10. What efforts have South American countries made to regionally integrate their economies?
Latin American nations have made various efforts to regionally integrate their economies.
Mexico and Chile signed a free trade agreement in 1971. Mexico also worked with
Venezuela and Colombia in 1971 to reduce trade barriers against each other’s goods.
QUESTIONS FOR DISCUSSION
1. Consider the opening case in this chapter. How has Mexico’s success affected the
Canadian and U.S. economies?
Mexico’s prosperity has benefited the U.S. and Canada. Mexico’s improved economy
2. Suppose you are deciding whether to located a factory in China or in Mexico in order to
serve the US market. What factors would influence your location decision? Suppose the
price of oil suddenly rises. What impact would this have on your decision?
3. How does the WTO affect operations of large MNCs? Did MNCs benefit from the successful
completion of the Uruguay round?
The purpose of the WTO is to eliminate, or at least minimize, barriers to trade between
countries. For large multinational companies, this effort can be both advantageous and
4. Should international businesses promote or fight the creation of regional trading blocs?
The answer to this question depends on whether a firm is on the inside looking out, or on
5. What strategies can North American and Asian firms adopt to ensure access to the
enormous EU market?
North American and Asian firms are in the unfortunate position of being on the outside
looking in when it comes to the EU (see Discussion Question 2). To ensure access to the
6. Is the abandonment of import substitution policies by South American governments a
necessary condition for the success of the Andean Community and the Mercosur Accord?
7. Of what importance are rules of origin to international businesses?
Rules of origin detail the conditions under which a good is classified as a member or a non-
8. Why does the MFN principle promote multilateral, rather than bilateral, negotiations among
WTO members?
The MFN principle requires one nation to treat a second nation no worse than it treats any
BUILDING GLOBAL SKILLS
Essence of the exercise
This exercise is designed to further the student’s understanding of the implications of NAFTA.
The exercise requires students to identify products that have benefited from the agreement and
products that face threats as a result of NAFTA. Instructors should be aware that this exercise
requires a fair amount of preparation by the student.
Answers to the follow-up questions:
1. Has NAFTA provided new market opportunities for some of the products you identified?
Why or why not?
The exercise asks students to identify 12 different products (two products from each country
2. Has NAFTA increased competition from other producers?
3. Have the effects of NAFTA on each product been consistent with what advocates or critics
of NAFTA might have predicted?
Again, the responses to this question will depend on the products chosen by the students.
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Other Applications
After completing this exercise, students will be fairly familiar with the perspectives of both
CLOSING CASE
The New Conquistador
This case details the policy changes that have been initiated in South America, and focuses on
how these changes have impacted the telecommunications industry.
Key Points:
• The most aggressive firm in the telecommunications industry and market us Telefónica
S.A.
• Based in Spain and faced with increasing competition from the EU, Telefónica invested
in new equipment and technologies to maintain and grow their business.
• The evaluated expanding into other EU countries, and a decision was made against
European expansion because of significant competition.
Case Questions
1. How important was the EU’s directive eliminating national telecommunications monopolies by
1998 in shaping Telefónica’s strategy? What would the company look like today if Spain were
not a member of the European Union?
2. How important were cultural ties in determining Telefónica’s success in Latin America?
3. Why did Telefónica initially choose to enter the Czech market, rather than the larger French
or German markets?
4. Considering Telefónica’s large and persistent share of the Spanish telecommunications
market, how successful has the EU’s directive been in promoting competition within the
European telecommunication industry?
5. Minority investors in Telefónica’s South American subsidiaries are unhappy with the parent
corporation. Suppose you are a senior manager at the parent corporation. How would you
handle the problem of the minority investors? What would you recommend to the CEO should
be done about the minority investors?
PART TWO CLOSING CASES
CASE 1:
The Second Cultural Revolution
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This case describes the impact of the Internet on China and the Chinese government’s
reaction to the threats it poses. The case is used to highlight political risk issues.
Key Points:
• The Internet is an especially challenging development for the Chinese government
because of its attempt to control the information that reaches the Chinese people.
• On the other hand, the Chinese government recognizes the importance of the
Internet and the need for Chinese experts in Internet-related software and hardware
Case Questions:
1. Assume you are the CEO of a North American search engine company. Perform a
political-risk assessment for your company’s entrance into the Chinese market. What
information would you need to conduct the study? What factors would you consider?
On a scale of 1 to 10, with 10 being the highest, how vulnerable is your company to
political risk in China?
In China you would face ownership risk, operating risk, transfer risk, macropolitical
risk, and micropolitical risk. Business-related laws in China change frequently and
the ones currently on the books may or may not be enforced. On the positive side, the
2. What strategies would you adopt to reduce your vulnerability to political risk in
China?
3.2, AACSB: Analytical Skills; Learning Outcome: Describe how differences in
political economy influence economic development)
3. Do you think the Chinese government will be successful in controlling the use of the
Internet and minimizing Western influences in China?
4. What will be the impact of the government’s efforts on the global competitiveness of
China’s high-tech industries?
5. Do you agree with the position of Yahoo! and the other companies that they are
constrained to act within the laws of the host country, or do you agree with their
congressional critics?
Students will be entitled to build their own case on this one. However, one of the
CASE 2: Will Whirlpool Clean Up in Europe?
The closing case details the moves that Whirlpool is making in Europe to capitalize on the
benefits of the common market.
Key Points:
• White goods makers (producers of appliances such as refrigerators, dishwashers, and
ovens) are looking forward to the creation of a common market in Europe with
anticipation because they hope that it will end, or at least minimize, the differences
between the various country markets for their goods.
• Producers believe that the EU’s harmonization of product standards will allow it to
standardize its output, and minimize the current situation in which products must be
customized for each market.
Case Questions
1. What are the advantages of consolidating production of product lines at single factories
in the EU? What are the disadvantages?
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The elimination of national borders within the EU allows a company to achieve
significant economies of scale by consolidating production of product lines at single
factories. Companies producing at single locations can reduce the overhead associated
2. Should Whirlpool continue to produce and market its three product lines (Bauknecht,
Whirlpool, and Ignis), which will span the entire white goods market, or should it focus on
one market niche?
Most students will probably argue that Whirlpool should continue with its strategy of
producing and marketing its three product lines because the strategy acts as a hedge
against economic cycles. It should also be pointed out that this strategy does not
3. What benefits will Whirlpool gain by broadening the Whirlpool brand name from a North
American brand to a global brand?
Whirlpool can expect to gain numerous benefits by broadening its Whirlpool brand name
from a North American brand name to a global brand name. Certainly, promotional
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Teaching Note:
Instructors may want to explore the case of Nissan with regard to brand name. Nissan initially
entered the U.S. market using the brand name Datsun. Later, Nissan began the process of
extending the Nissan name to the U.S. market by labeling its cars and advertisements with both
the Datsun name and the Nissan name. Today, Nissan markets all of its cars with the Nissan
name.
4. In light of the aggressive responses of Electrolux and Bosh Siemens Hausgerate, should
Whirlpool revise or abandon its European strategy?
5. Do you think it is possible to design and sell the same basic appliances around the
world?
Most students will probably agree that it is not possible to sell the same basic appliances
around the world, if for no other reason than the fact that voltage requirements differ
around the world. Beyond this basic difference, however, are the cultural dissimilarities
Additional Case Application
Case Question five presents an opportunity for an interesting debate. Instructors can assign
students to argue for one side (standardization) or the other (localization), and ask students to