Etiquette Rules For The Zoom Classroom

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BUSS 3103
International Business Environments
Lecture 6
Government & Regional Integration
• Educating Professionals • Creating and Applying Knowledge • Engaging our Communities
 Feedback: Assignment 1 (Memo)
 Recap
 Government Intervention
 Regional Integration
 Review
1
4
Can you recall these?

a. what is “country risk”?
b. political systems and the risk
c. legal systems and the risk
d. managing country risk
2
7
What Is Country Risk?

• Country Risk:
Exposure to potential loss or other adverse
effects on company operations and profitability
caused by developments in a country’s political,
legal and/or economic environments; also
referred to as political risk / policy risk.
Political Systems and the Risk
• Country Risk from the Political System

– Government takeover (Confiscation &
Expropriation)
– Sanctions (e.g., the trade war)
– Embargoes
– Boycott (e.g., Lotte Group’s dilemma)
– War, insurrection and revolution
– Terrorism
3
Legal Systems and the Risk
(the Host Country)
i. Commercial law
ii. Private law
iii. Foreign investment laws
iv. Government controls
v. Marketing and distribution laws
vi. Income repatriation
vii. Environmental laws
viii. Contract laws
ix. Internet and e-commerce
x. Intellectual property
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Legal Systems and the Risk

(the Home Country)
i. Foreign Corrupt Practices Act (the US)

ii. Convention on Combating Bribery of Foreign
Public (OECD)
iii. Anti-boycott regulations (e.g., US firms in
Arab nations to Israel)
iv. Accounting standards and practices
v. Transparency in financial reporting
11
What will you learn?

• Introduction of International Business (Ch.1)
• Globalisation and Internationalization (Ch.2)
• Cultural Issues in International Business (Ch.3)
• International Trade and Investment (Ch.5)
• Political and Legal Systems (Ch.6)
• Government and Regional Integration (Ch.7)
• Emerging Markets (Ch.8)
• Global Strategic Structure (Ch.11)
• International Entry Strategies (Ch.13~15)
• Contemporary Research in IB & Course Revision
12
12
4
Government &
Regional Integration
13
Learning Objectives
1. The nature of government intervention
2. The instruments of government intervention
3. The evolution of government intervention
4. Firms’ responses to government intervention
5. Regional integration and its reasons
6. Types of regional integration and leading
economic blocs
7. Drawbacks and benefits of regional
integration
14
6.1. The nature of government

intervention
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15
5
6.1. Government Intervention
• Protectionism – National economic policies

that restrict free trade. Usually intended to
raise revenue or protect domestic industries
from foreign competition.
 Tariff
 Non-tariff barriers
 Quota
16
6.1. Government Intervention (cont’d)

6.1.1. Consequences of Protectionism
• Reduced supply of goods to buyers
• Price inflation
• Reduced variety, fewer choices available to
buyers
• Reduced industrial competitiveness
• Various adverse unintended consequences
(e.g., While the home country dithers, other
countries can race ahead)
• However, … …
17

6.1.2 Example: U.S. Steel Industry
• In the 2000s, the U.S. government (the Bush
administration) imposed tariffs on imports of
foreign steel to protect U.S. steel
manufacturers from foreign competition,
aiming to give the U.S. steel industry time to
restructure and revive itself.
• However it resulted in:
–…
18
6
• However it resulted in:
 Higher steel costs.
 Increased production costs for firms that use
steel, such as Ford, Whirlpool, and General
Electric.
 Reduced prospects for selling products in world
markets, making U.S. steel firms less
competitive.
 The steel tariffs were removed within two
years.
19

• WSJ (6 Feb 2019) : Trump’s Tariffs Help the
U.S. Steel Industry --The Trump administration’s
policies are also benefiting the broader
manufacturing sector.
20

