Need to View the Globe

1. Need to View the Globe Management of International Business EB 702

2. IMF, WB Role or Rule? Mr. Dhebapriya said that the policy adopted by BB is dictate by IMF and it is a visible shift from the unified national consensus policy . He said that it will increase the inflation and increase the price of the essentials beyond the reach of the common people. http://bdoza.wordpress.com/2007/07/18/cpd-imf-and-monitory-policy-of-bangladesh-bank/ World Bank and IMF conditionality: a development injustice Report reveals that impoverished countries still face an unacceptably high and rising number of conditions in order to gain access to World Bank and IMF development finance http://www.eurodad.org/aid/report.aspx?id=130&item=0454

3. Excerpt from Muhit’s Budget Speech 82. In FY 2009-10, the total estimated revenue will beTk.79,461crore which is 11.6 percent of GDP. Of this, the share of NBR revenues will be Tk. 61,000 crore (8.9 percent of GDP), Non-tax and Non-NBR revenues will be Tk. 15,506 crore and Tk. 2,955 crore respectively (2.7 percent of GDP).83. On the expenditure side, the size of ADP for the FY 2009-10 will be Tk. 30,500 crore (4.4 percent of GDP) and the total expenditure will stand at Tk. 1,13,819 crore, which is 16.5 percent of GDP.84. The budget deficit is estimated to be within 5 percent of GDP of which 2 percent will be financed from external sources and the remaining 3 percent will be financed from domestic sources. However, efforts will be made to mobilize more resources from external sources. This budget may appear slightly expansionary, but compared with most countries our fiscal deficit is minimal in the context of current global crisis. I consider that our budgetary stance is appropriate in the context of the present domestic and global economic scenario. http://www.thefinancialexpress-bd.com/search_index.php?page=detail_news&news_id=69542

4. Bangladesh Announces16-billion-dollar National Budget Around 30 per cent of the total budget outlay will be met by borrowing, against a modest revenue target of 11.59 billion dollars, which experts said was the biggest challenge for implementing the measures proposed in the budget.

5. Lesson Today chapter 6 international trade and investment

6. Trade is the voluntary exchange of goods, services, assets, or money between one person or organization and another. Internationaltrade is trade between residents of two countries. Trade

7. Growth of World Merchandise Exports Total international merchandise trade in 2004 was $9.2 trillion Aprox 22 % of the world’s $40.9 trillion GDP

8. Sources of World’s Merchandise Exports, 2004 Quad countries accounted for almost 60 percent of the world’s merchandise exports Exports spark additional economic activity in the domestic economy Supplies Dividend Wage

9. Trade Theories Classical country-based Firm-based sixteenth century after World War II The firm-based theories are useful in describing patterns of trade in differentiated goods—such as automobiles, consumer electronics, and personal care products, for which brand name is an important component of the customer’s purchase decision. Country-based theories are particularly useful for describing trade in commodities—standardized, undifferentiated goods such as oil, sugar, or lumber that are typically bought on the basis of price rather than brand name

10. Mercantilism Absolute Advantage Comparative Advantage Comparative Advantage with Money Relative Factor Endowments Classical Country-Based Trade Theories

11. A country’s wealth is measured by its holdings of gold and silver A country’s goal should be to enlarge holdings of gold and silver by Promoting exports Discouraging imports Mercantilism Domestic manufacturers threatened by foreign imports endorsed mercantilist trade policies, such as those imposing tariffs or quotas “Unfavorable” balance of trade—that is, its exports were less than its imports Export-oriented manufacturers favored mercantilist trade policies, such as those establishing subsidies or tax rebates, which stimulated sales to foreigners Most members of society are hurt by such policies

12. Confuses the acquisition of treasure with the acquisition of wealth Weakens the country because it robs individuals of the ability To trade freely To benefit from voluntary exchanges Forces countries to produce products it would otherwise not in order to minimize imports Disadvantages of Mercantilism Neomercantilism has superficial appeal, particularly to patriots who want to strengthen their country’s economy The inefficiencies caused by mercantilism reduce the wealth of the country as a whole, even though certain special interest groups may benefit

13. Modern mercantilism (neomercantilists) American Federation of Labor-Congress of Industrial Organizations Textile manufacturers Steel companies Sugar growers Peanut farmers Protectionism Mercantilism does benefit certain members of society it took 40 years of negotiations before Japan grudgingly agreed in the 1990s to allow the importation of foreign rice Nearly every country has adopted some neomercantilist policies to protect key industries

14. Export those goods and services for which a country is more productive than other countries Import those goods and services for which other countries are more productive than it is Absolute Advantage Smith advocated free trade among countries as a means of enlarging a country’s wealth Assume there are only two countries in the world, France and Japan; only two goods, wine and clock radios; and only one factor of production, labor. In France 1 hour of labor can produce either 2 bottles of wine or 3 clock radios. In Japan 1 hour of labor can produce either 1 bottle of wine or 5 clock radios.

