Question

• Various types and uses of trade policies ( tariffs and subsidies)
• Most common types of FDI and how FDI use varies based on developed versus developing economies
• Most common forms of international entry (i.e. exporting, licensing, franchising, strategic alliances, acquisitions, wholly owned subsidiaries)
• Factors influencing a firm’s decision regarding scale and timing of international entry
• Different forms of regional economic integration (economic unions, free trade areas, political unions, etc.)
• Commonly recognized regional economic integrations (i.e. European Union and NAFTA)
• The different strategies pursued by multinational firms and factors that influence the decision to enact a particular strategy (business level strategies such as differentiation or cost leadership, as well as international strategies such as international, localization, global standardization, and transnational)
• The different activities (primary and support) enacted by the firm
• The nature and considerations of centralization and controls among varying forms of international structures (organizational architecture issues)

Answer 1

Ans) Trade agreements play an extremely important role in carrying out effective trade and commerce practices between countries. Mainly there are three types of trade agreements: Firstly, a unilateral trade agreement which occurs when a country imposes trade restrictions and no other country reciprocates. Secondly, Bilateral trade agreements are the ones involving two countries. Both of them agree to reduce trade restrictions to expand business opportunities between them. Lastly, complex in nature and the most difficult to negotiate are the Multilateral trade agreements. These involve three countries or more. The greater the number of participants, the more difficult it is to negotiate.

FDI in simple words is an investment made by an organization or a company of one country into another organization/company of a foreign nation. Horizontal foreign direct investment and Vertical foreign direct investment are mainly the two types of FDI. In case of the developing nations, FDI helps in filling the gap between savings and level of investment. Since the per capita income is comparatively is low, poverty, unemployment, high population growth and low savings rates are the main characteristics of a less devoloped nation, low levels of savings and investments create savings investment gaps that may have severe negative economic outcomes.

Different in nature, there are mainly two major types of market entry modes: equity and non-equity modes. Non equity mode includes export and contractual agreements, whereas equity mode includes: joint venture and wholly owned subsidiaries etc.

Exporting are of two types: direct and indirect. Licensing allows a firm exclusively or non-exclusively to manufacture a proprietor's product for a fixed term in a specific market in the foreign nation. Whereas franchising is a system in which partially independent business owners pay fees and royalties to a parent company in return for making use of its trademark, to sell its products or services.

Market Size, market growth, government regulations, level of competition, physical infrastructure, production and shipping costs, lower cost of production, company objectives, availability of resources are the several factors which influence a firms decision.

Regional economic integration has provided a platform to the countries to mainly focus on issues relevant to the different stages of development. Four main types of regional economic integration are: Free trade market area, common market, customs union and economic union.  

The North American Free Trade Agreement (NAFTA) came into existence during in 1988, the United States and Canada signed the Canada United States Free Trade Agreement following which was finally implemented in 1994. The European Union (EU) on the the other hand is one of the oldest and integrated form of economic cooperation. It was originally introduced in 1950 to end the wars between neighboring countries in the Europe. The founding nations included France, West Germany, Italy, and the Benelux countries Belgium, Luxembourg, and the Netherlands.