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C H A P T E R 3
The triad and international business
Chapter objectives
2. Explain the role of triad-based MNEs in worldwide FDI and trade.
4. Discuss the economic interrelationships among triad members.
Chapter summary
1. Foreign direct investment (FDI) is the ownership and control of foreign assets. This usually
2. There are a number of reasons for FDI. These include increased sales and profits, a chance
3. While there is a great amount of FDI made every year, most of it (approximately 80 percent)
4. The triad nations dominate world trade and investments, and a great deal of this activity
takes place both among and within triad countries. One of the major areas of triad trade is
automobiles, which provide an excellent example of the economic interrelationships that
exist between triad members.
Chapter outline
Introduction
Reasons for FDI
Increase sales and profits
Enter rapidly growing markets
Reduce costs
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Gain a foothold in economic blocs
Protect domestic markets
Protect foreign markets
Acquire technological and managerial know-how
FDI and trade by triad members
Multinationals in action: regional business strategy
The worlds regional automotive industry
Mergers and acquisitions
Lecture outline
A. Introduction
1. Over the past decade, international business activity increased dramatically, especially
among the triad nations (the United States, Japan and the European Union (EU)). At the
2. During the current decade, a growing number of other countries will become
increasingly prominent on the international business stage. China is moving quickly to
B. Reasons for FDI
1. Foreign direct investment (FDI) is the ownership and control of foreign assets. This
equity investment can take a variety of forms, from the purchase of an established firm
2. One of the primary purposes of FDI is to help an MNE increase its profits and sales.
Others include (a) to enter rapidly growing markets; (b) to reduce costs; (c) to gain a
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
C. FDI and trade by triad members
1. Of all FDI made annually, nearly 75 percent takes place in the economies of triad
2. While the vast majority of FDI takes place among industrialized countries, developing
countries are also large recipients of FDI. In this case, recipient countries are part of an
FDI cluster, which is a group of developing countries usually located in the same
D. Multinationals in action: regional business strategy
1. A careful analysis of international business shows that international expansion does
not necessarily mean global expansion. For example, Wal-Mart has 94.5 percent of its
2. In 2009, there were 29 automotive firms in the list of worlds largest 500 firms. Only
one of these is a global firm, Mazda, defined as having at least 20 percent of sales in
3. There are a few special cases. There are ten bi-regional firms, seven automakers and
three parts makers, with over 20 percent of their sales in two parts of the triad and less
4. These findings counter a number of popular myths about the archetypal global
Answers to review and discussion questions
1. What is FDI all about? Put it in your own words.
2. What are some of the reasons for FDI? Identify and describe four.
3. Why are MNEs interested in investing in Eastern Europe?
Eastern Europe promises to be a region of rapid growth. Under the communist regime, these
4. How much FDI does the EU and Japan have in the United States? What conclusions
can you reach based on these data?
5. How much FDI does the United States and Japan have in the EU? What conclusions
can you reach based on these data?
6. How dominant are the triad countries in terms of FDI and world trade? Explain.
7. What is an FDI cluster? Why are certain countries such as Mexico and Venezuela
more likely to be in the United States cluster than in the EU cluster?
8. Why does Toyota choose to manufacture in the United States?
9. Where is GM most successful? Why?
10. How active are US and EU firms in acquiring companies throughout the world? What
accounts for this activity?
11. In what way can a keiretsu approach be of value to US and EU companies in becoming
more competitive worldwide? Explain.
Answers to real cases
Panasonic and Philips
1. What type of globalization strategy was followed by the Japanese firm Matsushita/
Panasonic?
2. Why could the European firm Philips not compete well with its Japanese rival by the
1980s?
3. How can a government help its own firms against triad rivals?
A government can help its own firms by providing a good environment and support. For
instance, it can establish an educational system that creates professionals whose skills are
Toys Us in Europe and Japan
1. What are the firm specific advantages of Toys Us?
The firm-specific advantages (FSAs) of Toys Us include their business model, which is to
2. What specific cultural and political barriers to entry does it face?
3. Why was Toys Us more successful in Japan than in Germany?