Slide 1.

Chapter 1

Regional and global strategy

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

Slide 1.2

Regional and global strategy

Objectives
Introduction
World business: a brief overview
Todays international environment
Globalization and strategic management
The study of international business
Framework for this book

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

Slide 1.3

Objectives
Define the terms international business and
MNE.
Discuss the two primary ways in which
international business occurs: trade and FDI.
Examine the impact of the triad on
international trade and investment.
Describe the current state of world economies
and the role of government and trade
regulations in the conduct of international
business.
Discuss the importance of technology and the
role of SMEs in the international business
arena.
Examine how MNEs use triad/regional
strategies to compete effectively in the

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

Slide 1.4

Introduction
International business: the study of
transactions taking place across national
borders for the purpose of satisfying the
needs of individuals and organizations.
Multinational enterprises (MNEs): a
company headquartered in one country but
having operations in other countries.

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

Slide 1.5

World business: a brief overview

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

Slide 1.6

MNE activity
Most MNE activity can be classified into two
major categories:
(1) Trade (exports and imports): More than
50% of all trade is made by the worlds largest
500 MNEs.
(2) Foreign direct investment (FDI): 80% of all
FDI is made by the worlds largest 500 MNEs.

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

Slide 1.7

Trade and investment

Trade consists of exports and imports:
Exports: goods and services produced in
one country and then sent to another
country.
Imports: goods and services produced in
one country and bought in another country.

Foreign Investment: consists of

companies investing funds to start or
improve operations in another country.

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

Slide 1.8

Table 1.1

World Trade, 2005

Note: Data for European Union include intra-EU trade. Exports are calculated by including freight and insurance while imports do not
include freight and insurance. As a result data might not be consistent with other data in this book
Source: Adapted from International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 25

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

Slide 1.9

Table 1.2

Intra-regional trade in the triad, 19802005

Note: Asia data were calculated using information for exports from Japan, China, India, Indonesia, South Korea, Malaysia, Singapore,
Thailand and Australia to the Asian region and the world. Data for EU are for intra-EU exports in 2000 and 2005 and intra-EEC
Exports in 1980
Source: Authors calculations based on the IMF, Direction of Trade
Yearbook,
2006
and 1985
AlanStatistics
M Rugman
and Simon
Collinson,
International Business, 5th Edition, Pearson Education Limited 2009

Slide 1.10

Table 1.3a

Foreign direct investment in the United States, 2005

Note: Data are on a historical-cost basis. Numbers might not add up due to rounding
Sources: Authors calculations and US Department of Commerce,
Survey
of Current
Business,
JuneInternational
2007, p. D67
Alan
M Rugman
and Simon
Collinson,
Business, 5th Edition, Pearson Education Limited 2009

Slide 1.11

Table 1.3b

Foreign direct investment by the United States, 2005

Note: Data are on a historical-cost basis. Numbers might not add up due to rounding
Sources: Authors calculations and US Department of Commerce, Survey of Current Business, June 2007, p. D65
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 1.12

The triad
Most global transactions take place within
and between three key regions: the United
States, the European Union and Japan;
these are referred to as: the triad.

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

Slide 1.13

The triad: the United States (US)

The US has the largest economy in the
world with a GDP of over $10 trillion.
The US is part of the North American Free
Trade Agreement (NAFTA) with Canada and
Mexico.
The US economy is significantly larger than
that of its two trading partners and is
therefore a triad member on its own.

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

Slide 1.14

The triad: the European Union (EU)

The EU (or EU27) is composed of the
countries in the EU15 (Austria, Belgium,
Denmark, Finland, Germany, Greece,
France, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Sweden, and
the UK) and twelve new, mainly Central
European, countries that joined in 2004 and
2007.
The collective GDP of the EU is greater than
that of the US and Japan.
The EU27 is the worlds largest importer and
exporter.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

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The triad: Japan

Japan is the largest economy in Asia.
Japan is the 4th largest importer and 4th
largest exporter in the world.

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

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Todays international environment

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

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International business environment

The international business environment has
changed rapidly in recent years as a result
of:
an overall slowdown of triad economies;
increased trade liberalization through trade
agreements;
improvements in technology;
the emergence of SMEs.

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

Slide 1.18

Slowdown of triad economies

In the late 1990s and early 2000s, the
United States, the EU and Japan all
experienced a reduction in economic
activity, which in turn decreased
international business activity.

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

Slide 1.19

International trade regulation

An important international business trend
has been the emergence of regional and
global trade and investment liberalization
and international regulation.
The World Trade Organization (WTO).
General Agreement on Tariffs and Trade
(GATT).

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

Slide 1.20

The world trade organization

Established on January 1, 1995.
An international organization that deals with
rules of trade among member countries.
Enforces the provisions of the General
Agreement on Tariffs and Trade (GATT).
Acts as a dispute-settlement mechanism.

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

Slide 1.21

The general agreement

on tariffs and trade (GATT)
Established in 1947 to liberalize trade and
to negotiate trade concessions among
member countries.
Today, the WTO is enforcing the provisions
of the GATT.

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

Slide 1.22

Improved technology
More powerful and affordable technology
has promoted fast easy worldwide
communication and improved production
capabilities enabling organizations to
operate more effectively in the
international marketplace.

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

Slide 1.23

Small and medium-sized

enterprises (SMEs)
The definition of SMEs varies according to
the nation. In general, it refers to companies
with between 11 and 500 employees with
sales of less than $5 million.
MNEs often purchase from SMEs. This is
because their specialized workforces,
innovation and technology allows SMEs to
provide goods and services more efficiently
than if the MNE were to source these
internally.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

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Globalization and strategic

management

Regional triad strategies

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

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Misconceptions about MNEs

Common misconceptions about MNEs:
MNEs have far-flung operations or earn most
of their revenues overseas.
MNEs are globally monolithic and excessively
powerful in political terms.
MNEs produce homogeneous products for
the world market and through their efficient
techniques are able to dominate local
markets everywhere.

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

Slide 1.26

Misconceptions about MNEs (Continued)

In fact,
MNEs earn most of their revenues in their
home regions.
The largest 500 MNEs are not spread around
the world but clustered around the triad.
These MNEs engage not in global
competition but in triad/regional
competition; this rivalry effectively
eliminates enduring political advantage.
MNEs adapt their products for the local
market.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

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Globalization and strategic

management

Maintaining economic competitiveness

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

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Porters determinants of
national competitive advantage
Why are some firms able to innovate
consistently while others are not?

Factor conditions
Demand conditions
Related and supporting industries
Firm strategy, structure, and rivalry.

Each of these determinants depends on the

others as a system.

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

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The study of international business

From general to strategic emphasis

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

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Table 1.4

Comparative differences in the study of international business, 19502010

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

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Framework for this book

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

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Figure 1.1

Model for this book

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