COURSE: INTERNATIONAL BUSINESS

SOLUTION TO TAKE HOME EXAMINATION

QUESTION 1

Define and discuss International Business including its trends and topical issues. (40%).

1.1 International Business defined:

International Business is the process of focusing on the resources of the globe and objectives of
the organisations on global business opportunities and threats (Daniels et al., 2004).

The reasons of international business include the following:

• Manufacturing in Foreign Country: When a company finds better economy in

manufacturing in host country due to lower costs of materials labour or duties the

1
 manufacturing is undertaken in host country. The local conditions in host country should
support manufacturing and marketing activities (Daniels et al., 2004).

• Management Contracts: The foreign country needs management expertise in managing

existing or a sick company this method is used. Under management contract the service
provided gets fees or shares in the company. The contracts are for a specific period.

• Strategic Partnerships: The positive aspects of two companies in different countries are
joined together. The resources are pooled together to produce new marketable products.
This will put both companies in win-win situations.

• Mergers: A Corporate Merger is a combining of corporations in which one of two or more

corporations survives and works for common objectives. There are several types of mergers
with a variety of filing requirements based on number of corporations merging and the type
of merger.

• Counter Trades: Counter trade is a form of international trade in which certain exports and
import transactions are directly linked with each other and in which imports of goods are
paid for by exports of goods, instead of money payments.

The benefits of international business are:

• Grow ones business: When trading internationally the “universe” of potential clients and
suppliers will increase significantly. Just imagine increasing the number of potential clients
by 100 per cent each time one starts selling in a new country. In all likelihood, this will
probably be much easier than trying to expand ones market place in a person’s “home”
country (Purdy, 2015).

• Diversify risk: The idea that a business relies solely on one market and directs all its
resources into a single currency may prove to be more risky than it may first seem. Just look
at the number of unprecedented global “disasters” (financial meltdown, earthquakes and
unrest in the Middle East) over the last few years and the drastic impacts these have had on
markets. One’s home market could contract or even disappear, but a person’s business may
be saved by the revenue it generates overseas (Purdy, 2015).

2
• Better margins: As well as seeing increased sales, a business owner may well enjoy better
margins. Sterling which is currently weak may give one a head start when exporting. Pricing
pressure could be less and it could also reduce seasonal market fluctuations (Purdy, 2015).

• Earlier payments: When working with companies overseas, both the company and the
customer will want to execute the transaction in the safest and most efficient manner
possible. One of the many advantages when trading internationally is that overseas payers
often pay upfront. This reduces payment risk and may well help the company’s working
capital (Purdy, 2015).

• Less competition: The ability to stand out amongst competitors is a crucial factor in
business. When there are fewer competitors, this task is made easier. Business, which may
be viewed as comparable to others in the UK, may, when placed in a larger and more
diverse environment, turn out to be a unique product or service not to be missed. By making
the product or service available to worldwide buyers, the company instantly create another
life line for the business by being in less competition and increasing the possibility of
standing out. This will in turn boost sales potential and allow the business to flourish
(Purdy, 2015).

1.2 Trends in International Business

The past couple of decades have witnessed significant growth in international business. It is a
fact that international business was greatly constrained by the oil shock and restrictive policies
pursued by many developing countries during the 1970s, but it was resumed by the mid- 1980s
and it grew in the subsequent period. Statistics show that between 1983 and 1990, Foreign Direct
Investment(FDI) outflow grew at an average annual rate of 27 per cent, which was almost four-
fold greater than the growth of world output and around three-fold greater than the growth of
world exports. During 1990, the amount of FDI outflow stood at US $245 billion, over two-
thirds of which were accounted for by only five countries, namely, the United States of America,
the United Kingdom, Japan, Germany, and France. There were 170,000 foreign affiliates of over
37,000 parent companies. The worldwide sales of these affiliates were approximately US $5.5
trillion, which was greater than the world export of goods and non-factor services (United
Nations, 1993). The fast growth in FDI outflows during the 1980s could be attributed to a host of

3
factors. (1) The growing internationalization of the Japanese economy resulted in the large
explosion of FDI from this country; (2) The phenomenal growth in the demand for services in
the wake of growth in per capita real income. Since many services were not tradable, FDI was
the only way to participate in foreign markets; and (3) this period witnessed more effective
moves towards regional integration, as a result of which both intra-bloc and inter-bloc FDI
increased.

