Business and Economics

INTERNATIONAL BUSINESS MGF2351

Objectives Group Presentation (20 Minutes, QnA 10 minutes) Tutorial Program Week 5

ASSIGNMENT: 16 SEPTEMBER“Government intervention in international investment and trade

often results in protecting the interests of producers at the expense of consumer interests.”

Through the use of relevant theory and real-life examples, write an

argumentative academic essay addressing the above statement

POSSIBLE STRUCTURE

– Introduction– Developing Your Argument– Refuting Opponents’ Arguments– Conclusion

3

4

Some important points Academic Articles

Minimum 10

Use APA (Q Manual)

Read evaluation criterion on Moodle

Provide definitions.

Online submission (doc and docx)

5

Group Presentation“According to Michael Porter (1990) a nation’s competitive advantage is

dependent upon four core attributes, factor endowments, demand conditions, relating and supporting industries, and firm strategy, structure, and rivalry. In addition to these core attributes, Porter believed that ‘chance’ and ‘government’ can also detract from or

improve a nation’s competitive advantage.”

1) How do factor endowments and demand conditions influence a nation’s competitive advantage? Should firms consider these attributes in their decision to internationalise? Why?

2) How do related and supporting industries, and firm strategy, structure, and rivalry influence a nation’s competitive advantage? Should firms consider these attributes in their decision to internationalise? Why?

3) What impact does chance and government have on a nation’s competitive advantage? Should firms consider these factors in their decision to internationalise? Why?

Key Terms Free trade: NO RESTRICTIONS

Reality: Government Interventions through instruments such as TARIFFS, SUBSIDIES, IMPORT QUOTAS, ADMINISTRATIVE POLICIES etc.

Political arguments: Protecting jobs and industries, national security, protecting customers etc.

Financial arguments: Infant industry, Strategic trade policy

WTO: the global watchdog (159  members on 2 March 2013)

WHY: “Attractiveness: costs, benefits, risks”

Some examples US sanctions on trade of oil from Iran, due to Nuclear

development. In 2012, oil exports generated as much as 60% of Iran's government revenue, according to the U.S. Energy Information Administration. However, U.S. sanctions have pinched Tehran. Iran's crude-oil exports are at a 26-year low because of pressure from the sanctions, according to the EIA. It estimates Iran net oil-export revenue fell to $69 billion last year from $95 billion in 2011.

Saudization: targets labor force, limits the number of expatriates

In India Gold imports: http://in.reuters.com/article/2013/08/19/india-gold-timeline-idINDEE97I08O20130819

Russia and EU

Q1. Should Governments consider HUMAN RIGHTS when granting preferential trading rights to countries? What are the arguments against such a position?

China and MFN status:China is frequently cited as a violator of human rights.Trade with the U.S. is very important to China, as China views the U.S. as an important market. The U.S. is also an important source of certain products. Thus, the U.S. has some leverage with trade when trying to influence China’s human rights policies. For this policy to have much effect, however, other nations important to China must adopt similar policies. Otherwise China will simply choose to work with other countries, and U.S. consumers and producers may be more negatively impacted than the Chinese. Another concern with tying Most Favoured Nation (MFN) status to human rights is that denying MFN may make the human rights situation worse rather than better. By engaging in trade, the income levels in China will increase, and with greater wealth the people will be able to demand and receive better treatment. Revisiting Apple and Foxconn

Q2. Whose interests should be paramount concern for Government: Customers or producers?

The long term interests of consumers should be the primary concern of governments, based on a utilitarian approach (the most good). Unfortunately consumers, each of whom may be negatively impacted by only a few dollars, are less motivated and effective lobbyists than are a few producers who may have a great deal at stake. While in some instances it may be argued that domestic consumers will be better off if world-class domestic producers are nurtured and allowed to gain first mover advantages in international markets, it is doubtful that the government will be better than international capital markets at "picking winners", and will more likely pick the firms with the greatest political clout. Some employees may well lose jobs if there are more efficient foreign competitors. The role of government should be to help these employees get jobs where they can be efficiently employed rather than to protect them from reality in inefficient firms.

