International Business Strategies and Economic Integration

Economic Integration

Political and economic agreements among countries that give preference to member countries.

Global Integration

Integration through global organizations such as the WTO.

Bilateral Integration

Cooperation between two countries.

Regional Integration

Economic cooperation among a group of neighboring countries.

GATT

General Agreement on Tariffs and Trade, a predecessor to the WTO aimed at reducing tariffs and abolishing quotas.

Most Favoured Nation Clause

A principle where any trade advantage given to one country must be extended to all WTO members.

World Trade Organization

Organization founded to facilitate reciprocal trade agreements between nations.

Trade Creation

Investment shifts from inefficient domestic producers to efficient regional firms.

Trade Diversion

Trade shifts to member countries in a group at the expense of non-members.

Economies of Scale

Cost advantages from increased output after trade barriers are removed.

Trade Without Discrimination

Principle that each member nation must open its markets equally to every other member nation.

Most Favoured Nation Clause (MFN Clause)

Any preferential treatment granted to one country must be extended to all countries.

World Trade Organization (WTO)

Founded to facilitate reciprocal trade negotiations or trade agreements between or among nations.

WTO Ruling

Binding decisions made by the WTO; if a country fails to abide by the ruling, rights to compensation and countervailing sanctions will follow.

Bilateral Agreements

Agreements that can be between two countries or one country dealing with multiple countries.

Regional Trade Agreements

Agreements between two or more partners that lie between bilateral treaties and the WTO.

Static Effects

Represent the shifting of resources from inefficient to efficient firms as trading barriers fall.

Dynamic Effects

Represents the gains from overall market growth, expansion of production, and increasing competitive nature of the market.

Free Trade Agreements

Major type of economic integration where all barriers of trade are abolished among member nations.

Customs Unions

Unions in which all barriers to trade are abolished among member nations and common external barriers are levied against non-member countries.

Common Market

Result of countries enhancing their cooperation by adding free mobility of production factors to a customs union.

Doha Agenda for 2025

Aims to balance economic growth, technological progress, and sustainability while ensuring global trade benefits all nations.

European Union Governing Bodies

Includes the EU Commission, Council of EU/European Summit, European Parliament, and European Court of Justice.

Treaty of Maastricht

Sought to foster both political and monetary union within the EU.

Schengen Area

Allows free flow of people from one country to another within the EU.

United States - Mexico - Canada Agreement (USMCA)

Incorporates Canada, Mexico, and the USA into a regional trade agreement with elimination of tariffs and non-tariff barriers.

Rules of Origin

Require that at least 50% of net cost of most products originate within the region for liberal trade conditions.

Trade Diversion Example

Shift of production from Asia to Mexico as a result of USMCA.

Andean Community

A regional trade agreement consisting of countries in the Andean region.

Mercosur

A common market aimed at enlarging the potential market size for Latin American companies to achieve economies of scale and enhance competitiveness.

Customs Union

An agreement between countries to eliminate tariffs on goods traded among them while maintaining a common external tariff on imports.

ASEAN

Association of South Asian Nations, which establishes free trade areas to cut tariffs on international trade.

UNCTAD

United Nations Conference on Trade and Development, established to address trade issues in developing countries.

NGOs & Not-for-profits

Private institutions independent of any government that do not require UN recognition to perform humanitarian work in developing countries.

Commodity Agreements

Agreements designed to stabilize the price and supply of primary commodities due to long-term trends and short-term price volatility.

OPEC

Organization of the Petroleum Exporting Countries, a group of 13 oil-producing countries that control output and price through quotas.

Strategy

An integrated and coordinated set of commitments and actions that reflect a company's current situation and future direction.

Strategy Formulation

The process of developing a mission and vision, identifying strengths and weaknesses, and setting long-term objectives.

Strategy Implementation

The execution of strategy formulation to achieve the company's goals.

Vision Statement

An idealization of what a multinational enterprise wants to be, outlining its ultimate goals and guiding values.

Mission

A statement defining a company's business objectives and approach to achieving them, describing its values and priorities.

Competitive Moves

Actions taken by a company to gain an advantage over competitors in the market.

Long-term Objectives

Goals that a company aims to achieve over an extended period, guiding its strategic planning.

Strengths vs. Weaknesses

An analysis used in strategy formulation to identify a company's internal capabilities and limitations.

Global Business Environment

The international context in which businesses operate, including economic, political, and cultural factors.

Guiding Values

Core principles that shape a company's culture and decision-making processes.

Purpose Statement

A declaration that identifies the scope of a business's operations in terms of its products and markets.

What do we want to become?

A fundamental question addressed in the vision statement during strategic planning.

What is our business?

A fundamental question addressed in the mission statement to clarify a company's objectives.

Perfect Competition

Assumes a market structure where many firms offer a homogeneous product.

