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					International Business Topics


          Edited by Xu Jing
          01/2007 LanZhou
Chapter One


       Brief Introduction of
   International Trade Theories
Mercantilism
   Emerged in England in the mid-16th century
   Gold and silver were the mainstays or unique form of
    national wealth and essential to vigorous commerce
   It was in a country‘s best interests to maintain a trade
    surplus
   Its doctrine is to advocate government intervention
   Its policies are to maximize exports and minimize imports
    (boost exports and limit imports)
   Zero-sum Game & Positive-sum Game



                                                            3
    Absolute Advantage
   Its definition: the ability of a country to produce a
    good or service at a lower cost than its trading
    partners.
   English economist, Adam Smith, in his landmark
    book ―The wealth of Nation‖ in 1776.
   Its principle: Countries should specialize in the
    production of goods for which they have an
    absolute advantage, and then trade these goods for
    the goods produced by other countries. That is to
    say, you should never produce goods at home that
    you can buy at a lower cost from other countries.

                                                            4
    Absolute Advantage
 Before specialization: total world production is 4 units
             x        y
Country A 1           2     (A has absolute ad in the goods X)
Country B 2          1     (B has absolute ad in the goods Y)
 After specialization:  total world production is 6 units
             x        y
Country A    3        0    (A specializes in the goods X)
Country B    0       3      (B specializes in the goods Y)

   Then they trade


                                                                 5
    Absolute Advantage
   So, by specializing in the production of goods
    in which each has absolute advantages, both
    countries benefit by engaging in trade.
    ( Positive-sum game)
   In a word, absolute advantage is the ability to
    produce more output from given inputs of
    resources than others can.

                                                  6
    Comparative Advantage
   Its definition: the ability to produce at lower
    cost compared to other producers, whether
    they are countries, firm, or individuals.
   English economist, David Ricardo, in his
    book ―Principles of Political Economy ‖
    in 1817.



                                                      7
    Comparative Advantage
   Its Principle: If a country has absolute advantage
    in the production of all goods, it doesn‘t need to
    produce all goods and it should specialize in the
    production of the goods of which it has
    comparative advantage.
    The comparative advantage arises from
    differences in productivity---the efficiency with
    which a country utilizes its resources to produce
    outputs .

                                                         8
    Comparative Advantage
 Before specialization: total world production is 4 units
             x       y
Country A 6          3     (A has absolute disadvantage )
Country B 1          2     (B has absolute ad in goods X & Y)
 After specialization:  total world production is 6 units
             x       y
Country A    0       9     (A specializes in the goods Y)
Country B    3       0     (B specializes in the goods X)
 Then they trade



                                                                9
    Comparative Advantage
   Two countries have benefited from
    specialization and world free trade.
    (Positive-sum Game)
     两利相权取其重
      两弊相衡取其轻




                                           10
    Heckscher-ohlin Theory
   A different explanation of comparative
    advantages was put forward by Swedish
    economists Heckscher & Ohlin in 1933.
   The comparative advantages arises from
    differences in National Factor Endowments
    ( 要素禀赋的不同)




                                                11
     Heckscher-ohlin Theory
   Factor Endowments: the extent to which a
    country is endowed with such resources as
    land, labor, and capital. such as: labor-
    intensive, skill-intensive.
   Different      nations      have     different
    endowments, different factor endowments
    explain differences in factor costs.


                                                     12
     Heckscher-ohlin Theory

    Its Principle: A country should specialize in
    the production of goods that make intensive
    use of factors that are locally abundant, and
    then export those goods, while importing
    goods that make intensive use of factors that
    are locally scarce.
    U.S exports agricultural goods---It has
    abundant arable land.
    China exports labor-intensive manufacturing
    industries (textiles) ---It has abundant low-cost
    labor.
                                                        13
    Heckscher-ohlin Theory

    H-O      model      and    Comparative
    advantage both have the assumption of
    constant returns to specialization--- the
    units of resources required to produce a
    good are assumed to remain constant.



                                                14
    The Product Life-Cycle Theory
   Put forward by Raymond Vernon in
    the mid-1960s
   There are four phases of the whole
    process of a new product in market.




