CHAPTER 17

1 The overall objective of the EU is to create a market in which there are no economic barriers to trade
between the member countries. When this is achieved, the EU will be the largest economic bloc in the
world. However, there are two areas in particular in which additional progress must be made: free
movement of goods and the practice of government procurement. In addition, many new entrants into
the EU (and a few of the original members) have yet to be integrated in terms of adopting the euro and
are not yet allowed free movement of labor and passport-free travel. They also threaten the possibility
of a unified regional foreign policy.

2 The current competitive status of the EU lags that of the United States and Japan in a number of areas,
including productivity, investment spending, and education. Greater economic strides will be needed if
the region is to compete effectively with its triad counterparts.

3 In preparing to do business in the EU, MNEs should focus on the competitive nature of the targeted
industry and the evaluation of location. Competitive intelligence gathering involves external information
gathering and internal infrastructural analysis. Location evaluation entails the consideration of such
factors as regional incentives, operating costs, and distance from major markets.

4 Many aspects of strategy need to be considered when doing business in the EU, including (a) an overall
analysis of the environment, (b) the feasibility of exporting, (c) the value of strategic alliances and
acquisitions, (d) marketing considerations, (e) manufacturing approaches, and (f) management
considerations. Managers need to weigh the choices of economic integration and/or national
responsiveness very carefully.

5 The EU has a large internal market. Firms located in the EU can use non-tariff barriers to entry to keep
out rival firms: namely, trade remedy legislation such as countervailing duty (CVD) laws and anti-
dumping (AD) laws. Recent research has found that the use of both CVD and AD is a “shelter” strategy
designed to protect uncompetitive domestic firms. However, the more successful EU firms concentrate
on the development of sustainable firm-specific advantages rather than on the use of CVD and AD laws.

CHAPTER 18

1 The current strengths and weaknesses of Japanese firms result from their evolution in a highly
competitive but continually growing domestic economy with unique sociocultural foundations.

2 The Japanese business environment was traditionally characterized by strong interfirm rivalry;
“patient” long-term finance, partly through cross-shareholding arrangements; keiretsu relationships,
both vertical and horizontal; complex, multi-tiered distribution systems; demanding customers; and
strong government intervention in the early years.

3 Socio-cultural factors that supported the Japanese way of doing business include ideals of obligation,
loyalty, hierarchy and ritual, and a strong work ethic, linked to mainstream religion; a strong but
conformist education system and “groupism” plus consensus- based decision making in general; and
complex language and tacit forms of communication.

4 Japanese firms are traditionally loyal to employees, who tend not to move from company to company;
hierarchical and bureaucratic but also consensus oriented; good at integrating between functions and
teamwork; good at applied R&D and training; longtermist; and close to suppliers and customers.

5 The Japanese market has traditionally been difficult for foreign investors to break into, partly because
of the factors listed above and partly because of the system of governance that tends to favor local
firms.

6 Japan is changing. Growing social and political heterogeneity alongside a prolonged economic
recession is creating unprecedented tensions and forcing drastic corporate restructuring. Keiretsu
families are loosening or breaking up; firms are diversifying and divesting; lifetime employment is
declining; capital markets are heavily restructuring; and deregulation is the norm.

7 Changes in Japan are creating investment, M&A, and market-entry opportunities for foreign firms.

8 The growing regional Asian economy is centered on the major trading partnership between Japan and
China.

CHAPTER 19

1 Canada is the single largest trading partner of the United States. There has been a move toward
privatization in the past few years as well as toward deregulation. As in the United States, the
government attempts to promote competition, and the North American Free Trade Agreement (NAFTA)
with Mexico has recognized the high degree of trade between the two countries.

2 Financial institutions are similar to those in the United States, as are labor relations practices.
However, a much larger percentage of Canadian employees are unionized, and the unions have been
major opponents of the FTA and the subsequent NAFTA.

3 NAFTA will eventually eliminate most trade barriers between the United States and Canada, which
should help open up Canada to more economic development. At the same time, the government
welcomes foreign investment, and a wide variety of incentive programs are designed to encourage such
investments.

