Slide 1.

Chapter 1

Regional and global strategy

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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World business: a brief overview

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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 brought in by another country.
Foreign investment: consists of companies
investing funds to start or improve operations in
another country.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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The triad: the United States (US)

The US has the largest economy in the world with
a GDP of over $14.14 trillion (2009 estimate).
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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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 12 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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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Todays international environment

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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).

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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 allow SMEs to provide goods and
services more efficiently than if the MNE were to
source these internally.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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Regional triad strategies

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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 are 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.
Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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Maintaining economic competitiveness

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
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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.

Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013