Slide 1.

Chapter 1

Regional and global strategy

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

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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

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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

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

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World business: a brief overview

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

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

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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

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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 Statistics Yearbook, 2006 and 1985

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

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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, June 2007, p. D67

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

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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

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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.

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

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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 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

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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.

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

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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).

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

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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.

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

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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.

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

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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 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

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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 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