4 The approaches to doing business in Canada are similar to those in the United States, with some
important regulatory differences. The chapter identified and discussed both.

5 Mexico has the strongest economy in Latin America, and its close business ties to the United States, as
reflected by imports, exports, and US FDI, bode well for its future. The potential of the free trade
agreement between the two countries and the growth of the maquiladora industry are helping Mexico
link its economy to that of the United States. Mexico’s petrochemical and automotive clusters are key
industries in this linkage and are likely to become world-class competitors in their respective areas.

CHAPTER 20
1 Emerging economies are increasingly important for MNEs: as growing markets; as sources of cheaper
or better production inputs; and as a source of competitors in the shape of new MNEs as non-triad firms
internationalize.

2 Emerging economies tend to be controlled more strongly by their governments and are less
predictable and riskier than triad markets.

3 Emerging market countries need investment from, and access to, a triad bloc in order to develop
global industries. Inflows and outflows of global FDI show that there is growing integration between
countries inside and outside the triad.

4 Current trends such as privatization, liberalization, and legislative changes that are designed to
encourage foreign direct investment (FDI) are helping emerging economies to tap their economic
potential. Intra- and inter-regional trade agreements can also be helpful in both creating mini common
markets and smoothing international trade.

5 FDI into Asia is concentrated in the ten fast-growing economies. There is strong intraregional trade
and FDI growth and a marked increase in the importance of service industries; 36 out of the 50 largest
non-financial TNCs from developing countries are from the Asia–Pacific region.

6 Despite years of liberalization, the central and eastern European region attracts relatively small
amounts of FDI. Better prospects appear to be ahead for countries that have joined the EU.

7 Latin America and the Caribbean region receive a small percentage of global FDI (less than China).
Intra-regional competition is strong but manufacturing exporters are losing out to China.

8 Africa receives less than 4 percent of global FDI and remains relatively unattractive and risky for most
investors. South African MNEs are expanding across the region in particular industry sectors.

9 The newly industrialized countries (NICs), a subgroup of non-triad economies, have experienced rapid
economic growth and increased trade and FDI, partly by specializing in particular industries and
developing comparative and competitive advantages.

10 NICs and other emerging markets in Asia are seen by some to be following the Flying Geese model of
economic development. The Indian software industry appears to counter this pattern of sequential
industry specialization as well as contradicting the main tenets of Porter’s diamond of competitive
advantage.

11 Emerging economies are growing in importance as sources of innovation and as locations for R&D
investment by MNEs.

CHAPTER 21

1 One of the most important trends of our time is the economic development of China and its growing
importance in terms of trade and FDI, as a cheap manufacturing base, as a growing market, and as a
source of competitive opportunities and threats for all MNEs. Its economic growth and rising influence
in the global economy may, however, be slowed or halted by social and political forces, domestic or
international.
2 In terms of the scale, scope, and speed of economic growth, China is unprecedented. It is larger and
growing faster, across a broader range of industries, than Japan during its rapid development phase.

3 The Chinese government at various levels has a strong influence over the economy, business practices,
and the opportunities open to MNEs. The “Going Global” policy and initiatives to develop target
industries and indigenous innovation capabilities are central to the plans of central government.

4 Inward and outward FDI have grown. MNEs are attracted to the growing domestic market and
opportunities for cheaper manufacturing. MNEs are also establishing R&D activities in China.

5 MNEs looking to get into the Chinese market need to be aware of its particular differences and
difficulties, including changing regulations governing foreign investors; customs, tax, and foreign
exchange procedures; specific cultural traits and the importance of guanxi; the problems with
intellectual property rights; and the need to secure good partnerships and local expertise.

6 The current concern is that China and other emerging economies are increasingly competitive in
manufacturing, taking investment and jobs from the triad regions. The key concern in the near future
will be with their competitiveness in high-technology and knowledge-based businesses.

7 Some Chinese firms are expanding abroad. The extent and impacts of this internationalization of a
“new breed” of MNEs are hotly debated.