Slide 1.

Chapter 1

Regional and Global Strategy

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.2

Regional and global strategy

• Objectives
• Introduction
• World business: a brief overview
• Today’s international environment
• Globalization and strategic management
• The study of international business

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.3

Key Points
• International business is the study of transactions taking place across
national borders for the purpose of satisfying the needs of individuals
and organizations. Two of the most common types of international
business activity are export/import and foreign direct investment
(FDI).In recent years both have been on the rise. Much of this is a
result of large multinational enterprises (MNEs) that are headquartered
in triad countries. In particular, Triad members account for most of the
worldwide trade and FDI. The majority of trade is intra-regional.

• Small and medium-sized enterprises (SMEs) often function as

the backbone of large multinational enterprises, efficiently providing
goods and services that are integrated in to the production process of
large MNEs. SMEs also compete with MNEs in niche markets.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.4

Key Points (cont.,)

• Trade regulation has become an important issue in
international business. Today the World Trade
Organization is the major group responsible for governing
the international trading system.

• Changes taking place in both communication and

production technologies are trans-forming the way in
which MNEs do business.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.5

Key Points (Cont., )

• One way in which MNEs are competing is by drawing up
strategies that focus on regions and geographic areas,
thus ensuring that they are addressing the needs of their
local customers. Another way is by continuing to be
innovative. A third is by maintaining competitive position
by addressing the determinants of national competitive
advantage:(a)creating the necessary factor conditions;(b)
having strong local demand for the goods and services
that are being produced;(c) having related and supporting
industries that are internationally competitive; and (d)
having a suitable strategy and structure and domestic
rivalry that encourages continued innovation

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.6

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 1.7

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 1.8

World business: a brief overview

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.9

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 world’s largest 500
MNEs.
(2) Foreign direct investment (FDI): 80% of all
FDI is made by the world’s largest 500 MNEs.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.10

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
Slide 1.11

What are the world’s largest

economies?
Largest trading economies?
Largest FDI Economies?

List the Top 10

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.12

List of Economies by GDP (Real)

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.13

List of Economies by Exports

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Slide 1.14

List of Economies by Imports

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.15

List of Economies by FDI Abroad

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.16

List of Economies by FDI Received

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.17

The Triad (set of 3)

• Most global transactions take place within and
between three key regions:
• 1)the United States,
• 2)the European Union and
• 3)Japan;
• these are referred to as: the ‘triad’ (all developed
economies, or early industrialized countries).

• Why so?

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.18

TRIAD COUNTRIES
• TRIAD is a cluster of countries which account for
over 50% of the world GDP (Gross Domestic
Product) while only accounting for 8% of the
world's population. The GNI (Gross National
Income) of the TRIAD countries is about 48% of
the world's GNI.

The TRIAD countries include the NAFTA, the

European Union and the industrialized Eastern
Asia (Japan, Taiwan, South Korea, Hong Kong,
Singapore).
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.19

Table 1.2 Intra-regional trade in the triad, 1980–2005

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
Slide 1.20

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
Slide 1.21

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 world’s largest importer and
exporter.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.22

The triad: the European Union (EU)

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.23

The Triad: Japan

• Japan is second largest economy in Asia,
following China.
• Japan is the largest developed (Western)
economy in Asia.
• Japan is the 4th largest importer and 4th largest
exporter in the world, following China, US, and
Germany.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.24

Today’s international environment

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.25

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
Slide 1.26

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.

• Why so?

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.27

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
Slide 1.28

The World Trade Organization(WTO)

• 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
Slide 1.29

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 1.30

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.

So More IB or Less?

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.31

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
Slide 1.32

Globalization and strategic

management

Regional triad strategies

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.33

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.
• KFC’s food are localized
• BP, News Corp, etc.
– MNEs produce homogeneous products for the
world market and through their efficient techniques
are able to dominate local markets everywhere.
• Any good examples of companies that perform very
well globally, but poorly locally?
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.34

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
Slide 1.35

Fortune 500 HQs

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.36

Fortune500: 2011 Top 10 Largest MNEs

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.37

Globalization and strategic

management

Maintaining economic competitiveness

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.38

Porter’s 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
Slide 1.39

The study of international business

From general to strategic emphasis

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.40

Strategic Management
• managerial actions that include strategy
formulation, strategy implementation,
evaluation and control, encompasses a wide
range of activities, including environmental
analysis of external and internal conditions
and evaluation of organizational strengths and
weak-nesses.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.41

Table 1.4 Comparative differences in the study of international business, 1950–2010

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.42

Case Discussion
TATA MOTORS

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.43

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 1.44

A few good magazines, news media,

and journals relating to IB

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