IB Paper Solution November 2010

Question 1
International Business International Business consist of all commercial transactions including sales, investments and transportation, between two roe more countries Objectives of International Business: Expand sales Compan !s sales depend on two factors" 1# Consumers interest in product$service 2# Consumers! willingness and abilit to purc%ase &%ere are more potential customers in t%e world as compared to a single countr # 'ence t%is %ig%er sales creates value, as long as t%e costs for t%e additional sales don!t increase disproportionatel # (#g# broadcasting sports to man countries generates large revenue at marginal increased costs# )ol*swagen +,erman -, IB. +/S-, Nestle +Swit0erland-, etc# generate more t%an %alf t%eir sales globall # Smaller companies also depend on global sales in t%e same manner# Acquiring Resources Producers and distributors see* products, services, resources and components from foreign countries because 1# 1omestic supplies are inade2uate (#g# Crude oil in /S 2# It gives t%em a competitive advantage suc% as cost cuts (#g# 3eliance on labour in Sout% (ast 4sian countries 5# Improved product 2ualit or differentiation gives t%em competitive advantage &%e establis% foreign 361 centres (#g# /sing design companies in Nort%ern Ireland Mini i!ing Ris"

1# Counter sales swings 1ifferent countries ma %ave different business c cles vi0# recession %it

economies versus e7panding economies# &%is minimi0es swings in sales and profits# 2# Counter price swings 8btaining supplies from different countries could enable to soften t%e impact of price swings or s%ortages 5# 1efensive reasons Companies ma want to counter advantage gained b competitors in foreign mar*ets International business versus do estic business

Companies for international business strategies after e7amining dimensions of t%e e7ternal environment# &%ese can be broadl classified into" P% sical 6 Social factors Competitive factors

#$%sical & 'ocial (actors 1. Geographic influences (nables determining t%e location, 2uantit , 2ualit and availabilit of t%e world!s resources since t%e are unevenl distributed# &%is results in products and services being produced in different parts of t%e world ,eograp%ic barriers suc% as mountains, deserts, etc# along wit% adverse climactic conditions affect o o o 2. Political Policies &%e influence w%et%er IB can ta*e place and t%e wa s in w%ic% it can ta*e place (#g# Sports" C%ina allows 9ao .ing to pla abroad but puts restrictions on %is earnings Political disputes also disturb IB (#g# &errorist bombings in an Indonesian %otel lead t%e entire countr to be perceived as ris* Communication and distribution c%annels .a*e investments ris*ier

5# Legal Policies 1omestic and International law pla a large part in determining %ow a compan can operate overseas )o estic la* includes bot% %ome and %ost countr regulations for ta7ation, emplo ment and foreign e7c%ange transactions International la* +legal agreement between 2 countries- determines %ow earnings are ta7ed b bot% :urisdictions# 4lso determines %ow and if companies can operate in certain places

;# Behaviour Factors 4nt%ropolog , ps c%olog 6 sociolog can %elp managers understand values, attitudes 6 beliefs in a foreign environment# &%is will %elp ma*e operational decisions in t%ese countries <# Economic Forces &%is e7plains w% Countries e7c%ange goods and services Some countries product goods less e7pensivel t%an ot%ers .ovement of capital 6 labour between countries Currenc value versus ot%er countries

+o

petitive (actors 1# Competitive strategy for products .ost products eit%er use Cost strategies 1ifferentiation strategies 4pproac%es for differentiation include o 1evelop favourable Brand image t%roug% advertising or consumer e7perience 1evelop uni2ue c%aracteristics t%roug% 361

/sing t%ese strategies a firm can use eit%er a .ass=.ar*et strateg or focus strateg # 2. Company resources and experience 3esources and e7perience lend a considerable competitive advantage#

.ar*et leaders %ave resources for more ambitious international operations as compared to competitors Smaller companies %ave to invest more resources to secure national distribution in foreign mar*ets Companies wit% long standing dominance in mar*et s%are %ave different strategies as compared to new comers

5# Competitors faced in each mar et If same competitors are present domesticall , t%en it is easier to predict t%eir strategies globall # >or e#g# 4irbus 6 Boeing# 'owever, companies li*e &esco face different competition in ever foreign mar*et it enters#

International

)o

estic

Envir on e 'idden factors, nt Not full *nown ?it%in Countr # Pred #lan & 'trat eg% @ong term S%ort &erm 6 @ong +o p etitiv International e ,1ifficult to forces understand 1omestic .ultiple, +urre >luctuations, ncies Pricing, Profit @ocal Busin Political, Comparativel pred ess Countr ,