FDI outflows grew from US $245 billion in 1990 to US $1150 billion in 2000. During 2000s,
there were ups and downs in the size of the flow. In 2005, it was US $779 billion. The annual
growth rate ascended from 15.7 per cent during 1991-95 to 35.7 per cent during 1996-2000 but
was negative by 5.1 per cent during 2001-05. The FDI outward stock rose from US $1,716
billion in 1990 to US $ 5,976 billion at the end of 2000 and to US $10,672 billion by 2005. The
amount of world FDI inflows grew from US $209 billion in 1990 to US $1,271 billion in 2000.
During 2000s the size moved up and down. In 2005, it was US $916 billion. The total assets of
foreign affiliates rose from US $5,706 billion in 1990 to US $21,102 billion by 2000 and to US
$45,564 billion by 2005. Their sales surged up from US $550s billion to US $15,680 billion and
to US $22,171 billion during the same period. The employment in foreign affiliates increased
from 23.6 million to 45.6 million and to 62.0 million during this period.

What is remarkable is that the mergers and acquisitions (M&As) formed a large part of the FDI
outflow. In 1990, FDI through cross-border M&As had amounted to US $151 billion which rose
to US $1,144 billion in 2000 but fell to US $716 billion in 2005. If one looks at the annual
growth rate, it rose from 23.3 per cent in 1991-95 to 51.5 per cent in 1996-2000 but fell to 2.2
per cent during 2001-05. A deeper probe reveals that the acquisitions were more common. The
other remarkable feature is that owing to the growth in FDI flow in general and emergence of
multinational corporations (MNCs) in developing as well as in transition countries in a big way,
the share of these countries in FDI flow has increased. The developing countries in general
improved their share from 36 per cent to 37 per cent to 37 per cent in FDI inflows and from 14
per cent to 15 per cent in FDI outflow between 1991-96 and 2005. The respective share of
transition economies has risen from 3 to 4 per cent and from a very negligible figure to 2 per cent
during the same period. All this means a cut in the respective share of the developed countries.

4
Along with rapid internationalization of firms, world trade, both intra-firm and inter-firm, grew
manifold. The reduction of tariff and non-tariff barriers under the aegis of General Agreement on
Tariffs and Trade (GATT) and now under the World Trade Organisation (WTO) umbrella too
gave a fillip to international trade. During two and a half decades beginning from 1980, the value
of world trade increased almost fivefold- from US $2,031 billion in 1980 to US $3,486 billion in
1990, to US $6,372 billion in 2000and to US $10.2 trillion in 2005. MNCs have a big role in the
increasing volume of trade. However, in recent decades, the small and medium-sized
multinationals or the so called mini-multinationals that have come to possess globalizing
efficiency almost at par with the big organization do account for sizeable word trade(UNCTAD,
1993). Again, there has not been any noticeable change in the share of the developed market
economies in the world trade. Their share continued to remain at 64 per cent (UNCTAD, 2005).
Thus, international business has witnessed a phenomenal grow in the recent past.

