global trading environment in international business

1. P
CHAPTER 6:
GLOBAL TRADING
ENVIRONMENT

2. Learning Objectives:
After studying this chapter, you will be able to:
1. Explain Liberalization of international trade.
2. Define foreign direct investment (FDI).
3. Understand multinational corporation.
4. Discuss the transfer of technological developing
countries.
5. Understand the political risk for multinational
companies.

3. INTRODUCTION

4. • The multinational world trade organization,
created in 1995 as the successor to the
general agreement on tariffs and trade,
provides a forum for setting disputes among
member nations and tries to set policy for
world trade.
• The world trading environment is
also characterized by preferential trade
agreement among seller members of
countries on the regional and some regional
basis.

5. • The purpose of free trade area is to eliminate tariffs and
quotas.
• Rules of origin are used to verify the country from which
the goods are shipped.
• A custom union represent a further degree of integration in
the form of common external tariffs.
• And a common market such as the Central
American Integration System (SICA), restriction on the
movement of labor and capital are based in an effort to
further increase integration.

6. LIBERALIZATION
OF INTERNATIONAL
TRADE

7. • Since World War II, governments have cooperated on a
variety of efforts to reduce or eliminate important restrictions
and export subsidies.
• They have been motivated by the conviction that
deregulating, or liberalizing, trade would increase the
volume of trade, promote economic growth, and improve
living standard worldwide.
• Trade liberalization initiatives have been pursued at the
country-to-country level (bilateral level), among groups of
neighboring countries (the regional level).

8. TWO PRINCIPLES
HAVE GUIDED
POST WORLD WAR II
TRADE LIBERAL

9. The
Nondiscrimination
Principle
The Principle of
Reciprocity

10. FOREIGN DIRECT
INVESTMENT
(FDI)

11. • Every country today is opening up its door and
borders to foreign investment.
• Business opportunities have expanded to such a
massive state.
• Another important characteristics of recent FDI is the
mode by which it is accomplished.
• In the past, greenfield investment was the rule, but
today the vast majority of FDI is done
through mergers and acquisitions (M&A).

12. IMPACT OF
FOREIGN DIRECT
INVESTMENT AND
TRADE ON ECONOMIC
GROWTH

13. • The FDI and trade are often seen as important catalysts for
economic growth in the developing countries.
• Even though studies show the FDI and trade has a positive
impact on economic growth, the size of such impact may
vary across countries depending on the:
-level of human capital
-domestic investment
-infrastructure
-macroeconomics stability
-trade policies

14. ADVANTAGES
AND
DISADVANTAGES OF
FDI

15. ADVANTAGES:
• The party making the investment is usually known as the parent
enterprise.
• The party invested in can be referred to as the foreign affiliate.
• Many countries still have several import tariffs in place.
• Many parent enterprises provide FDI because of the tax incentives
that they get.
• Foreign investment reduces the disparity that exists between costs
and revenues.
• Different international market has different tastes, different
preferences and different requirements.

16. • Thought this is not such a big factor, some market is
preferring locally produced goods due to a strong
sense of patriotism and nationalism, making it very
hard for international enterprises to penetrate such a
market.
• From the foreign affiliate's point of view, FDI is
beneficial because they get advanced resources
and additional capital at their disposal.

17. DISADVANTAGES:
• Foreign investment is always risky because the political
situation in some countries can change in an instant.
• In certain cases, political changes could lead to
a situation of expropriation.
• Many times, the cultural differences between different
countries prove insurmountable.
• Investing in foreign countries in infinity more expensive
than exporting goods.
• From the point of view of foreign affiliates FDI is ill-
advised because they lose their national identity.

18. MULTINATIONAL
CORPORATION
•A multinational Corporation
is a company with stablish
branches in more than one
country.

19. ECONOMIC EFFECTS OF
MULTINATIONAL
CORPORATION
•A multinational Corporation
is a company with stablish
branches in more than one
country.

20. TAXATION REVENUES
•Countries that host
multinational corporation also
benefit to tax revenues from
companies.

21. IMPROVING THE BALANCE
OF PAYMENT
•Balance of payment refers
to an accounting record of
a country's export and
imports.

22. CONTROLLING LOCAL ECONOMY
•Multinational Corporation have the
freedom to shift their location at will;
giving them the advantage to exert
pressure over when faced situation that
effect their interests.