• Brookings (10 Sept. 2020) : Did Trump’s tariffs
benefit American workers?
21
7
• Brookings (10 Sept. 2020) : Did Trump’s tariffs benefit
American workers?
• Who pays for tariffs?
The cost of tariffs have been borne almost entirely by
American households and American firms, not foreign
exporters
• Did tariffs benefit American workers?
Yes. Workers who produce the specific goods covered by
tariffs.
No. Workers in factories that use imported goods as inputs.
No. Workers in industries, where the U.S. unilaterally
imposes tariffs, and American trading partners implement
retaliatory tariffs that limit U.S. export production.
22

6.1.3. Example: U.S. Auto Industry
• In the 1970s, the U.S. government imposed
“voluntary” export restraints (quotas) on
imports of cars from Japan, to insulate the
U.S. auto industry from foreign competition.
 Result 1: Detroit automakers had less of an incentive
to improve quality, design, and overall product
appeal.
 Result 2: Detroit’s ability to

compete in the global auto
industry weakened.
23

6.1.4. Example: Hyundai
• Government support
 partnership system for government-business ties
 promote imports of raw materials and technology
 encouraged savings and investment over
consumption
…
• Outcomes (2016) USD 1 = SKW 1100
 Production output: 4,858,000 units
 Revenue: ₩93.649 trillion
 Net income: ₩5.720 trillion
 Total assets: ₩178.836 trillion
 Number of employees: 104k + 7-8
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6.1.5. Example: Holden Australia
 World War I: began as an Adelaide saddlery
and converted to car body building
 1923: Motor Body Builders from King William
Street to a new factory at Woodville
 1929, employed 3,500 people, the largest
car body builder in the Commonwealth
 ……
 “It’s hard to imagine a situation where
Holden could have survived as a local
manufacturer in a country where the
government has decided that the future for
large enterprises lies in construction, mining
or agribusiness” (Wheels)
25

6.1.6. Rationale of Protectionism
• Defensive Rationale
 Protection of the national economy
 Protection of an infant industry
 National security
 National culture and identity
• Offensive Rationale
• National strategic priorities
• Increase employment
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6.2. The instruments of government

intervention
27
27
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6.2. Instruments of Government
Intervention
• Tariff – A tax on imports
• Nontariff trade barrier – Government policy,
regulation, or procedure that impedes trade.
 Quota.
 Local content requirements
 Government regulations and technical standards
 Administrative or bureaucratic procedures
• Investment barriers – Rules or laws that hinder
foreign direct investment
 Currency control
 Subsidy
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6.2. Instruments of Government Intervention

(cont’d)
Relationship between Tariffs, World GDP, and the Volume of World Trade
31

(cont’d)
32
10
(cont’d)
• Subsidies are government grants (monetary or
other resources) to firm(s), intended to ensure
their survival or success by facilitating
production at reduced prices, or encouraging
exports.
• Grants include cash, tax breaks, infrastructure
construction, or government contracts at
inflated prices.
Examples:
● Global fossil fuel subsidies reach $5.2 trillion, and $29 billion in
Australia
● Parliament passes Covid-19 wage subsidy bill worth $130bn
33

(cont’d)
34

(cont’d)
• Economic freedom is the absence of government
coercion so that people can work, produce, consume,
and invest however they want to.
35
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6.3. The evolution of government
intervention
36
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6.3. Evolution of Government

Intervention
6.3.1 Change in trade policies
• Protectionist tendencies, the Great
Depression, and isolationism shaped early
20th century world trade.
• The Smoot-Hawley Act (1937) raised U.S.
tariffs to more than 50% (compared to only
3% today).
• Progressive trade policies reduced tariffs
after WWII.
37
6.3. Evolution of Government Intervention

(cont’d)
6.3.2 GATT
• In 1947, 23 nations signed the General Agreement on
Tariffs and Trade (GATT). The GATT:
 Reduced tariffs via continuous worldwide trade
negotiations;
 Created an agency to supervise world trade; and
 Created a forum for resolving trade disputes
• The GATT introduced the concept of most favored
nation (renamed normal trade relations), according to
which each member nation agreed to extend the tariff
reductions covered in a trade agreement with one
country to all other countries. A concession to one
became a concession to all.
38
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(cont’d)
6.3.3. WTO
• In 1995 the GATT was superseded by the World
Trade Organization (WTO), and grew to include
150 member nations.
• The GATT and WTO presided over the greatest
global decline in trade barriers in history.
39