1.3 Topical Issues in International Business:

a. Not spending enough time defining the risks of international trade: It is crucial that a
company have a clear understanding of what international trade involves. It is easy to become
engulfed in the excitement of its benefits and marginalise the risks to the company’s detriment
(Purdy, 2015).

b. Misunderstanding the local legal framework: It is dangerous to assume that laws in other
countries are similar to that of the UK. The reality is laws differ in every country which means it
is essential one spends sufficient time educating the company about the legal framework of the
country a business is being carried out. Identifying a local lawyer is a good idea so that a
business owner can get a full picture of the laws that will apply and which ones will affect the
business. Doing something legally right the first time can save the company a lot of time, money
and possible future heartache (Purdy, 2015).

c. Not communicating effectively with business partners: Relationships have to be worked at

as there are always problems and emails can be very easily misunderstood. Time spent on the
telephone and visiting will make life so much easier in the long term as the company is likely to

5
develop a rapport and gain a firmer understanding of how its partner works and thinks (Purdy,
2015).

d. Not spending enough time with potential business partners: Long distant relationships
leave a lot to be desired. Two good friends of mine who have been buying goods from China and
selling to a number of countries for more years than any of us wish to remember, spend even
now, a huge amount of time up front with new potential partners. This is time very well spent as
it means they have developed some very good partners and avoided some very dodgy characters
along the way (Purdy, 2015).

e. Unstable profits: With so many aspects to consider when trading at an international level, it is
easy to leave currency exchange to the last minute. Unfortunately, in doing this, there is a risk of
not getting the best exchange rate which in turn could have a negative impact on the business’
profit. As a company resides in the UK, anything the company exports or imports will have to be
exchanged into sterling. This means that between setting a budget, buying the goods and then
paying for them, if a company does not plan ahead, the market’s volatility could always change
the worth of the sterling - and not always for the best (Purdy, 2015).

QUESTION 2

Define and discuss MNC’s including its theories, its impact on welfare, its strategies and
strategic options, its relations and issues with government policies and the main barriers to
internationalization of businesses. (60%)

2.1 Multinational Corporation defined:

6
Multinational corporations are enterprises operating in several countries but managed from one
(home) country. Generally, any company or group that derives a quarter of its revenue from
operations outside of its home country is considered a multinational corporation (Peng, 2006).

There are four categories of multinational corporations: (a) a multinational, decentralized

corporation with strong home country presence, (b) a global, centralized corporation that
acquires cost advantage through centralized production wherever cheaper resources are
available, (c) an international company that builds on the parent corporation’s technology or
R&D, or (d) a transnational enterprise that combines the previous three approaches. According to
UN data, some 35,000 companies have direct investment in foreign countries, and the largest 100
of them control about 40 percent of world trade (businessdictionary.com).

A multinational organisation is a company which has its headquarters in one country but has
assembly or production facilities in other countries. Coca Cola, Nike and BP are examples of
multinationals.

Reasons why companies wish to become multinationals:

• To increase market share - companies may find they are at saturation point in the domestic
market and need a new outlet. They may start by exporting to other countries but eventually
they will want to bring production overseas. Coca Cola started this way following US
soldiers around the world after WW1 (Vyuptakesh, 2006).

• To secure cheaper premises and labour – cost of land and labour will be cheaper in
developing countries. Sweatshops in the Far East are an example of cheap labour, whereas
production plants opening in the old Soviet Bloc nations like Poland, Bulgaria etc. are
examples of cheap factories (Vyuptakesh, 2006).

• To avoid tax or trade barriers – different nations have different levels of corporation tax and
may have different barriers to entry. The Japanese only allow a small percentage of foreign
cars to be sold in Japan to protect their own industry (Vyuptakesh, 2006).

• Government grants – many US companies were attracted to the UK in the 80s due to
government giving them money to open up operations here (Vyuptakesh, 2006).

7
The Advantages of multinational companies are:

• Multinationals create jobs which boosts the local economy and more workers to tax.
• They bring expertise in that skills of workforce are improved, some may use IT that would
never have before or other skills now deemed basic by the western or developing world
(Vyuptakesh, 2006).

• Multinationals are in position to benefit from economies of scale. This means the cost per
unit can be lowered through specialisation – with a large workforce work can be divided up
and people can do their limited job expertly (Vyuptakesh, 2006).

• Technical economies can be gained with automated equipment, but only when fixed costs of
machine can be spread out over outputs (Vyuptakesh, 2006).

