Intnl business 国际商务概念复习.doc

Revision Syllabus of International BusinessA Revision Syllabus of International Business By Wen Ningzhen Chapter One International BusinessConcepts and Terminologies*International Business is the study of International Companies ( ICs ) and Multinational Enterprises ( MNEs ), including merchandise and service trade, FDI, etc., in the context of :1. Global regulations: e.g. GATT/WTO;2. International monetary market systems & foreign exchange markets.*Increasing world trade leads to a more integrated world economy, so international business is an increasing share of world GDP.* The Scope of International Business:International Business involves international transactions of goods and services, FDI, international banking, transfer of technology, global business strategy, international tendering, etc.*The Four Main Forms of Foreign Involvement: Export; Contracting; Joint Ventures, and Wholly owned direct investment.A. Export which includes:(1) Merchandise trade: the exchange of physical goods.(2)Transactions of intangibles: the exchange of services. technology, trademarks, cross-border data transaction.B. Contracting which includes: (1) Licensing (common in high-tech industries);(2) Franchising( common in fast food restaurants, chain stores, hotel chains);(3) Turn-key project (common from developed countries to developing countries) ;(4) Subcontracting (common between companies in developed countries and their foreign subsidiaries)C. Foreign Investment: which includes: (1) Direct investment (a controlling interest in a foreign company) ;(2) Portfolio( indirect, buying foreign securities )D. Joint Venture (JV) & Wholly-owned Direct Investment.*The recommended Dividing Line of direct investment( over 10% of the shares) and portfolio( 10% more or less of the shares ) (refer to table 1.1 p.5)* Direction of Trade:More than half of the exports from developing countries go to developed countries, but about 3/4 of developed countries exports go to industrialized countries.* The Size of International Business (understanding relevant tables, charts and graphs) *International Contractors (INC): Companies which involve in exporting, importing, franchising, management contracting, and foreign direct investment.*The Multinational Enterprises (MNE): Companies which have subsidiaries, branches, or control affiliates in three or more countries.*Transnational Corporations: Another name for the multinational enterprises (UN s definition: corporations whose owners are in more than one nation.) *Other international contractors: companies doing business (trade or manufacturing ) in at least two countries.International contractors include both MNEs & small companies.* International business vs domestic business:Main differences between international business and domestic business:i) Politic framework;ii) Regulatory framework; iii) Financing framework;iv) Marketing framework;v) Multinational framework.Reference Information:*Classification of International Business: 1. By the Moving Direction of Trade: i) Export Trade;ii) Import Trade;iii) Transit Trade.2. By the Statistical Methods:i) General Trade;ii) Special Trade.3. By the Forms of Commodities: i) Visible Trade;ii) Invisible Trade.4. By the Forms of Transportation:i) Trade by Roadway;ii) Trade by Seaway;iii) Trade by Airway;iv) Trade by Mail order;5. By Whether or not a Third Party is involved:i) Direct trade;ii) Indirect Trade;iii) Transit Trade;6.By the Means of Settlement:i) Free Settlement Trade;ii) Barter Trade.7. By the Forms of Intangibles: i) International Service Trade ( Cross-boundary Trade; Overseas Consumption; Commercial Entity; Individual Entity)ii) Intellectual Property Trade.Chapter Two International Merchandise Trade PatternsConcepts and Terminologies *Merchandise Trade: the dynamic sector of international business.*Volume of Trade( also called “Quantum of Foreign Trade”): Total quantity of goods traded with foreign countries in a specific time period. ( generally expressed in terms of fixed price index.)*Value of Trade( also called “Value of Foreign Trade” ): Total amount of the import and the export of a country, in terms of a currency , within a specific time period.*Value & Volume Trends: Divergent trends in the value & volume of world trade are mainly due to:i) Variations in the world physical demand of export;ii) The valuation effect;iii) Variation in international prices;iv) Product mix and /or products quality.*Valuation Effect: describe the effect of currency fluctuations on the value of trade.* Commodity Patterns: (refer to table 2.3 p.23)International price & terms of trade (refer to table 2.4 p.24;box2.1 p.24)*Terms of Trade: the ratio of export prices to import prices (export price index/import price index )x 100%TTI1: favourableTTI=1: unchangedTTI1:Unfavourable* Trade of Regions & Country Groups( refer to table 2.6 p.26)* Reasons for Changes in Trade Patterns in the 90s:i) Multinationals increasing ability to export manufactured goods and growing inter-company trade among multinationals subsidiaries or: the expansion of multinational enterprises;ii) Regional trading blocs;iii) Other factors including:The so-called Engles Law: As average incomes rise, there is more demand for luxuries (e. g. fashion) than for staples (e.g. rice), so the prices for commodities fall.(Other concepts: personal income; income elasticity demand, for details, refer to p.30)Chapter Three International trade in ServicesConcepts and Terminologies*Service Trade: IMFs definition: Transactions in real resources other than merchandise, income and unrequited transfers.*Service Exports are those rendered by a resident to a non-resident; *Services Import are those rendered by non-residents to residents.