(cont’d)
6.3.4. Market Liberalization in India
• Following independence from Britain in 1947,

adopted a quasi-socialist model of isolationism and
government control.
• High trade barriers, state intervention, a large public
sector, and central planning resulted in poor
economic performance.
• In the 1990s, markets opened to foreign trade and
investment; state enterprises were privatized.
• Protectionism has declined, but high tariffs
(averaging 20%) and FDI limitations remain.
40

(cont’d)
Fast Growth of Indian Economy (GDP)
41
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(cont’d)
42
6.4. Firms’ responses to

government intervention
43
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6.4. Firms’ responses to government

intervention
• Research to gather knowledge and
intelligence
• Choose the most appropriate entry strategies
• Take advantage of foreign trade zones
• Seek favourable customs classifications for
exported products
• Take advantage of investment incentives and
other government support programs
• Lobby for freer trade and investment
44
14
intervention (cont’d)
• Take advantage of investment incentives
and other government support programs;
Grants supporting business in SA.,
 COVID-19 business information and support
 Industry Assistance Framework
 SA Export Accelerator
 Future Industries Accelerator
 Growing SA Companies
 ……
45

intervention (cont’d)
• Lobby for freer trade and investment.
 Lobbying: an information exchange between political
players and interest groups (de Figueiredo and Richter 2014)
 Lobbying ≈ Corruption? No!
 If lobbying was in fact a substitute for corrupted
behaviours, countries suffering from high levels of
corruption to engage in more lobbying.
 However, firms from countries suffering from less
corruption are more likely to spend more on lobbying
 Lobbying is not a substitute for corruption; rather, in more
developed economies, lobbying is a legitimate way of
communication in policy making (Kim 2017).
46
Scenario
• Minimizing Trade Barriers.
National Appliance Corporation (NAC) needs to build
a new manufacturing facility to meet the increasing
demand for professional-grade appliances. NAC
managers are considering building the facility in Mexico
but are hesitant because of the high tariffs involved.
Another possible location for the facility is India;
however, the country also imposes high tariffs.
Wherever NAC builds a plant, parts will need to be
imported from other nations.
47
47
15
Scenario (cont’d)
• Which of the following would be most important
for NAC managers to consider while taking a
decision in favour of building a facility in Mexico or
India?
A) Has NAC engaged in dumping in the past?
B) How would appliance parts and finished products be
categorized when passing through customs?
C) Is employee empowerment culturally favoured in
Mexico and India?
D) What entry strategies are available in both countries
which would allow NAC to minimize import barriers?
Answer: D
48
48
Scenario (cont’d)
• Which of the following must NAC ensure in order
to reduce exposure to trade barriers?
A) reduced production
B) strong emphasis on quality
C) accurate product classification
D) obtaining patents for inventions
Answer: C
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49
6.5. Regional Integration and its

Reasons
50
50
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6.5. Regional Integration and its Reasons
• Regionalisation:
The growing economic interdependence results in
the formation of an alliance of two or more
countries within a geographic region for reducing
barriers to trade and investment.
• Regional economic integration bloc:
A geographic area consisting of two or more
countries that have agreed to pursue economic
integration by reducing barriers to the cross-
border flow of products, services, capital and, in
more advanced states, labour.
51
6.5. Regional Integration and its Reasons

(cont’d)
• Expand market size

• Achieve scale economies and enhanced
productivity
• Attract investment from outside the region
(an economic bloc such as EU)
• Acquire stronger defensive and political
posture
52
6.6. Types of Regional Integration

and Leading Economic Blocs
53
53
17
54
6.6. Types of Regional Integration &

Leading Economic Blocs
• Free trade area:
A stage of regional integration in which
member countries agree to eliminate
tariffs and other barriers to trade in
products and services within the bloc
(EFTA, NAFTA, ASEAN)
55

