International business: a course on the essentials

463 Pages·2014·5.437 MB·English

by  Riad A. Ajami, G. Jason Goddard

International
Business
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International
Business
A Course on the Essentials
T H I R D E D ITI O N
RIAD A. AJAMI G. JASON GODDARD
AND
This book is dedicated to Ali R. Charles Ajami, Alya Ajami,
and Leila Goddard, and to our students.
First published 2014 by M.E. Sharpe
Published 2015 by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY 10017, USA
Routledge is an imprint of the Taylor & Francis Group, an informa business
Copyright © 2014 Taylor & Francis. All rights reserved.
No part of this book may be reprinted or reproduced or utilised in any form or by
any electronic, mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information storage or retrieval
system, without permission in writing from the publisher s.
Notice s
No responsibility is assumed by the publisher for any injury and/or damage to
persons or property as a matter of products liability, negligence or otherwi se,
or from any use of operation of any methods, products, instructions or ide as
contained in the material herei n.
Practitioners and researchers must always rely on their own experience a nd
knowledge in evaluating and using any information, methods, compounds, or
experiments described herein. In using such information or methods they shou ld
be mindful of their own safety and the safety of others, including parties for
whom they have a professional responsibilit y.
Product or corporate names may be trademarks or registered trademarks, a nd
are used only for identification and explanation without intent to infrin ge.
Library of Congress Cataloging-in-Publication Data
Ajami, Riad A.
International business : a course on the essentials / by Riad A. Ajami, G. Jason Goddard.—
Third edition.
pages cm.
Revised edition of: International business : theory and practice / Riad A. Ajami . . . [et al.],
2nd edition, published in 2006.
Includes bibliographical references and index.
ISBN 978-0-7656-3134-3 (pbk. : alk. paper)
1. International trade. I. Title.
HF1379.K43 2013
658’.049—dc23 2013009454
ISBN 13: 9780765631343 (pbk)
Detailed Contents
Preface xvii
Prologue: Ode to the Yes Era xxi
Maps xxv
1. An Introduction to International Business and
Multinational Corporations 3
Current Scope and Historical Antecedents 4
What Is International Business? 4
Brief History of International Business 7
The Multinational Corporation 8
Definition of a Multinational Corporation 8
Multinational Corporations Come of Age 9
A Look at Present-Day Multinationals 11
Operating Advantages and Disadvantages of Multinationals 15
Recent Trends in World Trade 21
Expanding Volume 21
Increased Competition 24
Increasing Complexity 24
Trade in Services 25
The Field of International Business Studies 25
Discussion Questions 26
Bibliography 27
Globalization at the Crossroads: Germany’s Mittelstand
and Competitive Advantage 27
Case Study 1.1: Transworld Minerals Inc. 28
2. The Nature of International Business 31
Domestic Versus International Business 31
Methods of Going International 33
Exporting 33
v
vi Detailed Contents
Licensing 34
Franchising 35
Management Contracts 36
Contract Manufacturing 36
Direct Investment 37
Strategic Alliances 37
Wholly Owned Subsidiaries 38
Globalized Operations 39
Portfolio Investments 39
Recent Trade Patterns and Changes in Global Trade 41
Product Groups 44
Patterns of Direct Investment 45
Government Involvement in Trade Restrictions and Incentives 46
Protectionism 47
Tariffs 48
World Trade Organization 49
Regional Trade Groups 50
Cartels 50
Nontariff Barriers to Merchandise Trade 51
Quotas 52
Nontariff Price Barriers 52
Government Restriction of Exports 53
Summary 53
Discussion Questions 54
Bibliography 55
Globalization at the Crossroads: Is Securitization the Enemy? 56
Case Study 2.1: Electronics International Ltd. 57
3. Theories of Trade and Economic Development 60
Introduction to International Trade Theories 60
Mercantilism 61
