m03 rugm 6563_05_ppw_ch03
TRANSCRIPT
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Slide 3.1
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The Triad and international business
Chapter 3
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Slide 3.2
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The Triad and international business
• Objectives• Introduction• Reasons for FDI• FDI and trade by triad members• The triad and regional business strategy• The world’s regional automotive industry.
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Slide 3.3
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Objectives
• Describe the major reasons for FDI.• Explain the role of triad-based MNEs in worldwide
FDI and trade.• Relate select examples of inter-triad MNE
business activity.• Discuss the economic interrelationships among
triad members.
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Slide 3.4
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Introduction
• Most FDI and trade is conducted by MNEs.• MNEs from the triad continue to dominate
international business.• The triad is the basic unit of analysis in
international business.
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Slide 3.5
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 3.1 Ten years of intra-regional FDI in the triad, 1993–2002Note: EU intra-regional FDI is FDI stocks within Europe as a whole. NAFTA intra-regional FDI is US and Canada stocks within NAFTA. Asia intra regional FDI is Japan, South Korea, Australia and New Zealand stocks within AsiaSource: Authors’ calculations based on OECD, International Direct Investment Statistics Yearbook, 2004
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Slide 3.6
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Reasons for FDI
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Slide 3.7
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Foreign direct investment
• FDI is the ownership and control of foreign assets.
• FDI usually involves the ownership, whole or partially, of a company in a foreign country: a foreign subsidiary.
• FDI is different from portfolio investment, which is the purchase of financial securities in other firms for the purpose of realizing a financial gain when these marketable assets are sold.
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Slide 3.8
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Some reasons for FDI
• Increase sales and profits.• Enter rapidly growing markets.• Reduce costs.• Gain a foothold in economic blocs.• Protect domestic markets.• Protect foreign markets.• Acquire technological and managerial know-how.
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Slide 3.9
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
FDI and trade by triad members
• The triad accounts for about 80% of world FDI.• Two important FDI destinations are:
– Intra-regional: from one triad member to another
– Inter-regional: from one triad member to the geographic region that surrounds it. (e.g. from the US to the Americas).
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Slide 3.10
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 3.3a Ten years of triad FDI*EU15 numbers are in outward stocks of FDI by every EU15 member and thus include intra-EU15 FDISources: Authors’ calculations; United Nations, World Investment Report 1998, pp. 379–400; United Nations, World Investment Report 2006, pp. 303–306
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Slide 3.11
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 3.3b Ten years of triad trade*EU includes intra-EU FDI.
Note: Exports are calculated by including freight and insurance while imports do not include freight and insuranceSources: Authors’ calculations and International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 2–5; International Monetary Fund, Direction of Trade Statistics Yearbook, 2002 (Washington, DC: IMF, 2002), pp. 2–5
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Slide 3.12
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Triad FDI clusters
• A group of developing countries usually located in the same geographic region as a triad member and having some form of economic link to this member.– The US tends to be a dominant investor in Latin
America, and countries such as Mexico and Brazil are part of its FDI cluster.
– The EU tends to be a dominant investor in Eastern Europe and countries like the Czech Republic and Poland are part of its FDI cluster.
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Slide 3.13
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The triad and regionalbusiness strategy
• MNEs pursue market opportunities within their own triad as well as that of the other members.
• International expansion does not necessarily mean “global” expansion.
• The nature of international business is regional, not global.– For example, Wal-Mart has 94.5% of its sales in
North America, and only about 20% of Wal-Mart’s stores are located outside of North America.
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Slide 3.14
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Figure 3.1 Wal-Mart’s globalization: regional distribution of storesNote: Data are for 2004. US stores include 53 stores in Puerto RicoSource: Wal-Mart, Annual Report, 2004.
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Slide 3.15
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The world’s regional automotive industry
• There are 30 automotive firms in the world’s largest 500 firms.– None of these are global firms!
• 23 of the 30 firms are home-region based, with an average of 60 % of their sales as intra-regional.
• There are 2 host-region oriented and 5 bi-regional automotive firms on the list.
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Slide 3.16
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 3.4 The regional nature of the motor vehicles and parts industries, 2005*Weighted intra-regional sales average is weighted according to revenuesNote: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,but their regional sales data are not either available or enough to determine their regional characteristicsSource: Authors’ calculations and the individual annual reports of each company
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Slide 3.17
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 3.4 The regional nature of the motor vehicles and parts industries, 2005 (Continued)*Weighted intra-regional sales average is weighted according to revenuesNote: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,but their regional sales data are not either available or enough to determine their regional characteristicsSource: Authors’ calculations and the individual annual reports of each company
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Slide 3.18
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Key reasons for the automotive industry’s regional operations
• The auto industry operates in “clusters” of localized activity within each major triad region.
• Auto firms are strongly embedded in downstream activities and after-sales markets.
• Cultural barriers across regions.• Fuel.• Different environmental regulations.• Tariffs.
Local competitors are more adept at meeting the demands of their regional markets.