Leading Economic Blocs
• Free trade area:
56
18
Leading Economic Blocs (cont’d)
• European Free Trade Association

(EFTA): Iceland, Liechtenstein,
Norway and Switzerland
• North American Free Trade

Agreement (NAFTA):Canada,
Mexico and the United States
• Association of Southeast Asian

Nations (ASEAN): e.g., India, Japan
and China
57

• Customs union:
A stage of regional integration
in which the member countries
agree to adopt common tariff
and non-tariff barriers on
imports from non-member
countries (MERCOSUR,
Argentina, Brazil, Paraguay,
Uruguay and Venezuela …)
58

• El Mercado Comun del Sur (MERCOSUR)
59
19
• Common market:
A stage of regional integration in which trade
barriers are reduced or removed, common
external barriers are established, and
products, services and factors of production
are allowed to move freely between the
member countries (pre-1992 EU)
60

• Economic union:
A stage of regional integration in
which member countries enjoy
all the advantages of early
stages, but also strive to have
common fiscal and monetary
policies (EU Today).
61

• Political union:
A stage of regional integration in which member countries
enjoy all the advantages of an economic union, but also have
a central government and military that represent all member
states (USSR)
62
20
6.7. Drawbacks and Benefits of
63
63
6.7. Drawbacks & Benefits of

• Drawbacks: countries
–Trade diversion (opposite to trade creation).
–Reduced global free trade.
–Loss of national identity (e.g., Canada).
–Sacrifice of autonomy (e.g., UK).
–Unbalanced growth.
–…….
64
6.7. Drawbacks & Benefits of Regional

Integration (cont’d)
• Drawbacks: countries (cont’d)
There is a
significant
divergence in
economic
growth
between
member states
depending on
when they
joined the EU
65
21
• Drawbacks: countries (cont’d)
Populations
across most
southern
European cities
are declining
but the Nordics
continue to
grow
66

• Benefits: countries
– Expand market size
– Achieve scale economies and enhanced
productivity
– Attract investment from outside the bloc
– Acquire stronger defensive and political
posture
– ……
67

• Benefits: countries
68
22
• Benefits: countries (cont’d)
69

70

71
23
6.7. Drawbacks & Benefits of
• Drawbacks: firms
– Transfer of power to advantaged firms.
– Failure of small or weak firms.
– Corporate restructuring and job loss.
– MNEs have to centralise managerial control to
regional or international headquarters
72

• Benefits: firms
–Rationalisation of operations.
–Mergers and acquisitions.
–Regional products and marketing strategy.
–Internationalisation by firms from outside the
bloc.
–Collaborative ventures.
73

Example
The New Zealand–based appliance company Fisher & Paykel
entered the Australian market and gained valuable international
experience that inspired it to launch ventures into Asia and
Europe.
• Internationalisation by firms inside the

economic bloc. Regional integration
facilitates company internationalisation.
74
24
Scenario
• Bravo Luggage.
The Bravo Luggage Company is a Latin American
firm based in Buenos Aires, Argentina. Bravo has seen
a sharp increase in orders over the last few months and
needs to increase the amount of material purchased.
Currently, the materials used to manufacture Bravo
luggage come from suppliers in Paraguay. Bravo
managers have been approached by suppliers from
Mexico and China who are both offering very
competitive prices on materials.
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75
Scenario (cont’d)
• Which of the following questions would be most
important for Bravo managers to evaluate when
determining which supplier to use?
a. How will using non-South American material
affect the Bravo brand name?
b. What other MERCOSUR nations sell luggage?
c. What will be the cost of materials shipped from
Paraguay, Mexico, and China?
d. Are other countries planning to join MERCOSUR
in the near future?
Answer: c
76
76
Scenario (cont’d)
• Which of the following best supports using a
supplier from Paraguay over a supplier from
Mexico or China?
a. MERCOSUR members agree to use exporters
from other MERCOSUR nations.
b. The Mexican supplier is in closer proximity to
Bravo than the Chinese supplier.
c. Mexican and Chinese suppliers would pay the
same tariff to export to Argentina.
d. Bravo could avoid tariffs because Paraguay is a
member of MERCOSUR.
77
Answer: d
77
25
Scenario (cont’d)
• Which of the following should be considered when
making the decision to use a MERCOSUR
supplier or a non-MERCOSUR supplier?
a. Will the additional tariffs offset any savings for
Bravo?
b. Do other MERCOSUR nations use outside
suppliers?
c. What percentage of tariffs will Argentina receive?
d. How will Bravo managers handle the free trade
area?
Answer: a 78
78
Do you get some ideas about