• Purchasing economies can be achieved, for example by buying in bulk companies can
obtain supplies and materials at a cheaper cost per unit (Vyuptakesh, 2006).

The Disadvantages of multinational companies are:

• Multinationals can, however, be accused that the jobs they create may be deskilled jobs
(known by some as 'McJobs') and in fact may be low paid, repetitive assembly line work
(Vyuptakesh, 2006).

• Multinationals’ profits are not usually kept in the host country. For example the money
made and saved by General Motors moving car assembly production to Mexico would still
go back to HQ in Michigan (Vyuptakesh, 2006).

• Multinationals have been accused of cutting corners. Social responsibility may be

overlooked. They have been accused of exploiting the workforce and/or the environment.
Workers can work below minimum wage and for longer hours. Both Levi jeans and Wal-
Mart have been accused of exploiting workers in the Far East. Also, relaxed health and

8
 safety laws and little if any environmental laws may be in place. For example the Bhopal
gas disaster in 1984 killed hundreds of people in India. Union Carbide was held accountable
(Vyuptakesh, 2006).

• They may exert political muscle. The multinational may threaten to pull out of a country if
they do not get deals on workforce (wages) or overheads (land, rent and rates) and
pollution/clean-up deals (Vyuptakesh, 2006).

2.2 Theories of Multinational Corporations

The aim of MNC is to get capital where it is cheapest and produce where they get the highest
rate of return. The number of MNCs and their efficiencies in the world increase parallel with the
globalization process. The number of such companies is more than 37,000 as of 2000 in the
world. The number of branches or agencies of MNCs’ in different countries has reached to
450,000. Therefore theories of MNCs have been developed. The most significant ones of these
theories are the; (a) location, and (b) internationalization theories.

(a) Location Theory

According to the location theory the location of the production is determined by the resources.
The determining factors of the location choice are the cost of transportation and trade barriers. If
the transportation costs are high then the production is located in the country or region where the
product will be marketed. Another reason of such relocation is the high tariff rates that the host
country applies.

(b) Internationalization Theory

According to the internationalization theory the reason why production is done by only one
company instead of many in various locations is that it is more profitable to produce with one
company.
In the explanation of the advantage of internationalization the first approach of the
internationalization of MNCs emphasizes the importance of technology transfer. Technology
transfer may come across with some difficulties. It is difficult for a potential buyer to appraise
the actual value of knowledge. Besides knowledge cannot be packed and sold. The intellectual

9
property rights are also difficult to secure. Therefore for a MNC the establishment of a new
enterprise in a foreign country is more profitable than the sale of technology to another company.

The second approach intensifies on vertical integration. For example under the assumption that
both companies are monopolies, the price of input used by first company and produced by
second company is tried to be lowered and increased by the first and second companies
respectively. Therefore a dispute between these two companies will exist. Moreover some
coordination problems may occur because of the demand and supply imbalances between two
companies. Volatile prices constitute high risks for both companies. In case of a vertical
integration of these two companies the problems will disappear or be relieved.

2.3 The impact of Multinational Corporations on welfare

The following highlights the impacts of MNCs on welfare;
i. Employment Practice

Working conditions vary from one nation to another, from one firm to another. This therefore
raise some questions such as when work conditions in a host nation are clearly inferior to those
in multinationals home nation, what standards should be applied? Those of the home nation or
those of the host nation can they apply something in between? While some people may support
that pay and work conditions should be the same across nation, how much divergence is
acceptable? For example, Ghana operates eight hours day work, while some nations such as
Britain operate twelve hours day work. Also per day or hourly pay vary among nations of the
world. For instance is considered as one of the least pay country. Hence, it is extremely difficult
to suggest standards that should be applied. However, international business managers should
endeavour to study employment practices as they apply to those host countries of their
businesses.

ii. Human Rights

Questions of human rights can arise in international business. Some basic human rights are not
respected in some nations, especially by the developing countries. For instance, rights that we
take for granted in developing nations, such as freedom of association, freedom of speech,
freedom of assembly, freedom of movement, freedom from political repression and so on, are by