                                          15
The Product Life-Cycle Theory
   The 1st phase: A new product is developed
    by an advanced country and sold at its
    domestic market.
     1. Initial-producer    of new products
        monopolized the production and market
        of this new product.
     2. U.S was always considered as an initial–

        producer by Vernon.

                                               16
The Product Life-Cycle Theory
   The 2nd phase: other advanced countries
    began to imitate the production of this new
    product and U.S firms have begun to sell
    this new product from advanced countries
    to some developing countries.
   The 3rd phase: Other advanced countries
    began to export this new product to
    developing countries and then to U.S

                                                  17
    The Product Life-Cycle Theory
   The 4th phase: The production of this new
    product has been concerned in developing
    countries.
   So, the place of global production initially
    switches from the United States to other
    advanced nations, and then from those
    nations to developing countries.


                                                   18
    The New Trade Theory
   Emerged in the 1970s.
     A few terms:
   Economies of scale: There are
    increasing returns to specialization.
    That is to say, as output expands with
    specialization and fixed costs of
    developing a new product were spread
    over a larger output, so the unit costs
    of production should decrease.
                                              19
    The New Trade Theory
   Diminishing returns to specialization:
    the more of a goods a country produces,
    the greater the units of resources that
    will be required to produce each
    additional item.
   First-mover advantages: Early entrants
    are able to gain economies of scales
    and they can create barriers to entry
    which discourage subsequent entry.
                                              20
  The New Trade Theory
Main doctrines:
 There    are increasing returns to
  specialization in many industries.
 There is a first-mover advantages in
  those industries where the existence of
  substantial economies of scale.



                                            21
    The New Trade Theory
   A country may predominate in the
    export of a goods simply because it
    was lucky enough to have one or more
    firms among the first to produce that
    goods. (which is different from H-O
    model)



                                            22
    Porter‘s Diamond
   What are the attributes in Porter‘s
    diamond?
   What are the additional variables can
    influence the national diamond?
   Why are the theories of international
    trade important to an individual
    business firm in its international
    marketing activities?
                                            23
     Summary
    Main ideas of six basic international theories.
    Questions:
1.   Why did the mercantilists encourage exports and
     restrict imports?
2.   Please use examples to explain Absolute
     Advantage & Comparative advantage.
3.   What‘s the difference between Comparative
     Advantage & H-O Model.


                                                       24
  Summary
4. Please describe four phases in the whole
   process of a new product in market.
5. According to the New Trade Theory, how
   can a country predominate in the export of
   a goods.
6. What are the main attributes in Porter‘s
   diamond?



                                                25
    Summary
   To explain the following terms:
absolute advantage// comparative advantage//
factor endowments// diminishing returns //
  economies of scale// first-mover advantages
   To translate the following terms:
    mercantilism; trade surplus; maximize
    exports; boost exports & limit imports;
    specialization; initial-producer; increasing
    returns; barriers to entry;

                                                   26
Chapter Two


International Monetary System




                                27
     The Gold Standard
    the end of 19th century ------ World War I
    Main elements:
1.   Gold was the world currency and each
     trading nation agreed to tie its currency to
     gold.
2.   This amounted to a fixed exchange rate
     system in which the exchange rate between
     each pair of currencies was fixed.

                                                    28
   The Gold Standard
3.International trade were conducted in
  convertible currencies which        can be
  exchanged without impediments for other
  currencies or gold.
4.Gold was used only for final settlement
5.It has automatically function on balance of
  payment



                                                29
     The Gold Standard
     Main monetary policies: ( reserve
      requirements, discount loan rate, open
      market operation)
1.    contractionary monetary policies on
      deficit countries
2.    expansionary monetary policies on
      surplus countries



                                               30
     The Gold Standard
    Why did it collapse?
1.   The liquidity in the international payments
     system fluctuated with gold discoveries
2.   The confliction among some countries
     became sharp, some countries devalued
     their currencies which destroyed        the
     stability of the system.
3.   It began to collapse around World War I
     and broke down during the Great
     Depression.
                                                   31
    The Bretton Woods System
   In July 1944, representatives of 44 countries
    met in Bretton Woods, New Hampshire,
    U.S.A
   Main purpose: to design a new international
    monetary and financial system that would
    provide a stable environment to foster
    prosperity and world trade.



