MG303 notes - International Business Strategy and Emerging Markets
Theories and tools
Analytical frameworks
OLI eclectic paradigm - Dunning (1981; 1988)
Liability of foreignness (LOF) – Zaheer (1995)
Resource based view (RBV) – Barney (1991)
Internalisation theory - transaction costs approach –
Rugman (2010)
Location theory- CAGE – Ghemawat (2018)
Institutional theory – Khanna and Palepu (2010)
Entry Mode – Brouthers (2000) and Meyer (2001)
Strategic Approaches
international competiveness – Porter’s diamond (1990)
Global integration-local responsiveness - Bartlett-
Ghoshal (1986)
Semi-globalization and the three A’s - Ghemawat (2018)
Lecture One – The Context of Globalization
What challenges do you think companies face in their international trade and investment activities?
Companies face challenges in international trade and investment such as navigating complex legal
and regulatory systems (complex and costly), managing political and economic risks (volatile), and
addressing cultural and language barriers (diff negotiation styles leading to conflict/inefficiency).
They must also contend with logistical difficulties, competitive pressures, and compliance with
ethical and environmental standards. Adapting to local markets, securing financing, and mitigating
supply chain disruptions are further hurdles. Overcoming these requires strategic planning, local
expertise, and adaptability.
Understanding the relevance of international trade and investment rules - home country policy and
host country policy
Trends in trade, investment and GVCs
The Globalisation Story (deeper integration between countries)
What is going on?
Trade in goods and services, FDI and GVC growth had been increasing steadily from 1980s
Pace economic integration had slowed but remains resilient despite Covid pandemic and
geopolitical conflicts
US-China ties continue to diminish but represent small part of world’s international flows
Despite shocks such as COVID, growth is positive (but slowing)
The trade in Goods has grown dramatically from 1950-2022 due to tariff reductions, increase in
technology, demand from emerging markets such as China
Liberalisation through tariff reduction under GATT:
Growth in goods trade continues despite Covid-19 pandemic (20% fall but rebounded back –
WTO) and geopolitical conflicts
Services growth, also dramatic since the 1990s - Services exports impacted by pandemic but
rebounded strongly led by digitally delivered services – strong component of economies and
fastest growing trade component
, The story on FDI (controlling investment – requires 10%) flows since the late 1990s has been
similar – more volatile but still an upward trend, dramatic COVID impact (uncertainty stifles
investment, China remained closed until 2023)
Global GVC (global value chains – every concept from concept to delivery ) participation was also
trending upwards since 1990s though has begun to slow in recent years - Coronavirus and Geo-
Political conflict exacerbated the slowing trend (rise in shipping costs), when tariffs high FDI and
trade seen as substitutes and vice versa, countries as competitive advantages – Vietnam as tech
manufacturing, Pakistan as mangoes exporter
However global trends are shifting the nature of GVCs
Widening gap in investment trends between the manufacturing and
services sectors-Increasing weight of services - Growing ends of the
smile curve
Geopolitical challenges causing risk and uncertainty and driving
investment decisions – friendshoring – shifting from China to
Vietnam, India, Brazil
Sustainability imperative and the drive to stimulate investment in the
UN SDGs are opening up new opportunities for investment-driven
industrial development, particularly in environmental technologies.
Pattern of trade and investment flows
Pattern: 2020- rise in South-South and decrease in North-North
FDI: US, China, Singapore – top 3 host economies for FDI but a rise into emerging markets
Why have emerging markets been receiving greater FDI? High growth rate – large market, high
demand, establish presence in untapped markets, declining poverty, mortality and literacy
We have also seen a rise in emerging market MNEs
However, trade between US and China has been falling… and even starker when we consider inward
FDI
Understanding the causes for the erosion of globalization beyond Covid
While trade increases over last 3 decades have reduced poverty rates…we see increasing
backlash towards globalization
Why have we been seeing the erosion of globalization? Rise in
nationalism/populism/protectionism (Trump and Brexit), national agency/reducing reliance on
foreign supply chains, recognition of environmental concerns
Protectionism in trade has been on the rise
What underpins rise in protectionism and slowdown trade?