*Any service component embodies in traded merchandise is not recorded separately as a service.*Statistics for commercial services are taken from balance-of payments data, while the statistics for merchandise trade are taken from customs data.*Service sector now has a 20% share of world GDP.* Service trade growing faster than merchandise trade because of:i) Lower transport costs;ii) Better telecommunication & internet connections;iii) Reduced trade barriers;iv) More intra services within MNEs.(e.g parent companies supply engineering & financing services to subsidiaries.)* Three Major Types of Services traded internationally:i) Transportation services( freight, insurance included in cost of goods; passenger services; supplies; stevedoring charge; port charges, chart charges, etc.) ;ii) Travel services;iii) Other services ( financial services; insurance excluding insurance on freight; miscellaneous services such as professional, telecommunication, construction, entertainment, etc.).( Note: another way of classification of services divides “i” into two: shipping and other forms of transportation.)* Why trade in commercial services is underestimated? (refer to box.3.1 p.37 ) * Banking & Financial Services:In developing countries, the regulations on setting up & operating of foreign financial services are more restrictive than those on risk control and supervision.* The Insurance Industry:Insurance in LDCs are often more expensive and less efficient than in the developed countries: premium rate are higher and the payment of indemnities is both less prompt and less generous.*Reinsurance: Underwriters spread their risks of insurance to other insurers.* Construction & EngineeringChapter Four Foreign Direct InvestmentConcepts and Terminologies*FDI-Lasting (long-term) investment; effective control; generally at least 10% ownership.*Portfolio Investment-maybe short-term; no effective control; generally less 10% ownership.*The main players in FDI tend to be MNEs.* Causes of FDI:i) Wider market access;ii) Government incentives(tax concession, wage subsidiaries);iii) Lack of foreign exchange;iv) Protectionism( import barriers for exports);v) Guaranteed supply of raw materials;vi) Acquiring technology & management know how;vii) Geographic Diversification;viii) Others (deregulation increases capital mobility & FDI)*Factors in attracting FDI to a country:i) Political & economic stability;ii) Currency stability ®ulations;iii) Tax system;iv) Ownership limits;v) Cost of labor & supplies;vi) Market-size & growth potential. Until the late 90s, most FDI flows were between developed countries .There is now a trend to FDI in low wage economies.* By 2002, China has become the largest destination for FDI in the world- about $US 50 billion. i.e. China is the Leading Host Country of FDI in the world. Reasons:i) Increased FDI owning to opening of economy & access to WTO;ii) A slowdown in US economy.* Long-term Trend of FDI: Away from agriculture toward FDI in manufacturing.*Long-term Trend of Portfolio: international diversification( to increase returns & reduce risks)* Foreign Production:( UNCATDs definition: the sales of foreign affiliates in a given country).* Net Foreign Production increased 400% between 84 and 97(four times the growth of world GDP), shows the increasing globalization of business through MNEs.* Who is concerned about FDI:i) Home & Host government-wants employment, economic growth, and technology transfer;ii) Supplies & customers in host country can benefit.iii) Companies in host country may fear competition;iv) Authorities concerned & workers in home country may fear export of jobs.*FDI & Employment: the impact of international production on employment depends on several factors:i) The type 0f initial investment( or mode of entry- greenfield or acquisition );ii) The type of industry where the investment is made(labour intensive or capital intensive or hi-tech intensive).* Global Capital: mobile (can move easily), and seek low costs. This can drive down wages.* Most new jobs from MNEs will be in low wag countries.* Most new job are created through Greenfield than acquisition.Chapter Five Australias EconomyConcepts and Terminologies*Australia economy: 13th in world GNP,19th in per capital GNP; export: a low proportion of GNP. Failed to profit from rapid growth in manufactures trade in 50s & 60s.Since 80s- more open economy, increasing numbers of mainly small, export-oriented manufacturers.*Traditionally rely on export of primary products( coal, wood, beef & mining);Hurt by declining terms of trade.*Long term shift to Asian market, first Japan, then South East Asia, now China.*Doing better in services trade than in commodities trade, especially tourism.*Australia is a good place for FDI- political & economic stability, good infrastructure , communication, &education, near to Asia.*Australia is a relatively small but growing source of outward FDI funds, while continuing to be a favourite destination for international investors.Chapter Six Theories of International Trade & FDIConcepts and Terminologies* Absolute Advantage: One country has a superiority over others in the availability & cost of certain products.Absolute advantage may occur because of such factors as climate, quality of land, and natural resource endowments or because of differences in labour, capital, technology and entrepreneurship.e.g. Saudi Arabia VS Japan with oil.* Comparative Advantage: If a country specializes in the products in which it has the greatest comparative advantage over other nations and trades those products for goods in which it has the greatest comparative disadvantage, the countrys total availability of goods will be enlarged.