10
no means universally accepted. For example, during days of apartheid system in South-Africa,
blacks were not permitted to participate in socio- economic activities which were dominated by
the whites. But after the independence, this practice was abolished. The issue of foreign
multinational firms doing business abroad violates human rights is critical in international
business.

iii. Environmental Pollution

Ethical issues arise when environmental regulations in host nations are inferior to those in the
home nation. For instance, many developed nations have substantial regulations governing the
emission of pollution, the dumping of toxic chemicals and so on. Is there a danger that a moral
management might move production to a developing nation because costly pollution controls are
not required, and the company is therefore free to despoil the environment and perhaps endanger
local people in its quest to lower production costs and gain a competitive advantage? These
questions take on added importance because some parts of the environment are a public good
that no one owns but anyone can despoil. No one owns the atmosphere or the oceans, but
polluting both, no matter where the pollution originates, harm all. The atmosphere and oceans
can be viewed as a global commons from which everyone benefits but for which on one is
specifically responsible. In such cases, a phenomenon known as the tragedy of the commons
becomes applicable. The tragedy of the commons occurs when individuals overuse a resources
held in common by all, but owned by no one, resulting in its degradation. The phenomenon was
first named by Garrett Hardin when describing a particular problem in six-tenth century in
England.

iv. Corruption

Corruption has been a problem in almost every society in history and it continues to be one
today. There always have been and always will be corrupt government officials. International
businesses can and have gained economic advantages by making payments to these officials. For
example, Carl Kotchian, the president of Lockheed, made a $12.5 million payment to Japanese
agents and government officials to secure a large order for Lockheed’s TriStar Jet from Nippon
Air. When the payments were discovered, US officials charged Lockheed with falsification of its
records and tax violations. Although such payments were supposed to be an accepted business

11
practice in Japan, the recreations created a scandal there too. The government ministers in
question were criminally charged, one committed suicide, the government fell in disgrace and
the Japanese people were outraged. Apparently, such a payment was not an accepted way of
doing business in Japan. The payment was officials, to secure a large order that might otherwise
have gone to another manufacturer, such as ‘Boeing’. This case took place in 1970s.

Recently, Senate Committee on Sale of Government Properties in Nigeria ordered Bureau for
Public Properties (BPP) for public hearing over the sale of government properties during
Obasanjo’s administration. During the public hearing, the civil servants, and the communities
where these properties were situated alleged that they were not carry along, and the money
collected from such sales were not remitted to government accounts. It was revealed also during
the public hearing that the foreigners who claimed to have bought these properties especially
hotels, corporations, estates, etc., did not pay the actual money bided for these properties, and
they have overused such properties without remittance to the government of Nigeria. The senate
frown that this is an illegal act in Nigeria and thus the concerned victims are being prosecuted
appropriately.

Research revealed that corruption reduces the returns on business investment and leads to low
economic growth. In a country, where corruption is common, unproductive bureaucrats who
demand side payments for granting the enterprise permission to operate may siphon off the
profits from a business activity. This reduces businesses incentives to invest and may retard a
country’s economic growth rate.

There are countless examples that could be sited, nevertheless, the message here that
international investors should know each country business practice, especially where he/she wish
to do business.

v. Moral Obligation

Multinationals has power to control their resources and to move production from country to
country. Nevertheless, this power is constrained not only by laws and regulations, but also by the
discipline of the market and the competitive process. Some moral philosophers argued that
multinationals should give back something to the society where they derived profits. This is

12
refers to social responsibility. The concept of social responsibility refers to the idea that business
people should consider the social consequences of economic actions when making business
decisions and that there should be a presumption in favour of decisions that have both good
economic and social consequences. Advocates of this approach argued that business, particularly
big successful businesses, such as Shell, Mobil, Total, etc. need to recognizes their noblesse
oblige and give something back to the societies that have made their success possible. On the
contrary, there are examples of multinationals in Niger Delta of Nigeria, such Shell, Mobil, etc.
that have abused their power by neglecting social responsibilities. Most often, the areas of
operations by these companies have been polluted. But, companies such as MTN, GLO, Airtel,
etc. in Nigeria have acknowledged a moral obligation to use their powers to enhance social
welfare in the communities where do business, by building schools, building hospitals, offering
scholarships, etc.

