng (2014)
Equity modes: Joint Ventures
Joint Ventures • Benefit from local firm’s • Possible loss of control over
Establishing a knowledge technology
firm that is • Shared costs/risks of • May limit location/experience
jointly owned by development economies (relative to exporting)
two or more • May be able to take • Limit ability to co-ordinate
otherwise advantage of international strategy (but superior to
independent location/experience licensing/franchising in this regard)
firms economies (relative to • Conflict between partners over goals
(Minority, licensing) and objectives.
majority, 50/50) • May circumvent FDI
restrictions by host
government
23
24
Source: Peng (2014)

Strategic alliance • Facilitate entry into foreign markets • One party benefits at the expense of
Cooperative agreement • Share fixed costs and risks the other
between potential or associated with new products • Risk giving away technological know-
actual competitors can • Facilitate the transfer of how
be based on equity or complementary skills (learning) • Conflicting goals and objectives
non-equity modes • Help establish technical standards
25
26
Source: Peng (2014)
Greenfield • High profit potential • Time consuming, complex and
investment • Control over key assets costly
Building a • International strategic co- • High risk
subsidiary from ordination • Vulnerable to restrictions on FDI
the ground up • Acquire local knowledge
• Avoid tariffs, transportation
costs…
• Complete equity and • Potential political/economic risks
operational control • High development costs
• Protection of technology & • Slow entry speed (relative to M&A)
know-how • Does not add new capacities
• Ability to coordinate globally
27
M&As • High profit potential • Time consuming, complex and
Acquiring or • Control over key assets costly
merging with a • International strategic co- • High risk
firm ordination • Vulnerable to restrictions on FDI
• Acquire local knowledge
• Avoid tariffs, transportation
costs…
- Quick to execute - Post-acquisition integration
- Often used to preempt problems
competitor - High failure rate
- Adds new capacities, tangible • Overpaying for assets
and intangible assets, and skills • Clash of cultures
• Integration fails
• Inadequate pre-acquisition screening
28
29
Task
Uber’s Foreign Market Entry Strategy
https://www.youtube.com/watch?v=M1VQ_bQpO0Y

Why are Uber’s foreign market entry strategies often unsuccessful?
30
31
Source: Peng (2014)
All market entry modes are possible for the four different strategies!!
But some are more often chosen than others based on the pressures firms face
Strategy
Localization International Global standard Transnational
Market - JVs - Exporting - Exporting - all

entry - Contractual - JVs - Wholly owned
agreements (license, - Contractual subs (mostly
mode franchising, turnkey) agreements greenfield)
- Wholly owned
subsidiary (pref. M&As)
32

• Explain the basic entry decisions firms need to take before entering a foreign
market
• Outline the advantages and disadvantages of different foreign market entry

modes
-> Don’t forget quiz #6! Submit by Saturday, 8pm!
33
Business Function I
(Innovation/R&D and Exports/Imports/Countertrade)
Dr Kristin Brandl
kbrandl@uvic.ca
What do you call an innovation in scissors?

Cutting-edge technology
Learning objectives for last weeks session

• Explain the basic entry decisions firms need to take before entering a foreign market
• Outline the advantages and disadvantages of different foreign market entry modes
2

- Discuss the implications of R&D and innovation on firm activities
- Discuss different types of innovation

--------
- Debate performance outcomes associated with importing and exporting
- Describe what countertrade is and how it can be used to facilitate exporting
3
R&D and Innovation
4
R&D and Innovation
Source: Hill (2023)
5
R&D and Innovation
6
R&D and Innovation
National Innovation Systems are based on:

