Earning Outcomes: LSPU Self-Paced Learning Module (SLM)

Republic of the Philippines
Laguna State Polytechnic University

Province of Laguna
LSPU Self-Paced Learning Module (SLM)

International Business and Trade
Sem/AY First Semester/2020-2021
L earning
Module No. 7 Outcomes
Lesson Title Module 7: Foreign Direct Investment
ISO 9001:2015 Certified
Week
7
S Level I Institutionally Accredited
tudent Learning Strategies
Duration
Date November 16 - 20, 2020
We will first discuss the concept of foreign direct investments (FDI) made by
Description multinational companies (MNC). This will be followed by a section on the pattern of
of the FDI since the early 1980s to the late 20th century. A major part of this topic will focus
Lesson on the major motives of MNCs in FDI. One of the major motives is to gain the main
resources of a country, the positive and negative aspects of the impact of FDI will also
be discussed. Then, types of foreign direct investments, vertical investment and
horizontal investment, and reasons why MNCs opt for either type of investment are
also discussed. Lastly, before we end this topic, we will look at International Product
Life-Cycle Theory to better understand FDI activities. Printed/Electronic handouts will
be provided to students in advance.
Performance Tasks
LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

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U nderstanding
Essay/Reflection Directed
to be assessed based on Assess
organization of thoughts, clarity, relevance and applicability
ofPercentage of
the answers Failed to meet 75-79% of the 80-89% of the 90-100% of the
Requirements and achieve requirements requirements requirements
(Exercises/Problems/Cas correctness, 50 - are completed are completed are completed
Essay or Reflection Paper:
es) Completed 74% of the and correct. and correct. and correct.
requirements.
1. Distinguish between ISO
inward
9001:2015and outward FDI. Give an example of a multinational company that has
Certified
L
FDI in Malaysia
earning and Resources
a Malaysian company that has undertaken FDI abroad.
2. List the positive and negative impacts
Level I Institutionally of FDI on host countries.
Accredited
A. BBNG3103 INTERNATIONAL BUSINESS Dr Abdul Jumaat Mahar, Mohd Shah Kassin, Mohd Sobri Don,
3. Distinguish between horizontal FDI and vertical FDI.
Jannatul Firdaus, Ahmad Bashawir Haji Abd Ghani , Dr Teo Boon Chui, Copyright © Open University
Malaysia (OUM), December 2013, BBNG3103
B. For additional information, please visit these websites:
C. The Asia Society: http://www.asiasociety.org
D. Wal-Mart: http://www.wal-mart.com
E. Honda: http://www.honda.com
F. http://www.cnbc.com

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Course Management Information System
Module No. 8
Lesson Title ModuleISO8:9001:2015
International
Certified Financial Environment
Week Level I Institutionally Accredited
8
Duration
Date November 23 – 27, 2020
Welcome to Topic 8 on international financial environment. We start off this topic by
Description defining the functions and conditions that influence foreign exchange markets. This is
of the followed by a discussion on the evolution of international monetary systems such as
Lesson the Gold Standard (1876–1914), Bretton Woods System (1944–1971) to present day
fixed and floating exchange rate regimes. Lastly, we will look at the money markets
such as the capital, bond and equity markets. These are also the key components of the
international financial system. Therefore, it is important to understand their roles and
functions in the world of financial market. Are you ready?
Learning Outcomes
Intended Students should be able to meet the following intended learning outcomes:
Learning 1. identify management of international short - term financing
Outcomes 2. understand the process of short -term loans for money market
3. understand international debt instruments
Targets/ At the end of the lesson, students should be able to:
Objectives 1. Describe the functions of a foreign exchange market and how it works;
2. Determine the conditions influencing the foreign exchange market;
3. Explain how international monetary systems determine exchange rates;
4. Summarize the features and roles of international capital, bond and equity markets.
Student Learning Strategies
Online Activities A. Online Discussion via Google Meet/Classroom

(Synchronous/ Students will be directed to attend in a two-hour class discussion on the
International Financial Environment.
Asynchronous)
To have access to the Online Discussion, students will be directed to a google
classroom. The online discussion will happen on the First day of each week

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based on the schedule provided by the College.

Further instructions, can be provided in the Group Chat or common email
created specifically for the group.
C. Learning Guide Questions:

1. What is foreign exchange market?
2. What are the functions and conditions that influence foreign exchange
markets
Level I Institutionally Accredited
Lecture Guide
Let us start the topic. Printed/Electronic handouts will be provided to students
in advance.
Lecture Guide
FOREIGN EXCHANGE MARKET
Let us start this topic on basic knowledge of foreign exchange market. What do
you know about foreign exchange market? Well, let us look at its definition. A
foreign exchange market is a place where the foreign currencies of different
countries are bought and sold, and the exchange rates are determined. Now
what does exchange rate means? The exchange rate is simply the price of a
currency. It measures the rate at which one currency is converted into another
currency. Foreign exchange markets play an important role in facilitating cross-
border trade, investment and financial transactions. With increased growth in
global economic activity, trade, and investment, foreign exchange markets have
become even more significant. Foreign exchange markets enable companies to
convert local currencies into foreign currencies to facilitate trade and financial
Offline Activities transactions. Let us look at Table 8.1 which shows you the exchange rates of
(e-Learning/Self- major currencies.
Paced)
Functions of Foreign Exchange Market

In the previous section, you have learnt the definition of foreign exchange
market. Now, let us look at its function. A foreign exchange market serves three

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major functions: conversion of currency, provision of credit for foreign trade

and insurance for foreign exchange risk. Let us look at further descriptions of
these functions:
(a) Conversion of Currency Each country has its own currency in terms of its
purchasing power. Foreign exchange transactions normally involve
participants in countries who want to facilitate transactions of their own
currency
ISO with different currencies. The foreign exchange market provides a
9001:2015 Certified
mechanism for the sale or purchase of foreign currency thereby facilitating
international
Level trade. The commonly traded currencies in the foreign exchange
I Institutionally Accredited
market are US Dollar (USD), Japanese Yen (JPY) and Euro (EUR).
(b) Provision of Credit for Foreign Trade Do you know that the movement of
goods from one country to another in international trade takes time. Most of
the settlement of an international trade transaction is done after the date of
agreement. Because of the transition in the movement of goods, trade must be
financed. It supplies short-term credits, for example, a letter of credit is the
instrument used as a source of credit to finance trade and the payment will be
made at a future stipulated date.
(c) Insurance for Foreign Exchange Risk The foreign exchange market
provides foreign exchange instruments to minimize foreign exchange risk. The
foreign exchange market provides facilities of buying and selling at spot or
forward exchange market and enables exporters and importers to hedge their
exchange risks arising from change in the foreign exchange rate. Hedging
facilities insure against potential losses arising from the transfer of exchange
risk to another party who is willing to carry the risk. Speculation involves the
purchase and sale or vice-versa of a currency is undertaken for a profit.
Currency speculation involves short-term fund movements in a currency to
another currency in return for a profit. Lastly, have you ever heard about
arbitrage? Arbitrage is the simultaneous purchase and sale of a currency is
undertaken in different markets for a profit.
Features of Foreign Exchange Market
Now, let us look at the
features of the foreign
exchange market. The
foreign exchange
market has unique
features. There are
four features of
foreign exchange
market and these are
explained further in Table 8.2.