In conclusion, as international business managers, it is pertinent to critically study the ethics of

the countries you wish to do business.

2.4 Strategies and Strategic Options of Multinational Corporations

The process of firm becoming a MNC starts with a combination of developing strategies, rational
analysis and opportunism. Some firms may follow an internationalization model which was
developed by Swedish academics from Uppsala. The model describes how a firm enters a
foreign market and gains market knowledge by means of commitment of resources and how it
gradually develops local capability and market knowledge to become an effective competitor in
foreign market through several investment cycles.

The firms may use the eclectic paradigm and transaction cost analysis approach which explains
the extent, form and pattern of international production and how it is founded on juxtaposition of
the ownership specific advantages of firms contemplating foreign production, the propensity to
internalise the cross border markets for these and the attractions of the foreign market for
production (Dunning, 1988). So the entry decision is taken in a rational manner based on the
costs of transactions.

13
The firms may also choose to enter the international market by low commitment and low control
mode such as by exporting or subcontracting. Exporting is selling goods and services from one
country to another. Exporting can be direct and indirect. Direct exporting can be done through
agents and distributors. Direct exporting helps to proactively enter the foreign market. Indirect
exporting can be done by export houses and confirming houses who are just the intermediaries.
There are many contractual forms for international business like management contracts, Turnkey
operations, manufacturing contracts, etc.

Licensing and franchising can also be an option for a firm to become a MNC. Licensing means
there is an agreement that one party can utilise or sell intellectual property in return for
compensation. The problem with licensing is that there is a risk of "leak" of knowledge and
intellectual property and after the licensing agreement is over the partner can become a powerful
competitor. Franchising which is also a form of licensing, gives certain rights to do business in a
prescribed manner to other party in return for royalties or fees. Franchising can take form of
manufacture- retailer franchise or wholesaler-retailer franchise and have similar risks that of
licensing. There has been a tremendous growth in franchising especially in US and UK.

If the firm wants to penetrate deep in the market and wants fuller involvement and control, the
firm can go for a joint venture or foreign direct investment (FDI). Joint venture which is a
collaboration of two or more parties can be contractual or equity based. It has the means to
overcome restrictions on foreign investments or imports. Firms have to share costs and/or
technology and the shared approach permits economies of scale and a potential to enter market.
Some joint ventures are formed but the true reason behind it is FDI. FDI might also face
problems of disagreements over strategic direction, managerial functions or use of appropriate
profits. Cultural difference can also be a major barrier in the joint venture.

FDI which is a very high risk strategy can be explained as the establishment or acquisition of
income generating assets in the host country over which the investing firm has control. It
involves either taking control over established business in overseas market or developing a tailor
made business operation. FDI can be broadly classified into two types, outward FDIs and inward
FDIs. This classification is based on the types of restrictions imposed, and the various
prerequisites required for these investments. The reasons for considering FDI are tariff quotas,
tax breaks, grants, subsidies, and the removal of restrictions and limitations.

14
Before opting for FDI a firm might also consider countertrade which is described as the most
important trend in international business of emerging economies. It involves an agreement
between two parties to pay in goods and services. There are many types of countertrade like
barter, clearing agreement, compensation, etc. countertrade can open up trade where there are
strict exchange controls or where the countries faces shortage of currency.

