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Chapter 1
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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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 international marketplace. Discuss the determinants of national competitive advantage.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Study case
Coca-Cola
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
Slide 1.5
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 1.6
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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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.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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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
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Table 1.1
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
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Table 1.2
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 Statistics Yearbook, 2006 and 1985
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Table 1.3a
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. D67
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Table 1.3b
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
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Coke make these investments to improve its market position. This is being done in three ways. First, the construction of the new bottling plants is helping the company produce a low-cost product. Second, marketing expenditures are helping the firm gain the product recognition needed for growth. Third, FDI in facilities closer to the market are reducing delivery time and eliminating associated expenses.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
Slide 1.14
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
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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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.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
Slide 1.27
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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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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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Factor conditions include land, labor and capital. The company is using land and capital to built new bottling plants that are more efficient and better suited to meet market demand. It is working to improve the effectiveness of the labour force by getting the personnel to become more market oriented and to sell the product more vigorously throughout Europe.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Q3: How is local rivalry helping to improve Cokes competitive advantage? Coke faces strong comeptition in Europe. European do not drink as much Coke as do Americans; as a result, Coke has had to modify its strategy to address this market. This includes the building of new bottling plants that can help drive down costs and make the company more price-competitive, and new marketing campaigns that are designed to draw customers away from competing products. Coke is also working to develop non-carbonated drinks to address local tastes. Finally, competition from locals who better understand their market is forcing Coke to think local, act local.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Table 1.4
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009
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Figure 1.1