• Knowledge spill-overs (must exist)
• Domestic firms must possess the appropriate absorptive
capacities
• Knowledge accumulation is much more rapid once the initial
threshold level of absorptive capacity exists
Absorptive capacity ”the ability to recognize the value of new

information, assimilate it, and apply it"
• not just the acquisition and development of knowledge through
innovation, but also the diffusion and efficient utilization of this
7
R&D and Innovation
The Indian
pharmaceutical
industry
8
R&D and Innovation
Governments:
• provide appropriately educated people
• provide quasi-public goods through their own innovative output (gov.
research)
• implement policies that create opportunities for economic actors to absorb
and internalize spillovers
• acts as a market facilitator and supporter
-> twice as hard for developing countries
9
R&D and Innovation
Government
10
R&D and Innovation
Government
11
R&D and Innovation
Government
12
R&D and Innovation
Government
13
R&D and Innovation
Government/University/Firms
14
OECD (2020)
R&D and Innovation
Firms
15
OECD (2020)
R&D and Innovation
Firms
16
OECD (2020)
R&D and Innovation
Firms
17
OECD (2020)
R&D and Innovation
Firms
18
OECD (2020)
R&D and Innovation
Firms
19
WEF (2021)
R&D and Innovation
Firm
20
OECD (2022)
R&D and Innovation
Firm
21
OECD (2022)
R&D and Innovation
Firm
22
OECD (2023)
R&D and Innovation
Types of innovation and technological change:

• Incremental or radical innovations
• Product/service innovation or process innovation
• Reverse innovation/re-engineering
• Open innovation
• Disruptive innovation
• Frugal innovation
23
R&D and Innovation
Radical and incremental innovation/product and process innovation
Modify age
change
Modify no
age change
Inventing
new product
24
R&D and Innovation
Reverse innovation
Reverse innovation is the process whereby goods developed as inexpensive models to meet the needs
of developing nations are then repackaged as low-cost innovative goods for Western buyers.
https://www.youtube.com/watch?v=qYKJwqtArPM
25
R&D and Innovation
Open innovation
“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as
internal ideas, and internal and external paths to market, as the firms look to advance their
technology” (Chesbrough, 2003)
Open innovation is based on:

• Networking
• Collaboration
• Corporate entrepreneurship
• Proactive IP management
• R&D
26
R&D and Innovation
Open innovation
“Yesterday, there was a wall of
Tesla patents in the lobby of
our Palo Alto headquarters.
That is no longer the case”
(Elon Musk, CEO of Tesla 2014)
https://www.teslamotors.com
/blog/all-our-patent-are-
belong-you
27
R&D and Innovation
Closed innovation Open innovation
Source: Chesbrough (2003)
28
R&D and Innovation
29
R&D and Innovation
Disruptive innovation
https://www.youtube.com/
watch?v=Cu6J6taqOSg
30
R&D and Innovation
Frugal innovation
Frugal innovation is the process of reducing the complexity and cost of a good and its production.
Usually, this refers to removing nonessential features from a durable good, such as a car or phone,
to sell it in developing countries
Social/BOP
Innovation
Affordability
constraints
Business/Tech/ Institutional
Schumpeterian Innovation
Innovation Institutional
Resources constraints constraints/voids
31
Trade (exporting, importing and countertrade)
32
33
Embraer and Brazilian Importing

Why is importing into Brazil difficult?
How do these difficulties impact Embraer?
34
Improving export performance via:

- International comparisons
- Information sources
- Service providers Company's
(freight forwarders, export management
companies, export trading companies,
export packaging companies, customs
Product
readiness + Company
readiness = overall
readiness to
export
brokers,…)
- Export strategy
- Exporting readiness
- Competitive capabilities in
domestic market
- Motivation for going
international
- Commitment of owners and
top management
- Skills, knowledge and
resources 35
Financial devices to overcome the lack of trust:

Letter of credit:
- issued by the bank at the request of the importer. The letter states that the bank will pay a
specific sum of money to a beneficiary, normally the exporter, on the presentation of particular
specified documents.
Draft or bill of exchange:

- an order written by an exporter instructing an importer or an importer agent to pay a specified
amount of money at a specified time (sight drafts and time drafts)
Bill of lading:
- issued to the exporter by carrier transporting products for the purpose of a receipt, a contract,
and a document of title
36
Countertrade
An international sale when conventional means of payment are difficult, costly or non-existent
Types of countertrade:
- Barter
- Counter purchase
- Offset
- Switch trading
- Compensation or buybacks
37


--------
38
Global Business Functions II

(Global Production and Supply Chain Management)
Dr Kristin Brandl
kbrandl@uvic.ca
Unless you put in enough shifts, the keyboard factory might fire you.
Learning objectives for our last session