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These four features of foreign exchange market are simplified in Figure 8.1.
Foreign Exchange Rate Quotations
Can you recall the definition of exchange rate? How about foreign exchange
rate?
Do you know what it stands for? A foreign exchange rate is a statement of
willingness to buy or sell at an announced rate. Let us look at an example. The
price of Malaysian Ringgit (MYR) against the US dollar ($) is quoted as
MYR3.2000/$. Foreign exchange rates follow specific quoting conventions.
Since most of the foreign exchange rate transactions are done in US dollars, the
exchange rate quotes are in US Dollar prices. There are several pairs of
quotations used in foreign exchange businesses, two of which are as follows:
(a) Direct and Indirect Quote A direct quote is a home currency price of a
foreign currency unit (e.g. MYR3.2/US$1) in Malaysia. An indirect quote is a
foreign currency price of a home currency unit (US$0.31/MYR1) in Malaysia.
(b) Spot and Forward Rates Spot rate is the exchange rate used to conduct
foreign exchange transactions that occur on the spot (quoted for immediate
settlement). Forward rate is the exchange rate for a transaction that requires
delivery of a foreign exchange at a specified future date. For example, the MYR
is quoted against U.S$, a single spot rate and two different forward rates are:
(i) Spot rate for MYR/$3.155
(ii) 3-month forward rate – 3.202
(iii) 6-month forward rate – 3.344
Foreign Exchange Market Players

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Foreign exchange
market players
can be
categorized into
four major
players as
ISO 9001:2015 Certified shown in Figure
8.2. Now, let us
lookI Institutionally
Level at further descriptions of these four major market players.
Accredited
(a) Central banks – The role of a central bank in the foreign exchange market
is
not over the profitability of currency trading but to support the value of their
own currencies. It ensures adequate trading conditions and intervenes in
economic or financial imbalance in the foreign exchange market. In Malaysia,
we have Bank Negara that act as Malaysia's central bank.
(b) Banks – Commercial and investment banks are natural players in foreign
exchange. All other foreign exchange trading players must deal with them.
Major banks also known as market makers invest in currencies for a return or
keep currencies as their inventories. As market makers, they can influence
exchange rate quotations. As for medium-sized banks, they participate in
currency markets to facilitate international trade on behalf of their customers.
Some examples include Bank Islam, Bank Rakyat and Maybank.
(c) Firms/Individuals – They comprise exporters, importers, tourists and
immigrants who use local currency to purchase foreign-made products and
services. Individuals as investors are high net-worth individuals who engage in
foreign exchange by accessing commercial and investment banks. Recently,
new players in the currency market called hedge funds have emerged in the
form of partnership of high net-worth individuals who invest large sums in
foreign exchange trading.
(d) Speculators/Arbitrageurs – They act as foreign exchange traders who
directly buy and sell currencies to make profit from the speculation and
arbitrage activities. Can you differentiate between them? Well, speculators seek
to make short-term profit from currency price appreciation (based on rumors
with high risk) while arbitrageurs seek to make profit from currency price
differences in different markets.
Factors Influencing Foreign Exchange Market
The forex market is the most liquid market in the world now and accounted for
almost $4 trillion as daily turnover in 2010 (finance.mapsofworld, 2013). Like
any other market, the foreign exchange market is subject to volatility due to
changes in external environment such as political conditions, economic factors
and market psychology. As stated before, political stability plays an
important role as one of the major factors influencing foreign exchange market
volatility. Any political disruption in one country may affect the neighboring
countries currency exchange rates. For example, political crisis such as civil

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war can cause loss of confidence in a currency and it may subsequently fall in
currency value.
Economic factors have significant impact on a country's exchange rate and in
turn cause widespread repercussions on the exchange rates of other countries
in the rest of the world. Differentials in inflation, interest rates, balance of
trade,
public
ISO 9001:2015 debt
Certifiedand economic growth rates directly affect exchange rates. For
example, a country with higher inflation rate generally experiences
depreciation
Level in its currency relative to the currencies of its trading partners. A
country with balance of trade deficit indicates that spending on imports exceed
sale of exports, hence, the country requires more foreign currency to pay for its
imports than it receives through sales of exports. Excess demand for foreign
currency leads to depreciation in the country’s exchange rates. Major economic
events in countries or regions can spark massive fluctuations in exchange rates
of countries in surrounding regions and the rest of the world. Let us recall
some of the events:
(a) The Asian financial crisis of 1997–98 found changes in the Thai baht
exchange rate which had an impact on prices, trading activities and fund
liquidity. This in turn triggered contagious effects and caused volatility of
exchange rates of Asian and even in Western countries.
(b) The recent global financial meltdown of 2008–2009 and current
European Debt Crisis too had tremendous impact on exchange rates of almost
all countries in the world.
Lastly, let us look at market psychology. Market psychology factors influence
the foreign exchange market in a variety of ways. Any destabilizing
international
events or crisis can change market expectations and perceptions including
trader and investor perceptions. This can lead to flight-to-quality and investors
seeking safe options. As a result, there will be greater demand, hence a higher
price, for perceived currencies. In sum, many situational factors can cause
currency movements. For instance, the US budget deficits, Japanese recession,
the rise of China as the new super economic powerhouse and the debt crisis in
Greece influence the price of currencies. Everyone can feel the impact of
currency price movements directly or indirectly. Do you agree with that?
INTERNATIONAL MONETARY SYSTEM
Have you ever heard
about the international
monetary system? What
does it refer to? This
system comprises
currencies from
individual countries and
exchange rate systems adopted by countries. The foreign exchange rate market
forms the primary institution for determining exchange rates based on the

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demand and supply of any two currencies. There are three monetary systems
that determine exchange rates:
(a) Fixed exchange rate system in which the government of a country
regulates the rate at which a local currency is exchanged for other currencies.
(b) Pegged exchange rate system in which a country’s currency is tied to
another country currency.
(c)9001:2015
ISO Floating Certifiedor flexible exchange rate system in which the government does
not interfere in the valuation of its currency.
Next,
Level we areAccredited
I Institutionally going to look at a brief review of the evolution and history of the
international monetary system. This can give you a better understanding of the
present monetary system.
The Gold Standard (1876 to 1914)
Did you know that the gold standard gained acceptance as an international
monetary system in the 1970s? Under this system, each country pegged its
money to gold. In other words, the currency issued by a country is backed by
gold reserves. For example, the US dollar ($) is priced at $20.67 per ounce of
gold, while the British pound (£) is priced at £4.2472 per ounce of gold and the
exchange rate is simply the ratio of two prices. Hence, the exchange rate of US
dollar against British pound is $20.67/£4.2472 which means an exchange rate
of $4.866/£. The government of each country agrees to buy or sell gold on
demand at its own fixed parity rate. Under this system, it is necessary for
governments to maintain enough supply of gold reserves to back up its
currencies value. The gold standard operated until the outbreak of WW1 when
movement of trade and gold were restricted, and it was then suspended.
Interwar Years (1914 to 1944)
During the interwar years, currencies could fluctuate over wide ranges in
terms of both gold and another currency. This caused widespread speculation
and fluctuations in exchange rates. World trade was hampered in the 1920s,
thereby contributing to the Great Depression in the 1930s. The US returned to
a modified gold
standard in 1934.
This further
devalued the
currency. During
World War II and
its aftermath,
many of the major
trading currencies
lost their
convertibility into
other currencies.
The dollar was the
major trading
currency that remained convertible.