1ifficult to Ris" predict Resea (7pensive, No rc$ uniformit .uultilingual,. ,R ulti cultural )aries from countr to #rodu countr , ct 4daptation International International 3egulations, 'ost Countr regulations, Auotas, -egal @icences 'uge, Invest 3BI$3egulator ents clearances #ricin >8B g B>reig%tB1utie sBlocal

(as , 3eliable National

Standard 1omestic

1omestic law @esser 8ne price

transportBcure nc ris*BCountr insurance )istri butio ,ovt practices, n regulations 3estrictions= 4lco%ol, #ro &obacco, otion Cultural issues .axati on/ Accou nting 1ifferent rules -angu age/ +ultur e .ultiple .i e 0ones
Question 1 2a3
)avid Ricardo4s .$eor%

Standard

1omestic rule

>ew single

.ultiple

It is possible for some countries to produce all products at an absolute advantage# &%is t%eor states t%at global efficienc gains ma result from trade if a countr speciali0es in t%ose products t%at it can product more efficientl t%an ot%ers it produces# &%is is despite ot%er countries producing t%e same goods more efficientl # Simpl put, countries s%ould focus its efforts and resources on manufacturing products t%at it can do most efficientl # ple

Exa

&able 1

Country
(ngland

Wheat Cost Per Unit In Man Hours 15 10

Wine Cost Per Unit In Man Hours 30 15

Portugal

4 unit of wine in (ngland costs t%e same amount to produce as 2 units of w%eat# Production of an e7tra unit of wine means foregoing production of 2 units of w%eat # In Portugal, a unit of wine costs 1#< units of w%eat to produce# Because relative or comparative costs differ, it will still be mutuall advantageous for bot% countries to trade even t%oug% Portugal %as an absolute advantage in bot% commodities# Portugal is relativel better at producing wine t%an w%eat" so Portugal is said to %ave a C8.P434&I)( 41)4N&4,( in t%e production of wine# Similarl (ngland %as a comparative advantage in w%eatproduction# &able 2

Production Before Trade After Trade Whea Wine Whea Wine t t England 8 5 18 0 Portugal 9 6 0 12 Total 17 11 18 12
&able 2 s%ows %ow trade mig%t be advantageous# (ngland is assumed to %ave 2C0 man %ours available for production# Before trade ta*es place it produces and consumes D units of w%eat and < units of wine#

Country

Portugal %as 1D0 man %ours of labour available for production# Before trade ta*es place it produces and consumes E units of w%eat and F units of wine# &otal production between t%e two economies is 1C units of w%eat and 11 units of wine#

If bot% countries specialise, Portugal producing onl wine and (ngland producing onl w%eat, total production is 1D units of w%eat and 12 units of wine# Specialisation %as resulted in increased production b 1 unit of w%eat and 1 unit of wine# Assu ptions &%ere are two countries and two commodities# &%ere is a perfect competition bot% in commodit and factor mar*et# Cost of production is e7pressed in terms of labour i#e# value of a commodit is measured in terms of labour %ours$da s re2uired to produce it# Commodities are also e7c%anged on t%e basis of labour content of eac% good# @abour is t%e onl factor of production ot%er t%an natural resources# @abour is %omogeneous i#e# identical in efficienc , in a particular countr # @abour is perfectl mobile wit%in a countr but perfectl immobile between countries# &%ere is free trade i#e# t%e movement of goods between countries is not %indered b an restrictions# Production is sub:ect to constant returns to scale# &%ere is no tec%nological c%ange# &rade between two countries ta*es place on barter s stem# >ull emplo ment e7ists in bot% countries# &%ere is no transport cost#

Question 1 2b3
5atural Advantage
Climatic conditions, access to natural resources or available labour forces t%at give a countr an advantage in producing a certain goods or service# &%is advantage is *nown as Natural 4dvantage#

Acquired Advantage
&%e advantage t%at countries %ave in t%e product and process tec%nolog of manufacturing goods and services is called 4c2uired 4dvantage# Countries t%at can develop uni2ue or less e7pensive products %ave an ac2uired advantage till ot%er countries emulate t%em# It creates new products, terminates old ones and alters trading partners# 4 good e7ample of t%is is computers and I&#

Question 6
#olitical Ris" Political ris* ma occur because of c%anges in political leaders opinions, policies and civil disorders or animosit between %ost and ot%er countries, particular between t%e compan !s %ome countr # It ma cause loss or damange of propert , disruptive operations and t%e need to ad:ust t%e rules governing business# &%e result will be e7pensive for companies (#g# /nilever encountered difficult in attracting foreign e7ecutives to wor* in Pa*istan due to securit concerns#

