C H A P T E R 1
Regional and global strategy
Chapter objectives
2. Discuss the two primary ways in which international business occurs trade and foreign
direct investment.
4. Describe the current state of world economies and the role of government and trade
regulations in the conduct of international business.
6. Examine how multinational enterprises use triad/regional strategies to compete effectively
in the international marketplace.
8. Present the model that will be used in this text for studying international business.
Chapter summary
1. International business is the study of transactions taking place across national borders for
the purpose of satisfying the needs of individuals and organizations. Two of the most
2. At the present time, the worlds most developed economies are slowing down and many
MNEs are cutting back their workforces in order to compete more effectively in this
environment. Small and medium-sized enterprises are also finding themselves being
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
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3. One way in which these firms are competing is by drawing up strategies that focus on
regions and geographic areas, thus ensuring that they are addressing the needs of their local
customers. Another way is by continuing to be innovative. A third is by maintaining
position by addressing the determinants of national competitive advantage: (a) creating the
Chapter outline
Overview of the book
Country and firm factors
International competitiveness and firm strategy
Globalization
Regionalization
Introduction
World business: a brief overview
Exports and imports
Foreign direct investment
The triad
Todays international environment
International trade regulation
Technology
Small and medium-sized enterprises (SMEs)
Globalization and strategic management
Regional triad strategies
Maintaining economic competitiveness
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Multinationals in action
Volkswagen
Carrefour
Kawasaki and Suzuki
The study of international business
Framework for this book
Lecture outline
A. Introduction
1. International business is the study of transactions taking place across national borders
2. Over half of all world trade and approximately 80 percent of all foreign direct
investment are made by the 500 largest firms in the world. The vast majority of these
States, Japan and the European Union (EU).
B. World business: a brief overview
1. Exports are goods and services produced in one country and then sent to another
2. Foreign direct investment (FDI) is equity funds invested in other nations. Industrialized
countries have invested large amounts of money in other industrialized nations and
3. The worlds three largest economies, those of the United States, the European Union
and Japan, conduct most of the worlds trade and FDI. Collectively, these areas are
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
C. Todays international environment
1. Over the last few decades, an increasing number of countries have embraced trade and
investment liberalization. Despite disagreements about how to implement trade and
investment agreements, countries continue to enter into bilateral and multilateral
2. Technology has a major impact on the way MNEs do business. Over the last few years,
communication technology has allowed all businesses to use computers and mobile
3. International business is not limited to giant multinational enterprises. Many small and
medium-sized businesses are also involved in this arena. Most of these companies have
D. Globalization and strategic management
1. A common misconception about international business is that MNEs have far-flung
operations and earn most of their revenues overseas. In fact, most MNEs earn the bulk
of their revenues either within their home country or by selling in nearby locales. Of the
2. There are three things a nation must do to gain and hold strong international trading and
investment positions: (a) maintain economic competitiveness; (b) influence trade
3. Research shows that the best way for companies to achieve competitive advantage is
through innovation. Often, this is accomplished through ongoing improvement of goods
4. Why can some firms innovate consistently while others cannot? According to Porter,
5. Factor conditions include land, labor and capital that are used to develop international
market niches and tap world markets. Demand conditions require a sophisticated local
6. Each of the four determinants in Porters model often depends on the others. For
example, if a country has sophisticated buyers that can provide a company with
feedback regarding how to modify or improve its product (demand conditions), this
7. Porter notes that government and chance influence the four determinants of competitive
advantage. Government policies, for example, can have serious consequences for
E. The study of international business
1. During the 1970s, 1980s, 1990s and 2000s the field of international business changed
dramatically. The new millennium is seeing the emergence of a strategic management
2. This book employs a strategic management approach to the study of international
business. There are four major parts in the text. Part One is an introduction; Part Two
examines the environment of international business; Part Three focuses on the strategic
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Answers to review and discussion questions
1. What is international business all about? In your answer, be sure to include a
definition of the term.
2. What are the two primary ways in which world trade is conducted?
3. What does international trade consist of?
4. What is the difference between international business and international trade?
5. Will foreign direct investment increase or decrease in the current decade? Why?
6. How important are the triad nations in promoting international commerce? Explain.
Triad nations are the engines of international commerce, accounting for most of the worlds
trade and foreign direct investment. Over 90 percent of the worlds 500 largest multinationals
7. What role does the World Trade Organization play in the international business
arena? Is the WTO helpful to international trade or is it a hindrance? Why?
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8. Multinational enterprises do not formulate worldwide strategies but rather regional
strategies. What does this statement mean and how does it help us better understand
international business?
MNEs see the world as a set of segmented markets with different factor conditions, demand
conditions, related and supporting industries and structure of firms and rivalry. For instance,
while a strategy of producing spacious cars might be successful in the United States, auto
9. How do the four determinants of national competitive advantage help explain how
companies can maintain their economic competitiveness? Be complete in your answer.
The four determinants of national competitive advantage are factor conditions; demand
conditions; related and supporting industries and structure of firms and rivalry. A country or
business makes effective use of factor conditions to maintain economic competitiveness in a
number of ways. One is by training and educating the work force so that these people are able to
produce more efficient and/or high-tech goods. A second is by investing capital in high-tech
discoveries and developing robots and other machines that can produce goods and services more
efficiently than before. Demand conditions are important for the maintenance of economic
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10. What are two of the advantages associated with using strategic alliances?
Answers to Real Cases
Big oil gets bigger
1. Are companies such as Exxon Mobil, BP and Royal Dutch/Shell MNEs? What criteria
do they meet that makes them MNEs?
2. How important is an understanding of governmental regulation to success in this
industry?
3. In terms of Porters determinants of national competitive advantage, which one of
these four determinants is most important for these oil companies? Why?
All four determinants are important to these companies. Factor conditions include
considerations such as oil and gas deposits, the quality, quantity and cost of the labor force and
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Wal-Mart
1. Is Wal-Mart a multinational enterprise? Why?
2. Why is Wal-Mart making foreign direct investments in Europe?
3. Using the Porter model, what are the determinants of Wal-Marts competitive
advantage?
In terms of factor conditions in the United States, Wal-Mart has access to cheap suburban land
where it can build warehouse-style retail outlets with large parking lots as well as relatively
4. Is Wal-Marts competitiveness in Europe dependent on the same determinants listed
in Question 3? Why?