International Business & Global Strategy

Topic 1. Role of government in restricting trade

The main task of the country and its government in the field of international trade is to help exporters take out as many of their products as possible, making their products more competitive in the international market, and to limit imports by making foreign goods less competitive in the domestic market. Therefore, a part of the methods of state regulation are designed to protect the domestic market from foreign competition and import products. Another part these methods have the task of speeding up exports (Trebilcock 1999). Strengthening government’s intervention in the regulation of trade is done to meet the need to expand the functions of foreign companies and their dependence, as well as the economy in general, within the scale of internationalization and cooperation of production, in the state of the external market, and given a variety of control measures in specific countries.

Government regulation of international trade can be unilateral, bilateral, or multilateral. Depending on the extent of government intervention into the international trade, as noted earlier, one may  distinguish between protectionist trade policies and free trade policies. Therefore, the role of government in restricting trade is to protect its domestic producers and increase economic rates of the country. Depending on the extent of government restrictions in trade regulation, the level of free trade is determined (Robinson 2005). For example, when one of the strategic industries of the country  faces difficulties and profit decrease, the government can introduce some restrictive measures and set in limited amount of this kind of products. As a result, the industry faces recession because of competition decrease.

Topic 2. The Asian Financial Crisis of 1997 and its impact on international strategy

In the heart of the financial crisis that developed in the Asian countries in 1997, there were primarily the underlying factors associated with the accumulation of costs of rapid industrialization. South-East Asia financial crisis of 1997 - 1998 was caused by the national banking and currency systems with subsequent correction of stock markets. The scheme of the financial crisis was about the same: a massive outflow of foreign capital on the verge of the fall of the national currency, after which foreign institutional investors operating in the domestic market sought to withdraw capital and secure profits (Sharma 2003). As a result, the crisis spread to the various sectors of the financial market. The financial crisis was a "crisis of over-investment" in which external financing was used to expand the production and long-term investment as key factors of overheating conditions. The Asian financial crisis meant the collapse of the currency and stock markets of five Asian countries: Thailand, Philippines, Malaysia, Indonesia, and the Republic of Korea. It happened in July - December 1997 (Woo, Sachs & Schwab 2000). The financial crisis has caused severe social and economic consequences in these countries and  directly or indirectly affected not only the economic and economic development of the Asia - Pacific region, but also the economies of most world countries. In order not to let the Asian Financial Crisis  become international, governments of most world countries had to set certain  restrictive measures on international investments and import. That is why the international strategy of most countries became “closed”, and free trade was restricted.

Topic 3. Market segmentation for new markets potential/risk assessment

Modern marketing strategy as a whole is a system of production management and marketing, information needs and external relations which currently provides the greatest economic benefit to both parties: the manufacturer and the buyer (McDonald & Dunbar 2004). Global marketing strategy is the dominant trend in the activity of the company in the market in the long run,  either entering new foreign markets or  consolidating its position there. It is the strategy of  internationalization, the search for new market segments, and the desire to more fully meet their needs - a strategy of segmentation. It is also the strategy of  the development of new activities - diversification. Market segmentation is the main marketing method by which the company shares its analysis based on certain characteristics of some segments of consumers. It is carried out for the purposes of subsequent isolation of target segments that require different approaches to strategy development of new products, organizing merchandising, advertising and sales promotion. Market segmentation strategy allows the company, given the strengths and weaknesses of the choice of marketing techniques, choose those that will provide the concentration of resources in the areas where the company has the most benefit, or, at least, minimal defects. When it has selected a segment and a target one, the company  should always take into account the size of the market and the emerging trends in it (Cahill 2006). One simple example of any market segmentation is geographic segmentation, which is based on a way of dividing the market by consumer groups by geography. This method is most effective in the case of cultural differences and climatic conditions in the sales regions that are of fundamental importance for the use of products. The main purpose of the risk assessment of new markets is to determine market barriers that can exist or may emerge during the new market entrance. The main aim to assess new market potential is to determine whether  the company or the country will benefit from performance in this market, assess what  the profit will be and decide whether entering the market  will be economically profitable.

