Assignment Course: International Management MGT- 3201 Topic: Review and Discussion Questions (Chapter 1) Submitted To: Dr. Sumayya Begum Associate Professor Dept. of Management Studies Bangladesh University of Professionals Submitted By: Shadman Araf ID: 18241067 Sec: A Department of Management Studies Date: 22nd July 2020 Q1. How has globalization affected different world regions? What are some of the benefits and costs of globalization for different sectors of society (companies, workers, communities)? Globalization is the process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated. Globalization is distinct from internationalization in that internationalization is the process of a business crossing national and cultural borders, while globalization is the vision of creating one world unit, a single market entity. Evidence of globalization can be seen in increased levels of trade, capital flows, and migration. Globalization has been facilitated by technological advances in transnational communications, transport, and travel. The factors involving globalization are: Greater free trade. Greater movement of labor. Increased capital flows. The growth of multi-national companies. Increased integration of global trade cycle. Increased communication and improved transport, effectively reducing barriers between countries. Summary of costs/benefits of Globalization: Benefits Costs Lower prices/ greater choice Structural unemployment Economies of scale – lower prices Environmental costs Increased global investment Tax competition and avoidance Free movement of labor Brain drain from some countries May reduce global inequality Less cultural diversity Benefits of globalization for different sectors of society (companies, workers, communities): 1. Free Trade: Free trade is a way for countries to exchange goods and resources. This means countries can specialize in producing goods where they have a comparative advantage (this means they can produce goods at a lower opportunity cost). When countries specialize there will be several gains from trade: a. b. c. d. e. Lower prices for consumers Greater choice of goods, e.g. food imports enable a more extensive diet. Bigger export markets for domestic manufacturers Economies of scale through being able to specialize in certain goods Greater competition. 2. Free movement of labor: Increased labor migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labor migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west. Also, it helps countries with labor shortages fill important posts. For example, the UK needed to recruit nurses from the far east to fill shortages. However, this issue is also quite controversial. Some are concerned that the free movement of labor can cause excess pressure on housing and social services in some countries. Countries like the US have responded to this process by actively trying to prevent migrants from other countries. 3. Increased economies of scale: Production is increasingly specialized. Globalization enables goods to be produced in different parts of the world. This greater specialization enables lower average costs and lower prices for consumers 4. Greater competition: Domestic monopolies used to be protected by a lack of competition. However, globalization means that firms face greater competition from foreign firms. 5. Increased investment: Globalization has also enabled increased levels of investment. It has made it easier for countries to attract short-term and long-term investment. Investment by multinational companies can play a big role in improving the economies of developing countries. 1. 2. 3. 4. Costs of globalization for different sectors of society (companies, workers, communities): Free trade can harm developing economies: Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. However, developing countries are often harmed by tariff protection, that western economies have on agriculture. Environmental costs: One problem of globalization is that it has increased the use of nonrenewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict. However, arguably the problem is not so much globalization as a failure to set satisfactory environmental standards. Labor drain: Globalization enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best-skilled workers, who are attracted by higher wages elsewhere. Less cultural diversity: Globalization has led to increased economic and cultural hegemony. With globalization there is arguably less cultural diversity; however, it is also led to more options for some people. 5. Tax competition and tax avoidance: Multinational companies like Amazon and Google, can set up offices in countries like Bermuda and Luxembourg with very low rates of corporation tax and then funnel their profits through these subsidiaries. This means they pay very little tax in the countries where they do most of their business. This means governments have to increase taxes on VAT and income tax. It is also seen as unfair competition for domestic firms who don’t use the same tax avoidance measures. The greater mobility of capital means that countries have sought to encourage inward investment by offering the lowest corporation tax. (e.g. Ireland offers very low tax rate). This has encouraged lower corporation tax, which leads to higher forms of other tax. Q2. How has NAFTA affected the economies of North America and how has the EU affected Europe? What importance do these economic pacts have for international managers in North America, Europe, and Asia? Partly as a result of the slow progress in multilateral trade negotiations, the United States and many other countries have pursued bilateral and regional trade agreements. The United States, Canada, and Mexico make up the North American Free Trade Agreement (NAFTA), which in essence has removed all barriers to trade among these countries and created a huge North American market. Several economic developments have occurred because of this agreement that are designed to promote commerce in the region. Some of the more important developments include: (1) the elimination of tariffs as well as import and export quotas. (2) the opening of government procurement markets to companies in