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The Bretton Woods System (1944 to 1973)

By the end World
War II in 1944, the
governments of 44
Allied Powers
including Great
ISO 9001:2015 Certified Britain and the
United States
Level I Institutionally Accredited gathered in
Bretton Woods,
New Hampshire,
United States, to
create a new
international
monetary system
called the Bretton
Woods Agreement.
This system was characterized by a fixed exchange rate system in which the
government of each member country pledged to establish a pegged exchange
rate for its currency (US dollar-based) or gold price fixed at US$35 for each
ounce of gold. This system implies that all currencies are convertible with the
US dollar which means the currency market performance is dependent on the
value of the US dollar and the state of the US economy. In addition, under the
agreement, two new institutions were set up, namely, the International
Monetary Fund (IMF) and the World Bank, to help supervise and maintain
stability in the international monetary system. Unfortunately, during this
period, the US economy suffered from persistent deficits in its balance of
payments. This required a large amount of dollars to finance the deficits and
resulted in rising demand for dollars. There was lack of confidence in the
ability of the United States to meet its commitment to convert dollars to gold.
Hence in 1971, the US dollar was no longer convertible to gold. In 1973, many
of the major currencies could float against the dollar which led to the collapse
of the Bretton Woods System. Figure 8.3 depicts the development of the
international monetary system from 1971 onwards.
The Floating Exchange Rate System (1973 until present)
Since 1973, the world’s major currencies have floated their values against each
other. The floating exchange rate system was formally adopted after the
Jamaica Agreement in 1976. Under the agreement, floating rates were declared
acceptable, gold was no longer a reserve asset and more countries became IMF
members. Under the flexible exchange rate system, governments can intervene
directly and take part in the currency market by buying and selling their own
currency using their reserves to stabilize their exchange rate. Capital inflows
can be increased by raising interest rates. However, under such a system,
exchange rates have become more volatile and less predictable than the fixed

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exchange rate system. Floating exchange rates can increase exposure to

speculative activities that may result in currency devaluation.
Contemporary Exchange Rate System
Lastly, let us look at the contemporary exchange rate system. In most
contemporary economies, exchange rates are managed in relation to monetary
policy. How are exchange rates determined? Exchange rates are determined by
market
ISO 9001:2015forces
Certified but a central bank can actively intervene in the foreign exchange
market in order to keep the exchange rate within a certain range. This is called
managed
Level floater
I Institutionally Accredited where the float is monitored by governments. This is to
ensure
an orderly pattern of exchange rate changes against a predetermined rate but
allows the rate to vary.
The 1985 Plaza Accord, an agreement among G-5 countries (United States,
France, Germany, Japan, and the United Kingdom), was set up to work together
to deliberately weaken the US dollar's exchange rate. The objective of this
strategy was to help the United States improve its huge trade deficit (especially
against Japan) and to spur its economy to climb out of the 1980sÊ long
recession.
The Louvre Accord of February 1987 was agreed by the G-6 nations (West
Germany, France, Great Britain, Japan, Canada and the United States) to stop
the
United States dollar depreciation.
Under the revived Bretton Woods II system which started in 2003 and lasted
until 2007, the new international system involves interdependency between
states with generally high savings in Asia (lending and exporting) to Western
states with generally high spending. This system was in response to the 1997
Asian financial crisis.
Although most major currencies float in value against one another, some of the
developing countries pegged (fixed) their exchange rates to one of the major
currencies or to a basket of currencies. For example, the European Union’s
Euro
under the European Monetary System (EMS) is pegged to a basket of chosen
currency mix and the Chinese currency (yuan) has been pegged to the US dollar
for a decade. Hence, today’s global economy is increasingly dominated by
currency blocs especially by the US dollar, EUÊ s Euro and the Japanese Yen.
Have you ever heard of the European Monetary System (EMS)? Launched in
1979, it was the forerunner of the Economic and Monetary Union (EMU) which
led to the establishment of the Euro. It created an area of currency stability
throughout the European community by encouraging countries to co-ordinate
their monetary policies. It used an Exchange Rate Mechanism (ERM) to create
stable exchange rates in order to improve trade between EU member states
and
thus, help the development of the single market. The Euro was introduced in
practice in 2001 (Civitas, 2011).

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INTERNATIONAL MONEY MARKET

Let us start this section by looking at the definition of international money
market. Have you ever heard about it? What does it stand for? The
international money market is a network of people, firms, financial
institutions and governments borrowing and investing internationally in
money market instruments. There are three types of international money
market:
(a) International capital market;
(b) IInternational
Level bond market; and
Institutionally Accredited
(c) International equity market.

Let us look at these types of market further in the next section.
International Capital Market
What happens in this kind of market? This is the money market where foreign
capital such as Euro dollars is financed or invested. Euro dollars are US dollar
deposits in non-US banks. For example, Sony and Hitachi borrowed US dollars
from several banks in Tokyo to finance their worldwide operations. Capital
markets provide long-term debt and equity finance for the government and
corporate sector. Multinational companies (MNCs) occasionally source foreign
capital from international money markets to finance global operations at a
lower cost than is possible domestically.
Domestic capital markets tend to be illiquid and segmented, hence, at a higher
cost due to limited availability of capital. How about the international capital
market? The international capital market is liquid due to a large pool of funds
and market participants. The Euro currency market is a largely short-term
(usually less than one year of maturity) market for bank deposits and loans
denominated in any currency, except the currency of the country where the
market is located. For example, in London, the Euro currency market is a
market for bank deposits and loans denominated in dollars, yen, franc, marks
and any other currency except British pounds. The main instruments used in
this market are certificate of deposits (CDs), time deposits and bank loans.
International Bond Market
What does international bond market stand for? International bond markets
are a place where company stocks are listed and traded on foreign stock
exchanges. For example, some recent issuers of bonds are Google and Apple.
Tencent Holdings, China's largest Internet company by revenue, became the
first Asian borrower from the sector to issue global bonds. Can you define
bonds? Bonds are debt instruments used to finance long-term investments.
The approximate worth of bond markets worldwide is more than $45,000
billion, of which the US bond market, comprises a significant portion of the
total value (finance.mapsofworld.com). The Euro bond market is a long-term
market for bonds denominated in any currency outside the country in whose
currency the bond is denominated. A foreign bond is sold outside a borrower’s
country and denominated in the currency of the country in which it is sold.
International Equity Market

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Lastly, let us look at international equity market. What happens in this kind of
market? International equity market is a place where corporate and
government bonds are issued and traded in foreign countries. For example,
Google of the United States issued stocks on the New York Stock Exchange.
These markets provide financing for global operations but can also improve
organizational recognition and portfolio performance. MNCs that need
financing
ISO use foreign stock markets as their additional sources of funds. The
9001:2015 Certified
Euro equity market issues US dollar-denominated stocks on non-US exchanges
for I Institutionally
Level distribution among foreign markets. The stocks are underwritten by
Accredited
investment banks and purchased by institutional investors in several countries.

