International Business exam prep

sanctions

partial restriction on trade

example: US sanctions on russia restricting advanced microchip sales

embargoes

a complete ban on trades with specific countries

ex: decade long US embargo against Cuba

legal risk to MNC- export control products

products with both commercial and military applications like specialized electronics

Example: US ban on advanced microchip exports to Russia.

legal risk to MNC- extraterritoriality

the application of home country laws to operations abroad

Example: US FCPA punishing bribery overseas by US firms

political risks to MNC: operating risk

threat to a firm’s property and life of its employees

ex- Strikes or protests in France disrupt factory operations and delay production.

political risks to MNC: operating risk

threat to a firm’s operations, property and life of its employees

ex- Strikes,or protests in France disrupted factory operations and delayed production.

political AND legal risks to MNC: transfer risk

government policies restricting fund movements

Example: Argentina blocks profit repatriation through currency controls

political risks to MNC: expropriation

its when gov takes away firm asset but with compensation and causes loss of futute profits for firms

EXAMPLE- Venezuela expropriated foreign oil companies

political risks to MNC: confiscation

its when gov takes away firm asset but with NOOOOO compensation and causes loss of assets AND future profits for firms

EXAMPLE- Cuba (1960s) seized U.S. firms with no payback

political risks to MNC: Campaigns against foreign goods

causes loss of sales and increased PR costs due to dealing with or mitigating negative image of firms

EXAMPLE- many muslim consumers have boycotted Israeli products/brands seen as supporting Israel, due to the Israel–Palestine conflict

political risks to MNC: Mandatory labor benefits legislation

causes increased operating costs

EXAMPLE: India increases minimum wage, raising MNC costs

political risks TO MNC: Kidnapping, terrorist threats, and other forms of violence

causes disrupted production, higher security and managerial costs; lower productivity

EXAMPLE: Nigeria: Oil workers from companies like shell kidnapped by militants

political risks to MNC: Civil Wars

causes destruction of property, lost sales, disrupted production, leads to increased security cosrs and lower productivity

EXAMPLE: Sudan: Civil war destroyed factories & stopped operations

political risks to MNC: inflation

higher operating costs for materials, wages, etc

EXAMPLE: Turkey’s inflation raised raw material costs for MNCs

political risks to MNC: repatriation restrictions

inability to transfer funds freely and profits trapped in host country

EXAMPLE: Ethiopia: Companies can't access foreign currency for transfers

political risks to MNC: currency devaluations

reduced value of repatriated earnings

EXAMPLE: Pakistan’s rupee dropped, hurting foreign earnings

political risks to MNC: increased taxation

lower after tax profits

EXAMPLE- INDONESIA Imposed 10% VAT tax on foreign digital companies like Netflix and Spotify

Mercanitilism

is an economic theory where one country’s gain is another country’s loss with the goal of maximizing exports and minimizing imports

Absolute advantage

a country producing goods where its absolutely more efficient than any competitor

Comparative advantage

even if a country is better at making both or multiple products, it should specialize in what it does relatively better and cheaper (where there’s the lowest opportunity cost)

FDI - foreign direct investment

owning 10% or more of direct ownership in a foreign firm, often with managerial control

TYPES OF FDI

1. Greenfield investment - starting from scratch

ex: Ikea opening a warehouse in India

2. Mergers & Acquisitions - buying existing firms

ex: Microsoft acquiring AI startup in UK

3. Joint venture - local partnership with equity sharing

ex: Nestle’s joint venture with chinese dairy company

Motivations for FDI

1. market (reaching new consumer markets)

2. resource (access to natural resources)

3. efficiency seeking (low cost more efficiency)

4. strategic asset-seeking (brands, IP, technologies)

5. follow the leader (entering new markets because competition doing so)

6. risk diversification (reducing dependancy on a single economy)

2 FDI THEORIES

1. Ownership advantages theory- where unique firm specific skills allow foreign expansion to be viable

2. Internalization theory- firms internalizing operations (instead of licensing) to protect “know-how” and reduce transaction costs

GDP gross domestic product

the sum of all the final goods and services a country produces in 1 year

FDI Theories: Oli Framework

O - ownership advantage: company’s unique assets/strength advantage

L - location advantage: host-country advantage

I - internalization advantage: managing/operating yourself instead of licensing/outsourcing

Tariff Types

1. Import tariff

2. Export tariff

3. Transit tariff (tax on goods passing through a country)

   Types by calculation:

   specific tariff (fixed fee per unit)

   ad valorem tariff (based on a % of a value)

   compound tariff (combo of both)

Non-tariff barriers

Import quotas - limit on amount/number of goods imported

Voluntary export restraints - exporter agrees to limit exports

Subsidies - government support for local producers (which lowers cost advantage)

Local purchase Requirements - must use local inputs/components

Product & Testing standards - regulations which foreign goods must meet

Restricted access to distribution networks - difficulty reaching consumers

Public-sector Procurement policies - where government only buys from locals

Regulatory controls - licenses, inspections, buraucracy as barriers

Currency controls - limitations on currency exchange

Investment cotrols - ownership/investment limits, approvals for foreign investors

Ex: EU bans on certain GM foods under testing standards

Ex: Malaysian’s sugar and rice licensing through government-linked entities

Import substitution strategy: definition, goal, policy tools, benefits, drawbacks, example

Import substitution strategy is replacing foreign goods with domestic production

Goal: To build local industries, and reduce reliance on imports

Policy tools: high tariff/import quotas, subsidies for local manufacturers, restriction on FDI in targeted sectors, and protective regulations for local content

Benefits: Short-term job creation, encourages domestic production

Drawbacks: may reduce competition and quality, higher prices for consumers, and can lead to inefficiencies