                                               32
      The Bretton Woods System
    Main elements:
1.   a fixed exchange rate system
2.   the dollar as the reserve currency for the
     international payments system.
3.   Tie U.S dollar to Gold at a fixed prices of $35
     per ounce




                                                   33
     The Bretton Woods System
4.       The establishment of International
       Monetary Fund (IMF) and International
       Bank for Reconstruction and Development
       (IBRD) (also called World Bank)
      Its disadvantages:
     1.   Tied the hands of central banks of each
          countries by maintaining a fixed
          exchange rate


                                                    34
 The Bretton Woods System
2. policymakers lost considerable freedom
   in conducting monetary policy for
   domestic objectives.
3.deficit countries had to pursue
   contractionary monetary policy and
   devalue their domestic currency
  The Fixed Exchange Rate System
   collapsed in 1973

                                            35
     The Jamaica Agreement
    IMF, in Jamaica, in 1973
    Its main elements:
1.   Floating Exchange Rates were declared
     acceptable.
2.   Gold was abandoned as a reserve asset.




                                              36
 The Jamaica Agreement
3. Total annual IMF quotas---the amount
   member-countries contribute to the IMF---
   -were increased to $41 billion.
  Since 1973, exchange rates have become
   much more volatile and far less
   predictable.



                                               37
    The European Monetary System
   In 1979, the members of the European
    Community created the European Monetary
    System (EMS)
   Its objectives:
     1. To create a zone of monetary stability in
        Europe (by reducing exchange rate
        volatility and converging national interest
        rates)

                                                      38
  The European Monetary System
2. To control inflation through the
  imposition of monetary discipline.
3. To coordinate exchange rate policies
  versus non—EC currencies such as the
  U.S. dollar and the yen.




                                          39
 The European Monetary System
    Its main elements:
1.   Establish European Currency Unit (ECU)
     which is a ‗basket‘ of the EC currencies---
     one Ecu comprises defined percentages of
     national currencies.




                                                   40
  The European Monetary System
2.Exchange Rate Mechanism (ERM) ties
  participating countries together in a system
  of semi-rigid exchange rate.
3.Members are allowed to fluctuate their
  exchange rate within a band of 2.25 percent
  on either side of central value.



                                                 41
    The European Monetary Union
    Members of EC, in Dec, 1991, in Maastricht
    Treaty of Maastricht ---Design three steps
     of achieving European Monetary Union
1. 1990/July/01---1993/Dec/31
 a. Strengthen monetary policies regulation in
    member-countries
 b. Reduce the fluctuation of central rate of
    ECU
c. Enlarge the range of ECU being used in EC

                                                  42
The European Monetary Union
2. 1994/Jan/01---1998/Dec/31
   a. Build the testing model of European Central
  Bank
   b. Confirm the list of first participants
3. 1999/Jan/01---until now
    Achieve the same currency, same central bank
  and same Monetary policies in EC




                                                    43
     Basel Accord
    Basel I
1.   G-10 countries, in Basel, Switzerland, in 1988
2.   Capital adequacy - ensuring that financial
     institutions retain enough capital to protect
     themselves against unexpected losses.
3.   Banks with international presence are required to
     hold capital equal to 8 % of the risk-weighted
                           assets.




                                                         44
    Basel Accord
   Basel II
1. The basic purpose:
 To revise the international standards for measuring
    the adequacy of a bank's capital
2. The specific purposes:
 (1) Ensuring that capital allocation is more risk
    sensitive;
 (2) Separating operation risk from credit risk, and
    quantifying both;
 (3) Attempting to align economic and regulatory

                                                       45
  Basel Accord
  capital more closely to reduce the scope for
  regulatory arbitrage. .
3. “Three pillars" concept
(1) minimum capital requirements
(2) supervisory review
(3) market discipline - to promote greater
  stability in the financial system.