15. Produce and export those goods and services for which it is relatively more productive than other countries Import those goods and services for which other countries are relatively more productive than it is Comparative Advantage What happens to trade if one country has an absolute advantage in both products? David Ricardo, an early-nineteenth-century British economist, solved this problem by developing the theory of comparative advantage

16. Produce and export those goods and services for which it is relatively more productive than other countries Import those goods and services for which other countries are relatively more productive than it is Absolute vs Comparative Advantage • Export those goods and services for which a country is more productive than other countries • Import those goods and services for which other countries are more productive than it is Absolute Comparative

17. One is better off specializing in what one does relatively best Produce and export those goods and services one is relatively best able to produce Buy other goods and services from people who are better at producing them Comparative Advantage with Money

18. Heckscher-Ohlin Theory What determines the products for which a country will have a comparative advantage? Factor endowments vary among countries Goods differ according to the types of factors that are used to produce them Relative Factor Endowments Heckscher and Ohlin developed their theory: A country will have a comparative advantage in producing products that intensively use resources (factors of production) it has in abundance Wheat requires fertile land, oil production requires crude oil reserves, and clothing requires unskilled labor

19. Growing importance of MNCs Inability of the country-based theories to explain and predict the existence and growth of intraindustry trade Failure of Leontief and others to empirically validate country-based Heckscher-Ohlin theory Development of Firm-Based Theories Firm-based theories incorporate factors such as quality, technology, brand names, and customer loyalty into explanations of trade flows

20. Country Similarity Theory Product Life Cycle Theory Global Strategic Rivalry Theory Porter’s National Competitive Advantage Firm-Based Trade Theories

21. Explains the phenomenon of intraindustry trade (as opposed to interindustry trade) Trade between two countries of goods produced by the same industry Japan exports Toyotas to Germany Germany exports BMWs to Japan Country Similarity Theory Intraindustry trade accounts for approximately 40 percent of world trade Linder’s country similarity theory suggests that most trade in manufactured goods should be between countries with similar per capita incomes

22. Describes the evolution of marketing strategies Stages New product Maturing product Standardized product Product Life Cycle Theory Raymond Vernon of the Harvard Business School, international product life cycle theory traces the roles of innovation, market expansion, comparative advantage, and strategic responses of global rivals in international production, trade, and investment decisions

23. Stages in the Product Life Cycle firm develops and introduces an innovative product New Product Stage demand expands as consumers recognize its value Maturing Product Stage market for the product stabilizes Standardized Product Stage

24. International Product Life Cycle: Innovating Firm’s Country

25. International Product Life Cycle: Other Industrialized Countries

26. International Product Life Cycle: Less Developed Countries

27. International Product Life Cycle: Comparative in Countries

28. Firms struggle to develop sustainable competitive advantage Advantage provides ability to dominate global marketplace Focus: strategic decisions firms use to compete internationally Global Strategic Rivalry Theory Global strategic rivalry theory predicts that intraindustry trade will be commonplace

29. Owning intellectual property rights Investing in research and development Achieving economies of scale or scope Exploiting the experience curve Sustaining Competitive Advantage Economies of scale occur when a product’s average costs decrease as the number of units produced increases Economies of scope occur when a firm’s average costs decrease as the number of different products it sells increases Another source of firm-specific advantages in international trade is exploitation of the experience curve

30. Porter’s Diamond of National Competitive Advantage Firm Strategy, Structure, and Rivalry Factor Conditions Demand Conditions Related and Supporting Industries

31. Country-Based Theories Country is unit of analysis Emerged prior to WWII Developed by economists Explain interindustry trade Mercantilism Absolute advantage Comparative advantage Relative factor endowments Firm-Based Theories Firm is unit of analysis Emerged after WWII Developed by professors Explain intraindustry trade Country similarity theory Product life cycle Global strategic rivalry National competitive advantage Summary of International Trade

32. Does the investor seek an active management role in the firm or merely a return from a passive investment? Foreign Direct Investment Portfolio Investment Types of International Investments

33. Stock of Foreign Direct Investment, by Recipient

34. Sources of FDI in the U.S.

35. Destinations of FDI for the U.S.

36. State of FDI in Bangladesh Source:http://www.banglaembassy.com.bh/FDI%20in%20Bangladesh.htm

37. State of FDI in Bangladesh Source:http://www.banglaembassy.com.bh/FDI%20in%20Bangladesh.htm

38. Ownership Advantages Internalization Dunning’s Eclectic Theory International Investment Theories Canada and the United Kingdom are both major sources of FDI in the United States and important destinations for FDI from the United States U.S. firms had invested $5.3 billion in the chemical industry in Belgium, while Belgian firms had invested $2.9 billion in the U.S. chemical industry This pattern cannot be explained by national or industry differences in rates of return

39. A firm owning a valuable asset that creates a competitive advantage domestically can use that advantage to penetrate foreign markets through FDI. Why FDI and not other methods? Ownership Advantages A superior technology, a well-known brand name, or economies of scale Ownership advantage theory does not explain why a firm would choose to enter a foreign market via FDI rather than exploit its ownership advantages internationally through other means, such as exporting its products, franchising a brand name, or licensing technology to foreign firms

40. FDI is more likely to occur when transaction costs with a second firm are high. Transaction costs are costs associated with negotiating, monitoring, and enforcing a contract. Internalization Theory

41. FDI reflects both international business activity and business activity internal to the firm. Three conditions for FDI Ownership advantage Location advantage Internalization advantage Dunning’s Eclectic Theory

42. Factors Affecting the FDI Decision Supply Factors Demand Factors Political Factors

43. Availability of Natural Resources: The Tuna Industry in Indonesia

44. Thanks

45. Watch Video A Quiz After Mid Term Next Week 0630