ASSIGNMENT

MAY 2019 SEMESTER

SUBJECT CODE : MIB603

SUBJECT TITLE : INTERNATIONAL BUSINESS

LEVEL : MASTER IN MANAGEMENT

STUDENT’S NAME :

MATRIC NO. :

PROGRAMME :

ACADEMIC FACILITATOR :

LEARNING CENTRE :

INSTRUCTIONS TO STUDENTS

1) This assignment consists of TWO (2) parts. Answer ALL questions.

2) This assignment carries a 100% weightage towards your final grade. There shall be NO
examination for this paper.
3) Your assignment will be examined based on the followings:
 a complete working solution
 ability of using methods available in the learning materials
4) Plagiarism in all forms is forbidden. Students who submit plagiarised assignment will be
penalised.
5) The submission date of this assignment is BEFORE OR ON 12 AUGUST 2019.
Submission must be via MyPLS attached with Turnitin similarity report.

THERE ARE TWO (2) PAGES OF QUESTIONS, EXCLUDING THIS PAGE.

DECLARATION BY STUDENT

I certify that this assignment is my own work and is in my own words. All sources have been acknowledged
and the content has not been previously submitted for assessment to Asia e University or elsewhere. I also
confirm that I have kept a copy of this assignment.

Signed: _____________________________
INSTRUCTION:

Answer all questions. For each assignment question, you are required to write NOT more
than 5 pages.

PART A:

QUESTION 1
Global production strategy, outsourcing and logistics can provide an edge in international business
Competitiveness. Please elaborate.
(20 marks)

MIB603 International Business_0519

QUESTION 2
Briefly describe Porter’s theory of ‘Competitive Advantage’ in international trade. Give real time
examples of countries which have shown competitive advantage in specific fields.
ANS
Competitive advantages are conditions that allow a company or country to produce a good or
service of equal value at a lower price or in a more desirable fashion. These conditions allow the
productive entity to generate more sales or superior margins compared to its market rivals.
Competitive advantages are attributed to a variety of factors including cost structure, branding,
the quality of product offerings, the distribution network, intellectual property, and customer
service.
The economic theories of trade, Porter (1990a) advanced a new theory to explain national
competitive advantage. The main question he attempts to answer is why some countries are more
successful in particular industries than others. He identifies four classes of country attributes
(which he calls the National Diamond) that provide the underlying conditions or platform for the
determination the national competitive advantage of a nation. These are factor conditions,
demand conditions, related and support industries, and company strategy, structure and rivalry.
He also proposes two other factors, namely government policy and chance (exogenous shocks),
that support and complement the system of national competitiveness but do not create lasting
competitive advantages.
Factor conditions: Whereas the traditional trade theories define factor conditions as land, labour
and capital (including human capital), Porter (1990a) distinguishes between the following
categories: human resources, physical resources, knowledge resources, capital resources and
infrastructure. Factor conditions are further subdivided into basic and advanced factors that can
be either general or specialised. Basic factors such as unskilled labour, raw materials, climatic
conditions and water resources are inherited and require little or no new investment to be utilised
in the production process. Advanced factors are created and upgraded through reinvestment and
innovation to specialised factors, which according to Porter form the basis for the sustainable
competitive advantage of a country.
Demand conditions: Demand conditions in a country are also perceived by Porter (1990a) as a
source of competitive advantage for a country. Demand as a factor explaining trade is not new.
Linder (1961) first introduced it to explain intra-industry trade. According to the Linder
hypothesis, countries with similar per capita incomes will have similar spending patterns. In
terms of the Linder hypothesis, these comparable demand conditions in countries lead to
analogous demand structures, which enhance intraindustry trade. Porter, however, focuses more
on demand differences than on similarities to explain the international competitiveness of
countries. According to him, it is not only the size of the home demand that matters, but also the
MIB603 International Business_0519
sophistication of home country buyers. It is the composition of home demand that shapes how
firms perceive, interpret and respond to buyers’ needs. This forces home country firms to
continually innovate and upgrade their competitive positions to meet the high standards in terms
of product quality, features and service demands. More specifically, Porter (1990a, 1998a)
regards the essential conditions of demand as: a home demand that anticipates and leads
international demand, industry segments with a significant share of home demand, and
sophisticated and demanding buyers. However, different demand conditions in countries, leading
to different demand structures, can determine location economies of increasing returns, as
explained by the new trade theories. Location economies of increasing returns that keep an
industry in a specific location, due to a specific set of demand conditions, will be difficult to be
competed away by industries in another country (Krugman & Obstfeld 2003). In such cases,
comparative advantage is determined by demand conditions rather than differences in factor
conditions
Firm strategy, structure and rivalry: A third determinant of national competitive advantage,
according to Porter (1990a), is firm strategy, structure and rivalry. The main emphasis here is that
the strategies and structures of firms depend heavily on the national environment and that there
are systematic differences in the business sectors in different countries that determine the way in
which firms compete in each country and ultimately their competitive advantage. Porter (1990a)
identifies rivalry as the most critical driver of competitive advantage of a country’s firms. He
believes that domestic rivalry forces firms to be cost competitive, to improve quality and to be
innovative. According to Porter (1990a), it is firms that ultimately compete internationally, but it
is the international competitiveness of a country that shapes the international competitive
advantage of firms. It is this assumption that a country’s competitiveness ultimately determines a
firm’s international competitive advantage that led to the belief that countries, like firms, compete
internationally and thus that the international trade engagement of countries is a negative sum
game, as it is in the case of firms. This is in sharp contrast to the general understanding in trade
theory that trade is a positive sum game irrespective of the nature of the sources from which such
gains from trade are derived.
Related and support industries: Much of the debate around location as a source of competitive
advantage has to do with the way in which the modern global economy is viewed. On the one
hand, scholars see it as homogenisation of economies (Levitt 1983), and on the other hand as
specialisation of economies as explained by the standard economic theory. In the former case, it
is believed that almost anything could be moved or sourced around the globe. In the latter case, it
is believed to result in an intense specialisation and clustering of competitive advantages in
different locations as the world becomes increasingly integrated. Porter (1997a, 1998b, 1998c,