Topic 4. Forces that affect globalization of potential industries

The concept of globalization is closely connected to the work of people, especially in developed countries. Everyone faces it in everyday life without realizing its significance and not knowing the exact definition of the concept of globalization. And yet its influence is growing every year. The process of transition of the economy is taking place simultaneously. Enterprises are exposed to innovative development in the world. This all suggests the idea  that globalization  is the strongest factor of influence on potential industries, especially those which are connected to the innovative technologies. After all, the living standards of  people are more dependent on the use of new knowledge and technologies, whereas the latter  also have globalized and international nature (Nurdin 2009). The most powerful forces of globalization – economic - are reflected in the presence of multinational corporations operating in multiple countries, and use  new historical conditions to their advantage. It is also necessary to note that the key drivers of potential industries globalization are economic, market, environmental, and competitive factors. The most powerful forces of globalization of potential industries are economic ones, which are reflected in the presence of multinational corporations operating in multiple countries, and use  new historical conditions to their advantage. Any country and company wants to have big profits from any strategy and industry development, however the most important factor of new industries globalization is the level of competitiveness that a country/company has in the world arena (Morrison 2009). With the increase of the competitiveness, power is also increasing, that is why it is essential for a country to globalize potential industries in order to receive world recognition.

Topic 5. Effect of a macroeconomic policy of a host country on foreign company’s operations

Relations between states (governments) and TNCs can be conflicting, cooperative, or neutral. There are issues that have always been a source of political, economic, social, legal, and institutional conflicts, and in many cases have also affected international relations. There are areas in which there is a record of common interests and areas of cooperation (Langdana 2009). The liberalization of trade and foreign investment, efforts to extend the principle of most favored by foreign companies, and the establishment of the present and future of equal treatment for domestic and international corporations  neutralize certain aspects of the relationship between host countries and foreign companies. International corporations in each state are  representatives of the world economy, and their various rules have limited autonomy. In particular, they can develop a global strategy and create centers for global decision-making. But because of the country’s performance as the basic unit of the international political system, all companies are required to act in their defined legal and institutional framework. Therefore, the main policy of the host country that affects foreign company’s operations is the policy of international trade. Hence, how the government of the country regulates the international trade, i.e.the level of government regulation of free trade, is a thing on which  the ability of foreign companies to operate freely in the market depends (Hooke 1991). For example, if the macroeconomic policy of the government is oriented at the stimulation of the domestic industries, the rise of customs for the definite products will make the foreign companies operation unprofitable.

Topic 6. Entry modes and their advantages/ disadvantages

There are three entry modes to enter foreign markets: exports; joint enterprise; direct ownership. Among the traditional methods of access to foreign markets is the export of goods and services, which is distinguished as direct export and indirect exports. Indirect export occurs in cases where the manufacturer sells its products through intermediaries. The benefits of indirect exports include: increased sales, faster effect for the manufacturer because of the opportunities in the foreign market intermediary; cost savings of finance export transactions and related risks; exemption from registration and follow the execution of the export transaction (Hashai & Asmussen 2007). The disadvantages of indirect exports could be: the isolation of products in the market and dependence on the intermediary; insufficient attention to the broker handling the product manufacturer; the limitations of an intermediary (for various reasons), the desire to promote the product manufacturer in all available segments of the target market. For example, one of the varieties of the mediated indirect export is so-called “piggybacking” that describes the entry to the foreign market "on the shoulders" of another company. An alternative is to implement the indirect export by direct export without intermediaries. Advantages of this entry mode are: fast access to the market; production recourses concentration; absence of financial commitment; low risks in different spheres of company’s performance. Disadvantages are: inability to gain foreign operation attainment; and high reliability on the distributor may lead to the fail of the company. Licensing is a concession to the right to use the invention, a monopoly on the use of which is given in the form of state-inventor of the patent. It gives rights to foreign partners on the process of production, trademarks, and patents, in exchange for payment of fees or royalties. The advantage of this type of joint activity for the vendor license is the rapid dissemination of its innovation and thus to secure the superiority in the market in the face of potential competitors. The disadvantage of this type of international activity is connected with the difficulties of real control performance (Alvstam 2005). Franchising is a contract under which franchisor provided regardless of a franchise license to use its name and brand, as well as business management system. The main advantages of this type of entry mode are connected with the fact of usage of the strategy and business that somebody has already used. Its main disadvantages are connected with the large scale of restrictions that such business performance has.