                                                 46
Summary
   Basic Phases in Evolution of International
    Monetary System
   A few terms




                                                 47
Chapter Three


Exporting, Importing and
   Countertrade




                           48
Exporting & Importing
        What are the main elements for Exporting
         & Importing ?
    1.     Collect information
    2.     Identifying export opportunities
    3.     Exporting & importing Financing




                                                49
    Exporting & Importing Financing
        An acute problem---Lack of Trust
    1.    the distance between the two parties ---- in
          space, language, and culture
    2.    the problems of using an underdeveloped
          international legal system to enforce
          contractual obligations




                                                         50
    Exporting & Importing Financing
   How to solve the problem
    By using a third party trusted by both -
    ----A reputable bank--- to act as an
    intermediary




                                               51
  Letter of Credit
Its definition: Issued by a bank at the request
    of an importer, the letter of credit states
    that the bank will pay a specified sum of
    money to a beneficiary, normally the
    exporter, on presentation of particular,
    specified documents.



                                                  52
  Letter of Credit
Its advantages:
  Parties in transaction are likely to trust
  reputable, even if they do not trust each
  other.




                                               53
     Letter of Credit (Steps)
1.   Importer obtains bank‘s promise to pay on
     importer‘s behalf
2.   Importer‘s bank promises exporter to pay
     on behalf of importer
3.   Exporter ships goods ―to the bank‖
4.   The bank pays exporter
5.   Bank gives merchandise to importer
6.   Importer pays bank

                                                 54
    Draft
   Its definition: (a bill of exchange). It is
    simply an order written by an exporter
    instructing an importer, or an importer‘s
    agent, to pay a specified amount of money at
    a specified time.
   The maker: the party initiating the draft
   The drawee: the party to whom the draft is
    presented

                                              55
    Draft
 Sight draft: payable on presentation on the
  drawee.
 Time draft: a delay in payment. It is
  presented to the drawee, who signifies
  acceptance of it by writing or stamping a
  notice of acceptance on its face. They are
  negotiable instruments.
 Banker‘s acceptance: accepted by a bank

 Trade acceptance: accepted by business firm
                                                56
    Bill of Lading
   Its definition: issued to the exporter by the
    common        carrier     transporting    the
    merchandise.
   Its functions: a receipt
                   a contract
                   a document of title
                   a collateral

                                                    57
    Steps in An International Trade
A Typical International Trade Transaction
 involves 14 distinct steps:
A few terms:
Letter of credit // Delivery terms // time draft
endorse // bill of lading //accepted draft//
maturing draft // matured draft // holder//


                                                   58
    Counter-trade
  Why they exist?
 government‘s restriction on the convertibility
 its currency for keeping its foreign exchange
 reserves
 Its principle:

   barter-like agreement--- to trade goods &
   services for other goods & services when
   they can‘t be traded for money.
                                                  59
     Types of Counter-trade
    Types of Counter-trade
1.   Barter : direct exchange of goods &
     services without a cash transaction. (most
     restrictive arrangement)
2.   Counter-purchase: a reciprocal buying
     agreement
        A sells to       B
        A buys from B

                                                  60
     Types of Counter-trade
   Offset: similar to counter-purchase
       A sells to         B
       A buys from C ( same country with B)
   Switch Trading: Counter-purchase credit
       A counter-trade          B
       A sells credit to C sells to D buy
    from B’s country
   Compensation or Buybacks: Use output as
    payment


                                              61
     The Pros & Cons of Countertrade
     The Pros:
1.    A way to finance an exporting or
      importing when other means are not
      available.
2.    Remain competitive with large trading
      companies


                                              62
      The Pros & Cons of Countertrade
    The Cons:
1.   not as convenient as other means
2.   The exchange of unusable or poor-quality
     goods
3.   The cost of investing in an in-house trading
     department is expensive and time
     consuming

                                                    63
    Summary
  Basic financing ways for exporting &
   importing
  Basic types of Counter-trade
Questions:
1. What‘s a letter of credit?
2. What‘s a bill of lading?
3. What‘s a draft?

                                          64
  Summary
4. What are the main types of Countertrade?
5. What are the reasons for coutertrade?
6. What are the differences between counter-
  purchase and offset?




