International Business and Economics - Assignment Example

International Business and Economics Modes of International Business – licensing is a business arrangement that gives a business firm permission to manufacture a certain product of another firm in return for some payment. The licensee (the one given the license or permission) instantly taps all the existing production, marketing and distribution systems of an existing firm (the licensor) that in turn gets a share of the sales revenue being generated from the license in terms of fees or royalties. Franchising is very similar to licensing except in the degree of control by the licensor in that a franchisee has to adhere strictly to a set of standards such as in marketing strategy and in its sales promotions (Welch, Benito and Petersen, 2007, p. 53). Example of licensing would be a Mickey Mouse logo licensed to a kids shoe manufacturer while franchising is a McDonald's. Turnkey operations are a type of business entry mode in which one company contracts with another company to build, construct and complete ready-to-use facilities (Paul, 1966, p. 162). Most turnkey projects are usually in the construction and industrial-equipment sectors which require big capital and specialized expertise (Daniels, Radebaugh and Sullivan, 2008, p. 45). Management contracts pertain to agreements between investor groups of a big project and the management company hired for their expertise to manage, coordinate and oversee the project. The company being hired provides its management, administrative and organizational talents in return for a management fee such as those quite common in global hotel chains like Hilton. A direct investment is any investment made with a view to acquire a lasting or long-term part or interest in an existing operational business enterprise in order to have an effective voice in the management of the said enterprise. In practice, this translates to buying equity of 10% or more in the foreign firm as a form of market entry when other modes are not very assured of success. In this regard, foreign direct investment (FDI) is a way for capital to move from the low-return environment to a higher-profit market (Moosa, 2002, p. 24). Portfolio investment is investment in stocks and securities for profits only and is called “hot money.” Attitudes to Foreign Cultures – the managers and employees of multinational firms try to adapt to foreign cultures sometimes based on their home culture. In most instances, the managers who are very democratic in their attitudes at their home country also extend these same traits of democratic practices such as sharing of vital information with the employees in a foreign country where they operate in (Toyne, 1980, p. 135). In some situations, the contrast of country managers is very vast such as imposing their home country's practices, beliefs and values on the host country's employees (Hofstede, 2003, p. 440) as a frame of reference while others take a more tolerant attitude and try to learn more and understand the foreign culture in a much better and deeper way (Ajami et al., 2006, p. 215). The success of a manager in the foreign country depends to a big extent on his or her cultural intelligence quotient (CQ) level similar to intelligence quotient (IQ) or emotional quotient (EQ) by being able to sufficiently read and analyze individual behaviors, attitudes, group dynamics and the unique situations in the context of the foreign culture (Kreitner, 2006, p. 97) beyond just learning the language. Key Means of Economic Transition – a command economy is an economy that is being managed centrally by the government bureaucrats. In other words, the demand and also the supply of certain products, goods and services are determined by government planners. It is these people who decide which goods and services are to be produced, how they are priced and how these are to be distributed instead of allowing free market forces to do so. Examples of this set-up are communist countries like the former Soviet Union and Cuba (China before it adopted capitalist methods to develop and spur its economy much more quickly). A market economy, on the other hand, is an economy that relies on a system of allocation of resources based solely on market forces such as letting the law of supply and demand determine actual production and distribution of goods and services without any government or external forces. Most countries are moving away from a command economy to a market-based economy. Some of the more common ways by which a command economy can transition to a market economy successfully are privatization and liberalization. Privatization is the process of taking productive assets in a state-owned enterprise out of the hand of government or from being a government-controlled production system to one that is privately-run and a for-profit system (Hare and Davis, 1997, p. 129). Privatization could be for individual enterprises only or it could