23. INCREASED PRODUCTIVITY
•Multinational Corporation
promote productivity and
efficiency in the host country.

24. A WORLD HISTORY OF
TECHNOLOGY TRANSFER
•Japan's opening of its ports in 1859 brought
with it the beginning of trade with Europe
and the United States (US), and at the
same time, open away for it to import
technologies from the west.

25. TECHNOLOGY AND MULTINATIONAL
COMPANIES
MNCs significant contribution is in the field of technology
transfer which it offers to host countries.
• In developing countries, low intensive of technology restricts
investment and competitive development.
• Technology is essential to generate capital and advancement
in developing economies.
• Technology and innovation are measures of competitive
strength for the organization of the developing countries.

26. TRANSFER OF TECHNOLOGY
TO DEVELOPING COUNTRIES
•Technology transfer is the term used to
describe the processes by which
technological knowledge moves within or
between organizations. International
technology transfer refers to the way in
which this occurs between countries.

27. JAMES THOMPSON/ALEKS MERHLE
• All these forms of knowledge may vary in a further important way.
• At one end of the spectrum, the transfer involved can be
concerned with the knowledge for using and operating
technology.
• At the other end, it can be concerned with the
knowledge necessary for changing technology and innovating.

28. Horizontal technology – consists of the
movement of an established technology from
once operational environment to another.
Vertical technology - refers to the transmission
of new technologies from their generation
during research and development activities in
science and technology organizations.

29. FROM TECHNOLOGY TRANSFER TO
TECHNOLOGY LEARNING CAPABILITIES
• The initial emphasis in the analysis of
international technology transfer, in
discussions among policy analysis up to the
late 1970s, was on the cost of technology
transfer, and on whether the choice of
technologies was appropriate to the local
conditions in developing countries.

30. THE POLICY DIMESION AND
REGULARLY FRAMEWORKS
• For some, the process of technology transfer is one that
can be left primarily to the operation of the free market.
• But experience has shown that the process is also
sensitive to market failures, such as imbalanced in
bargaining power and information between sources and
acquires of technologies.
• Trends in the regulations introduced to encourage trade
liberalization also have implications for access by
developing countries to foreign technologies.

31. TYPES AND MEANS
OF TECHNOLOGY
TRANSFER

32. • In general terms, technology is transferred
through the actions of both the supplier and
receiver of a technology.
• Technology transfer can take a number of
different forms, depending on the capacity
and policies of the parties involved the
sized of the technological gap, the amount
and quality of the technical
information available, the degree of
supplier intervention and the initiative shown
by the recipient.

33. THE METHODS RECIPIENT USE TO
OBTAIN TECHNOLOGY
• Oversee factories founded through direct investment by
suppliers.
• Business established by migrants from the supplier
country.
• Joint ventures.
• Management contract with suppliers.
• Turkey contracts, where suppliers guarantee the transfer
of technology when they construct a factory.

34. • Purchased contracts for machinery and know-low.
• Technology transfer as an integral part of the
machinery imported by the recipient patent license
agreements.
• Production of imitations.
• In-house development of a technology.
• The employment of engineers and skilled
workers provided by the suppliers or
by business owned by the receivers.

35. POLITICAL RISK FOR
MULTINATIONAL COMPANIES
•Political risk for multinational
companies is a salient
phenomenon.

36. POLITICAL RISK EFFECTS
• Government Intervention
- Many scholars seem to acknowledge that policy
changes and government intervention constitute the most
important class of political risk outcomes. The most well-
known form of government intervention is
surely expropriation and nationalizations. The period
ranging from the latter half of the 1960s until the mid-
1970s the "expropriation era" is particularly (in) famous.

37. ACTS RELATING TO WAR,
TERRORISM, AND SOCIAL UNREST
• The second category of political risk effects acts of
intervention relating to war, terrorism, and social unrest is
also a broad category that encompasses a wide variety of
incidents. Moreover, data from Overseas Private
Insurance Corporation (OPIC), U.S. political risk insurance
entity reveal that political violence claims have predominated
in recent years, accounting for 59% of claims paid in the
business from 1991 to 2004.

38. OTHER ACTS COMMITTED BY
NON-GOVERNMENTAL ACTORS
• The last category of political risk
effects a "residual" class consists of
other acts of intervention committed
by non-state actors, like activists and
domestic businesses.

39. SOURCES OF POLITICAL RISK
• Four main categories of root sources of realized
political risk can be extracted from the literature:
1. The obsolescing bargain mechanism
2. Socio-political instability and grievances;
3. Political institutions; and
4. Preferences and attitudes

40. THANK
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