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International Business:

K. Chander 1 International Business Define the term International Business Discuss the two primary ways is which International Business occurs. Examine that four major determinants of national competitive advantage and relate how each can be used effectively Describe the role of Govt. and Trade Regulations in conduct of International business Discuss the significance of the MNE to International Business.


K. Chander 2 Definition International Business is the study of Transactions taking place across national boarders for the purpose of satisfying needs of Individuals and Organizations.

World Business – A Brief Overview:

K. Chander 3 World Business – A Brief Overview The majority of International Business is conducted by MNE’s through: Importing & Exporting – Table 1.1 Foreign Direct Investment – Table 1.2 Licensing, J. V. etc. – Table 1.3

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Meeting the International Business Challenge:

K. Chander 7 Meeting the International Business Challenge They must excel in these three area, if they have to maintain strong hold on International Trading and Investment Position: Maintain Economic competitiveness. Influence Trade Regulation. Develop Global orientation.

Meeting the International Business Challenge..:

K. Chander 8 Meeting the International Business Challenge.. Economic competitiveness is in Continued Flux. Many nations enjoy competitive advantage based on, most important determinants of competitiveness are: Cost of Labour. Interest rates Exchange rates Economies of Scale. The problem with the above is that it fails to take into cosidertion the real sources of International competitive adavantages.

Meeting the International Business Challenge..:

K. Chander 9 Meeting the International Business Challenge.. Research shows that the best way for competitive advantage for nations is with innovation i.e. Updation of products & services. Example → Volvo, Swedish automaker, strikes to improve auto safety → Important factor for buying cars. Second method is by making innovation obsolete. Example → Sealing splices in telephone cables - $125 by Raychem. Introduced new → splice closure technology → the improved performance.

International Competitiveness:

K. Chander 10 International Competitiveness Why some firms are able to innovate consistently which others can not? As per Porter, it rests on four broad attributes Factor condition. Demand condition. Related supporting Industires. Environment in which firms compete.

International Competitiveness:

K. Chander 11 International Competitiveness Why some firms are able to innovate consistently which others can not? As per Porter, it rests on four broad attributes Factor condition. Demand condition. Related supporting Industires. Environment in which firms compete.

Fig.: Porter Single Diamond Framework:

K. Chander 12 Fig.: Porter Single Diamond Framework Porter Single Diamond Framework

Porter Single Diamond Framework…:

K. Chander 13 Porter Single Diamond Framework… The role of Govt. : Govt. can influence all Four of major determinants through actions such as: Subsidies. Education policy. Regulation or De-regulation of Capital Markets & Standards. Tax Laws Antitrust Regulation Purchase of Goods and Services.

Porter Single Diamond Framework…:

K. Chander 14 Porter Single Diamond Framework… Antitrust Laws: Laws designed to prevent companies from fixing prices; sharing market; and gaining unfair monopoly advantages. The role of Chance : Change events can nullify adv. Of some competitor and bring about a shift in competitive position, for example: New Inventions; Political decision by Foreign Govt.; WARS; Shift in Exchange Rate; Oil Shock Surge in World demand Major Technical Break Troughs

Fig.: Single Diamond View:

K. Chander 15 Fig.: Single Diamond View Single Diamond View Supporting Industries & Institutions Physical & Human Resources Canadian Customers Leading Canadian Based Business Govts. United States Export to United States

Single Diamond View:

K. Chander 16 Single Diamond View Canadian Policy Export Promotion for Natural Resource Industries. Import substitution in domestic arena. Canadian Market being small, cannot take advantage. Economies of scale. Govt. provides assistance to develop large-scale resource business to exploit natural resource. Export strategies have placed emphasis on commodities which are required by USA. USA eliminates Tariffs on import. Canadian Govt. provides subsidiary & Low Taxes, grants, Low interest rate for extraction industries of Canada. Canada – USA Pact on Auto & no Tariff, created huge Business & competitiveness.