                                               65
Chapter Four

Non - export Entry Modes
     ------ Strategic Alliance




                                 66
    Nature of Strategic Alliances
     Its definition
    a mutually beneficial long-term formal relationship
    formed between two or more parties to pursue a set
    of agreed upon goals or to meet a critical business
    need while remaining independent organizations.
     Fundamental purpose
    to enhance the long-run competitiveness of the
    strategic partners

                                                          67
    Strategic alliance‘s benefits for Firms
   Increase in capital for research and product
    development and yet lower risk (Innovation)
   Decrease in product lead times and life cycles
    (time pressures)
   Ability to bring together complementary skills
    and assets that neither company could easily
    develop on its own
   Access to knowledge and expertise beyond
    company borders (technology transfer)

                                                     68
    Strategic alliance‘s benefits for Firms
   Rapidly achieve scale,critical mass and
    momentum (Economies of Scale - bigger is better)
   Expansion of channel and international market
    presence (enter a foreign market)
   Building credibility in the industry and brand
    awareness
   Providing added value to customers
   Establishing technological standards for the
    industry that will benefit the firm

                                                   69
    Strategic alliance‘s Core dimension
    Goal compatibility
    Strategic advantage
    Interdependence
    Commitment
    Communication and conflict resolution
    Coordination of work
    Planning

                                             70
    Strategic Alliance‘s Principles
   top management must be involved
   Meet frequently, and often informally
   Use a matchmaker
   Maintain independence
   Allow no ―sacrifice ideals‖
   Have a monitor
   Anticipate cultural differences

                                            71
Forms of strategic alliance
                 Licensing
     Cross-
  distribution               Contracting
  agreement


                 Strategic
  Cross-          Alliance           Joint
marketing
agreement                           venture


          Cross-
                          R&D
       manufacturing
        agreement       consortia

                                              72
    Licensing
   Its definition
          a method of foreign market operation
    where the licensor signs a contractual agree-
    ment with licensee whereby the licensee is
    given the right to use something owned by
    the licensor.



                                                    73
What can be Licensed ?
                     Technology, know-how,
                   patent/non-patent processes

 Other types of                                  Trademark,
  knowledge                                      brand name,
and trade secret                                    logos
                         Licensing
                         Agreement


  Marketing knowledge
                                      Product/facility design
     and processes
                                                                74
Licensing
    The licensor‘s main source of income
1.   Initial payment
2.   Annual minimum
3.   Annual percentage fee
4.   Additional Fees



                                            75
    Franchising – A Special Type
    A method of doing business wherein a
    franchisor licenses trademarks and methods
    of doing business to a franchisee in
    exchange for a recurring royalty fee
   150 years history, came to prominence in
    1950s.
   Franchise-based industries includes fastfood,
    beverage, retailing, entertainment etc.

                                                    76
    Licensing‘s objectives
   Obtaining revenue from company-owned
    patents, trademarks, and accumulated know-
    how
   Gaining some strategic advantage in
    marketing its products in foreign markets
   Acquiring reciprocal know-how and research
    developments form foreign companies

                                                 77
     Licensing‘s objectives
   Gaining a foothold in a market for future
    actions.
   Entering a market when conditions make
    export undesirable
   Gaining a foreign-market production
    presence when capital investment is not
    available
   Contributing to economic development
    where needed
                                                78
    Licensing‘s advantages
   Ease and low cost of entering a foreign
    market
   Making good use of licensee‘s management,
    capital equipment and knowledge to exploit
    a foreign market
   Testing a foreign market without the risk of
    capital loss


                                                   79
    Licensing‘s disadvantages
   A potential competitor is set up.
   lack of overall control
   Incomplete market exploration
   Loss in flexibility and weak        in
    diversification




                                             80
    Discussion
   Read the example of an American company
    getting locked in a licensing agreement with a
    leading European manufacturer on page 55.
   What caused the failure of this licensing
    agreement?
   What do you have to suggest?


                                                 81
 resolutions to problems
Make your partner happy
 profitability

 ownership

 innovation




                           82
    Contracting


   Contract Manufacturing
   Management Contracting




                             83
 Contract Manufacturing
  A long-term arrangement between a foreign
producer and an international company hereby
 the former produces the products while the
 latter in charge of marketing, distributing,
 transferring the technology and assistance.




                                                84
    Its Advantages
   Minimum cash, time, personnel
   Control over marketing, after-sale service and
    trademark
   Circumvent entry barriers
   Label of ―local made‖
   Avoid intra-corporate pricing problem


                                                     85
    Its Disadvantages
   Profit shared
   Training a potential competitor
   Hard to find a satisfied manufacturer
   Little control on quality
   Critics of exploration or sweatshops



                                            86
  Management Contracting

  An arrangement between an international
 marketer and a local investor to establish an
enterprise.The former provides management
know-how and the latter provides capital.