--------
2

- Discuss global production and supply chain management decisions
- Debate where to best locate global supply chain activities
- Debate the make-or-buy choices related to global productions
- Describe what is required to manage a global supply chain efficiently
3
Global production and supply chain
4
Global production and supply chains
5
Supply chain
6
Logistics function
Global Logistics
plans, implements, and controls the effective flows and inventory of raw material, component parts, and
products used in manufacturing
Core activities in logistics are:

- Global distribution center management
- Global inventory management
- Packaging and materials handling
- Transportation
- Reverse logistics
7
Purchasing function
Global Purchasing
8
Financial devices to overcome the lack of trust:

Letter of credit:
- issued by the bank at the request of the importer. The letter states that the bank will pay a
specific sum of money to a beneficiary, normally the exporter, on the presentation of particular
specified documents.
Draft or bill of exchange:

- an order written by an exporter instructing an importer or an importer agent to pay a specified
amount of money at a specified time (sight drafts and time drafts)
Bill of lading:
- issued to the exporter by carrier transporting products for the purpose of a receipt, a contract,
and a document of title
9
Countertrade
An international sale when conventional means of payment are difficult, costly or non-existent
Types of countertrade:
- Barter
- Counter purchase
- Offset
- Switch trading
- Compensation or buybacks
10
11
12
13
Where to produce
14
Where to produce
• Country factors – location advantages, hidden costs of foreign locations
• Technological factors
• Fixed costs – costs prior to the production of the good
• Economies of scale/efficiency scale – production costs of the good
• Flexible manufacturing and mass customization – adaptation of good to local context
https://www.youtube.com/watch?v=gJF51K7pQB0
• Production factors
• Product features – value to weight ratio, serves universal needs
-> Location production facilities – centralized or decentralized

-> Strategic roles for production facilities – inhouse/outsourced production
15
Where to produce
Location production facilities
Concentrated production fav Decentralized production fav
Country factors
Differences in political economy Substantial Few
Differences in culture Substantial Few
Difference in factor costs Substantial Few
Trade barriers Few Substantial
Location externalities Important in industry Not important in industry
Exchange rates Stable Volatile
Technological factors
Fixed costs High Low
Minimum efficient scale High Low
Flexible manufacturing technology Available Not available
Product factors
Value-to-weight ratio High Low
16
Serves universal needs Yes No
Where to produce
Strategic roles of production facilities
-> based on the objective of global learning for the company
- Offshore factory
- Source factory
- Server factory
- Contributor factory
- Outpost factory
- Lead factory
17
Make-or-buy decisions
18
Value chain
19
20
21
Task
Apple’s iPhone Production
Use the on BrightSpace uploaded video clips to discuss with your neighbour:
What are the reasons for Apple to outsource the production of the iPhone?
Why Making Apple iPhones in America Is So Hard

https://www.youtube.com/watch?v=GP7QF3rEIlI
Why the iPhone can’t be made in the US

https://www.youtube.com/watch?v=gEmu3Dz--bM
22
23
24
Favoring a make decision Favoring a buy decision
25
26
Global supply chain management
27
Global supply chain management
Main areas of concern when managing global supply chains:

- Role of Just-in-time inventory: economizes on inventory holding costs by having materials arrive at a
manufacturing plant just in time to enter the production process
- Role of Information technology: Electronic data interchange (EDI) - Facilitates the tracking of inputs,
Allows the firm to optimize its production schedule, Allows the firm and its suppliers to
communicate in real-time, Eliminates the flow of paperwork between a firm and its suppliers
- Coordination in supply chains: shared decision-making opportunities and operational collaboration

of key global supply chain activities - Responsiveness, Variance reduction, Inventory reduction,
Shipment consolidation, Quality, Life-cycle support
- Interorganizational relationships: Trust and commitment between interacting organizations
28
Global supply management
Task
Apple’s iPhone Production
Use the on BrightSpace uploaded video clips to discuss with your neighbour:
Is the business model of Apple’s iPhone production sustainable over time?