International equity market is a place where corporate and government bonds
are issued and traded in foreign countries.
ENGAGING ACTIVITIES:
1. List the major currencies of other countries that are used to facilitate
trade in the world market.
2. What are the major functions of a foreign exchange market?
3. What are the exchange rates for Philippine Peso to other foreign
currencies such as the US dollar, Singapore dollar and Indonesian
rupiah?
4. _____________ is a market to convert one nation’s currency to another currency.
A. Foreign exchange market
B. Culture diagonal market
C. Open currency market
D. Currency exchange market
5. Foreign exchange market has two important functions which are _____________.
A. to collect taxes of imported merchandise and to change a Nation’s currency
to another currency
B. to protect a company from foreign trading risks and to determine the rate of
benefit to the international investor
C. to collect taxes of imported merchandise and to determine the rate of benefit
to the international investor
D. to convert a nation’s currency to another currency and to protect the nation
from foreign exchange trading risks
6. The value of one currency is determined by _____________.
A. demands and bidding interaction that is relative to the demands and bidding
of another currency
B. the international consortium of currency traders
C. the World Trade Organization (WTO)
D. negotiations between the main banks from the top five industrial supremacy
countries
7. The process of buying one unit of currency at a lower price and selling at a
higher price is known as _____________.
A. swapping
B. crawling

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C. profit
D. arbitrage
8. Between two major currencies, the spot exchange rate is the rate __________
and the forward exchange rate is the rate ___________.
A. today; on that date
B. at some specified future date; today
C. 9001:2015
ISO on thatCertified
date; today
D. on that date; at some specified future date
9. Foreign
Level bonds
I Institutionally are sold primarily in ______________________.
Accredited
A. the United States

B. Japan
C. Europe
D. the country of the currency of issue
10. The _____________ established a par value, or benchmark value, for each
currency initially quoted in terms of gold and the US dollar.
A. Bretton Woods Agreement
B. Jamaican Agreement
C. World Trade Agreement
D. International Monetary Agreement
Performance Tasks
Essay/Reflection to be assessed based on organization of thoughts, clarity, relevance and
applicability of the answers
Reflection Paper or Essay:

1. Do you think major political disasters such as the terrorist attacks of 11 September 2001 and the war
in Iraq in 2003 had an impact to foreign exchange markets?
2. Where is the foreign exchange market located? What is the original form of this market? What is the
major advantage and disadvantage of using the US dollar as the international trading currency to facilitate
trade and transactions?
3. Visit the IMF (www.imf.org/) and the World Bank (www.worldbank.org/) websites to learn more
about IMF and World Bank. Can you find out the primary roles of the IMF and World Bank?
Understanding Directed Assess

Percentage of Failed to meet 75-79% of the 80-89% of the 90-100% of the
requirements.
Learning Resources
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A. BBNG3103 INTERNATIONAL BUSINESS Dr Abdul Jumaat Mahar, Mohd Shah Kassin, Mohd
Sobri Don, Jannatul Firdaus, Ahmad Bashawir Haji Abd Ghani , Dr Teo Boon Chui, Copyright
© Open University Malaysia (OUM), December 2013, BBNG3103
B. http://www.wto.org
C. http://www.iie.com
D. http://www.naftanow.org/
E. (a) www.ifg.org/imf_asia.html
F. (b) www.imf.org/external/np/exr/facts/asia.HTM

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Course International Business and Trade
Module No. 9
Lesson Title Module 9: Country Selection and Entry Strategies
Week
9
Duration Level I Institutionally Accredited
Date November 30, December 1 – 4, 2020

This topic deals with how foreign companies allocate their scarce resources among
Description different countries when selecting where they might operate. The focus is on major
of the variables to consider when evaluating and comparing countries based on
Lesson opportunities and risk factors. This is followed by a discussion on how to collect and
analyze data. After that, you will learn how to use two comparison tools on selecting
potential countries to enter. Lastly, three modes of entry strategies will be explained so
that you know how companies decide which entry mode to use for specific markets.
Learning Outcomes
Intended Students should be able to meet the following intended learning outcomes:
Learning 1. Determine the six main theories of international trade
Outcomes 2. To know the benefits of free trade
3. Define the various international trade theories
4. Describe the four foreign direct investment
Targets/ At the end of the lesson, students should be able to:
Objectives 1. Identify six main theories of international trade;
2. Explain the benefits of free trade;
3. Apply the various international trade theories to explain world trade patterns;
4. Differentiate between four foreign direct investment (FDI) theories.
Student Learning Strategies
Online Activities A. Online Discussion via Google Meet/Classroom Students will be directed
(Synchronous/ to attend in a two-hour class discussion on the Country Selection and Entry
Strategies.
Asynchronous) To have access to the Online Discussion, students will be directed to a google
classroom. The online discussion will happen on the First day of each week
based on the schedule provided by the College.

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Further instructions, can be provided in the Group Chat or common email

created.
The online discussion will happen on the First day of each week based on the
schedule provided by the College.
D. Learning Guide Questions:

1. How do we make business to another country?
2. How
Level foreign
I Institutionally companies allocate their scarce resources among different
Accredited
countries?
3. How to collect and analyze data?
4. How to use two comparison tools on selecting potential countries to enter?
Lecture Guide
SELECTING SUITABLE MARKETING AND PRODUCTION LOCATION
In everyday life, we always have to make decisions. One of the ways to come up
with decisions is by making selections. How do we select a suitable marketing
Offline Activities and production location? Who is the person in charge of doing it? The person in
charge for this job is the manager. In order to select the location of production
(e-Learning/Self-
and marketing,
Paced) a manager
needs to
answer these
two basic
questions:

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Did you know that the factors to consider in the selection of production and
marketing locations are
usually interdependent?
Production sites are often
located close to the market
whentransportation costs are
high
ISO or
9001:2015 Certified when host
government regulations
require
Level localAccredited
I Institutionally production. For
example, in service industries,
they need to be close to their
customers. Companies may
also need to search for
location advantages to
minimise production cost.
Location advantages of a
foreign production such as
supply of labor, raw
materials, supplier's network
and infrastructure can prolong a companyÊ s competitiveness. The process of
determining the overall location strategy must be flexible due to the ever-
changing situation in certain countries. A good strategy must enable a company
to respond to new opportunities in alternative locations. Hence, a company
must take into account existing factors in the foreign environment, such as
future cost, price, rivalsÊ reaction and technology. Figure 9.1 demonstrates
what managers should consider when making decisions on market and
production location.
SCANNING FOR ALTERNATIVE LOCATIONS
What happens when a manager cannot find a suitable place for his business
operation? Well, there is always another solution for this problem which is
scanning for alternative locations. But how do we do it?
When making comparison between countries, managers use various
techniques of scanning based on the broad variables that indicate
opportunities and risks. A
thorough analysis on alternative locations will prevent companies from making
biased decisions so as to maximise sales or ensuring choice of least-cost
production location.
CHOOSING AND COMPARING OPPORTUNITIES AND RISKS
As explained in the previous section, managers use various techniques of
scanning to find alternative locations. The scanning technique involves
determining the opportunities which are then weighed against risks of doing
business in the host country. Moreover, managers need to evaluate the host
countryÊ s external factors that could significantly affect the success and failure
of the foreign operations. Investment Opportunities How do we determine

