3-the triad an international business(international business)

Dr Zain Yusufzai The Triad and International Business Chapter # 3 (page 66-93).

Introduction:Two drivers of Globalization are

1. foreign direct investment (FDI) and 2. trade

Triad Nations > USA, European Union (EU), Japan (Three Major trading and investment blocs in the international arena);

Other countries moving into the arena of international business

China establishing itself as a major playerOthers: - Australia, Brazil, Canada, India, Mexico, Russian Federation, Singapore, South Korea, Netherlands and Spain;

Reasons for Foreign Direct Investments (FDI);

Foreign Direct Investment (FDI):- Equity Funds invested in other nations;

Ownership and control of foreign assets In practice, FDI involves the ownership, as a whole

or partial, of a company in a foreign country known as a foreign subsidiary.

Forms of equity investment:1. purchase off an ongoing company, (instead

of starting from scratch)2. joint venture3. completely owned enterprise

Port folio investment:The purpose of financial securities in other firms for realizing a financial gain when these marketable assets are sold;

Reasons for ownership position in control of Foreign AssetsIncrease Sales and ProfitsCompanies in smaller economies look outside of their home boundaries

Example: - Dutch Shell 60%, BP 70%, Nestle (Switzerland) 90%

Thousands of smaller firms earn bulk of revenue from international customers

International businessAlan M. Rugman, Richard M. Hodgetts

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Global markets offer more incentives opportunities than domestic market

Enter Rapidly growing Markets Country moves toward a market driven economy MNEs find huge demand for goods and services

that cannot be satisfied by local firms (china) Enter Eastern Europe by acquiring local firms or

setting up Joint Venture

Reduce costs First MNEs achieve “lower costs” by entering foreign markets where

labor is cheap rules and regulations more relaxed than home turf

Labor expensive (high in wages) represent a significant portion over all costs MNEs best option is to look for other geographical areas where goods can be produced at a much lower labor price

Second: important cost factor “Material” if material in short supply or must be conveyed a long distance; it is less expensive to move production close to the source of supply than to import material.Third: critical cost factor “Energy” if domestically cost of energy for making the product is high, company forced to move production, set up operations over seas near source of cheaper energyForth: important factor “transportation” costs, logistics have become a major concern for most organizations around the world due to incurring costs

Firms World Wide use these four reasons to justify moving assembly operations to other countries

Maquiladoras (twin factories)Production operations set up on both sides of the US Mexican border in free trade zone for the purpose of shipping goods between two countries

Protect domestic market; FDI is used to protect the domestic market


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Enter to attack potential competitors and prevent them from expanding overseas

MNEs justify this action by; competition less likely to enter foreign market if busy defending its home market

Protect position of product if parent company moves operations overseas(example Honda moves to Indiana ,nippodenso radiator company moves operations close by to maintain business with Honda)

Protect foreign markets FDI used to protect foreign markets Invest heavily to upgrade its stations and increase

its market share

Acquire technological and managerial know how Move operations close to competition Move some of their research and development

facilities to Japan Using this strategy, they make it easier to

monitor the competition and to recruit scientists from local universities and competitive laboratories

Company hires internationally know scientists to help attract experience colleagues from leading Japanese companies

Recruit young graduates from the host universities

Foreign direct investments and trade by triad membersFDI 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 memberTriad countries have also become major investors in poorer nations. The United Nations centre on Transnational Corporations (UNCTC) reports, that triad members accounted for 40 % of the FDI in 25 of the 37 developing countries

The Triad and Regional Business Strategy Dominate home and surrounding region


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International expansion does not mean “Global expansion “

Wal-Mart has 10% stores outside US ; 90% at home

Triad activity and the automobile industry Auto industry in us Auto industry in EU Auto industry in Japan World wide auto industry

Economic relations within the triad World wide auto industry, members of the triad

compete with each other in their home markets And in the markets of others What happens in one market can effect the

situation in other markets

Triad economies Economies slowed down after 1998 US, EU , Japan , Germany and every were else

economies taking plunge Companies needed capital for expansion could not

receive any thing Competition increased New suppliers and products in markets

Mergers and acquisitions Triad members concerned for their

economies ,does not mean trade or FDI between them has declined

$700 billion worth of business between them not three separated groups but three interrelated

groups relaxed regulations resulted in influx of foreign

MNEs to make position in foreign bass strong


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3-the triad an international business(international business)

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