General scepticism of the benefits of globalization
◼ Trade creates ‘winners’ and ‘losers’
◼ Governments have not effectively addressed the concerns of those most effected by globalisation
– particularly in manufacturing sector
Impact for MNEs of increased protectionism on the global firm
Increase in the cost/ risk of GVC participation
◼ Repatriation or disruption of regional supply chains
◼ Need for de-risking strategy – friendshoring, nearshoring, onshoring
Creates barriers to market access
◼ Buy local policies (Make America Great)
◼ Vaccine protectionism
◼ Sanctions and political pressure – Russia-Ukraine conflict
◼ Decoupling between China and US markets
,Leads to labour shortfalls
◼ Brexit and access to lower skilled labour – 330,000 labour shortfall in UK in 2023
Results in a fall in investment
◼ Investment flows between China and US at lowest levels in decade
◼ Companies retreat from Russia in wake Russia-Ukraine conflict
How does protectionism manifest?
What is a barrier to trade?
But as tariff Barriers have come down under successive negotiations, new age of the tariff as
policy instrument again
Tariffs aimed at curbing imports and protecting domestic industries are still being used (100%
tariff on Chinese electric vehicles in US and Canada)
Non-tariff barriers or measures are on the increase e.g. red tape,
ESG standards, IP protection (lack of or overly stringent),
discriminatory taxation
Sanctions have led over 1000 companies to curtailed operations
in Russia (Yale school of mgmt., 2022)
MNE options in Russia due to sanctions and political pressure
National Security restrictions on FDI in strategic industries
Export controls (banning US companies from exporting to
China) - US restrictions against Chinese firms spurs innovation
(Huawei relaunched and created its own chip designs)…and leads to reciprocal export curbs on
semiconductor materials
o Chinese export controls on crucial semiconductor materials (Germanium, Gallium) is
response to US restrictions on sale of advanced chips and chipmaking equipment to
China - Led to twofold increase in prices
o China controls 98% world Gallium and 60% world Germanium
Chinese Industrial policy to boost domestic firms & industries – made in China 2025, belt and road
initiative, dual circulation strategy (slide 52, lect 1)
US and EU industrial policy response:
2022 CHIPS Act
Incentives for semiconductor industry to
reverse decline in US share of chip manufacturing
$7,500 tax credit for Evs –½ if vehicle battery components manufactured or assembled in US, ½
based on origin of battery minerals. Vehicle assembly must be in US.
2022 Inflation Reduction Act
Earmarked $400bn to boost clean energy and reduce dependence on China in important supply
chains, such as for batteries for electric vehicles
EU 2023 Green Deal Industrial Plan
Support transition to climate neutrality – relaxing state aid and tax incentives with aim that 40% of
bloc’s clean tech will be made in Europe by 2030
US Policies attract FDI commitments from Taiwan and South Korea
However unclear whether FDI commitments will materialise
Why do governments use non-tariff barriers to trade and investment?
❑ As an alternative to tariff barriers which have reduced under GATT/WTO trade rules over last 60
years
❑ To increase national welfare by correcting market failures, exploiting market power or promoting
equality
, ❑ To pursue political economy goals usually in response to interest group pressure, particularly
producers. These are motivated by public policy and competitiveness concerns
How governments deal with barriers to trade?
Addressing barriers to trade
Join regional and international trade bodies
Sign bilateral trade and investment agreements
Liberalize their own markets and ‘show of faith’
Pursue regulatory and policy harmonization through international standards organizations
Seek mutual recognition agreements
Encourage multinationals to pursue FDI through trade promotion programmes
Enthusiasm for completing trade treaties is falling
The WTO at risk….
➢Failure of major negotiating rounds since 1995
➢ Last multilateral deal under Uruguay Round in 1995
➢ Doha round launched in 2001 has failed to reach agreement
➢General discord with international trade rules
➢Continuing opposition from the US
➢ Failure to support the appointment of panel judges
➢ Threat to withdraw US from the WTO arising again with Trump re-election
➢No functioning appellate body
There has been growth in Regional and Preferential Trade Agreements
The Spaghetti Bowl of preferential trade agreements
The complexity of a country’s international trade commitments
Domestic Trade Policy and the impact on the MNE
US domestic trade and investment policy
Conflicts
Solar panel imports injure US industry
Steel and aluminium as national security threats
WTO Permissible Domestic Trade Remedies
Trade remedies used between 2011-2020
Anti-dumping measures Counteracting unfairly low prices
Countervailing measures Counteracting unauthorized subsidies
Safeguard measures Temporary relief from import surges
Theories and tools
Analytical frameworks
OLI eclectic paradigm - Dunning (1981; 1988)
Liability of foreignness (LOF) – Zaheer (1995)
Resource based view (RBV) – Barney (1991)
Internalisation theory - transaction costs approach –
Rugman (2010)
Location theory- CAGE – Ghemawat (2018)
Institutional theory – Khanna and Palepu (2010)
Entry Mode – Brouthers (2000) and Meyer (2001)
Strategic Approaches
international competiveness – Porter’s diamond (1990)
Global integration-local responsiveness - Bartlett-
Ghoshal (1986)
Semi-globalization and the three A’s - Ghemawat (2018)
Lecture One – The Context of Globalization
What challenges do you think companies face in their international trade and investment activities?