Tangible Resources

Physical resources that are observable and measurable.

Intangible Resources

Resources that lack physical form.

Core Competencies

Special outlook, skill, capability or technology that runs through the firm's operations, weaving together all value activities into an integrated value chain.

Planning

Comprehensive process that determines how the firm can best achieve its goal.

Planning Framework

A structured approach that includes identifying/assessing potential market and customer segments, SWOT analysis, formulating strategy, performing PESTLE and Porter's 5 Forces, setting clear and compelling framework, formalizing programs, policies and tactics, and monitoring and adjusting standards in changing markets.

PESTLE Analysis

Political, Economic, Sociological, Technological, Legal and Environmental factors that influence business.

Value Chain Analysis

Determines how the company will design, move, and sell products, helping managers assess how activities create value.

Value Chain

Set of linked activities that a company performs to design, make, market, distribute, and support a product.

Value Proposition

Purpose is to explain why a consumer should buy a company's products.

Value

Difference between the cost of making a product and the price consumers are willing to pay for it.

Cost Leadership Strategy

Aims to make a product of a given level of quality for a cost below those of their competitors.

Differentiation Strategy

Champions developing products that customers value, and that rivals find hard/impossible to match or copy.

Integrated Cost Leadership/Differentiation Strategy

A strategy that combines elements of both cost leadership and differentiation.

Configuration

How multinational firms distribute value activities around the world.

Creation of Value

The process of generating worth through the production and delivery of goods and services.

Centre of Excellence

If you're number one, people want to do business with you.

Chasing Market Share

Often referred to as the kiss of death for companies that opt for cost leadership strategy.

Risks of Cost Leadership Strategy

Includes disruptive technologies that might change the efficiency standard and changing customer needs.

Risks of Differentiation Strategy

Includes changing customer expectations and the emergence of newer, higher performing alternatives.

Ongoing Active Process

Involves studying shifting markets, competitors, and changing consumer behavior.

WTO and Dispute Settlement

Countries can bring charges of unfair trade practices to the WTO panel, accused countries can appeal, and the WTO ruling is binding

European Union

Governing bodies include a commission that provides political leadership, drafts laws, and runs various daily programs of the EU Commission

United States - Mexico - Canada Agreement

Incorporates Canada, Mexico, and the USA into a regional trade agreement with elimination of tariffs and non-tariff barriers

Mercosur Community

Involves a customs union between Argentina, Brazil, Paraguay, and Uruguay

Concentrated

Firm performs all value chain activities from one location.

Dispersed

Performs different value chain activities in different locations.

Location advantages

Differing environmental conditions (political, legal, market, labour costs) in different countries so the option to go anywhere allows large corporations to exploit locational advantages.

Manufacturing in locations with low labour costs

Geared towards optimizing the utilization of the firms limit resources.

Risks

Regime changes, material shortages, labour unrest (unions, strikes), currency instability.

Increasing output

Lets multinational organization distribute its fixed costs across a higher number of units - decreasing per unit cost - strategic advantage.

Global Integration or Local Responsiveness

Competing internationally proposes the dilemma for the firm.

Standardized products and processes

Should it standardize its products and processes and exploit location to maximize efficiency gains of global integration?

Unique products and processes

Should it adopt products and processes that are unique in each market to maximize effectiveness and benefits of local responsiveness?

Responding to local customer preferences

Can raise prices.

Integration Responsiveness Grid

Straightforward framework to organize analysis.

International Corporate Level Strategies

Determines the actions the organization takes to gain a competitive advantage by selecting and managing its businesses across a group of nations.

International strategy

Emphasizes the transfer of core competencies from domestic operations to a foreign subsidiary.

Limited local customization

Allows for limited local customization.

Localization strategy

Encourages decentralization decision-making so that local subsidiaries can adjust value activities to the local circumstances.

Global strategy

Requires worldwide consistency in standardization in order to be effective.

Transnational strategy

Reconciles global integration and local responsiveness in ways that leverage the multinational companies' core competencies throughout world operations.

Escalation commitment

Tendency to continue investing resources in a failing course of action, even when evidence suggests it should be abandoned.

Sales Expansion

Demographic and economic factors to consider.

Resource Acquisition

Securing resources (Sourcing) such as labour, raw materials, knowledge.

Cost considerations

Industry/company specific, local procurement and imports, labour compensation, infrastructure (social services) - bad roads.

Emerging economies

When companies move into emerging economies because of labour cost differences alone, their advantages may be short lived.

Regulatory issue

Regional trading groups prohibiting companies from producing in more than one member country.

Risk vs. uncertainty

Factors to analyze regarding risk.

Feasibility studies

Should carefully weigh important variables, no pressures from outside sources.

Demographics of a society

A firm may have a discern the opportunities digging deeper into the demographics of a society.