Q3. What kind of trade policy should business be pressuring the Government to adopt?

Businesses should urge governments to target technologies that may be important in the future and use subsidies to support development work aimed at commercializing those technologies.

Government should provide export subsidies until the domestic firms have established first mover advantages in the world market.

Government support may also be justified if it can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors and emerge as viable competitors in the world market. In this case, a combination of home market protection and export-promoting subsidies may be called for.

Case: The GFC and ProtectionismGroup Work

Why do you think calls for protectionism are greater during sharp eco contractions than boom periods?

Despite the sharp eco contraction during 08-09, the increase in protectionist measures was fairly modest. Why do you think this was the case?

During 2008-2009 many developed nations gave subsidies to their automobile producers. How might this have distorted international trade? Was this a reasonable thing to do given the circumstances?

What might occur if renewed economic slowdown triggered a wave of protectionist measures around the world? Would protectionism protect jobs, or would it make things worse?

The volume of world trade rebounded sharply in 2010 on the back of a fairly modest growth rate in the world economy. What does this tell you about the nature of international production in today’s global economy? What does this tell you about the vulnerability of the world economy to any future trade wars?

Q1. Why do you think calls for protectionism are greater during sharp eco contractions than boom periods?

Sharp economic contractions are linked to slowdowns in demand forcing companies to adopt new strategies.

One such strategy may be to lobby for protection from imports. Another action may be to lay off workers.

In an effort to protect their jobs, unionized workers may also lobby their governments for protection from foreign competition.

Q2. Despite the sharp eco contraction during 08-09, the increase in protectionist measures was fairly modest. Why do you think this was the case?

Thanks to the greater number of trade agreements in place today as well as WTO rules, many countries found they had limited options when they tried to respond to the recent global recession.

In the past, countries had more freedom to implement protectionist policies like tariffs designed to help domestic companies remain competitive and protect domestic jobs.

Now however, countries must be more creative with their efforts or risk violating trade agreements.

During the recent economic slump, some countries focused on bureaucratic changes that effectively limited imports while other countries provided subsidies to give domestic companies a competitive edge over global competitors.

Short term stability vs long term efficiency

Q3. During 2008-2009 many developed nations gave subsidies to their automobile producers. How might this have distorted international trade? Was this a reasonable thing to do given the circumstances?

The 2008-2009 financial crisis prompted many countries including the United States to provide subsidies to automakers.

While the assistance helped companies remain in business and protected jobs, it also created an artificial environment for them and may have prompted some companies to shift production from more efficient locations to less efficient plants in order to qualify for greater subsidies.

Are subsidies are beneficial? The subsidies helped companies preserve jobs and in doing so, introduced a level of stability during a very precarious time. However what will happen when the subsidies end and whether in fact the policies simply prolonged the hard decisions that must ultimately be made.

Q4. What might occur if renewed economic slowdown triggered a wave of protectionist measures around the world? Would protectionism protect jobs, or would it make things worse?

In mid-2011, the global economy was still unstable, and the threat of a double-dip recession was very real.

If the economy fails to fully recover, many companies will continue to face low demand and because of the protection they received in the past, may still be unprepared to deal with it and once again lobby for further protection.

Many governments are now facing their own financial challenges and may be less willing to help. Governments may focus on bureaucratic policies as a means of helping companies in the future rather than on subsidies. While protectionist measures can protect jobs in the short-run, companies must ultimately become more efficient, and countries must support industries that will be sustainable in the long-run.

Q5. The volume of world trade rebounded sharply in 2010 on the back of a fairly modest growth rate in the world economy. What does this tell you about the nature of international production in today’s global economy? What does this tell you about the vulnerability of the world economy to any future trade wars?

Today’s economy is truly global in nature.

A modest increase in demand can result in a substantial increase in the volume of world trade thanks to the global nature of production where parts for products may come from a number of countries and assembly may take place anywhere in the world.

Because global production is now the norm in so many industries, the world economy is far more vulnerable to future trade wars than it was in the past.

Any Questions? See you next week.