Do you recommend any changes to the supply chain approach?
Apple results hit by supply chain woes

https://www.youtube.com/watch?v=V0ze7QMj488
Inside Apple’s Rise to $2 trillion

https://www.youtube.com/watch?v=cp6CwhayNZY
29
30

- Debate where to best locate global supply chains activities
- Describe what is required to efficiently manage a global supply chain
31
Global Business Functions III

(Marketing and Business Analysis)
Dr Kristin Brandl
kbrandl@uvic.ca

- Debate where to best locate global supply chain activities
- Describe what is required to manage a global supply chain efficiently
2
After todays lecture you should be able to:

• Discuss the adaptation of marketing strategies to country contexts
• Debate the four P’s of the marketing mix in an international market context
3
Marketing and Sales
4
Marketing and Sales
Value chain
Source: Hill (2023)
5
Marketing and Sales
Globalization of markets and brands
Regional vs. global products
https://www.youtube.com/watch?v=LZVCLVGymmo 6
Marketing and Sales
Market segmentation possibility:

• Geography
• Demography (e.g. gender, age, income, race, education level)
• Sociocultural factors (e.g. social class, values, religion , lifestyle choices)
• Psychological factors (e.g. personality)
-> market segmentation in foreign countries:

• differences between countries in the structure of market segments
• existence of segments that transcend national borders (intermarket segment)
7
Marketing and Sales
Marketing mix:
• Product - Product strategy
• Place - Distribution strategy
• Promotion - Communication strategy
• Price - Pricing strategy
8
Marketing and Sales
1) Marketing Mix P: Product - Product strategy
Product attributes based on:

• Cultural differences
• Economic development
• Product and technical standards
9
Marketing and Sales
2 ) Marketing Mix P: Place - Distribution strategy
International differences of distribution systems:

• Retail concentration (fragmented vs. concentrated)
• Channel length (direct vs. indirect)
• Channel exclusivity (exclusive vs. shared)
• Channel quality (expertise, competencies and skills)
10
Marketing and Sales
2 ) Marketing Mix P: Promotion - Communication strategy
Barriers to international communication:

• Cultural barriers
• Source and country of origin effects
• Noise level
Push vs pull factors:

• Product type and consumer sophistication
• Channel length
• Media availability
• Push-pull mix
11
Marketing and Sales
3) Marketing Mix P: Promotion - Communication strategy
Pro global standardized advertisement Contra global standardized advertisement

Lowers costs by spreading fixed costs Still cultural differences
Concern that creative talent is scarce Regulations might not allow implementation of
Brand names are global standardized advertisements
12
Marketing and Sales
2 ) Marketing Mix P: Price - Pricing strategy
International Pricing Strategy distinctions:

• Price discrimination
• Strategic pricing
• Regulatory influence on prices
13

• Discuss the adaptation of marketing strategies to country contexts
• Debate the four P’s of the marketing mix in an international market context
14
Final Exam Information
• Date: December 16th
• Time: 2pm-4:30pm
• Via Brightspace
• 4 Essay style questions, 3 questions covering second half of Com 361 and 1
question covering all of Com 361
• Online open book, individual exam, and all students are expected to pursue the
highest standards of academic integrity
• Includes short cases and long written answer style questions, testing the
application of course content
15
• Content of exam:
• For 3 of the 4 questions: Content of week 6 - 12, Chapters 3, 9, 8, 13, 14, 15, 16, 17
and 18, plus additional reading material uploaded to BrightSpace (e.g. in week 8)
• 1 question covers the entire course with content of week 1-13
• You will not be directly tested on cases and examples we covered in class
• Exam time/style:
• December 16th, 2pm – 4:30pm PST, on BrightSpace (2.5hrs)
• long answer questions (4 long answer questions, 1 integrative question worth 30
points, 3 questions covering the second part of Com 361 worth 25 or 20 points)
• Open book exam (notes, slides, textbook, internet all okay), following academic
integrity!!!
16
Academic integrity
• Your answers to the written questions MUST be in your OWN WORDS
• Do not copy and paste anything from anywhere
• Not from your textbook! Not from your friends! Not from your
powerpoint slides! Not from the internet!
• EXPLAIN YOUR ANSWERS IN YOUR OWN WORDS AND IN FULL

SENTENCES (NO POINT FORM)!!
17
What if you have questions during the final exam?

