Slide 3.

Chapter 3

The Triad and international

business

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.2

The Triad and international business

• Objectives
• Introduction
• Reasons for FDI
• FDI and trade by triad members
• The triad and regional business strategy
• The world’s regional automotive industry.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.3

Objectives
• Describe the major reasons for FDI.
• Explain the role of triad-based MNEs in worldwide
FDI and trade.
• Relate select examples of inter-triad MNE
business activity.
• Discuss the economic interrelationships among
triad members.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.4

Introduction
• Most FDI and trade is conducted by MNEs.
• MNEs from the triad continue to dominate
international business.
• The triad is the basic unit of analysis in
international business.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.5

Table 3.1 Ten years of intra-regional FDI in the triad, 1993–2002

Note: EU intra-regional FDI is FDI stocks within Europe as a whole. NAFTA intra-regional FDI is US and Canada stocks within NAFTA. Asia intra
regional FDI is Japan, South Korea, Australia and New Zealand stocks within Asia
Source: Authors’ calculations based on OECD, International Direct Investment Statistics Yearbook, 2004

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.6

Reasons for FDI

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.7

Foreign direct investment

• FDI is the ownership and control of foreign
assets.
• FDI usually involves the ownership, whole or
partially, of a company in a foreign country: a
foreign subsidiary.
• FDI is different from portfolio investment, which is
the purchase of financial securities in other firms
for the purpose of realizing a financial gain when
these marketable assets are sold.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.8

Some reasons for FDI

• Increase sales and profits.
• Enter rapidly growing markets.
• Reduce costs.
• Gain a foothold in economic blocs.
• Protect domestic markets.
• Protect foreign markets.
• Acquire technological and managerial know-how.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.9

FDI and trade by triad members

• The triad accounts for about 80% of world FDI.
• Two important FDI destinations are:
– Intra-regional: from one triad member to another
– Inter-regional: from one triad member to the
geographic region that surrounds it. (e.g. from the
US to the Americas).

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.10

Table 3.3a Ten years of triad FDI

*EU15 numbers are in outward stocks of FDI by every EU15 member and thus include intra-EU15 FDI
Sources: Authors’ calculations; United Nations, World Investment Report 1998, pp. 379–400; United Nations, World Investment Report 2006, pp. 303–306
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.11

Table 3.3b Ten years of triad trade

*EU includes intra-EU FDI.
Note: Exports are calculated by including freight and insurance while imports do not include freight and insurance
Sources: Authors’ calculations and International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 2–5; International Monetary Fund, Direction
of Trade Statistics Yearbook, 2002 (Washington, DC: IMF, 2002), pp. 2–5

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.12

Triad FDI clusters

• A group of developing countries usually located in
the same geographic region as a triad member
and having some form of economic link to this
member.
– The US tends to be a dominant investor in Latin
America, and countries such as Mexico and Brazil
are part of its FDI cluster.
– The EU tends to be a dominant investor in Eastern
Europe and countries like the Czech Republic and
Poland are part of its FDI cluster.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.13

The triad and regional

business strategy
• MNEs pursue market opportunities within their
own triad as well as that of the other members.
• International expansion does not necessarily
mean “global” expansion.
• The nature of international business is regional,
not global.
– For example, Wal-Mart has 94.5% of its sales in
North America, and only about 20% of Wal-Mart’s
stores are located outside of North America.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.14

Figure 3.1 Wal-Mart’s globalization: regional distribution of stores

Note: Data are for 2004. US stores include 53 stores in Puerto Rico
Source: Wal-Mart, Annual Report, 2004.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.15

The world’s regional automotive

industry
• There are 30 automotive firms in the world’s
largest 500 firms.
– None of these are global firms!
• 23 of the 30 firms are home-region based, with an
average of 60 % of their sales as intra-regional.
• There are 2 host-region oriented and 5 bi-regional
automotive firms on the list.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.16

Table 3.4 The regional nature of the motor vehicles and parts industries, 2005
*Weighted intra-regional sales average is weighted according to revenues
Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,
but their regional sales data are not either available or enough to determine their regional characteristics
Source: Authors’ calculations and the individual annual reports of each company

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.17

The regional nature of the motor vehicles and parts industries, 2005
Table 3.4
(Continued)
*Weighted intra-regional sales average is weighted according to revenues
Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,
but their regional sales data are not either available or enough to determine their regional characteristics
Source: Authors’ calculations and the individual annual reports of each company

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 3.18

Key reasons for the automotive

industry’s regional operations
• The auto industry operates in “clusters” of
localized activity within each major triad region.
• Auto firms are strongly embedded in downstream
activities and after-sales markets.
• Cultural barriers across regions.
• Fuel.
• Different environmental regulations.
• Tariffs.

 Local competitors are more adept at meeting

the demands of their regional markets.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009