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investment opportunities? There are four factors that need to be considered

when assessing opportunities:
(a) Size of market;
(b) Infrastructure and operation suitability;
(c) Resource availability and costs; and
(d) Bureaucracy
Figure
ISO 9001:2015 9.2 simplifies these opportunities in a diagram. Note that these factors
Certified
alsomaffect both
Level I Institutionally Accredited the market
location and
production
decisions.
These factors are
further explained
as follows:
(a) Market Size- Sales potential is one of the most important variables used by
managers to determine a suitable location to make an investment. This is
because market size determines sales potential. Companies rely on past and
present information on sales figures on a country-by-country basis for the type
of products they want to sell. However, in certain countries where sales figures
are not available, other data such as Gross National Product (GNP), market
growth, population, middle-class consumer size and stage of industrial
development can be used to estimate demand.
(b) Infrastructure and Suitability of Operation - Basically, most companies
prefer to select locations where they perceive it as easier for them to operate.
For example, American companies rank Canada and Mexico as suitable because
of their geographical location and ease of control on their subsidiary
operations. Other factors such as similarities in culture and economic systems
determine a country’s attractiveness as choice of location. Infrastructure such
as accessibility to communication and transportation network is examined by
companies in their feasibility studies in alternative country selection.
(c)Availability of Resources and Cost - Companies also consider the availability
of the resources that they need. They seek resources that do not exist or are
more expensive in their home country. For example, local people who have the
market knowledge and technical skills are sought after. Most of the time,
companies decide whether to make the product or component for sale in the
countries where they are made or to export them to another market. They also
seek low labor cost, raw materials, land, local tax rates and transfer pricing
costs that are suitable with the production. When seeking low-production sites,
companies also consider other factors such as ease of entry and regulations and
presence of suppliers.
(d) Bureaucracy - Companies usually compare the level of bureaucracy that is
needed to operate in certain countries as this can increase their operating
costs.

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Bureaucracy includes the administrative work in getting a licence to operate,

produce and sell certain products, bringing in expatriates and abiding by host
government policies such as taxes, labour laws, working conditions and
environmental rules. For example, in Ukraine, different government bodies
often have overlapping spheres of responsibility and have conflicting
instructions and
policies.
ISO Controlling and regulating bodies often act unpredictably, based on
9001:2015 Certified
rules that no one else is aware of (taken from UkraineÊ s Busines Culture,
2005).
Level It is Accredited
I Institutionally difficult to measure the level of bureaucracy and red tape of a
country that can hinder investment opportunities significantly and hence,
companies need to evaluate this factor towards other countries subjectively.
Investment Risks. Can you think of the types of risks that may directly affect
business investment in a foreign environment? Well, there are many risks that
companies are exposed to when operating their business in certain countries
even though each country has its potential. Let us look at Figure 9.3 that shows
you the types of risks in investment.
These four types of risks are further

explained as follows:
(a) Uncertainty and Risk - Companies
use various monetary techniques in
comparing potential projects such as
discounted cash flows, economic add
value, payback period, present total
value, sales return, return on asset
employed, internal return value,
account return and return on equity.
Even though the differences between
the techniques are better explained in a monetary course, the international
implication is the same. As for that, we can only refer to return of investment
(ROI) to explain risks consideration in international business. If the expected
return is the same, most decision makers prefer a certain gain than an
uncertain one. In order to estimate the ROI, a company will count the different
average return for an investment. Table 9.1 shows you two same lines of ROI
but they have clear
differences in terms
of achievement and
possibilities. In Table
9.1, at the 10 percent
level of certainty, the
ROI lines are higher
for investment B
compared to
investment A (40% to

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30%). Next, the 10% of customersÊ possibilities are also higher for B (.40 +.30
= .70 or 70%) compared to A (.30 +.20 = .65 or 65%). Experience shows that
most (not all) investors will prefer alternative B as compared to alternative A.
Moreover, when doubt increases, investors will need a higher estimation of
ROI. Companies can frequently decrease the risk or doubt by taking insurance.
However, insuranceÊ s cost towards funds which its currency is not
exchangeable
ISO 9001:2015 Certified or cannot be moved is high. During the early process of precision
to set the desired amount that can be managed, a company must give
consideration
Level to the elements of risk and doubt. During a more specific level of
feasibility study, the manager must determine whether the level of risk can be
accepted without involving additional costs. Otherwise, the manager has to
calculate the ROI including expenses, such as insurance, to increase the level of
confirmation operation. How do we determine the Return of Investment
(ROI)? We can determine the Return of Investment (ROI) as follows:
(i) Multiply ROI as a percentage with its „possibilities‰ to get the weighted
value.
(ii) Total up all the weighted value.
Weighted value = Possibilities x Percentage
Usually, when a company operates overseas, it will have a higher level of doubt
as compared to operating only in its own country due to the different
environment. A company can alter its impression towards the consumer,
competition and governmentÊ s action through the experience of operating in
certain countries or countries with similarities, which will eventually decrease
the level of doubt. In addition, in the beginning years of operation, foreign
companies have lower success rates as compared to local companies. This
situation is known as „liability of foreignness‰. However, foreign companies,
which are able to adapt to new situations and overcome early problems, are
capable of having the same level of success with local companies in the
following
years. The process of learning explains why companies always consider
reinvestment or expanding their investment in a particular country in a totally
different perspective compared to countries in which they do not have any
experience. We will discuss reinvestment in another topic.
(b)Competition Risk - Now we move on to the second risk – competition risk.
The competitive advantage of innovation of a particular company may not last
forever. Although it has the advantage of competition as an apprentice, its
period as an apprentice may differ according to the market. A strategy being
used to exploit this temporary advantage of innovation is known as imitation
lag.
In order to implement this strategy, a particular company will need to enter a
country which they can easily adapt to and accept the advantage of innovation,
before going to other countries. Countries which receive innovation at a faster
mode will be countries with their companies investing a lot in technology and
offer minimum protection to intellectual property rights (IPR). Hence, a