Companies face challenges in international trade and investment such as navigating complex legal
and regulatory systems (complex and costly), managing political and economic risks (volatile), and
addressing cultural and language barriers (diff negotiation styles leading to conflict/inefficiency).
They must also contend with logistical difficulties, competitive pressures, and compliance with
ethical and environmental standards. Adapting to local markets, securing financing, and mitigating
supply chain disruptions are further hurdles. Overcoming these requires strategic planning, local
expertise, and adaptability.
Understanding the relevance of international trade and investment rules - home country policy and
host country policy
Trends in trade, investment and GVCs
The Globalisation Story (deeper integration between countries)
What is going on?
Trade in goods and services, FDI and GVC growth had been increasing steadily from 1980s
Pace economic integration had slowed but remains resilient despite Covid pandemic and
geopolitical conflicts
US-China ties continue to diminish but represent small part of world’s international flows
Despite shocks such as COVID, growth is positive (but slowing)
The trade in Goods has grown dramatically from 1950-2022 due to tariff reductions, increase in
technology, demand from emerging markets such as China
Liberalisation through tariff reduction under GATT:
Growth in goods trade continues despite Covid-19 pandemic (20% fall but rebounded back –
WTO) and geopolitical conflicts
Services growth, also dramatic since the 1990s - Services exports impacted by pandemic but
rebounded strongly led by digitally delivered services – strong component of economies and
fastest growing trade component
, The story on FDI (controlling investment – requires 10%) flows since the late 1990s has been
similar – more volatile but still an upward trend, dramatic COVID impact (uncertainty stifles
investment, China remained closed until 2023)
Global GVC (global value chains – every concept from concept to delivery ) participation was also
trending upwards since 1990s though has begun to slow in recent years - Coronavirus and Geo-
Political conflict exacerbated the slowing trend (rise in shipping costs), when tariffs high FDI and
trade seen as substitutes and vice versa, countries as competitive advantages – Vietnam as tech
manufacturing, Pakistan as mangoes exporter
However global trends are shifting the nature of GVCs
Widening gap in investment trends between the manufacturing and
services sectors-Increasing weight of services - Growing ends of the
smile curve
Geopolitical challenges causing risk and uncertainty and driving
investment decisions – friendshoring – shifting from China to
Vietnam, India, Brazil
Sustainability imperative and the drive to stimulate investment in the
UN SDGs are opening up new opportunities for investment-driven
industrial development, particularly in environmental technologies.
Pattern of trade and investment flows
Pattern: 2020- rise in South-South and decrease in North-North
FDI: US, China, Singapore – top 3 host economies for FDI but a rise into emerging markets
Why have emerging markets been receiving greater FDI? High growth rate – large market, high
demand, establish presence in untapped markets, declining poverty, mortality and literacy
We have also seen a rise in emerging market MNEs
However, trade between US and China has been falling… and even starker when we consider inward
FDI
Understanding the causes for the erosion of globalization beyond Covid
While trade increases over last 3 decades have reduced poverty rates…we see increasing
backlash towards globalization
Why have we been seeing the erosion of globalization? Rise in
nationalism/populism/protectionism (Trump and Brexit), national agency/reducing reliance on
foreign supply chains, recognition of environmental concerns
Protectionism in trade has been on the rise
What underpins rise in protectionism and slowdown trade?