• Login to Zoom using the office hour link
• If you get to the Zoom room and I am not there, I am in a breakout room with a
student
• Wait in the main room till I am back
• I will also monitor my emails, feel free to send questions that way
18
National Differences and Economic Development – Chapter 3
Benefits Costs
Size of economy Corruption
Likely economic Lack of infrastructure Why do firms How do firms
growth Legal costs internationalize internationalize
Overall
attractiv Firm’s
eness internation
al activities
Risks
Political risks: social unrest/antibusiness
trends When do firms
Economic risks: economic mismanagement internationalize
Legal risks: failure to safeguard property rights
Also know how to identify developing countries!!!

19
Trade (A Firm Perspective) – Chapter 9
Pro and contra of economic

integration Levels of economic integration Free Trade Customs Common Economic
-> integration challenges vs. Area Union Market Union
economic/political stability Removal of trade restrictions
-> trade deflection vs. trade between member states ✔ ✔ ✔ ✔
creation vs. trade diversion Common external trade policy
-> impact on firms!!! towards non-members ✔ ✔ ✔
Free movement of factors of
production between member ✔
✔
states
Harmonization of economic
policies under supra-national ✔
control
Examples
e.g., e.g., e.g., e.g.,
NAFTA CAN EEA E.U.
(USMCA) Mercosur
20
Encourage inward FDI Restrict inward FDI
Foreign Direct Investment I – Chapter 8 • Duty-free import of inputs • Require permits or approval
• Tax concessions • Limits on foreign
Inward FDI • Infrastructure ownership/equity participation
improvements • Restrictions on repatriation,
$$ •
•
Incentives, subsidies
Foreign Trade/Investment
Zones
•
remittance of profits
Special taxes
• Stability, transparency, rule

Country B of law
Country A
• TRIMS (Agreement on
Home country Host country Trade-Related Investment
Measures, see notes)
Benefits Costs
Resource-transfer effects Adverse effects on competition
• Supplies capital, technology, management resources • Drive domestic competitors out of the market
Employment effects (direct/indirect) Adverse effects on Balance-of-Payments
• Question of substitution and quality of jobs • Outflow of earnings to parent company, repatriation
• M&A vs. greenfield • Foreign subsidiary imports from abroad
Balance-of-Payments effects (Possible effects of national sovereignty and autonomy)
• Aim for a current account surplus (substitutes imports & increasing exports) • Loss of economic independence
Effect on competition and economic growth
• Increased options for consumers, cheaper price
• Incentive for innovation and efficiency for domestic firms
21
• Growth related and supporting industries (indirect employment)
Encourage Outward FDI Restricting Outward FDI
Foreign Direct Investment II – Chapter 8 • Insurance programs to • Tax policies that make it
Outward
FDI cover risks favorable to invest at home
• Taxation treaties • Restrictions for political or
$$ • Negotiation and
political support
security reasons
• Local content regulations,
incentives to produce
Country B domestically
Country A
Benefits Costs
Balance-of-Payments effects Adverse Balance-of-Payment effects
• Inward flow of foreign earnings • Capital outflow to finance FDI
• Demand for home-country exports • Suffers if FDI purpose is low-cost production
(capital, intermediate/complementary • Suffers if FDI substitutes for direct exports
goods)
Employment effects Adverse employment effects
• Demand for home-country exports • Reduced home country employment
Reverse resource-transfer effects
22
• Learning of valuable skills
The Strategy of IB I – Chapter 13 and additional reading
Know the differences of resources and capabilities!!!

Strategy

23
The Strategy of IB II – Chapter 13
Pressures for cost reduction vs. local responsiveness

• When are pressures for cost reduction particularly strong?
• When are pressures for local adaptation particularly strong?
Four strategies
• Global Standardization Strategy
• Localization Strategy
• International Strategy
• Transnational Strategy
Know the advantages, disadvantages

and implications of each strategy!!!
24
The Organization of IB – Chapter 14
Strategy
controls
Vertical Decentralized Core competency Some centralization Mixed centralization
differentiation more centralized, rest and decentralization
decentralized
Horizontal Worldwide area Worldwide product Worldwide product Informal matrix
differentiation structure divisions divisions
Need for Low Moderate High Very high
coordination 25
Market Entry Modes – Chapter 15
Basic entry decisions:

why and when to enter (first-mover/late-mover)
where to enter a foreign market (location choice)
how to enter (entry strategy)
Know the advantages and

disadvantages for each
entry mode!!!
Strategic alliances:
• A cooperative agreement between potential or actual competitors
• Partner selection, alliance structure, management 26
Global Business Functions I
(Innovation/R&D and Exports/Imports/Countertrade) – Chapter 16 and 18
Innovation and R&D Types of innovation