Fig.: Canadian-US Double Diamond:

K. Chander 17 Fig.: Canadian-US Double Diamond Canadian- US Double Diamond Supporting Infrastructure Canadian based Resources Canadian Customers North American Business Supporting Industries & Institutions US – based Resources U S Customers Export Outside North America Export Outside North America U S Govts. Canadian Govts. USA – Canada Free Trade Area

Canadian-US Double Diamond:

K. Chander 18 Canadian-US Double Diamond “For Corporate Strategy, the result of North American economic Integration has been the development of a Canadian US double diamond” both the countries are integrated into single Market for the propose of strategy. Canadian business are in Direct compétions with US firms & to survive they must develop compétitive capabilities of higher order ,can no long rely on home country diamond & national recoures. Free Trade Agreement has created compétition for USA subsidiaires of US-MNC with parent companies in USA. Developing Innovative new products & services for both country needs. Drawing on support of both counties Infrasturcture & Industries. Making free use of both countires Natural Resources & human resource.

Govt. & Trade Regulations:

K. Chander 19 Govt. & Trade Regulations Govt. Policies can have serious consequence for IT. Protection to Domestic Industries. Govt. Support for Export effort. Govt. Support for developing foreigh marketing Govt. Support to Industry on line of Japan & Germany. Business are offered Institutional support in Fianncial, legal, influence, shipping, Inspection , Maintaing study. Etc. World Trade negotiations by Govt. With GATT & WTO & others to stop unfair Trade Practices & rationalisation of tariff. (described in next two slides)

Winners in the GATT Talks.:

K. Chander 20 Winners in the GATT Talks. French, German, and Italian farmers, who could not compete in open markets for meat, grains, sugar, and dairy products, will continue to receive government subsidies. Japanese rice farmers, the most heavily protected farmers in the world, will benefit from subsidies and a ban on rice imports. U. S. dairy farmers and sugar growers will continue to receive subsidies. U. S. apparel manufacturers, who cannot automate sufficiently to offset the lower labor costs of Asian and Latin American countries, will benefit from continued quotas on imported clothing. European telephone and airline monopolies, whcih are far less efficient then potential U. S. competitors.

Losers in the GATT Talks.:

K. Chander 21 Losers in the GATT Talks. European and U. S. drug and computer software companies, whose patents are not protected in the third world. U. S. Music and movie companies, which lose royalties to copyright pirates in Asia and Latin America and are threatened by restrictions on European television. Canadian, Australian, Argentine, U. S., and New Zealand grains, oilseed, and meat growers, whose export market are depressed by subsidized European exports. Sugar cane farmers in Central America, the Caribbean, and the Philippines, victims of U. S. protectionism and European dumping. U. S. banks, securities brokers, and insurance comapneis, whcih now face myriad restriction in most markets.

Developing International Perspective:

K. Chander 22 Developing International Perspective Many companies do business in other countries, but they have not developed the international perspective this requires. Experience. Focus. Attitude.

Importance of International Trade:

K. Chander 23 Importance of International Trade Greater availability of Goods. Better use of country resources. Reduction in cost of production. Stability of prices. Grater employment opportunity. High rate of economic development. Contribution to Govt. Revenue. Harmonious relation between various countries. The importance of Forgien Trade, however, varies from country to country.

Why Export: A Firm’s Perspective:

K. Chander 24 Why Export: A Firm’s Perspective Relative Profitability. Insufficiency of Domestice demand Reducing busienss risks Legal Restirction Social Responsibility Increased productivity. Technological improvement Obtaining imported inputs. To build up imange & good will. Some of the factors which are important to motivate a Firm.

National Gain from International Trade:

K. Chander 25 National Gain from International Trade Variety of goods available in a country is increased. Increased variety of goods enhances the standard of living, it provides new consumption experiences. Scarce natural resources must be imported as they are essential for production. Extraction at the abundant source is profitable. The quantity of goods available for consumption also can increase through trade. Wider markets available through trade lead to possible expansion of plant size. Gain from transfer of products and technology. Imports of goods and services and capital are necessary to provide foreigners with means of payment for domestically produced exports.

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