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company’s innovation advantage is threatened in countries that offer little

protection on the firms IPR. Companies can also form a strategy by searching
for countries which do not have any apparent competition. For example, you
might be familiar with Kao. Kao is a manufacturer of goods for household
cleaners and bath toiletries. The company has already focused its international
expansion in South East Asia because its market is expanding and also lack of
competition
ISO 9001:2015 Certifiedfrom America and Europe. As for Chrysler, it is vice-versa.
Chrysler gained approval to build an assembly factory in Vietnam because it is
oneI Institutionally
Level of the Accredited
only four automobile manufacturers in the market. However,
Chrysler quit when it heard that there are already 12 companies that have
gained the same approval.
ChryslerÊ s decision to quit is because there was too much competition as
compared to the market size. However, there are also cases where a company
can benefit if it operates in places where there are competitors. Companies that
operate in a cluster location can gain better information about the latest
development and technologies.
(c)Financial Risk - The third risk of investment is financial risk. Did you know
that often foreign investors prefer some of their holdings to be liquid?
Liquidity preference is a theory whereby investors usually require part of their
investment in liquid asset. They are also willing to receive a lower income.
Liquidity is needed to make payment in a short period of time, such as paying
for dividends and accommodating unexpected contingencies such as
„stockpiling‰ materials in times of emergencies. Sometimes, companies
intend to sell all or part of their equity in a foreign country so that the funds can
be used for other developments. However, the ability to find local buyers is
different between the countries depending on the availability of the local
capital market. For example, Vitro glass manufacturer decided to sell Anchor
Glass, their American subsidiary. The capital market of America is more
developed and the move eased the selling and transferring of product to
Mexico. If the fund is not convertible, the seller has to spend the fund in the
host country. Another concern that worries most of the foreign investors is the
ability and cost to convert overseas operation profits. Investors are more
willing to receive a lower ROI in a country that has a stable currency as
compared to those with unstable exchange rates.
There are two variables that affect the financial risk of operating in a foreign
country: capital control and exchange rate stability. Changes in exchange rates
may decrease investment liquidity and increase financial risk. A country’s
balance of trade, savings, interest rates, inflation and government budget are
other useful indicators to predict the financial situation of a particular country.
(d) Political Risk - Lastly, let us look at the final risk which is political risk. What
are the sources of political risk and how can it be predicted? Sources of political
risks include change in opinion of political leaders, policy, civil disorder and
hostility between host countries and other countries, and such risks can
disrupt foreign operations. Furthermore, threats of takeover of property by

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host government, damage of property, operational failure and changes in law

can directly affect business operations. There are three methods that a manager
can use to predict a country’s political risks. These are:
(i) Analysis of past patterns;
(ii) Consultation with professionals; and
(iii) Inspection of social and economic situation which may lead to such risks.
These
ISO 9001:2015methods
Certified are summarised in Figure 9.4.
COLLECTING AND
Level I Institutionally Accredited ANALYZING DATA
When making decisions on
foreign market selection and
entry, one of the main
questions concerning market
information is how data
should be collected and
analyzed. Companies have to
determine what national and
international sources of
information are available. Companies rely on both internal and national
sources of information that are normally easily available, however, companies
may face problems with external sources of data about an international market.
For example, problems associated with the source, quality, and comparability
of available information used to increase understanding of foreign markets
(including access to data, ability to retrieve data quickly and the cost of
obtaining data).
External Sources of Information
How do companies get external information about certain countries?
Companies
have multiple sources of country information that can be sourced externally.
These sources can be from:
(a)Individualised reports - from marketing and business consulting companies
that conduct research and studies covering many countries for a fee;
(b) Specialised reports - from research organisations that provide data on
specific studies to potential/interested company. For example, a specific study
done on certain products or market for a much lower fee than individualised
reports;
(c) Service firms - that provide services to international clients such as banks,
accounting firms, rating agencies publish reports on subjects such as taxation
and legislation;
(d) Government agencies - thatpublish statistical reports on country indicators
and trends;
(e) International organisations and agencies - such as United Nations (UN),
World Trade Organisation (WTO), International Monetary Fund (IMF),
Organisation for Economic Co-operation and Development (OECD) and

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European Union (EU). They collect and disseminate country information to

those who are interested;
(f) Trade associations - that publish trade journals that provide industry
information related to product lines with technical and competitive factors;
(g) Information service companies - that manage and sell online databases
from multiple sources. Companies can obtain such computerised data from
library
ISO 9001:2015 sources;
Certified and
(h) The Internet - which provides a host of current information viaWorld Wide
Web.
Level However
I Institutionally care must be taken to ensure reliability of information.
Accredited
USING COMPARISON TOOLS

What should a firm do after it has collected and analysed data? After the firm
has
identified potential locations overseas and the necessary data has been
collected, analysis and comparing information across countries is undertaken.
The two instruments commonly used in comparing data are grid and matrix.
Let us look at how to use these two instruments. A firm can use grids to make
comparisons between countries based on factors that they deem important.
Values and weights are assigned to each countryrelated variable in order to
rank each country according to factors identified as important. Table 9.2 shows
you how grid analysis is done based on information which is divided into three
categories: equity, income and risk.
Companies can ignore non-potential countries based on the first category (U).
They will determine the weight or value for each variable according to

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importance. High income will be assigned a high score, while high risk will be
assigned a low score. In this example (Table 9.2), country II is seen as a
country that has high income and low risk (total of income = 18, total of risk =
3), country III has low income and low risk (total of income = 10, total of risk =
3), country IV is a country that has high income and high risk (total of income =
18, total of risk = 14) and country V with low income and high risk (total of
income
ISO 9001:2015 = 10, total of risk = 13). Both variables and weights differ between
Certified
product and company, and it depends on the companyÊ s situation and
objective.
Level Grid
I Institutionally technique is not only useful for comparisons across countries,
Accredited
but it can also help to analyse if a company needs to add further investment or
deeper analysis into feasibility research after fulfilling the minimal criteria of
the company. However, grids tend to become cumbersome and limited as the
number of variables for comparison increases.
Matrices
Now, let us look at the second instrument of comparison tools – matrices. In
general, there are two types of matrices that managers can use when comparing
countries. They are:
(a) Opportunity-risk matrix; and
(b) Country attractiveness-firm strength matrix.
(a) Opportunity-risk Matrix - This method provides an overall picture of the
data that has been gathered by comparing opportunities and risk. An example
of this matrix is illustrated in Figure
9.5.
The matrix shows a company with
operations in six countries. Countries
E and F are the most desirable
because they have a combination of
high opportunity and low risk. In
country A, the opportunity level is
not that high but risk is low which
makes it attractive. Country B has a
high level of opportunity but high
risk. Countries C and D are less
appealing than E and F. Hence, the
decision between A and B will
depend on the companyÊ s risk
tolerance. How are the scores determined using this matrix? First, the factors
that are considered as good indicators of companiesÊ risk and opportunity are
determined and then we weigh them to reflect their importance. For example,
in risk axis, a company can determine 40 percent (0.4) for takeover risk, 25
percent (0.25) for foreign exchange control, 20 percent (0.2) for riot and 15
percent (0.15) for exchange rate. The total is 100 percent. The company will
then assess every country based on a scale of 1 until 10 for

