Business and Economics

INTERNATIONAL BUSINESS MGF2351

Objectives

Group Presentation (20 Minutes, QnA 10 minutes)– “Foreign direct investment (FDI) and multinational enterprises (MNEs) are

inextricably linked. When a firm invests directly in new facilities to produce or market a product in a foreign country, it engages in FDI. Therefore, once a firm undertakes FDI, it becomes a multinational enterprise.”

– 1) What factors have contributed to the growth of FDI over the past 30 years? In which industry (or industries) is the largest percentage of FDI inflows to Australia concentrated? Why?

– 2) What factors have contributed to the shift in sector composition of FDI from extractive industries and manufacturing to services? What implications do these raise for MNEs?

– 3) Why do firms engage in FDI when alternatives such as exporting and licensing are available? How do location-specific advantages influence organisational decisions on FDI?

Tutorial Module Week 7

Key Terms Regional economic integration

Allow free trade, reduce/remove barriers such as tarriffs

Products, services and factors of production.

Arguments for REI:

Free Trade, Crisis are scattered, One country helps another

Arguments against REI:

Sovereignty, Loss of Jobs, Loss of Culture, Inefficient

Some examples EUROPEAN UNION,NAFTA,ASEAN

The debate on Britain’s membership in EU: http://www.youtube.com/watch?v=i6hy8KyedJA

Stop at 4.14. 15,15

Farage has accused the EU of being partly responsible for the deaths of protesters who were killed in the uprising in Ukraine. "We have given a false series of hopes to a group of people in the western Ukraine and so geed up were they that they actually toppled their own elected leader," he said. "That provoked Mr Putin and I think the European Union, frankly, does have blood on its hands in the Ukraine.

Jobs, Cost of Membership, Cut links with other countries, Crumbling EU, Making our decisions, Immigration

http://www.theguardian.com/politics/blog/2014/mar/26/nigel-farage-vs-nick-clegg-the-debate-for-europe-live

Q1. NAFTA has produced significant benefits for the Canadian, Mexican and U.S. economy. Discuss.

NAFTA’s proponents argue that the agreement should be viewed as an opportunity to create an enlarged and more productive base for the U.S., Canada, and Mexico.

As low-income jobs move from Canada and the United States to Mexico, the Mexican economy should be strengthened giving Mexico the ability to purchase higher-cost American and Canadian products.

The net effect of the lower income jobs moving to Mexico and Mexico increasing its imports of high quality American and Canadian goods should be positive for the American and Canadian economies.

In addition, the international competitiveness of U.S. and Canadian firms that move production to Mexico to take advantage of lower labor costs will be enhanced, enabling them to better compete with Asian and European rivals.

Q2. What effect is the creation of a single market and a single currency within the EU likely to have on competition within the EU? Why?

Increase in competition, more effectiveness, no barriers, NO LOSS IN MONEY EXCHANGE, makes SHOPPING easy

By creating a single market and currency, member countries can expect significant gains from the free flow of trade and investment. This will result from the ability of the countries within the EU to specialize in the production of the product that they manufacture the most efficiently, and the freedom to trade those products with other EU countries without being encumbered by tariffs and other trade barriers. In terms of competition, the competition between European firms will increase. Some of the most inefficient firms may go out of business because they will no longer be protected from other European companies by high tariffs, quotas, or administrative trade barriers. Companies from those countries that have not adopted the euro may find that their costs are higher as they deal with currency exchanges. In addition, because it will be easier to compare prices across markets, firms in the euro zone will be pushed to lower prices and become more efficient.

Q3. How should an Australian firm that currently exports to only ASEAN countries respond to the creation of a single market in this regional grouping?

Disadvantage as an outsider. CAREFUL CONSIDERATION

An Australian business firm that is currently exporting to only ASEAN countries should seriously consider opening a facility somewhere in this grouping, as the economics of a common market suggest that outsiders can be at a disadvantage to insiders. The opening of borders within the ASEAN bloc also has the potential to increase the size of the market for the firm. Of course it is possible, after careful consideration, that exporting may still be the most appropriate means of serving the market.

Case: NAFTA and Mexican Trucking

1) What are the potential economic benefits of the trucking provisions in the NAFTA treaty? Who benefits?

2) What do you think motivated the Teamsters to object to the trucking provisions in NAFTA? Are these objections fair? Why did Congress align itself with the Teamsters?

3) Does it make economic sense for the United States to bear the costs of punitive tariffs as allowed for under NAFTA, as opposed to letting Mexican trucks enter the United States?

What are the potential economic benefits of the trucking provisions in the NAFTA treaty? Who benefits? Under the NAFTA agreement trucks from Mexico are no longer required to unload their goods and reload them onto U.S. trucks. Instead, Mexican trucks can simply cross the border and continue to their final destination.

These changes save time and also money – efficiencies that can then be passed along to consumers.

In addition, because U.S. truckers must now compete with Mexican truckers, further savings should be created.

So U.S. consumers should benefit as should Mexican truckers.

There might be losses for U.S. truckers. Hence the strong stance the Teamsters have taken against the agreement.

What do you think motivated the Teamsters to object to the trucking provisions in NAFTA? Are these objections fair? Why did Congress align itself with the Teamsters?

The Teamsters have rigorously objected to the provisions of NAFTA allowing Mexican truckers to cross U.S. borders and deliver their goods to their destination. Prior to NAFTA, Mexican trucks were required to reload their goods onto U.S. trucks at the border.

The Teamsters are worried not only about the loss of this business, but also the new competition that the Mexican truckers will introduce.

New competitive challenges will be faced by the Teamsters. However the bloc as a whole is better off if the provisions outlined in NAFTA are upheld.

Role of the Unions in influencing Congress.

Does it make economic sense for the United States to bear the costs of punitive tariffs as allowed for under NAFTA, as opposed to letting Mexican trucks enter the United States?

When the United States initially failed to abide by provisions set forth in NAFTA regarding trucks, Mexico gave the country a second chance to honour its commitment. The United States responded with bureaucratic measures designed to block Mexican trucks from entering the country. Mexico immediately implemented new tariff policies on various U.S. goods destined for Mexico.

• Under the new policies, grape exporters faced 45 percent tariffs and other U.S. exporters faced 20 percent tariffs.

• Mexico’s response was probably justified and the measures taken by the United States to protect the Teamsters simply hurt another group of Americans.

• U.S. consumers and companies should benefit from the efficiencies that the agreement should provide, and that the efforts to protect a single group are misguided.

Have a good Easter break!Thank you!