UNIVERSITY OF MAURITIUS

FACULTY OF LAW AND MANAGEMENT

FIRST SEMESTER EXAMINATIONS MAY 2010 PROGRAMME BSC (HONS) MANAGEMENT WITH FINANCE BSC (HONS) MANAGEMENT WITH INFORMATION SYSTEMS MODULE NAME DATE LEVEL IV
AND

INTERNATIONAL BUSINESS Wednesday 24 Nov 2010 09:30 12:30 Hours 7

MANAGEMENT MGT 3059Y(5)

MODULE CODE

TIME NO. OF QUESTIONS SET

DURATION NO. OF QUESTIONS TO BE ATTEMPTED

3 Hours

INSTRUCTIONS TO CANDIDATES There are 2 Sections in this paper : Section A and Section B. Section A is COMPULSORY and carries 40 marks. Section B consists of SIX questions. Answer ANY THREE (3) questions from Section B. Each question carries 20 marks.

INTERNATIONAL BUSINESS MANAGEMENT MGT 3059Y(5)

SECTION A Question 1 [COMPULSORY]

Effects of NAFTA The North America Free Trade Agreement (NAFTA) came into force on January 1, 1994, to promote trade between Mexico, the US and Canada. The formation of NAFTA led to the lifting of trade barriers between the three countries. Under

NAFTA, Mexico reduced its trade barriers on US exports significantly and dismantled a variety of protectionist measures and regulations, while the United States, which started with much lower tariffs, made only slight reductions.

After the enforcement of NAFTA, many US companies made long-term investments in Mexican factories and businesses. There were also some short-term, speculative investments in the Mexican stock market because of NAFTA. As trade barriers between the countries were lifted, Mexican exports increased. Mexican exports to the US increased from $49.4 billion in 1994 to $134.9 billion in 2000.

However, free trade had a negative impact on the Mexican economy. Since NAFTA came into effect, US suppliers saw their share of Mexicos import market grow from 69.3 percent to 75.5 percent, reflecting a 10 percentage point average tariff advantage over foreign suppliers. Though economists argue that a rise in productivity leads to higher wages, in the case of Mexico, an increase in manufacturing productivity led to a decrease in wages. While productivity increased by 47.5% between 1993 and 2001, the real value of the minimum wage decreased by 18 percent and the average manufacturing wage by 21 percent. Poverty increased from 50.97 percent in 1994 to 58.40% in 2001.

Page 1 of 4

INTERNATIONAL BUSINESS MANAGEMENT MGT 3059Y(5)

Mexico repealed Article 27 of its constitution, which gave people rights to communal property. Subsequently, existing barriers to foreign investment were also removed. Prior to NAFTA, foreign ownership of property in Mexico was limited to 49%. With NAFTA, this restriction was removed. Under NAFTA import barriers on corn from the US were lifted and the small producers in Mexico were hit hard. US investment in Mexicos forestry sector also increased.

The NAFTA provisions, which allowed flow of capital into Mexico, also made possible the flight of capital from Mexico. In late 1994, investors started pulling out billions of dollars invested in the Mexican stock market. This created instability in the economy and the government devalued the Mexican currency, the peso. This resulted in an increase in interest rates, widespread bankruptcies in state-owned businesses, and a drop in purchasing power. In 1999, Mexicos total debt burden was $25 billion more than what it was in 1994. The government had to pay nearly $44 billion just to service the debt. Further, a heavy concentration of industries along the US-Mexico border increased environmental pollution to worrying levels.

Certain problems arose out of NAFTA for the US economy too. The US trade deficit with Mexico increased significantly after NAFTA came into being. The trade

imbalance widened because US exports to Mexico did not grow as fast as Mexican exports to the US. Many people lost their jobs in the US because manufacturing facilities were shifted from the US to Mexico or Canada. Within three years of its implementation, NAFTA had cost more than 600,000 US jobs. The cheaper imports from Canada and Mexico also affected American industries. Even the bigger

companies, which promised to increase the employment in the United States, failed to do so. (Source : ICFAI Centre for Management Research) Required :

Page 2 of 4

INTERNATIONAL BUSINESS MANAGEMENT MGT 3059Y(5)

Discuss whether the free trade agreement has benefited the USA, Canada and Mexico. [40 marks]

SECTION B
Answer ANY THREE (3) Questions

Question 2
Entering a foreign market via a joint venture may allow the investing firm to limit their financial exposure while at the same time gaining experience in a new market. Nevertheless, the risk sharing function is deemed more important in research intensive industries where successive generation of technology tends to cost much more to develop while at the same time life cycles are shrinking (Friedmann et al., 1979). Discuss why companies may choose, under certain circumstances, to penetrate a foreign market through the joint venture mode. [20 marks]

Question 3
With the advent of the WTO and the impact of technological advancements, firms are increasingly entering into strategic alliances. There is a growing appreciation by firms of the need to form close and ongoing relationships with other firms to fully capture the benefits of their own competencies. This has led to the proliferation of what is known as alliance capitalism. Discuss the above statement in the light of the growing interaction between firms operating in the same industry. [20 marks]

Question 4
It is argued that the WTO and GATT Uruguay Round Agreements have functioned principally to pry open markets for the benefit of transnational corporations at the expense of national and local economies; workers, farmers, indigenous peoples, women and other social groups; health and safety; the environment; and animal welfare. In addition, the WTO system, rules and procedures are undemocratic, untransparent and non-accountable and have operated to marginalize the majority of the world's people.

Page 3 of 4

INTERNATIONAL BUSINESS MANAGEMENT MGT 3059Y(5)

Evaluate the truth of the above statement by focussing whether the WTO has indeed failed to attain its objectives. [20 marks]

Question 5
Rather than leading to economic benefits for all people, globalisation has brought the planet to the brink of environmental catastrophe, social unrest that is unprecedented, economies of most countries in shambles, an increase in poverty, hunger, landlessness, migration and social dislocation. The experiment may now be called a failure.(Extract from Sienna Declaration prepared by the board of directors of the international forum on globalisation (IFG) and signed by over 40 organisations in 20 countries (World Bank 2000). Discuss whether Globalisation has led to a widening of the poverty gap. [20 marks]

Question 6
The contribution of MNEs to the development of the host nation, more particularly developing countries or LDCs has been the subject of much debate over the years. Whilst it is generally accepted that MNEs do contribute by way of technology transfer, skills diffusion and by bringing much needed finance capital, nevertheless criticisms abound as to the negative impact of MNEs in that they are viewed as exploiting the local labour force, they transfer outdated technology, and they strip the LDCs of much needed resources. However, MNEs were and still remain a very important ingredient of growth, especially for developing countries. This is why it is crucial for a host countrys government that it should be able to assess FDI in a policy context. The latter process is usually done by way of an Evaluation Framework. Discuss the four (4) criteria of the evaluation framework with special emphasis on how the potential contribution of MNEs may be influenced by the industrialisation strategy adopted by the host country. [20 marks]

Question 7
A crucial implication of the work of Hofstede, Hampden-Turner and Trompenaars and other contributors to the rapidly developing body of experience and knowledge about international culture and management is that cultural interpretation and adaptation are a prerequisite to the comparative understanding of national and international management practice. (Morden, 1995:16)

Page 4 of 4

INTERNATIONAL BUSINESS MANAGEMENT MGT 3059Y(5)

With reference a culture framework, explain how an understanding of the national culture may help managers on international assignments. [20 marks] - END OF QUESTION PAPER -

Page 5 of 4