2.5 Multinational corporation’s relations and issues with government policies

Business decisions are strongly affected by developments in the political and legal environment.
This environment is composed of laws, policies, government agencies, regulations, and pressure
groups that influence and limit various organizations and individuals. Sometimes, these laws
create new opportunities for business, and as well as threats which must be critically studied
most especially for those business executives who desire to engage in international business.
To
assess a potential business environment, an international business manager should identify and
evaluate the relevant indicators of political difficulty. Potential sources of political complication
include social unrest, the attitude of nations, and the policies of the host government.
Much like
the political environment explained above, there are multiplicities of laws that international
managers must contend with. These include:

a. Varying laws of nations

b. Bribery and corruption

c. Exchange rate policies

d. Profits repatriation issues

e. Issues of employment at the subsidiaries/branches

f. Intellectual property rights, and so forth.

15
2.6 The Barriers to International business are:

Free trade refers to the elimination of barriers to international trade. The most common barriers
to trade are tariffs, quotas, and nontariff barriers.

A tariff is a tax on imports, which is collected by the federal government and which raises the
price of the good to the consumer. Also known as duties or import duties, tariffs usually aim first
to limit imports and second to raise revenue (Thakur Manab et al., 2002).

A quota is a limit on the amount of a certain type of good that may be imported into the country.
A quota can be either voluntary or legally enforced.

The effect of tariffs and quotas is the same: to limit imports and protect domestic producers from
foreign competition. A tariff raises the price of the foreign good beyond the market equilibrium
price, which decreases the demand for and, eventually, the supply of the foreign goods. A quota
limits the supply to a certain quantity, which raises the price beyond the market equilibrium level
and thus decreases demand (Thakur Manab et al., 2002).

Tariffs come in different forms, mostly depending on the motivation, or rather the stated
motivation. (The actual motivation is always to limit imports.) For instance, a tariff may be
levied in order to bring the price of the imported good up to the level of the domestically
produced good. This so-called scientific tariff - which to an economist is anything but - has the
stated goal of equalizing the price and, therefore, “leveling the playing field,” between foreign
and domestic producers. In this game, the consumer loses (Thakur Manab et al., 2002).

A peril-point tariff is levied in order to save a domestic industry that has deteriorated to the point
where its very existence is in peril. An economist would argue that the industry should be
allowed to expire. That way, factors of production used by that inefficient industry could move
into a new one where they would be better employed (Thakur Manab et al., 2002).

A retaliatory tariff is one that is levied in response to a tariff levied by a trading partner. In the
eyes of an economist, retaliatory tariffs make no sense because they just start tariff wars in which
no one - least of all the consumer - wins.

16
Nontariff barriers include quotas, regulations regarding product content or quality, and other
conditions that hinder imports. One of the most commonly used nontariff barriers are product
standards, which may aim to serve as “barriers to trade.” For instance, when the United States
prohibits the importation of unpasteurized cheese from France, is it protecting the health of the
American consumer or protecting the revenue of the American cheese producer? Other nontariff
barriers include packing and shipping regulations, harbour and airport permits, and onerous
customs procedures, all of which can have either legitimate or purely anti-import agendas, or
both (Thakur Manab et al., 2002).

REFERENCES:

• http://www.bbc.co.uk/bitesize/higher/business_management/business_enterprise/business_co
ntemporary_society/revision/13/

• https://books.google.co.uk/books?isbn=8177581740

• http://www.businessdictionary.com/definition/multinational-corporation-MNC.html

• http://www.ukessays.co.uk/essays/finance/strategies-of-multinational-
firms.php#ixzz3ckSwfqyf

• http://www.nou.edu.ng/NOUN_OCL/pdf/pdf2/ENT%20419%20International%20Business.p
df

17
• John D Daniels, Lee H Radebaugh, Daniel P Sullivan (2004) International Business, Pearson
Education

• Peng M. W. (2009) Global Business; International Student Edition; Canada; South Western
Cengage Learning

• Sharan Vyuptakesh, (2006), International Business, Concept, Environment and Strategy,

Pearson Education, Chapter 3

• Thakur Manab, Burton Gene E. & Srivastava B. N. (2002), International Management

Concepts & Cases, Tata McGraw Hills Publishing Co. Ltd., Chapter 4

18