General scepticism of the benefits of globalization
◼ Trade creates ‘winners’ and ‘losers’
◼ Governments have not effectively addressed the concerns of those most effected by globalisation
– particularly in manufacturing sector
Impact for MNEs of increased protectionism on the global firm
Increase in the cost/ risk of GVC participation
◼ Repatriation or disruption of regional supply chains
◼ Need for de-risking strategy – friendshoring, nearshoring, onshoring
Creates barriers to market access
◼ Buy local policies (Make America Great)
◼ Vaccine protectionism
◼ Sanctions and political pressure – Russia-Ukraine conflict
◼ Decoupling between China and US markets
,Leads to labour shortfalls
◼ Brexit and access to lower skilled labour – 330,000 labour shortfall in UK in 2023
Results in a fall in investment
◼ Investment flows between China and US at lowest levels in decade
◼ Companies retreat from Russia in wake Russia-Ukraine conflict
How does protectionism manifest?
What is a barrier to trade?
But as tariff Barriers have come down under successive negotiations, new age of the tariff as
policy instrument again
Tariffs aimed at curbing imports and protecting domestic industries are still being used (100%
tariff on Chinese electric vehicles in US and Canada)
Non-tariff barriers or measures are on the increase e.g. red tape,
ESG standards, IP protection (lack of or overly stringent),
discriminatory taxation
Sanctions have led over 1000 companies to curtailed operations
in Russia (Yale school of mgmt., 2022)
MNE options in Russia due to sanctions and political pressure
National Security restrictions on FDI in strategic industries
Export controls (banning US companies from exporting to
China) - US restrictions against Chinese firms spurs innovation
(Huawei relaunched and created its own chip designs)…and leads to reciprocal export curbs on
semiconductor materials
o Chinese export controls on crucial semiconductor materials (Germanium, Gallium) is
response to US restrictions on sale of advanced chips and chipmaking equipment to
China - Led to twofold increase in prices
o China controls 98% world Gallium and 60% world Germanium
Chinese Industrial policy to boost domestic firms & industries – made in China 2025, belt and road
initiative, dual circulation strategy (slide 52, lect 1)
US and EU industrial policy response:
2022 CHIPS Act
Incentives for semiconductor industry to
reverse decline in US share of chip manufacturing
$7,500 tax credit for Evs –½ if vehicle battery components manufactured or assembled in US, ½
based on origin of battery minerals. Vehicle assembly must be in US.
2022 Inflation Reduction Act
Earmarked $400bn to boost clean energy and reduce dependence on China in important supply
chains, such as for batteries for electric vehicles
EU 2023 Green Deal Industrial Plan
Support transition to climate neutrality – relaxing state aid and tax incentives with aim that 40% of
bloc’s clean tech will be made in Europe by 2030
US Policies attract FDI commitments from Taiwan and South Korea
However unclear whether FDI commitments will materialise
Why do governments use non-tariff barriers to trade and investment?
❑ As an alternative to tariff barriers which have reduced under GATT/WTO trade rules over last 60
years
❑ To increase national welfare by correcting market failures, exploiting market power or promoting
equality
, ❑ To pursue political economy goals usually in response to interest group pressure, particularly
producers. These are motivated by public policy and competitiveness concerns
How governments deal with barriers to trade?
Addressing barriers to trade
Join regional and international trade bodies
Sign bilateral trade and investment agreements
Liberalize their own markets and ‘show of faith’
Pursue regulatory and policy harmonization through international standards organizations
Seek mutual recognition agreements
Encourage multinationals to pursue FDI through trade promotion programmes
Enthusiasm for completing trade treaties is falling
The WTO at risk….
➢Failure of major negotiating rounds since 1995
➢ Last multilateral deal under Uruguay Round in 1995
➢ Doha round launched in 2001 has failed to reach agreement
➢General discord with international trade rules
➢Continuing opposition from the US
➢ Failure to support the appointment of panel judges
➢ Threat to withdraw US from the WTO arising again with Trump re-election
➢No functioning appellate body
There has been growth in Regional and Preferential Trade Agreements
The Spaghetti Bowl of preferential trade agreements
The complexity of a country’s international trade commitments
Domestic Trade Policy and the impact on the MNE
US domestic trade and investment policy
Conflicts
Solar panel imports injure US industry
Steel and aluminium as national security threats
WTO Permissible Domestic Trade Remedies
Trade remedies used between 2011-2020
Anti-dumping measures Counteracting unfairly low prices
Countervailing measures Counteracting unauthorized subsidies
Safeguard measures Temporary relief from import surges