                                                 87
    Its Advantages
   Local investor‘s acquisition of a complete
    operational system
   Foreign marketer‘s safe way into a market
    with option
   A management without equity control or
    legal obligations
   A guaranteed income & quick returns
   Avoid foreign exchange or other remittance
   Clarity in administration
                                                 88
    Its Disadvantages
   Complex and expensive documentation
   Limitation of future management and
    investment
   Shortage of personnel
   If without option, potential competitor
    created



                                              89
  Joint Venture
A business relationship between two or more
parties to undertake economic activity
together. All parties agree to share in the
profits and losses of the enterprise. The
venture is for one specific project only,
 rather than for a continuing business
relationship as in a strategic alliance.


                                              90
Two Kinds
   Specialization ventures
    organized around functions like marketing
    or manufacturing

   Shared Value-added Venture
    organized with unique and valuable
    contributions by each partner



                                                91
Its Advantages
Best way to enter more overseas market for
small companies
Minimized risks resulted from saving of
resources
easier adaptation to unfamiliar environment
Less subject to political-legal adverse action
Sharing sales revenues

                                                 92
Its Disadvantages
Limited profit potential
Possible conflicts over management decision
and dividend policy
Conflicts arising from cultural differences
Self-competing in other markets
The faster learner may dominates or
terminates the venture.


                                              93
    Summary
   Why do joint ventures usually last shorter
    than other strategic alliances?
   Which form of strategic alliance are more
    suitable for hi-tech businesses? Why?
   Why do franchising become so popular in
    this globalization era?



                                                 94
    Key terms
   Strategic alliance
   Licensing
   Cross-licensing
   Franchising
   Contract manufacturing
   Management contracting
   Joint venture
   Subcontracting
   Intra-corporate (transferring )price   95
Chapter Five



Foreign Direct Investment




                            96
    Goals of the Unit
   An overlook at the world pattern of FDI
   Distinguish horizontal and vertical FDI
   Understand the factors that influence the
    choice of FDI




                                                97
    Read the text and find out
   What are the changes in the nature of FDI ?
   What are the reasons for a faster FDI than
    WT?
   Why U.S a big FDI recipient while Japan a
    small one?




                                                  98
    Features of World FDI
   Marked increase
   Japan, EU as major FDI outflow sources
   U.S as a big FDI recipient
   Medium-small firms‘ participation




                                             99
    Reasons for faster growth of FDI
   Fear of protectionists among businesses and
    pressure on circumventing trade barriers
   Necessity of being customized to local
    conditions




                                                  100
    Why U.S a big FDI recipient while
    Japan a small one?

   Unrealized market potentials in U.S.A
   Exchange rates (weak dollar, strong euro &
    Japanese yen)
   A belief of poor U.S. management
   Government support in Japan



                                                 101
     Horizontal FDI
    FDI in the same industry abroad as a firm
     operates at home
    4 factors influencing the choice of FDI
1.   Transportation Costs
2.   Market Imperfections
     A. Impediments to Exporting
     B. Impediments of the sale of Know-how
3.   Following Competitors
4.   The Product Life Cycle
                                                 102
    What is market imperfection?
   Market imperfections or distortions, generally,
    mean any deviation from the assumptions of
    perfect competition. That is, the best allocation
    of resources are not achieved, there is imperfect
    competition. Different types of imperfections
    and distortions include:
    Monopoly, Duopoly and Oligopoly

                                                   103
  The Product Life Cycle in HFDI
 Introduction stage: Pioneers invest in an
  advanced country where demand supports local
  production
 Growth stage: Demand grow in other
  advanced countries
 Maturity stage: Standardization and market
  saturation give rise to cost pressure, thus FDI in
  developing countries
 Declining stage: FDI in low-cost locations
                                                  104
     Vertical FDI
     Backward Vertical FDI
    Into an industry abroad that provides inputs for
    a firm‘s domestic production processes.
    Forward Vertical FDI
    Into an industry abroad that sells the outputs of
    a firm‘s domestic production processes.


                                                    105
    The theoretical supports of VFDI

    Market Power
    Market Imperfections




                                       106
    What is market power?
   In economics, market power (sometimes
    called monopoly power) is a market failure
    which occurs when one or more of the
    participants has the ability to influence the
    price or other outcomes in some general or
    specialized market.