EX: Indias pre-1991 closed economy

EX: Makaysia protecting Proton from imported cars

Export promotion strategy: defintion, goals, policy tools, benefits, drawbacks, example

Export promotion strategy encourages firms to produce for international markets

Goal: To earn foreign exchange, achieve scale, global competitiveness

Policy tools: Export subsidies, tax incentives for exporters, currency devaluation, investment in infrastructure and logistics, and free trade zones (FTZs)

Benefits: greater efficiency, increased employment in export industries, foreign investment attraction

Drawbacks: vulnerability to external demand shocks, overdependance on limited sectors

EX: South Korea’s growth via expoort-focused chaebols

EX: Penang’s FTZ and E&E exports (Intel, Bosch, Dell)

FTZ (free trade zone) and example

They are designated areas with relaxed/less trade restrictions/regulations, exemptions on custom duties, VAT, incentives for export oriented production

EX: Malaysia has “Bayan Lepaz FTZ” - which is a hub for electronics, aerospace, medical tech

3 trade organizations and explain them (ITO, GATT, WTO)

ITO - international trade organisation: proposed in 1940s failed to launch

GATT - general agreement on tarifs and trade: established in 1947, reduced tariffs over 8 rounds,

WTO - world trade organisation - founded in 1995, overseas trade rules and dispute settlement, is broader than GATT by including services, (intellectual property) IP, investment rules

Goals of WTO: reduce trade barriers, settle trade disputes, ensure non-discrimination, promote transparency and predictability

btw malaysia ia a founding member of WTO and is active in dispute resolution

Regional Trade Agreements and Explain (NAFTA/now USMCA, APEC, ASEAN, RCEP)

NAFTA/USMCA - US, MEXICO, CANADA - promotes tariff-free trade in north america

APEC - Asia-Pacific Economic Cooperation - 21 pacific rim/border economies - focuses on trade liberalization and economic integration

ASEAN - association of Southeast Asian Nations - aim of turning ASEAN into one single market (includes Malaysia, Indonesia, Singapore, etc)

RCEP - Regional comprehensive Economic partnership - Largest FTA worldwide including ASEAN countries, china, japan, korea, australia, NZ - and reduces tariffs and standardizes rules of origin

Trade disputes and Retaliation examples and resolution methods

EX: US-China trade war (tariffs on steel, soybeans, electronics)

EX: China-Australia dispute (wine, coal, barley tariffs)

EX: EU-Malaysia (palm oil and sustainability standards)

Mechanisms for Resolution:

WTO dispute settlement body

bilateral negotiations

regional enforcement panels like under RCEP

Impacts of MNCs (multinational coorporation)

They bring both opportunities (technology, employment, consumer choice) and challenges (competition, local displacement)

Factor Endowment Theory/Heckscher Ohlin Theory

where a country intensively exports products that use its abundant factors and import products requiring factors it lacks

FPI defintion, example, motivation, benefit, risks

FPI - foreign portfolio investment is passive holding of foreign assets (stocks, bonds) with less than 10% ownership and no managerial control

EX: buying shares of toyota listed on the japanese stock market

Benefit: lower risk, easier to sell, passive investment

Motivation: Portfolio diversification, currency arbitrage, interest rate differentials

Risks: exchange rate volatility/unpredictability

EXPLAIN ALL 17 SDGS!!!

SDG 1 – No Poverty

Meaning: End poverty in all forms everywhere. Ensure everyone can afford basic needs like food, shelter, and income.

SDG 2 – Zero Hunger

Meaning: End hunger, improve nutrition, and promote sustainable agriculture so everyone has enough healthy food.

SDG 3 – Good Health and Well-being

Meaning: Ensure healthy lives for all by improving healthcare, reducing diseases, and supporting mental and physical well-being.

SDG 4 – Quality Education

Meaning: Provide inclusive, fair, and quality education for all, especially children and vulnerable groups.

SDG 5 – Gender Equality

Meaning: Achieve equality between men and women in rights, pay, education, and leadership.

SDG 6 – Clean Water and Sanitation

Meaning: Ensure access to clean drinking water, proper toilets, and good hygiene for everyone.

SDG 7 – Affordable and Clean Energy

Meaning: Provide reliable, sustainable, and clean energy (like solar or wind) to all people at a fair cost.

SDG 8 – Decent Work and Economic Growth

Meaning: Promote jobs with fair pay, safe conditions, and strong, inclusive economic growth.

SDG 9 – Industry, Innovation, and Infrastructure

Meaning: Build strong roads, factories, and internet access, and support innovation and sustainable industrial growth.

SDG 10 – Reduced Inequalities

Meaning: Reduce gaps between rich and poor, and ensure fair treatment of everyone regardless of age, gender, race, or background.

SDG 11 – Sustainable Cities and Communities

Meaning: Make cities safe, inclusive, affordable, and environmentally sustainable for everyone.

SDG 12 – Responsible Consumption and Production

Meaning: Reduce waste, pollution, and overconsumption by promoting sustainable use of resources.

SDG 13 – Climate Action

Meaning: Take urgent action to fight climate change and reduce greenhouse gas emissions.

SDG 14 – Life Below Water

Meaning: Protect oceans and marine life by stopping overfishing, pollution, and marine destruction.

SDG 15 – Life on Land

Meaning: Protect forests, stop desertification, and preserve ecosystems and wildlife on land.

SDG 16 – Peace, Justice, and Strong Institutions

Meaning: Promote peace, justice, human rights, strong laws, and reduce corruption in governments and institutions.

SDG 17 – Partnerships for the Goals

Meaning: Work together through global partnerships (governments, businesses, and communities) to achieve all 17 SDGs.