MIB603 International Business_0519

2000) claims that specialisation leads to the sticky (not easily moveable) location advantages that
are the true sources of sustainable competitive advantage of countries.

For example, Japan has developed a competitive global economic presence beyond the country's
inherent resources, in part by producing a very high number of engineers that have helped drive
technological innovation by Japanese industries. (Investopedia)

PART B:

QUESTION 1
“In an era of globalization, firms build cross-border alliances or international strategic alliances
(ISAs) to achieve certain strategic objectives, such as knowledge creation, with the help of
overseas partners. Working with partners complicates the operation of such alliances, however,
particularly when the partner firms come from countries with very different cultures, institutions,
and levels of economic development.
Do you agree with this statement? If yes, what would you propose to make international
strategic alliances more effective/successful?

(20 marks)

MIB603 International Business_0519

QUESTION 2

There are various types of Entry Modes for international business (i.e. Exporting, Franchising,
Joint ventures, Wholly Owned Subsidiaries, etc.) Discuss the advantages and disadvantages of (a)
Exporting, and (b) Joint Ventures
The following are the advantages and disadvantage of exporting
Advantages of Exporting:
• Increased sales volume resulting in improved market share as well the generation of profit
margins that are often more favorable than the domestic market,
• Increased economies of scale through the reduction of unit cost of manufacturing as the sales
volumes rise
• Minimized risk and maximized flexibility compared to other entry strategies as the firm can
easily and quickly withdraw from an export market.
• Lower cost of foreign market entry as the firm does not have to invest in the target market or
maintain physical presence especially through the use of agencies or franchises. The firm can
therefore test the new market before committing greater resources through foreign direct
investment.
• It helps stabilize fluctuations in sales associated with economic cycles or seasonality of
demand e.g. a firm can offset declining demand at home.
Disadvantages of Exporting:
• Because exporting does not require the presence of the firm in the country it is exporting its
goods or services, the firm usually does not meet with its customers as a result it does not get
to learn about the interests of its clients, the competitors and the market.
• It does not allow the firm to benefit from the location advantages of the host national.
• The exporting firm has limited opportunities to gain knowledge of local markets and
competitors as it does not dwell in the target market’s countries, hence posing a business risk.
• There is serious exchange risks involved as the firm deals in foreign currency due to
fluctuations in exchange rates. Without proper hedging, the organization may encounter

MIB603 International Business_0519

 significant exchange losses depending on the economic situation of the target foreign market
and apart from losses, exchange rates may cause the exporters goods being expensive in the
target market and therefore lose market share in the host national.
• The exporting organization is exposed to trade barriers such as import duties/tariffs
depending on the area of the host national whom it trades with. The existence of certain
regional groupings may affect the exporting firm positively or negatively especially if the
firm is from outside the region.
• Exporting usually involves transporting goods for production companies involved in goods
marketing and distribution. This may be a constraint in the smooth distribution and realization
of business objectives of economic growth and profit generation. This may also depend on the
location of the target market and the socio-economic situation in the host nations as well as
infrastructural development.
• The fact that the exporting firm does not well in the host country may result in limitations on
the ability to respond quickly to customer demands as there may be no one from the firm on
the ground to respond on time.
• exporting is the high transportation costs that can make exporting uneconomical especially if
the organization is exporting huge or bulk products. Essays, UK. (November 2018).