* The Opportunity Cost of any product is what has to be sacrificed in order to obtain it.*Trade with Monetary Costs: more realistic. Comparative advantage determined by unit cost of production is adjusted for the exchange rate, rather than by opportunity cost.* Factor Endowment ( the Heckscher and Ohlin theory):Trade between countries is caused by a difference in the endowment of their production factors.( Taiwan in the 70s with labour intensive goods & Germany with capital intensive goods )Countries will be most efficient producers of products that make intensive use of factors they have a lot.(e.g. land in Australia, labour in China.)*Competitive Advantage: ( a new theory) competitive advantages of business enterprises are determined by certain attributes of that country( e.g. highly organized self reinforcing cluster of interrelated industries which support large proportion of established MNEs.) *Difference between competitive & comparative advantage:The former refers to countries related, and the later refers to competitors.(box 6.1 p.93)* All the above mentioned theories are subject to limitations: do not take into account a)the difficulty in moving resources;b)fluctuations of markets;c)artificial limitations for exports; d)other political restrains. * Global Horizons Theory: A firm is born with a geographic horizon, but it may expand to new market because of certain factors. * International Product Life Circle Theory:The two fundamental tenets:i) Technology is a critical factor in product creation & development ,and the existence of proprietary technology gives some firms advantages over others;ii) Market size & structure are critical factors in determining trade patterns.* Three Stages of Product Life Circle:i) The new product stage ( made in home country, high priced, high wages );ii) The mature product stage ( standardization begins as product become more common ,also manufactured in other high wage countries, prices go down);iii) The standardized product stage( continue standardized process, mass production or in low wage countries) * Internalization Theory:Company expands its operation to cover new market, sources of materials and stages of production.* Horizontal Integration: Expanding of business overseas. (an oil company opens new factories in other countries.)* Vertical Integration: Expansion of a firm into a stage of the production process other than that of its original business.(includes a. upstream or backward vertical integration, e.g. an oil company buys oil wells in other countries; b. downstream or forward vertical integration, e.g. an oil company buys gas stations in other countries)* Key difference between integration & internalization:i) Internalization emphasizes the strategic choices( a. buy supply or suppliers & b. sell to other firms or buy them & deal with their customers);ii)Internalization covers the transactions outside the scope of horizontal or vertical integration( buying of labour, capital & technology).Chapter Seven International Business PoliciesConcepts and Terminologies* A Countrys Trade Policies are those designed to influence its trade relations with rest of the world. They are the results of opposing forces of free trade and protection.* Classification of Trade Barriers:i) Tariff barriers;ii) Non-tariff trade barriers;iii) Export restrictions;iv) Barriers to trade in services;v) Financial limits( e.g. exchange controls, profit remittance limits);vi) Limits on FDI entry and operations.* Tariff Barriers: the tax imposed by a government on physical goods as they move into or out of a country.i) Customs nomenclature: customs classification.ii) The single column and multi-column tariffs.* Price Effects on Import Duty: i) A rise in domestic prices of less than the amount of the duty; ii) Price rise equal to the amount of the duty;iii) No change in price.* Non-tariff Trade Barriers:i) Quotas: The quantitative restrictions, the most commonly used kind of non-tariff barriers, including: a. Unilateral quotas: fixed quotas that are adapted without prior consultation or negotiation with other countries;b. Negotiated bilateral or unilateral quotas: deciding the allotment of the quota by definite shares with exporting countries or groups of exporters in those countries;c. Tariff quotas: Specified quantity of a product with a given rate of duty or duty free;d. Others : Antidumping; restrictions on safety, health, marking, packaging, and technical standard.* The Procurement Policies: Policies which cause discriminatory treatment of foreign products.* Export Restrictions:i) Quotas and quantitative restriction;ii) Minimum export prices.* Barriers to Service Trade: Severely curtailed by non-tariff trade barriers.* Foreign Investments Control:Limits on profit remittances, taxes, or price controls,local-content regulations, etc.* Export Enhancement Measures:i) Subsidies: generally in three ways including direct subsidy, indirect subsidy, and subsidizing consumption.ii) Financial Assistance: government loans, subsidies, etc. .iii) Tax Incentives including tax holidays, loss-carry-forward provisions, double taxation agreements, favorable depreciation provisions, indirect-tax concessions.iv) Export Processing Zones (EPEs):special manufacturing areas in which industries receive special incentives.* Marketing Assistance: information, advice and related services from the government.* Trade Related Investment measures:i) Export performance requirement;ii) Foreign exchange restrictions;iii) Manufacturing requirements;iv) Local equity requirements.Chapter Eight International Trade FrameworkConcepts and Terminologies* GATT: General Agreement o