Classical Theory 62
Comparative Advantage 63
Weaknesses of Early Theories 64
More Recent Theories 64
Factor Endowment Theory 64
The Leontief Paradox 65
Criticisms 66
Modern Theories 66
International Product Life Cycle Theory 66
Other Modern Investment Theories 67
Detailed Contents vii
Theories of Economic Development 68
Rostow’s Stages of Economic Growth 69
The Big Push: Balanced Versus Unbalanced Growth 71
Hirschman’s Strategy of Unbalance 71
Galbraith’s Equilibrium of Poverty 72
Sen’s Development as Freedom 73
The Global Continuum: Where Nations Fall Today 74
The Political Continuum 74
The Economic Continuum 75
Integrating Both Continua 77
Patterns of World Development 77
Background: The Role of GNI 77
The Developed Countries 79
Upper-Middle-Income Countries 80
Low-Income and Lower-Middle-Income Countries 81
The Subterranean Economies 82
Parallel Tracks: The Continued Diversity of the World Economy 82
Summary 84
Discussion Questions 85
Bibliography 86
Globalization at the Crossroads: The Fortune at the Bottom of the Pyramid 87
Case Study 3.1: Euromanagé Inc. 88
4. International Monetary System and the Balance of Payments 92
International Monetary Terminology 93
Hard Currencies 93
Soft Currencies 94
Convertibility 94
Exchange Rate 94
Appreciation 95
Depreciation 95
A Brief History of the International Monetary System 95
The Gold Standard (1880–1914) 95
The Gold Specie Standard 96
The Gold Bullion Standard 96
The Interwar Years (1918–1939) 97
The Bretton Woods System (1944–1973) 98
The International Monetary Fund 99
Aims 99
Membership 100
Structure 100
viii Detailed Contents
Forms of IMF Assistance 101
Extended Fund Facility 101
Structural Adjustment Facilities 101
IMF Conditionality 102
Special Drawing Rights 103
Using Special Drawing Rights 103
Valuation of SDRs 104
Difficulties in the Bretton Woods System 105
The Floating-Rate Era: 1973 to the Present 107
Pure Floating Rates 107
Managed, or Dirty, Floating Rates 107
Pegging 107
Crawling Pegs 108
Basket of Currencies 108
Fixed Rates 108
European Monetary System 108
Difficulties in the Floating-Rate Era 109
Fluctuations in the US Dollar: The Plaza and Louvre Accords 110
European Monetary Union 111
Maastricht Treaty 112
Denmark’s Challenge to Monetary Union 113
Asian Financial Crisis 113
EU Sovereign Debt Crisis 115
Issues for Reform 116
International Exchange-Rate Stability 116
Target Zones 117
International Liquidity 117
A More Equitable International Monetary System 118
Summary 119
Discussion Questions 120
Bibliography 121
Appendix 4.1: Balance of Payments 121
Preliminary Definitions 122
Problems in Balance of Payments 126
Appendix 4.1 Discussion Questions 129
Appendix 4.1 Bibliography 130
Case Study 4.1: Global Bank Corporation 130
Case Study 4.2: Scrinton Technologies 132
5. Foreign Exchange Markets 136
Background 136
Detailed Contents ix
The Structure of the Foreign Exchange Markets 137
Market Participants 139
Individuals 139
Institutions 139
Banks 140
Central Banks and Other Official Participants 140
Speculators and Arbitragers 141
Foreign Exchange Brokers 141
Location of Foreign Exchange Markets 142
Japan 142
Singapore and Hong Kong 142
Bahrain 143
European Markets 143
US Markets 143
Market Volumes 144
Uses of the Foreign Exchange Market 144
Types of Foreign Exchange Markets 145
The Spot Market 145
The Forward Market 146
Foreign Exchange Rates 147
Bid and Offer Rates 148
Cross Rates 148
Premiums and Discounts 149
Devaluation and Revaluation of Exchange Rates 153
Triangular Arbitrage 155
Covered Interest Arbitrage 157
Currency Futures Markets 158
Differences Between Futures and Forward Markets 159
Foreign Currency Options 159
Option Terminology 160
Forecasting Foreign Exchange Rates 160
Problems in Forecasting Foreign Exchange Rates 161
Fundamental Forecasting 161
Technical Forecasting 162
Assessing Market Sentiments 162
Forecasting Strategy 162
Types of Exposure in Foreign Exchange Markets 163
Transaction Exposure 163
Economic Exposure 165
Translation Exposure 165
Consolidation Problems 168