The following are some advantage and disadvantage of joint venture

Advantages of a Joint Venture

1 – New insights and expertise: Starting a joint venture provides the opportunity to gain new
insights and expertise. Think about it; the market is now way easier for you to understand given
the short-term partnership that you have forged.

2 – Better resources: Forming a joint venture will give you access to better resources, such as
specialized staff and technology. All the equipment and capital that you needed for your project
can now be used.

3 – Both parties share the risks and costs: In case the joint-group project fails, you are not alone
when bearing the costs of its failure. Because you two had volunteered to share the expenses, you
both will also support the losses. You are not alone! When forming a joint venture you will share
the costs and responsibilities.

MIB603 International Business_0519

4– You will know what’s yours and will be able to sell it: Gradually, firms can separate their
business from the rest of the organization, and then later, sell it to the other parent company.
Approximately 80% of all joint ventures end in a sale, from one partner to the other.

5– Your potential will virtually be limitless: Despite having little to no money at your disposal,
you can create more venture deals in the process. You will create momentum and have partners
with you. Take advantage of it!

6 – You get to save money by sharing advertising and marketing costs: And that works for a lot
of other types of costs. Starting a joint venture is a great way to save money and/or split costs.

7- International joint venture eradicates the risk of discrimination: International joint ventures are
very common nowadays. This is a great opportunity to cooperate with people from different
countries and combine our strengths!

Disadvantages of a Joint Venture

1 – Vague objectives: The objectives of a joint venture are not 100 percent clear and rarely
communicated clearly to all people involved.

3 – There is no such thing as an equal involvement: An equal pay may be possible, but it is
extremely unlikely for all the companies working together to share the same involvement and
responsibilities.

For example, Company A is working on the production process, whereas Company B is

responsible for the production, and Company C is in charge of planning and implementing
market strategies. Since Company A is not directly involved in the production and promotion
process, the pressure is on the latter companies. It will also affect individual businesses.

4 – Great imbalance: Because different companies are working together, there is a great
imbalance of expertise, assets, and investment. This can have a negative impact on the
effectiveness of the joint venture.

5- Limited outside opportunities: You need to understand what you are getting into as a joint
venture could restrict the activities of your whole business.

It is very common for joint venture contracts to restrict outside activities of participant companies
while working on a venture project. You need to make sure you understand what you are getting
into if you don’t want to negatively impact your entire business.

MIB603 International Business_0519

6 – It may be hard for you to exit the partnership as there is a contract involved: Once again, even
though a joint venture is temporary, it is crucial that you know what you are getting into if you
don’t want to be locked in a partnership.

7 – You might be tempted to leave the joint venture: You will get enough leadership and support
in the early stages of a joint venture and might be tempted to leave.

8 – Lack of clear communication: As a joint venture involves different companies from different
horizons with different goals, there is often a severe lack of communication between partners.

9 – Unclear and unrealistic objectives: Unrealistic and unclear objectives may be set up. To avoid
this, it is necessary that you and your partners do a lot of research before starting your joint
venture. (advantages-and-disadvantages-of-a-joint-venture/business town)

QUESTION 3

Write short notes on-

 Letter of Credit – need and usefulness

 WTO : World Trade Organization – its role

 IMF – International Monetary Fund – its function

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  NAFTA and ASEAN – Regional Groups for trade and investment

(20 marks)

END OF QUESTIONS

MIB603 International Business_0519

advantages-and-disadvantages-of-a-joint-venture/. (n.d.). Retrieved 7 2019, 22, from Business
town: https://businesstown.com/12-advantages-and-disadvantages-of-a-joint-venture/

Essays, UK. (November 2018). Analysis Of The Advantages And Disadvantages Of Exporting
Marketing Essay. Retrieved from https://www.ukessays.com/essays/marketing/analysis-of-the-
advantages-and-disadvantages-of-exporting-marketing-essay.php?vref=1

Porter, M.E. 1990a. The Competitive Advantage of Nations. New York: Free Press,
MacMillan.

Linder, S.B. 1961. An Essay on Trade and Transformation. Stockholm: Almquist &
Wiksell.

Krugman, P.R. & Obstfeld, M. 2003. International Economics: Theory and Policy, 4th
edition.
New York: HarperCollins.

Levitt, T. 1983. ‘Globalization of markets’, Harvard Business Review, May/June,

61(3): 92–
102.

Porter, M.E. 1998b. ‘Clusters and the new economics of competition’, Harvard
Business
Review, 76(6): 77–90.
Porter, M.E. 1998c. The Competitive Advantage of Nations. New York: Free Press,
MacMillan.

Porter, M.E. 1997a. ‘New strategies for inner-city economic development’, Economic
Development Quarterly, 11(1): 11–28.

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MIB603 International Business_0519