INTRODUCTION TO INTERNATIONAL BUSINESS

Part 1
Q.1. DISCUSS POSSIBLEREASONS WHY MALAYSIA MIGHT BE KEEN TO JOIN

AFTA

To date, Malaysia has resolved to execute two bilateral FTAs and four territorial FTAs.

The Association of Southeast Asian Nations or ASEAN involves ten members, i.e., Indonesia,
Malaysia, Singapore, Philippines, Lao PDR, Myanmar, Brunei Darussalam, Cambodia, Thailand,
and Vietnam. Starting 2007, the ASEAN locale has a joined populace of 575 million (third after
China and India), an aggregate territory of 4.5 million square kilometers, all out ostensible GDP
of some US$ 1.3 trillion, and an aggregate exchange (intra and additional ASEAN) of US$ 1.5
trillion. Attributable to its sheer monetary size and unexploited assets, the ASEAN district under
an Economic Union system possibly speaks to a worldwide force house soon.

Access to Wider Market

The AFTA is a roadmap that leads Malaysian organizations to large domestic market that have

worth of US$ 600 billion and composed of 530 million populations. Malaysian industry utilize

this opportunity and develop their existing setups with future dimensions.

Economies of scale
The Malaysian companies after AFTA utilize the economies of scale by increasing their

production for large domestic market. The adoption of new technologies designed for large

production significantly reduces the production cost and provide a competitive advantage.

Potential of Broader Business network

By and large the AFTA will provide the opportunity to Malaysian entrepreneurs to utilize the

business network in large region and enhance their effectiveness and efficiency. This will provide
the most business opportunities in the domain of outsourcing and also helps member countries to

improve the existing technologies by learning from each other.

The long Range of the products

The countries that joined AFTA provide the range of different products under reduce tariffs that

provide opportunity for mass production and also reduce the cost.

Specialization
The AFAT provide the options of economies of scale that leads organizations towards the

specialized producer having comparative as well as competitive advantage over the others. This

will reduce the probability of the duplication of investment in the region.

Raw Material
The selection of AFTA provide the access to raw material in the ASEAN region in member

counties on low tariff that provide the competitive base to Malaysian companies in global

competitive market.

FDI
The AFTA leads toward the FDI inflow to Malaysian to enhance the benefits of business

available and strengthen the economy. This will also facilitate the MNC operating in Malaysia.

Intra-regional trade
ATFA enhance the intra-regional trade in Malaysia and other member country and business

sector utilize the opportunities and transform them into profit. While at the same time people

received better and low price products

Capital, Technology and Skilled workers flow

Malaysian firms are by and large highly capital and technological intensive and required

motivated, trained and highly skilled workforce. The AFTA will provide the free flow of

technology and skilled workforce to Malaysian companies and enhance their performance
 Service Sector
The Malaysian firms operating in service sector also took the benefit from the AFTA. The

increased intra- region trade leads to more service requirements in terms of airlines, logistics,

insurance and banking etc.

Q.2.(a) Brainard (1997) found that 1% increase in tariffs

resulted in a rise in sales via FDI of approximtely 0.5%.
Taylor (2000) found that there is a positive relationship
with countries having more open trade policies and FDI in
flow of investment. Suggest an explanation to the two
contradicting findings.
Brainard (1997) found that 1% increase in tariffs resulted in a rise in sales via FDI of approximately

0.5%. This finding is primarily based on the on sales of the affiliates. Moreover in this study the

parameters such as taxation are observed with different values as the products categories for domestic

market are charged high tax while the other products that are produce for export are charge relatively less.

However, this taxation difference are design to manage the transportations cost for producers. The

approach also facilitated the economies of scale by providing the large scale production environment that

customize with domestic and international market.

Taylor (2000) found that there is a positive relationship with countries having more open trade policies

and FDI in flow of investment. This study is based on US based multinational firms that are

developing their setups on different regions in the entire world. This is due to the different

factors that are contributed in attraction of FDI. The major MNCs are operating on the specific

models that required different materials frequent flow. The openness of trade provides various

benefits that lead to increase the FDI.

However apparently the above two statement are contradictory but by and large both are valid

findings. The first one is specific in terms of parameters that are used to evaluate such as
taxation. The finding of study is logical valid and interpreted with supported literature. In that

case the sales are considered to gauge the impact of a tariff on FDI indirectly. The reason for this

increased in sales of FDI by apply more tariff is the price margin in domestic production within

region by the FDI units as compare to the imports products in that region. In other study conduct

by Taylor (200) the case in entirely different and only UD FDI was considered and evaluated. US

MNCs have their dynamics. Those organization rely on free flow of materials and thats why

they are interested in open trade areas to utilize them as a production place and deliver their

product in different region of the entire world by minimize the transportations and labor cost.

