This document summarizes a chapter from an international business textbook. It discusses the triad regions of North America, Europe, and Asia which account for most foreign direct investment and trade. Multinational enterprises from the triad's US, European Union, and Japan dominate global business. The chapter examines reasons for foreign direct investment between triad regions, including accessing new markets and reducing costs. Several examples are provided of major companies like Walmart that primarily operate and generate most sales within their home triad region, demonstrating international business is often regional in nature rather than truly global.

1. Slide 3.1
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
The Triad and international
business
Chapter 3

2. Slide 3.2
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
The Triad and international business
• Objectives
• Introduction
• Reasons for FDI
• FDI and trade by triad members
• The triad and regional business strategy
• The world’s regional automotive industry.

3. Slide 3.3
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Objectives
• Describe the major reasons for FDI.
• Explain the role of triad-based MNEs in worldwide
FDI and trade.
• Relate select examples of inter-triad MNE
business activity.
• Discuss the economic interrelationships among
triad members.

4. Slide 3.4
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Introduction
• Most FDI and trade is conducted by MNEs.
• MNEs from the triad continue to dominate
international business.
• The triad is the basic unit of analysis in
international business.

5. Slide 3.5
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Table 3.1 Ten years of intra-regional FDI in the triad, 1993–2002
Note: EU intra-regional FDI is FDI stocks within Europe as a whole. NAFTA intra-regional FDI is US and Canada stocks within NAFTA. Asia intra
regional FDI is Japan, South Korea, Australia and New Zealand stocks within Asia
Source: Authors’ calculations based on OECD, International Direct Investment Statistics Yearbook, 2004

6. Slide 3.6
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Reasons for FDI

7. Slide 3.7
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Foreign direct investment
• FDI is the ownership and control of foreign
assets.
• FDI usually involves the ownership, whole or
partially, of a company in a foreign country: a
foreign subsidiary.
• FDI is different from portfolio investment, which is
the purchase of financial securities in other firms
for the purpose of realizing a financial gain when
these marketable assets are sold.

8. Slide 3.8
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Some reasons for FDI
• Increase sales and profits.
• Enter rapidly growing markets.
• Reduce costs.
• Gain a foothold in economic blocs.
• Protect domestic markets.
• Protect foreign markets.
• Acquire technological and managerial know-how.

9. Slide 3.9
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
FDI and trade by triad members
• The triad accounts for about 80% of world FDI.
• Two important FDI destinations are:
– Intra-regional: from one triad member to another
– Inter-regional: from one triad member to the
geographic region that surrounds it. (e.g. from the
US to the Americas).

10. Slide 3.10
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Table 3.3a Ten years of triad FDI
*EU15 numbers are in outward stocks of FDI by every EU15 member and thus include intra-EU15 FDI
Sources: Authors’ calculations; United Nations, World Investment Report 1998, pp. 379–400; United Nations, World Investment Report 2006, pp. 303–306

11. Slide 3.11
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Table 3.3b Ten years of triad trade
*EU includes intra-EU FDI.
Note: Exports are calculated by including freight and insurance while imports do not include freight and insurance
Sources: Authors’ calculations and International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 2–5; International Monetary Fund, Direction
of Trade Statistics Yearbook, 2002 (Washington, DC: IMF, 2002), pp. 2–5

12. Slide 3.12
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Triad FDI 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
member.
– The US tends to be a dominant investor in Latin
America, and countries such as Mexico and Brazil
are part of its FDI cluster.
– The EU tends to be a dominant investor in Eastern
Europe and countries like the Czech Republic and
Poland are part of its FDI cluster.

13. Slide 3.13
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
The triad and regional
business strategy
• MNEs pursue market opportunities within their
own triad as well as that of the other members.
• International expansion does not necessarily
mean “global” expansion.
• The nature of international business is regional,
not global.
– For example, Wal-Mart has 94.5% of its sales in
North America, and only about 20% of Wal-Mart’s
stores are located outside of North America.

14. Slide 3.14
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Figure 3.1 Wal-Mart’s globalization: regional distribution of stores
Note: Data are for 2004. US stores include 53 stores in Puerto Rico
Source: Wal-Mart, Annual Report, 2004.

15. Slide 3.15
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
The world’s regional automotive
industry
• There are 30 automotive firms in the world’s
largest 500 firms.
– None of these are global firms!
• 23 of the 30 firms are home-region based, with an
average of 60 % of their sales as intra-regional.
• There are 2 host-region oriented and 5 bi-regional
automotive firms on the list.

16. Slide 3.16
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Table 3.4 The regional nature of the motor vehicles and parts industries, 2005
*Weighted intra-regional sales average is weighted according to revenues
Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,
but their regional sales data are not either available or enough to determine their regional characteristics
Source: Authors’ calculations and the individual annual reports of each company

17. Slide 3.17
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Table 3.4 The regional nature of the motor vehicles and parts industries, 2005
(Continued)
*Weighted intra-regional sales average is weighted according to revenues
Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,
but their regional sales data are not either available or enough to determine their regional characteristics
Source: Authors’ calculations and the individual annual reports of each company

18. Slide 3.18
Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Key reasons for the automotive
industry’s regional operations
• The auto industry operates in “clusters” of
localized activity within each major triad region.
• Auto firms are strongly embedded in downstream
activities and after-sales markets.
• Cultural barriers across regions.
• Fuel.
• Different environmental regulations.
• Tariffs.
 Local competitors are more adept at meeting
the demands of their regional markets.