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every variable (by giving 10 as the best and 1 as the worst) and multiply every
variable with weights that has been determined. For example, the company
may give 8 marks to takeover risk for country A and multiply 8 with 0.4 to get
3.2. The company will total up all of the risk variablesÊ scores at the risk axis.
The same method is used to determine the position in the opportunity axis.
When the scores for each country are determined, the management can
determine
ISO the average risk and opportunity scores among the countries and
9001:2015 Certified
divide the matrix into four
Level I Institutionally Accredited quadrants.
(b) Country Attractiveness-
firm Strength Matrix - This
matrix is used for making
comparisons between a firmÊ s
strengths and country
attractiveness, as shown in
Figure 9.6. Based on Figure
9.6, we can see that a company
should try to focus on its
activities in countries which
are situated in the upper left
corner of the matrix and try to
hold onto as many equities as possible. In this situation, the level of
attractiveness of a country and ability to compete are at the highest level. At
the upper right corner, the level of attractiveness is also high but the ability to
compete is weak, probably due to unsuitable strategy. If the cost is not too high,
the company can try to gain advantage and alter its weakness. If not, it may
have to liquidate its investment or try to strengthen its position through
collaboration with other companies. A company may liquidate its operation
with companies that are located at the lower right corner. It may also need to
license its operation to gain income without the need to do extra investment. In
another situation, a company needs to analyse its position and take action
subsequently because it involves marginal places that need specific analysis.
MODES OF ENTRY
Next item to consider when selecting a country is mode of entry. Multi-national
enterprises (MNEs) must make an important strategic decision concerning the
choice of entry mode when investing in a foreign market. There are various
modes of entry choices and each mode selected by the company depends on the
level of resource commitment, risks, control and ownership as well as expected
returns from investment. There are three forms of entry mode choices
available
to choose from:
(a) Trade-related entry modes via direct and indirect exporting;
(b) Transfer-related entry modes involve transfer of ownership of property,
usually intellectual property such as use of technology, from one party to the

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other in return for royalty fees. For example, licensing, franchising and turnkey
operations; and
(c) Foreign direct investment-related entry modes via joint venture and
wholly-owned subsidiary.
TRADE-RELATED
ENTRY MODES
ISO 9001:2015 Certified EXPORTING
Most firms start their
Level I Institutionally Accredited international expansion
through exporting.
Exporting as an entry
mode involves the firm
maintaining its
production facilities at
home and selling it
products overseas. However, there are some advantages and disadvantages of
exporting (see Table 9.3).
There are three
broad options of
exporting
available to
companies that
plan to enter a
market. They
are:
(a) Indirect
exporting
involves the firm
using export
intermediaries as middleman or third parties based in its home market to
handle transportation, documentation and customs claims or sometimes to the
extent of handling marketing and financing exports. Export intermediaries in
the form of an export merchant, export agent or export management company
(EMC) are popular among small businesses. These three intermediaries have
their own specific role as follows:
(i) An export merchant is a trading company that buys a firmÊ s exports
directly and resells them in foreign markets.
(ii) An export agent acts for local manufacturers carrying a number of non-
competing exports of manufacturers.
(iii) An EMC is an independent firm that acts as an exclusive distributor for a
number of non-competing exports.
(b) Direct exporting occurs when a company sets up its own export
organisation and uses a foreign distributor based in a foreign market to handle
its exports.

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(c) Cooperative exporting, also known as piggyback exporting, happens when

a company uses the overseas distribution network of another company to sell
its goods in a foreign market. For example, Wrigley (the US chewing gum
company) entered India by piggybacking on ParrysÊ (a local confectionary
firm) distribution network.
TRANSFER-RELATED ENTRY MODES
In 9001:2015
ISO this section,
Certified we will look at three transfer-related entry modes, namely,
international licensing, international franchising and management contract.
International
Level Licensing. What does international licensing stand for?
International licensing is an entry mode in which a foreign licensor grants a

local licensee the right to use intangible property rights such as patents,
trademarks, technology or management skills in return for a royalty fee. The
licensor does not have to start or build a new operation overseas as the local
licensee is allowed to produce, manufacture and market the licensor’s product.
For example, Coca Cola Company has a trademark licensing agreement with
Fraser & Neave Holdings Berhad (F&N) Malaysia giving F&N rights to bottle
and distribute cola in Malaysia, Thailand and Brunei. How about the
advantages and disadvantages of licensing? Let us look at Table 9.4 to find out
the answers.
International
Franchising
Are you familiar
with international
franchising? What
can you say about
it? International
franchising is an
entry mode in
which the foreign
franchisor grants
a local franchisee
to use specified
intangible
property rights
usually a
trademark

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or brand name or operation method to execute its business operation. In

return, the franchisor receives royalty fee. Franchising is widely used in the
fast food and hotel/motel industries. The franchising concept can be easily
adapted to fulfil the needs of the local market and produce high profits to the
company. Can you think of any examples? Fast food companies such as KFC,
McDonald’s and Burger King use franchising to widen their markets. In the
hotel
ISO industry,
9001:2015 Certified Holiday Inn is among the international franchise businesses
which have been effective and successful. Franchising normally requires a
deposit
Level and Accredited
I Institutionally annual royalty based on the percentage of annual sales. As a
reward, the franchisor will help in purchasing raw materials and even in
marketing to ensure
that the quality is the
same at all outlets.
Franchising provides
benefits to both
parties. It also
provides opportunity
for a new source of
income to the
franchisee and makes
it easy for the
franchisee to venture
into new markets.
However, there are
some disadvantages of
franchising as explained in Table 9.5. Management Contract Now, we move on
to management contract. Do you know its definition? A management contract
is an agreement made between a company with other companies that provides
technical expertise or specific managerial services such as training, marketing
accounting and personnel management in return for a fee until the contract
expires. Through this approach, the entry risk in the international market is
low and is suitable when there is lack of local skills to manage the project or
when a host government restricts other entry methods.
Turnkey Operation
Lastly, let us take a look at turnkey operation. How does turnkey operation
work? Turnkey operation involves a contractual agreement in which a
foreign company as the investor will design and build an operation facility and
upon the completion of the facility hands the project and management over to
the local owner. In return, the investor is guaranteed periodic payments for the
project. The turnkey investment is also called Build-Operate-Transfer (BOT)
which is useful especially for large scale and long-term infrastructure projects,
usually for
government agencies such as building airports, highways and rail
transportation. The main advantage of the turnkey method is that the host

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government and local companies gain the technology transfer as well as

training and expertise from the foreign investor that has agreed to complete
and manage the entire project. BOT allows the foreign investor to enter the
market easily. The method involves low risk as the foreign investor normally
gets support from the host government to complete the entire project.
However, the main disadvantage of turnkey operation is that the foreign
investor
ISO can become a leading competitor in the future after the BOT.
9001:2015 Certified
FOREIGN DIRECT INVESTMENT (FDI)- RELATED ENTRY MODES
Before
Level we end
I Institutionally this topic, let us look at related entry modes for FDI. Can you
Accredited
recall what are the forms of FDI? The two common forms of FDI-related entry
modes are joint ventures and wholly - owned subsidiaries. Let us look at them
further in the next section.
Equity Joint Ventures (EJV)
Did you know that equity joint ventures (EJV) are one of the most common
forms
of entry for MNEs? It involves setting up a new entity that is jointly owned and
managed by two or more companies in different countries. The partners
involved agree to contribute capital in proportion to the equity stakes which
can be majority, equal or minority share ownership. In addition, both parties
contribute facilities, materials, labor, training and even intellectual property
rights. For example, China’s law requires a foreign venture partner to
contribute at least 25% of capital to the EJV. While there is no upper limit on
the foreign partner’s contributions (maximum 99%), however, host
governments may limit majority ownership for foreign JV partners in restricted
sectors. The main factor behind a successful international joint ventures is by
choosing a
suitable partner.
Let us look at
Starbucks Coffee
as an example for
EJV. What are the
advantages and
disadvantages of
EJV? Let us look at
the answers in
Table 9.6. Read
Starbucks Coffee’s
joint venture
success in China at
www.starbucks.com
.
Wholly-Owned
Subsidiary Last but
not least, let us

