Dr Zain Yusufzai The Triad and International Business Chapter # 3 (page 66-93).

Introduction:
Two drivers of Globalization are
1. foreign direct investment (FDI) and
2. trade
Triad Nations > USA, European Union (EU), Japan
(Three Major trading and investment blocs in the
international arena);

Other countries moving into the arena of international

business
• China establishing itself as a major player
Others: - Australia, Brazil, Canada, India, Mexico,
Russian Federation, Singapore, South Korea, Netherlands
and Spain;

Reasons for Foreign Direct Investments (FDI);

Foreign Direct Investment (FDI):- Equity Funds invested

in other nations;
• Ownership and control of foreign assets
• In practice, FDI involves the ownership, as a whole
or partial, of a company in a foreign country
known as a foreign subsidiary.

Forms of equity investment:

1. purchase off an ongoing company, (instead
of starting from scratch)
2. joint venture
3. completely owned enterprise

Port folio investment:

The purpose of financial securities in other firms for
realizing a financial gain when these marketable assets
are sold;

Reasons for ownership position in control of Foreign

Assets
Increase Sales and Profits
Companies in smaller economies look outside of their
home boundaries
• Example: - Dutch Shell 60%, BP 70%, Nestle
(Switzerland) 90%
• Thousands of smaller firms earn bulk of revenue
from international customers

International business 1
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai The Triad and International Business Chapter # 3 (page 66-93).

• Global markets offer more incentives

opportunities than domestic market

Enter Rapidly growing Markets

• Country moves toward a market driven economy
• MNEs find huge demand for goods and services
that cannot be satisfied by local firms (china)
• Enter Eastern Europe by acquiring local firms or
setting up Joint Venture

Reduce costs
First MNEs achieve “lower costs” by entering foreign
markets where
• labor is cheap
• rules and regulations more relaxed than home turf
Labor expensive (high in wages) represent a significant
portion over all costs MNEs best option is to look for
other geographical areas where goods can be produced at
a much lower labor price

Second: important cost factor “Material” if material in

short supply or must be conveyed a long distance; it is less
expensive to move production close to the source of
supply than to import material.
Third: critical cost factor “Energy” if domestically cost
of energy for making the product is high, company forced
to move production, set up operations over seas near
source of cheaper energy
Forth: important factor “transportation” costs, logistics
have become a major concern for most organizations
around the world due to incurring costs

Firms World Wide use these four reasons to justify

moving assembly operations to other countries

Maquiladoras (twin factories)

Production operations set up on both sides of the US
Mexican border in free trade zone for the purpose of
shipping goods between two countries

Protect domestic market;

• FDI is used to protect the domestic market

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Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai The Triad and International Business Chapter # 3 (page 66-93).

• Enter to attack potential competitors and prevent

them from expanding overseas
• MNEs justify this action by; competition less likely
to enter foreign market if busy defending its home
market
• Protect position of product if parent company
moves operations overseas(example Honda moves
to Indiana ,nippodenso radiator company moves
operations close by to maintain business with
Honda)

Protect foreign markets

• FDI used to protect foreign markets
• Invest heavily to upgrade its stations and increase
its market share

Acquire technological and managerial know how

• Move operations close to competition
• Move some of their research and development
facilities to Japan
• Using this strategy, they make it easier to
monitor the competition and to recruit
scientists from local universities and
competitive laboratories
• Company hires internationally know scientists
to help attract experience colleagues from
leading Japanese companies
• Recruit young graduates from the host
universities

Foreign direct investments and trade by triad

members
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
Triad countries have also become major investors in
poorer nations.
The United Nations centre on Transnational
Corporations (UNCTC) reports, that triad members
accounted for 40 % of the FDI in 25 of the 37
developing countries

The Triad and Regional Business Strategy

• Dominate home and surrounding region

International business 3
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai The Triad and International Business Chapter # 3 (page 66-93).

• International expansion does not mean “Global

expansion “
• Wal-Mart has 10% stores outside US ; 90% at
home

Triad activity and the automobile industry

• Auto industry in us
• Auto industry in EU
• Auto industry in Japan
• World wide auto industry

Economic relations within the triad

• World wide auto industry, members of the triad
compete with each other
• in their home markets
• And in the markets of others
• What happens in one market can effect the
situation in other markets

Triad economies
• Economies slowed down after 1998
• US, EU , Japan , Germany and every were else
economies taking plunge
• Companies needed capital for expansion could not
receive any thing
• Competition increased
• New suppliers and products in markets

Mergers and acquisitions

• Triad members concerned for their economies
,does not mean trade or FDI between them has
declined
• $700 billion worth of business between them
• not three separated groups but three interrelated
groups
• relaxed regulations resulted in influx of foreign
MNEs
• to make position in foreign bass strong

International business 4
Alan M. Rugman, Richard M. Hodgetts