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Unit 2
Objetives
1. Examine Porters and other theories related to trade flows between nations.
2. Analyze the implications that international trade holds in business practices and management.
3. Be familiar with current trends regarding FDI in the world economy. 4. Understand the benefits of FDI for the home and host country. 5. Define the terms foreign exchange market and exchange rate. 6. Understand the functions of foreign exchange market and currency conversion. 7. Analyze the implications of foreign exchange exposure.
What Is Mercantilism?
Mercantilism suggests that the best interest to export more than it imports.
product would become more standardized, and price the main competitive
weapon. Producers based in advanced countries. If cost pressures were intense, developing countries would acquire a
New trade theory suggests that the ability of firms to gain economies of scale. Through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average cost of those goods.
1.
Michael Porter tried to explain why a nation achieves international success in a particular industry and identified four attributes that promote or impede the creation of competitive advantage.
1.
2. 3. 4.
Factor endowments - a nations position in factors of production necessary to compete in a given industry.
Demand conditions - the nature of home demand for the industrys product or service. Relating and supporting industries - the presence or absence of supplier industries and related industries that are internationally competitive. Firm strategy, structure, and rivalry - the conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry.
3.
Policy implications.
Since World War II, the U.S. has been the largest source country for FDI.
2.
Licensing - granting a foreign entity the right to produce and sell the firms product in return for a royalty fee on every unit that the foreign entity sells.
Recently, there has been a strong shift toward the free market stance creating.
Cost Host Country Adverse effects of FDI on competition within the host nation
Cost Home Country The home countrys balance of payments can suffer
International Institutions Influence 1990s, there was no consistent involvement by multinational institutions
Managers
Employment effects
Employment effects
Today, the World Trade Organization is changing this by trying to establish a universal set of rules designed to promote the liberalization of FDI
The direction of FDI can be explained through the locationspecific advantages argument associated with John Dunning
An important variable in decisions about where to locate foreign production facilities
Importance
The foreign exchange market. The exchange rate is the rate at which one currency is converted into another Events in the foreign exchange market affect firm sales, profits, and strategy
They have spare cash that they wish to invest for short terms in money markets.
2.
Capital flight.
Countertrade.
3.
Economic exposure.
Lead strategy.
Lag strategy.
Activities
Forum: International trade theory Is free trade fair? Why or why not? What are the potential costs of adopting a free trade regime? Do you think governments should do anything to reduce these costs? What?
To be evaluated
Interventions: content, consistent with the discussion topic and argument.
10%
Study Case: Management Focus on Cemex. Answer the following questions: What value does Cemex bring to the host economy? Can you see any drawbacks of Cemexs inward investment in an economy? Define a Greenfield Venture. Cemex has a strong preference for acquisitions over Greenfield ventures as an entry mode. Why?
Group work: Watch and discuss one of the following videos: FDI in Sudanese Oil Changes Sudanese Economy. U.S. Farmers respond to CAFTA. China: Changing the Yuan/Dolar. Write on one page document the outcomes of your discussion, and present them in a videoconference.
10%
Structure, content, grammar, consistent with the topic of the video and argument.
10%