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learn about wholly-owned subsidiary (WOS). Wholly owned subsidiary (WOS)

involves a company which invests and owns 100% of the new entity in a host
country. There are two strategies of setting up a new entity in the host country:
(a) Build Strategy - This is also known as Greenfield investment in which the
investing company builds a new subsidiary ground usually in the form of
Greenfield projects such as building, new plants, manufacturing factories,
assembly
ISO and bio-diesel plants. For example, in 2002, Ford Motor Company
9001:2015 Certified
was the first automaker to set up a manufacturing facility in Russia. Some
recent
Level examples
I Institutionally of Chinese Greenfield are investments in the United States
Accredited
such as Tianjin Pipe’s steel pipe mill in Texas and Suntech Power’s solar panel
assembly plant in Arizona.
(b)Buy Strategy - This is also called Brownfield investment in which the
investing company buys or acquires an existing or established local company in
the host country. For example, Wal-Mart, the world's leading retailer, acquired
Asda, the United Kingdom's third largest supermarket group to enter the UK
market.
Before we come to
the end, can you
think of the
advantages and
disadvantages of a
wholly - owned
subsidiary? Let us
look at Table 9.7 to
find out the
answers. As a
conclusion, let us
look at Table 9.8
which shows a comparison between the foreign market entry modes.

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ENGAGING ACTIVITIES:
1. If two projects have a similar ROI (7%), does that mean that both projects
have an equal risk and opportunity to be successful?
2. Discuss how companies can choose and weigh variables before deciding to
invest in foreign countries.
3. List and describe three external sources of country information that is
available in terms of completeness, reliability and cost.
4. What are the advantages and disadvantages of using the grid technique to
determine investment across countries?
5. List two tools and their major components that can be used to analyze and
compare information on market location.
6. What is the difference between these two tools?
7. List some of the criteria in selecting suitable joint venture
partners.
8. What are the possible causes of break-up and failures in
international joint ventures?
9. One of the tools that can be used to make comparisons between countries is
______________.
A. grid
B. matrix
C. subsidy
D. quota
10. Generally, which are the two types of matrix that are usually used by
managers when making comparisons between countries?
A. SWOT matrix and environment’s observation matrix

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B. Subsidy matrix
C. Opportunity-risk matrix and country’s attractiveness company’s strength
matrix
D. Industrial-non industrial company matrix and company’s strength matrix
11. All of the following are considered as good indicators of market size
potential and future sales EXCEPT:
A. 9001:2015
ISO Gross Certified
national product (GNP)
B. Population growth
C. Income
Level per
I Institutionally capita
Accredited
D. Cultural values
12. Companies are more likely to pursue joint ventures as an entry strategy in
countries where ___________________________.
A. the political environment is highly unstable
B. the domestic companies are competitive
C. the cultural value of trust is high
D. the exchange rate is unpredictable
13. The fastest growing area of international franchising for Western
companies can be found in _____________________.
A. Automobile dealerships
B. Banking services
C. Food services
D. Petrol service stations
Performance Tasks
Essay/Reflection to be assessed based on organization of thoughts, clarity, relevance and
applicability of the answers
Essay or Reflection Paper:

1. Explain the main reasons why managers should give attention to a
country when making decisions on the market and location of production.
2. Read more about „Investment Opportunities in China‰ by Dr Burton G. Malkiel

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(http://www.youtube.com/watch?v=uVcV0H4qtgw).
3. Read „The McDonalds Case: Strategies for Growth‰ by L. Siehoyono and L. E. Giang
(http://puslit2.petra.ac.id/ejournal/index.php/hot/article/view/16310) and
„Why McDonalds Wins in Every Economy‰ at
(http://management.fortune.cnn.com/2011/08/23/why–mcdonalds–wins –in–any–
economy/).
4. Why do companies export?
ISO 9001:2015 CertifiedExplain the potential pitfalls of exporting.
5. List the main differences between international licensing and international
franchising. Level I Institutionally Accredited
6. What problems might arise in the international licensing agreement between a

licensor and licensee?
7. Identify the factors that contribute to a successful turnkey project.
8. Read „Managing Mega Projects: The Experiences of KLIA‰ by Tan Sri DatoÊ Prof. Ir.
Jamilus Hussein and Prof. Dr. Shafie Karimin at
http://www.mbam.org.my/mbam/images/MBJ4Q06(pdf)/@Me
gaProjects.pdf
Understanding Directed Assess
Percentage of Failed to meet 75-79% of the 80-89% of the 90-100% of the
requirements.
Learning Resources

Province of Laguna
A. BBNG3103 INTERNATIONAL BUSINESS Dr Abdul Jumaat Mahar, Mohd Shah Kassin, Mohd
Sobri Don, Jannatul Firdaus, Ahmad Bashawir Haji Abd Ghani, Dr Teo Boon Chui, Copyright
© Open University Malaysia (OUM), December 2013, BBNG3103
B. http://www.fxstreet.com/rates-charts/exchange-rates/
C. www.mfa.org.my/
D. and Franchise Malaysia at www.franchisemalaysia.org/
E. Daniels & Radebaugh (2001)
F. Daniels & Radebaugh (2009)

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Laguna State Polytechnic University

LSPU Self-Paced Learning Module (SLM)

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU Self-Paced Learning Module (SLM)

Student Learning Strategies

Online Activities A. Online Discussion via Google Meet/Classroom

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

based on the schedule provided by the College.

C. Learning Guide Questions:

Functions of Foreign Exchange Market

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

major functions: conversion of currency, provision of credit for foreign trade

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

ISO 9001:2015 Certified

Level I Institutionally Accredited

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

The Bretton Woods System (1944 to 1973)

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

exchange rate system. Floating exchange rates can increase exposure to

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

INTERNATIONAL MONEY MARKET

(c) International equity market.

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

investment banks and purchased by institutional investors in several countries.

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

A. the United States

Reflection Paper or Essay:

Understanding Directed Assess

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU Self-Paced Learning Module (SLM)

Date November 30, December 1 – 4, 2020

Student Learning Strategies

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

Further instructions, can be provided in the Group Chat or common email

D. Learning Guide Questions:

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

investment opportunities? There are four factors that need to be considered

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

Bureaucracy includes the administrative work in getting a licence to operate,

These four types of risks are further

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

company’s innovation advantage is threatened in countries that offer little

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

host government, damage of property, operational failure and changes in law

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

European Union (EU). They collect and disseminate country information to

USING COMPARISON TOOLS

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE

LSPU SELF-PACED LEARNING MODULE: INTERNATIONAL BUSINESS AND TRADE