Topic 7. Strategic effects of going international for domestic companies

When the domestic company decides to grow and implement the international strategy in its practice, this may cause different effects on the country. International companies sell their products in the worldwide area, and with their expansion their profits are rising. As a result, any growth of domestic company can cause economic boom within its host country (Czinkota, Rivoli & Ronkainen 1989). Such expansion makes it possible  to increase the strategic role of the country in the whole world. For example, talking about oil companies, it is essential to stress on the fact that amount of oil stocks plays one of the most important roles in the world arena and with this fact determines the power of the country. Concerning this example, it is necessary to note that when the firm that is connected with oil production becomes international, the power of the country increases and its earnings increases simultaneously (Eicher & Kang 2004). Domestic companies that decided become international always have high level of competitiveness that is connected with their ability to overcome enter barriers of entering country. As a result, such companies have the most advanced technology and production organization that provide high efficiency and profitability. Therefore, these firms tend to achieve their full benefit from the expansion in foreign markets. The export of capital and the organization of production abroad further increase the competitiveness and strength of corporations, whose activities are based on the use of scientific, technological, and organizational progress. The export of capital is intended to boost intensive development of new high-capacity markets. In this respect, particularly attractive markets blossom in the major developed countries. These facts give the host country possibility to have the high level of technologies development.

Topic 8. Theories of FDI

FDI is an important category of the international economy. Like any other category, it has its own objective laws and theories, referring to what can be explained as various processes. Consider the basic theories of FDI. The first one is the theory of market imperfections. This theory was developed by SG Hymer in 1960. The basis of his theory is the search for investors, market imperfections, which will allow more efficient use of capital. This theory has been extended by Kindlberg in 1969 (Sauvant, McAllister & Maschek 2010). The next one is the theory of oligopolistic protection. According to this theory, the movement of capital is determined by the market leader. So for example, in the United States there were analyzed 187 U.S. corporations during the period from 1948 to 1967. It was found that 45% of domestic competitors which entered  the leading market in the first three years after the initial capital flight followed the tendency that was proclaimed by the market leader. The next theory of FDI is the theory of "flying geese" or the theory of life-cycle. This theory was developed by a Japanese scientist Akamatsu. Based on observations, he built a model in which the country was transformed from an importer to an exporter of goods, which resembles a "flying geese" (Froot 1993). The last theory is the theory of competitive advantage of nations. This theory was developed in 1990 by Michael Porter, who identified four factors of advantage of nations: corporate strategy; the factors of production; the demand for the products; the lack of barriers to entry.

Topic 9. Host country political and legal environment factors

Various factors of legislative and governmental nature may influence the level of the existing opportunities and threats for the organization. National and foreign governments may be act within  a number of organizations as key regulators of their activities, sources of grants, employers, and customers. This may mean that these organizations assessment of the political situation may be the most important aspect of the analysis of the external environment (Kotabe 2006). Such assessment is carried out through the details of political and legal factors affecting the organization. There are many factors, even more of their different combinations, so the main of them are: changes in tax laws; alignment of political forces, the relationship between business and government, patent legislation, environmental legislation, government spending , antitrust, monetary policy, government regulation, federal elections, the political conditions in foreign countries, the size of state budgets, government relations with foreign countries. Some of these factors affect all commercial organizations, i.e. through  changes in tax laws (Davies 2011). Others  affect only a small number of firms operating in the market, such as antitrust laws. However, in one way or another, directly or indirectly, political and legal factors affect the whole organization. For example, the toy maker will be affected by the standards of toy safety, changes in the rules of the import and export of raw materials, equipment, technology and finished products, changes in the tax policy of the state, etc.

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