                                                    107
    Why do firms undertake vertical FDI
    according to market power theory?
   Vertical FDI limits competition and strengthen
    control over source of raw materials and shut
    new entrants out
   Vertical FDI as an attempt to circumvent
    barriers by existing competitors in the host
    country.



                                                108
     How does market imperfection
     theory argue for vertical FDI?
   Impediments to sale of know-how exist, that is
    there is no efficient producer in the host country
    which is able to extract raw materials.
   Investment in specialized assets (an asset
    designed to perform a specific task and the
    whose value is significantly reduced in its next
    –best use.)

                                                    109
     Discussion
   What‘s difference between horizontal FDI
    and vertical FDI
   Given the current situation of globalization,
    what do you think will be the trend of FDI?
    HFDI or VFDI? What are the targets?
   What do you know about FDI in China?
    Are we a strong recipient of FDI or a big
    outflow investor ?
                                                    110
    Key terms
   Transportation costs
   Market imperfections
   Market impediments
   Market power
   Oligopoly
   Forward vertical FDI
   Backward Vertical FDI
   Horizontal FDI
   Specialized assets      111
Chapter Six


International Technology Transfer




                                    112
    Goals of the Unit
    Identify the nature and classification of
     technology
    Understand the processes and modes of
     technology transfer
    Discuss the relevant issues for businesses
    Distinguish various technology transfer
     strategies

                                                  113
The Nature of Technology
    Its definition
    Its classification schemes
1.   hard & soft
2.   proprietary & non-proprietary
3.   front-end & obsolete
4.   bundled & unbundled


                                     114
Technology Transfer Process
   Its features
   What factors can affect it?
   The expediters & controllers of it
   Modes of technology transfer




                                         115
A Few Issues for the Firms
   Why do firms need to maintain a
    technology advantage?
   How to maintain its technology advantage?
   What is the motivation of firms for
    establishing foreign R&D units?
   What are the main strategies for technology
    transfer?

                                             116
Summary
   The nature of technology
   Technology transfer process
   A few issues for the firms




                                  117
Chapter Seven


Products & Branding in Brand
         Management




                               118
Branding Management
    Its basic objective
    What is a Brand?
1.   Its definition
2.   The keys to creating a Brand
3.   Brand elements
    Brands Vs Products
1.   What‘s a product
2.   Five levels of a product
                                    119
The importance of Brands
   For consumers
   For manufactures
   For firms




                           120
What can be branded?
   Physical goods
   Commodities
   High-tech Products
   Services
   Retailers & Distributors
   People & Organizations
   Sports, Art & Entertainment
   Geographical Locations
                                  121
Summary
   What‘s a Brand?
   The keys to creating a Brand
   Brands & Products
   The importance of Brands
   What can be branded



                                   122
Chapter Eight



  Globalization




                  123
Globalization
   What‘s Globalization?
   What‘s the driving power for globalization?
   Globalization of Culture
   Globalization of Consumption




                                             124
     Globalization of the Economy
     How to understand it?
     The trends of Globalization of the Economy
1.    Globalization of Finance
2.    Transnational Corporations
3.    Change of the direction of FDI
4.    Global Specialization of Work
5.    Global Specialization of Service
6.    The Global Office
7.    Global Tourism

                                                   125
Summary
   Globalization
   Globalization of Culture
   Globalization of Consumption
   Globalization of Economy




                                   126
Chapter Nine



      The WTO




                127
The Former of the WTO
   The GATT
   The Uruguay Round




                        128
The WTO
    The WTO
    The Main Principles of The WTO
1.   Nondiscriminatory trade
2.   Tariff Concessions
3.   Preclusion of Quantitative Restrictions
4.   ―Anti-Dumping‖ & ―Export Subsidies Restrictions‖
5.   Transparency
6.   Mechanism of Dispute Settlement


                                                  129
Substantive Challenges to WTO
    Regional Trading Arrangement
1.   Its Conditions
2.   Main Forms of It
3.   Challenges for the WTO
    Trade in Service



                                    130
Summary
   The GATT
   The WTO
   Regional Trading Arrangement




                                   131

				
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