Core Paper MMS III

Class 1@HKIMSR | Sem-III

2013, Prof. T.G. Roy

Cocoa

Rice

Ghana South Korea

10 40

13.33 20

20

T G C A K B K O
3.75 5

Ghana can produce 20 tons of cocoa and no rice OR 15 tons of rice and no cocoa, or any combination in between its PPF (GG) South Korea can produce 5 tons of cocoa and no rice OR 10 tons of rice and no cocoa, or any combination in between its PPF (KK)

15

Cocoa

10 5.0 2.5

G
15 20

Ghana will produce 10 tons of cocoa and 7.5 tons of rice (point A) South Korea will produce 2.5 tons of cocoa and 5 tons of rice (point B)

7.5

10

Rice

Production Possibility Frontier

Ghana has an absolute advantage in the production of both the goods, why should it trade with South Korea?

Ghana has absolute advantage in the production of both cocoa and rice, but comparative advantage only in the production of cocoa. HOW? Ghana can producethan South Korea: 4 times as much as cocoa 1.5 times as much as rice
Ghana is comparatively more efficient at producing cocoa than it is at producing rice

Ghana can produce 20 tons of cocoa and no rice OR 15 tons of rice and no cocoa, or any combination in between its PPF (GG) South Korea can produce 5 tons of cocoa and no rice OR 10 tons of rice and no cocoa, or any combination in between its PPF (KK)

Ghana will produce 10 tons of cocoa and 7.5 tons of rice (point A) South Korea will produce 2.5 tons of cocoa and 5 tons of rice (point B)

Ghana has an absolute advantage in the production of both the goods, why should it trade with South Korea?

Cocoa

Rice

Ghana South Korea

10 2.5

7.5 5.0

Total Production

12.5

12.5

Cocoa

Rice

Ghana South Korea

15 0

3.75 10.0

Total Production

15

13.75

Cocoa

Rice

Ghana South Korea

11 4.0

7.75 6.0

Cocoa

Rice

Ghana South Korea

1.0 1.5

0.25 1.0

Firm, strategy, structure, and rivalry

Factor Endowments

Demand Conditions

Related and Supporting Industries

I. MEASURING POLITICAL RISK A. Country-specific perspective

34

B. Political Stability 1. Measured by: a. Frequency of government changes b. Level of violence c. Number of armed insurrections d. Conflict with other states

35

C.

Economic Factors 1. Indicators of political unrest a. Rampant inflation b. Balance of payment deficits c. Slowed growth of per capita GDP

36

D.

Subjective Factors 1. Profit Opportunity Recommendation 2. Political Risk and Uncertain Property Rights

37

3. Capital Flight a. Definition: the export of savings by a nations citizens because of safety-of-capital fears. b. Measurement: use the balance-of- payment account

38

c.

Causes of capital flight 1.) Inappropriate economic policies 2.) Expectation of devaluation 3.) High political risk

39

II. A.

B. C. D.

Economic and Political Factors Primary focus: How well is the country doing economically? Fiscal Irresponsibility -high government deficits Monetary Instability Controlled Exchange Rate System -currency usually overvalued Wasteful Government Spending -inability to service foreign debt
40

D. Resource Base -lack of strong work ethic E. Country Risk and Adjustment to External Shocks 1. What are the impacts of external shocks: -how well a nation responds varies

41

2.

Key Indicators of Country Risk a. Relative size of government debt b. Money expansion c. Existence of governmentimposed barriers to market forces

42

2.

Key Indicators of Country Risk (cont) d. Level of tax rates e. Amount of government-owned firms f. Political and fiscal responsibility g. Amount and extent of corruption

43

Key indicators of economic health a. Structural incentives b. Legal structure c. Clear incentives to save d. Open economy e.Stable macroeconomic policies

44

Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries. International Business is a mechanism to bring about globalization.

Globalization and Business

-What Is Globalization?

Definition: Globalization is the growing integration of the worlds economy. It is suggested that economic decision taken in one part of the world will affect other parts of the worlds so businesses need to base their business decision-making on what is happening in the world market rather than the national market.

1. 2. 3.

There are three important features or aspects of globalization, which can be seen as follows:

The increasing importance o f international trade More and more multinational companies More and more businesses thinking globally about their strategy.

The increasing reliance of economies on each other The opportunities to be able to buy and sell in any country in the world The opportunities for labour and capital to locate anywhere in the world The growth of global markets in finance

Stock Markets are now accessible from anywhere in the world!

Stages of Development of a Transnational Corporation

Stage one - domestic Stage two - International Stage three - multinational Stage four - global Stage five transnational

Domestic in focus, visions and operations focus on domestic markets environment scanning is local if its not happening in the home country, its not happening often conscious decision can develop to be stage two company

Extends marketing, manufacturing and other activities outside the main country remains ethnocentric (home country orientated) groups people together in an international division strategy of extension

Global development always begins in stage two it would be a mistake to simultaneously jump into new customer and new product/technology markets

Discover that different markets need some degree of adaptation e.g Toyota first entered US in 1957 as Toyopet
overpriced, underpowered, built like tanks no such thing as failure, only learning multi-domestic focus

Polycentric orientation
adapts domestic marketing mix to suit the differing international markets

Discover that different markets need some degree of adaptation -Toyopet

Major strategic departure global marketing and/or sourcing strategy focus globally and supply from domestic market e.g Harley Davidson supply domestic market from global sources e.g. GAP Must understand the limitations of competitive advantage (not too ambitious!)

Sales, investments and operations in many countries integrated world enterprise that links global markets and global supplies geocentric - recognises similarities and differences and adapts to them adaptation adds value key assets are dispersed, interdependent and specialised e.g. R&D

E.g. Caterpillar - manufactures and assembles in many countries

components are shipped-in from many countries they are assembled then despatched to different countries

experience and knowledge are shared globally scans the world for information grow or die - aspirations are global global bias for key functions e.g. finance, NPD, supply chain management

Caterpillar - manufactures and assembles in many countries

International
exploits the parent companys knowledge and capabilities through worldwide diffusion of products

Multinational
flexible ability to respond to national differences

Global
cost advantage through centralised operations

Transnational
combines above in an integrated network, which leverages worldwide learning and experience

The International Labour Organization (ILO) defines an MNC as a corporation A. that has its management headquarters in one country, known as the home country

B. and operates in several other countries, known as host countries