entail an entire sector or industry of the nation's economy, such as power, transport or telecommunications to encourage new private investments. Liberalization, meanwhile, is a first step towards privatization by declaring those sectors slated for privatization as available to foreign and domestic investors in a process of massive industrial restructuring. A process of liberalization involves the removal of trade practices that hamper the free flow of products and services either from one nation to another nation or within a certain country between its regions. Liberalization means dismantling of trade barriers like punitive tariffs (duties, fees and surcharges on imports) or non-tariff barriers (licensing, regulations, quotas, the arbitrary standards and other discriminatory practices). In some command economies such as China, the process was gradual while that of some former communist Soviet states in Eastern Europe had a more drastic approach called a “big bang” by doing away with government monopolies and financial controls like foreign exchange rate limits at once (McKinnon, 1993, p. 120). A dismantling of monopolies will increase market competition resulting into lower prices and better quality of products and improved services (Taylor and Weerapana, 2007, p. 336). Ethical Dimensions to Labor Issues – many multinational corporations are faced by a host of labor problems, primarily that of setting the appropriate wage levels in the foreign country with regards to what is considered as an appropriate living wage standard. The issues are usually of general social implication (Flanagan and Gould, 2003, p. 194) like compliance of minimum wage laws or employment of child labor to cut costs (Rosen et al., 2007, p. 12). Another sticky ethical issue is the workplace environment in which MNEs operate. Most multinationals invest and operate factories in foreign countries due to cheap labor and also more lenient laws such as on worker safety standards or on lax implementation of a host country's environmental protection laws (OECD, 2010, p. 164) which help to cut down on the multinational firm's cost of operations in that foreign country by taking some shortcuts. Imposing Import Restrictions – some countries resort to imposition of restrictions on imports to allow their domestic industries to survive and become competitive against foreign-made products (Yang and Yang, 1994, p. 36). This is considered a crucial part of any nation's pursuit of industrialization through import substitution by local products of imported items in an effort to also preserve precious foreign currency and cut down trade deficits. However, this policy could result into market distortions such as in limited supply and high prices as well as encourage smuggling (Garnaut, Grilli and Riedel, 1995, p. 90). A probable problem arising in import restrictions is that domestic industries become dependent on government protection in many instances and cannot compete globally (Mullineux, 1987, p. 185). Impact of NAFTA on Trade and Employment – it is the United States which mostly benefited from the adoption of the NAFTA in terms of cheaper product imports such as in the agricultural commodities, apparel (from cheaper labor in Mexico), mostly fish products (from Canada) and feed grains like corn and sorghum (USDA, 2003, p. 30). The benefits and also a negative impact on each NAFTA member country cannot be generalized as a whole but rather on specific sectors of the economy that had been affected. For example, many manufacturing jobs were outsourced to Mexico due to its cheap labor (mostly near the American border) as what the U.S. labor unions had feared originally (Pohlmann, 2007, p. 2) because of the lower wages in Mexico. Many Mexican farmers were adversely affected by cheap US commodities from higher US government subsidies resulting in a loss of 2 million jobs (Ong, 2010, p. 14). References Ajami, R. A., Cool, K., Goddard, G. J. & Khambata, D. (2006). International business: theory and practice. Armonk, NY, USA: M. E. Sharpe, Inc. Daniels, J. D., Radebaugh, L. H. & Sullivan, D. P. (2008). International business: environments and operations. Upper Saddle River, NJ, USA: Prentice Hall. Flanagan, R. J. & Gould, W. B. (2003). International labor standards: globalization, trade and public policy. 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Host country managers of multinational firms: an evaluation of variables affecting their managerial thinking patterns. Manchester, NH, USA: Ayer Publishing. U. S. Department of Agriculture (2003). Feed situation and outlook yearbook. Darby, PA, USA: DIANE Publishing. Welch, L. S., Benito, G. R. & Petersen, B. (2007). Foreign operation methods: theory, analysis, strategy. Northampton, MA, USA: Edward Elgar Publishing, Inc. Yang, S. C. & Yang, S. J. (1994). Manufactured exports of East Asian industrializing economies: possible regional cooperation. Armonk, NY, USA: M. E. Sharpe, Incorporated. Read More