the other two nations. (3) an increase in the opportunity to make investments in each other’s country. (4) an increase in the ease of travel between countries; and (5) the removal of restrictions on agricultural products, auto parts, and energy goods. Many of these provisions were implemented gradually. For example, in the case of Mexico, quotas on Mexican products in the textile and apparel sectors were phased out over time, and customs duties on all textile products were eliminated over 10 years Negotiations between NAFTA members and many Latin American countries, such as Chile, have concluded, and others are ongoing. The European Union (EU) has made significant progress over the past decade in becoming a unified market. In 2003 it consisted of 15 nations: Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, the Netherlands, Ireland, Italy, Luxembourg, Portugal, Spain, and Sweden. In May 2004, 10 additional countries joined the EU: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. In January 2007, Romania and Bulgaria acceded to the EU, and in July 2013, Croatia became the 28th and newest member of the EU. Not only have most trade barriers between the members been removed, but a subset of European countries has adopted a unified currency called the euro. As a result, it is now possible for customers to compare prices between most countries and for business firms to lower their costs by conducting business in one uniform currency. With access to the entire pan-European market, large MNCs can now achieve the operational scale and scope necessary to reduce costs and increase efficiencies. Even though long-standing cultural differences remain, and the EU has recently experienced some substantial challenges, the EU is more integrated as a single market than NAFTA, CAFTA, or the allied Asian countries. With many additional countries poised to join the EU, including Albania, Serbia, and Turkey, the resulting pan-European market will be one that no major MNC can afford to ignore. Moreover, the Transatlantic Trade and Investment Partnership (T-TIP) is a proposed trade agreement between the European Union and the United States that could further bolster trade and multilateral economic growth in Europe and North America. Q3. Why are Russia and Eastern Europe of interest to international managers? Identify and describe some reasons for such interest and also risks associated with doing business in these regions. The Soviet Union ceased to exist back in 1991. Each of the individual republics that made up the U.S.S.R. in turn declared its independence and now is attempting to shift from a centrally planned to a market-based economy. The Russian Republic has the largest population, territory, and influence, but others, such as Ukraine, also are industrialized and potentially important in the global economy. Of most importance to the study of international management are the Russian economic reforms, the dismantling of Russian price controls (allowing supply and demand to determine prices), and privatization (converting the old communist-style public enterprises to private ownership). Russia’s economy continues to emerge as poverty declines and the middle class expands. Direct investment in Russia, along with its membership in the International Monetary Fund (IMF), helped to raise GDP and decrease inflation, offsetting the hyperinflation created from the initial attempt at transitioning to a market-based economy in the early 1990s. Abundant oil and high global energy prices greatly boosted Russia’s economy in the early 2000s, though recent decreases in demand have pushed Russia into a recession. In addition, the Group of Seven formally expanded to include Russia in 1997, becoming the Group of Eight (G8). However, Russia was suspended from the group in 2014 after a series of political differences between the original G7 and Russia, culminating in the annexation of Crimea. In addition, multilateral sanctions were imposed. These actions, when combined with falling oil and gas prices, have resulted in a dramatic slowdown in Russia’s economy and a fall in the value of the ruble. As such, the Russian economy likely will have a number of years of economic instability and many recurrent political problems. The improvement of the investment climate in Russia and its positive effect on the inflow of foreign direct investment into the country's economy is being declared at the highest levels of the Russian government as an important objective for the further economic development of the country. One of the most important instruments for that improvement should be the consideration of foreign investor's opinions and ideas and reaction to the most urgent and critical issues which serve as obstacles to their investment activities in Russia. A common scenario among growing Eastern European markets such as Warsaw, Budapest is that demand is coming primarily from domestic buyers, with indications that an increasing number of foreign buyers are interested in investing the year of 2020. These emerging markets are home to an increasing amount of high-end inventory, and in 2020, many Eastern European cities will see the debut of luxury new developments. That’s why investors are mostly interested to invest in Russia and Eastern Europe. Q4. Many MNCs have secured a foothold in Asia, and many more are looking to develop business relations there. Why does this region of the world hold such interest for international management? Identify and describe some reasons for such interest. The unparalleled size of Asia's markets has always caught the eye of multinational corporations. More recently, as government policies and cultural attitudes in the region continue to evolve, the strategies of multinational companies have changed as well. Globalization has changed business. This phenomenon has led to the “multinational”—companies whose reach can seemingly take over every inch of the world. While many of these companies have been created with a Western approach to business, Asian corporations are rising, forcing Western-style multinationals to create new strategies when it comes to their presence in Asian countries and cultures. Many Asian governments are actively