Government & Regional Integration?
79
Do you understand these?
a. the nature of government intervention

b. the instruments of government intervention
c. the evolution of government intervention
d. firms’ responses to government intervention
e. regional integration and its reasons
f. types of regional integration and leading
economic blocs
g. drawbacks and benefits of regional
integration
80
26
This Week
• In tutorial
– Assignment help
81
81
After Mid-break
• In lecture
– Emerging Markets
• In tutorial
– Case study: “Astra International:
Building Successful International
Business Around Shifting National
Government Policy”
82
82
Reminder
• Mid-term break for two weeks

• Lectures resume: 27 April
• Assignment due @ 17:00pm, 27 April
• Let me know if you need any help
during the break
83
27
Comments & Questions?
85
85
28

Etiquette Rules For The Zoom Classroom

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Etiquette Rules For The Zoom Classroom

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Available Formats

Etiquette Rules for the Zoom

 Say “Hello” in the chat box before leaving.

 Raise your hand and wait to be called upon.

 Be aware of your surroundings.

 Respect others’ privacy.

 Follow the rules.

Government & Regional Integration

• Educating Professionals • Creating and Applying Knowledge • Engaging our Communities

 Feedback: Assignment 1 (Memo)

Can you recall these?

What Is Country Risk?

Political Systems and the Risk

• Country Risk from the Political System

Legal Systems and the Risk

i. Foreign Corrupt Practices Act (the US)

What will you learn?

6.1. The nature of government

• Protectionism – National economic policies

6.1. Government Intervention (cont’d)

6.1. Government Intervention (cont’d)

6.1. Government Intervention (cont’d)

6.1. Government Intervention (cont’d)

6.1. Government Intervention (cont’d)

 Result 2: Detroit’s ability to

6.1. Government Intervention (cont’d)

6.1. Government Intervention (cont’d)

6.2. The instruments of government

6.2. Instruments of Government Intervention

6.2. Instruments of Government Intervention

6.2. Instruments of Government Intervention

6.2. Instruments of Government Intervention

6.3. Evolution of Government

6.3. Evolution of Government Intervention

6.3. Evolution of Government Intervention

• Following independence from Britain in 1947,

6.3. Evolution of Government Intervention

Fast Growth of Indian Economy (GDP)

6.4. Firms’ responses to

6.4. Firms’ responses to government

6.4. Firms’ responses to government

6.5. Regional Integration and its

6.5. Regional Integration and its Reasons

• Expand market size

6.6. Types of Regional Integration

6.6. Types of Regional Integration &

6.6. Types of Regional Integration &

• European Free Trade Association

• North American Free Trade

• Association of Southeast Asian

6.6. Types of Regional Integration &

6.6. Types of Regional Integration &

6.6. Types of Regional Integration &

6.6. Types of Regional Integration &

6.7. Drawbacks & Benefits of

6.7. Drawbacks & Benefits of Regional

6.7. Drawbacks & Benefits of Regional

6.7. Drawbacks & Benefits of Regional

6.7. Drawbacks & Benefits of Regional

6.7. Drawbacks & Benefits of Regional

6.7. Drawbacks & Benefits of Regional

6.7. Drawbacks & Benefits of Regional

• Internationalisation by firms inside the