• Incremental or radical innovations
• Product/service innovation or process innovation
• Reverse innovation/re-engineering
• Open innovation
• Disruptive innovation
• Frugal innovation
Exporting, importing and countertrade

Financial instruments supporting exporting &
importing
Letter of credit, Draft or bill of exchange, Bill of lading
If no financial instrument works -> Countertrade

27
Global Business Functions II
(Production and Supply Chain Management) – Chapter 17
Where to produce?
•Country factors and hidden costs of foreign locations, technology factors (fixed costs,
economies of scale/efficiency scales, flexible manufacturing and mass production),
product factors, hidden costs of foreign locations
•Different factories with different purposes
•Outsourcing, captive offshoring, offshore outsourcing…
Global supply chain functions

Global logistics and global purchasing
Managing a global supply chain

•Role of: JIT inventory, information technology
•Co-ordination of supply chains
•Interorganizational relationships
28
Global Business Functions III
(Global Marketing and Sales) – Chapter 18
4P’s
Market segmentation possibility:

• Geography
• Demography (e.g. gender, age, income, race, education level)
• Sociocultural factors (e.g. social class, values, religion , lifestyle choices)
• Psychological factors (e.g. personality)
29

Com 361: International Business: September 12, 2022

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Com 361: International Business

We acknowledge and respect the l k̓ʷ ŋ n peoples on whose

September 12, 2022

Until mid-term exam After mid-term exam

• Syllabus is on Brightspace – please read it.

“International Business Competing in the

• There will be eight open book quizzes – only your best

• You are sick

General agreement that ‘something’ fundamental is

However, the nature of these changes is contested

“Merging of historically distinct and separate national

• Facilitated by offering standardized products

“The sourcing of goods and services from locations

• Companies hope to lower their overall cost structure

Role of technological change

Declining trade and investment barriers

-> Economic change

• Technological change has made the globalization of

• Important advances have occurred in:

• The processes of ‘globalization’ that we see around us

• Emergence of global institutions

•Four trends are important:

• And new in 2020: Issues surrounding the Global

• Another key aspect of the global economy is foreign

A multinational enterprise (MNE) is any business that

The national heritage of the largest MNEs

• Globalization debate – environment, climate change,

We acknowledge and respect the l k̓ʷ ŋ n peoples on whose

September 14, 2022

• What makes a country attractive for business?

•The long-run benefits of doing business in a country

•All of the above are strongly influenced by the political,

•The costs of doing business in a country are

• Among the risks of doing business are a

• Why do governments matter?

•Legal costs occur when it is more costly to do business

•Legal risk is the likelihood that a trading partner will

• Property safety laws set certain standards to which a

• Foreign ownership restrictions

• Patents, Copyrights and Trademarks

• IP laws exist, but enforcement is lax

• IP protection limits access

• IP protection creates opportunities

1. Why do multinational firms choose to enter corrupt

2. How has the pandemic changed the attractiveness of

• Which Country’s law applies?

We acknowledge and respect the l k̓ʷ ŋ n peoples on whose

September 19, 2022

• ‘International Trade Theory’ (the content of this

• International Trade refers to transactions that

• “Tariffs and import quotas usually reduce general

• A Country’s wealth is measured by holdings of gold

David Hume (1752)

Adam Smith (1776)

• A country should export those goods and

• What if a country has an absolute advantage in

• Rather than comparing inputs required, we can

• The gains from specialization and trade are based

What determines the products for which a country

•Without trade, nations might not be able to produce

•With trade, markets are large enough to support the

•So, trade is mutually beneficial because it allows for

•Nations may benefit from trade even when they do not