seeking to foster domestic champions of their own. These champions, built on traditional Asian views, have already reached a large enough size to expand overseas and forge partnerships with other companies in the region. The result is the birth of a new type of multinational: the Asian multinational. Suppose, for a number of reasons, India is attractive to multinationals, especially U.S. and British firms. Many Indian people speak English, are very well educated, and are known for advanced information technology expertise. Also, the Indian government is providing funds for economic development. For example, India is expanding its telecommunication systems and increasing the number of phone lines fivefold, a market that AT&T is vigorously pursuing. Western culture has a tendency to create heavy-hitting corporations that reach across the world. That said, as Asia gets wealthier and its firms build up greater financial firepower, the competitive business landscape will continue to expand and involve more and more Asian multinationals. Q5. Why would MNCs be interested in South America, India, the Middle East and Central Asia, and Africa, the less developed and emerging countries of the world? Would MNCs be better off focusing their efforts on more industrialized regions? Explain. For the past decade, decision-makers in major banks and multinational companies have been focusing their attention on one of the hottest "growth frontiers": emerging markets, specifically Southeast Asia, the Indian subcontinent and Latin America. During much of the 1980's, the prospects in most emerging countries were quite bleak: the debt crisis, inflation and domestic political turbulence turned these regions into a planner's nightmare. Then a number of "economic miracles" began to pop up, drawing attention to Asia, Eastern Europe, China, India and, toward the end of the 80's, Latin America. Emerging countries now represent the clear majority of the world's population. Their growth prospects range from 4 to 5 percent per year in Latin America to 6 to 7 percent in East Asia to 10 percent in China. These are typically two to three times the expected growth rates of developed countries. In all of these countries, growth will invariably entail the expansion of new middle classes, with outsized needs for consumer durables, housing and mobility. For example, in most of the market-planning exercises in which Booz-Allen & Hamilton is involved, emerging countries represent anywhere from 50 to 80 percent of the growth in consumer durables over the next 10 years. This growth will call for unprecedented investments in infrastructure. For the world's leading engineering and construction companies and the major builders of capital goods, longterm survival hinges on the effectiveness with which they capitalize on the growth opportunities offered by emerging countries. Multinationals are busy concentrating their investment efforts in emerging countries. This requires either entry strategies into new, unfamiliar countries or growth strategies in countries that are opening up or deregulating their markets. Local enterprises that are typically dominant in their home countries find themselves facing serious challenges when their governments start dismantling the import-substitution policies that had protected them for so long. Those companies need to decide whether they can adapt to their new environment (by trying to grow internationally or developing alliances with world-class players) or simply exit the business by selling out to a multinational. So I think, multinationals companies should stay in emerging markets. Q6. MNCs from emerging markets (India, China, Brazil) are beginning to challenge the dominance of developed country MNCs. What are some advantages that firms from emerging markets bring to their global business? How might MNCs from North America, Europe, and Japan respond to these challenges? One of the most far-reaching developments of the last twenty years has to do with the rise of emerging economies, which once represented no more than 15% of the global economy and now have come to account for nearly 50% of economic activity. These economies are growing fast and are located around the world, including the BRICs (Brazil, Russia, India, and China), MITS (Mexico, Indonesia, Turkey, and South Africa), and many other economies in Africa, East Asia, South Asia, Latin America, and the Middle East. Some of these countries have become major exporters of manufactured goods while others sell agricultural, energy or mineral commodities. In the last few years, the emerging economies have also become major sources of foreign direct investment, that is, companies based in emerging economies have expanded throughout the world, making acquisitions and setting up manufacturing and distribution operations not just in emerging economies and developing countries but in developed ones as well, becoming Multinational Enterprises (MNEs). Multinational firms exist because certain economic conditions and proprietary advantages make it advisable and possible for them to profitably undertake production of a good or service in a foreign location. The most representative case of foreign direct investment is horizontal expansion, which occurs when the firm sets up a plant or service delivery facility in a foreign location with the goal of selling in that market, and without abandoning production of the good or service in the home country. Execution in emerging markets depends heavily on the quality of talent and the local organization. In case of MNCs based on North America, Europe, Japan the winning MNCs may invest in attracting and developing local talent at all levels. In addition to training, some MNCs might offer programs to encourage the personal growth and long-term success of employees. Many of the winning MNCs from emerging economies forge strong relationships with local and regional governments and other community stakeholders that prove invaluable to their long-term success. MNCs from North America, Europe, Japan may also align their activities with the sustainabledevelopment goals of local leaders and embed corporate social responsibility into their strategies.