There is no contradiction in findings of these two by applying the context and both are valid in

the specific context. However the general application is limited due to the specific nature of the

studies.

Q.2.b. If you are the director of MITI whose

responsibility is to improve the inflow of FDI, what would
be your suggestion after reading above 2 papers?
The world economy is by and large primarily influenced by the FDI. The counties adopt different

measure to attract the FDI towards their home land to provide vital strength to the economy. FDI

serves in many ways such as increase foreign currency reserve, contribute via taxation and also

provide employment in that country.

I as director MITI will be responsible for FDI. It was my prime responsibility to develop such

policies that increase FDI and significantly improve the overall economic growth of the nation.

MITI focus on specific initiatives that attract the FDI from all over the world. The country on the

base of its geographical location is more suited to enhance FDI by offering open trades with

ASEAN and other free trade economic forums. Open trade provide flow of capital, technology
and skilled personal for industrial sector. Free trade also facilitate the large scale production for

large domestic market and people of the country are also facilitated by receive more competitive

in terms of both quality and prices with better service as well. Free trade develop service sector

and contribute a lot in national economic growth.

PART 2
Q.3. Suggest the international strategy which appears
to be adopted by the following European companies in
their US ventures. Farnell , Ericsson, Midland Bank, BP
In the given case study the companies Farnell, Ericsson, Midland Bank, BP have adopted the
Foreign Acquisition for the purpose of the international expansion. Foreign Acquisition is way of
foreign direct investment ( FDI) in any other country or region in the entire world. The objective
of the foreign acquisitions are to expend a company international by acquiring (purchasing ) a
company completely or by the majority ownership to enhance the performance of that company
and contribute in the parent organization profit. The acquisitions are by and large used to become
a major player in a specific market.
However there are many others options are also available for companies to expend international
such as joint venture, licensing etc. The foreign acquisition are frequently adopted in the entire
world to organizations are performing much better but here in this case the acquisition are not
run long time and organization ultimately face a heavy loss.

Q.4. What can we learn in a strategic context from the

success and failure of the companies in the case study ?
The findings of this case study provide the failure example of the international acquisitions on

the UK firms in united state America. The case study one by one discussed various companies

that are interested in international expansion to move outside the UK. These companies select

USA market and miss different issues that ultimately leads to the loss. The companies first

objective should be sustainability and after that companies evaluate their available options for

expansion and select most suitable for next move. There are different issues that create trouble in

the acquisition and leads to a failure. The diversity in culture is one the most prominent one that
creates the issues in international acquisition. The companies also sometime provide the more

offer as compare to the actual worth of the firm and after acquiring company face issues to

required that amount and justify the decision of that acquisition. Companies after acquiring the

firm be careful about the integration of that firm with primary company many time integration

cause different issues. Moreover firms before going for an acquisition evaluate either it going to

control full or operating with existing control that also creates issues after acquiring the firm. The

skilled personals in firm that acquired by the other company are most important and buying

company should have a detail plan to hold the skilled human resource for better growth. One of

the important learning from this study is that firm should evaluate the other possible options for

international expansion are select comparatively best one in target area and never try to use the

acquisition as thumb rule.

Q.5. Other than cultural factor, what are other factors

need to be considered when entering the U.S. market?
The culture is not the only one factor that impact the US market for foreign companies that

attempted to enter by using the international acquisition. There are many other issue that also

significantly influence the future of the international expansion by using the acquisition strategy

in US markets.

Planning is the key for everything and it becomes more important when uncertainty increased.

The international acquisitions involved high uncertainty and organization that are interested in

international acquisition in any region in the world should careful plan the acquisition by

considering the other case in that region. The international acquisitions in US by UK

organizations are lacking strategic planning and leads to massive failure.

The important Factor is the nature of the business that firms planned to acquired in US market.

The business that involves the close customer relations face issues after acquiring by another

international firm. The interested firm must considered this issue before entering in US market

by an acquisition.

The trained, skilled and competent human resources are most critical for organization to sustain

in globally competitive environment. The acquisition in US market by the other international

companies face the retaining of skilled and competent employee issue very seriously. The firm

during planning phase define the detail guide line that how to retain the employee after acquiring

the company in US.

The US market has its own dynamic and most of the international acquisitions are highlighted

the issue of integration with the firm acquiring firm. This also critically evaluated before the

selection of internal acquisition in US market that how that acquired firm integrated and develop

a detail roadmap.

The control of the firm is also very important in international acquisition in US market. The

acquiring company plans how to it proceed acquisition either with full control or partial control.
REFERENCES

1. Othman, J., & Yaghoob, J. (2009). Does ASEAN Freer Trade Benefit Malaysia?.
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2. Taylor, C. T. (2000). The impact of host country government policy on US multinational
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3. The implications of AFTA on trade and investment in Malaysia, The benefits and
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