&%ree approac%es are used to predict political ris*" 1. !nalysing past patterns Companies ma be influenced b past patterns of political ris* but it ma be difficult to predict as situations c%ange 2uic*l , positivel $negativel # Companies generall e7amine t%e views of government decision ma*ers, get a cross section of opinions and ma use e7pert anal sis at times# ?%ile anal sing political ris*, managers s%ould predict t%e li*el losses in case a problem arises

2. !nalysing "pinions

Influential people ma swa future political events t%at effect business# 'ence managers s%ould be well informed about statements made b political leaders in order to understand t%eir p%ilosop%ies about business in general, foreign input into business and t%eir feeling towards foreign countries# &%e s%ould also *eep a tab on various opinion polls, predicting t%e li*eli%ood of leaders being elected to power# &%e s%ould visit t%e s%ortlisted countries to listen to a cross section of opinions and also spea* to embass officals, foreign and local business people to understand t%e probabilit and possibilit of c%ange#

#. Examining $ocial and Economic Conditions Social and economic conditions in a countr can lead to unrest if large sections of t%e population %ave unmet aspirations Suc% groups ma destro propert or call for stri*es disrupting operations of a compan #

'ence political ris* is not onl an effective but also a detrimental in order to prevent possible losses to t%e compan #

Question 7
8lobali!ation It refers to t%e broadening set of interdependent relations%ips among people from different parts of t%e world t%at %appens to be divided in to nations# It is t%e integration of world economies t%roug% t%e reduction of barriers to t%e movement of trade, capital, tec%nolog and people#

Question 9
,istor% of :.O &%e ?&8Gs predecessor, t%e ,eneral 4greement on &ariffs and &rade +,4&&-, was establis%ed after ?orld ?ar II in t%e wa*e of ot%er new multilateral institutions dedicated to international economic cooperation H notabl t%e Bretton ?oods institutions *nown as t%e ?orld Ban* and t%e International .onetar >und# 4 comparable international institution for trade, named t%e International &rade 8rgani0ation was successfull negotiated# 8A.. rounds of negotiations &%e ,4&& was t%e onl multilateral instrument governing international trade from 1E;F until t%e ?&8 was establis%ed on Ianuar 1, 1EE<# 1espite attempts in t%e <0=F0!s to create some form of institutional mec%anism for international

trade, t%e ,4&& continued to operate for almost %alf a centur as a semi= institutionali0ed multilateral treat regime# (ro 8eneva to .o"%o Seven rounds of negotiations occurred under ,4&&# &%e &o* o 3ound was t%e first ma:or attempt to tac*le trade barriers t%at do not ta*e t%e form of tariffs, and to improve t%e s stem, adopting a series of agreements on non=tariff barriers# ;rugua% Round 1uring t%e 1o%a 3ound, t%e /S government blamed Bra0il and India for being infle7ible and t%e (/ for impeding agricultural imports#Bra0ilresponded to t%e criticisms b arguing t%at progress would onl be ac%ieved if t%e ric%est countries +especiall t%e /S and countries in t%e (/- made deeper cuts in t%eir agricultural subsidies and furt%er open t%eir mar*ets for agricultural goods# &%e eig%t% ,4&& round H *nown as t%e /rugua 3ound H was launc%ed in September 1EDF, in Punta del (ste,/rugua # It was t%e biggest negotiating mandate on trade ever agreed" t%e tal*s were going to e7tend t%e trading s stem into several new areas, notabl trade in services and intellectual propert , and to reform trade in t%e sensitive sectors of agriculture and te7tilesJ all t%e original ,4&& articles were up for review# &%e >inal 4ct concluding t%e /rugua 3ound and officiall establis%ing t%e ?&8 regime was signed 4pril 1<, 1EE;, during t%e ministerial meeting at .arra*es%, .orocco, and %ence is *nown as t%e .arra*es% 4greement# &%e ,4&& still e7ists as t%e ?&8Gs umbrella treat for trade in goods, updated as a result of t%e /rugua 3ound negotiations +a distinction is made between ,4&& 1EE;, t%e updated parts of ,4&&, and ,4&& 1E;C, t%e original agreement w%ic% is still t%e %eart of ,4&& 1EE;-# ,4&& 1EE; is not %owever t%e onl legall binding agreement included via t%e >inal 4ct at .arra*es%J a long list of about F0 agreements, anne7es, decisions and understandings was adopted# &%e agreements fall into a structure wit% si7 main parts" &%e 4greement (stablis%ing t%e ?&8 ,oods and investment H t%e .ultilateral 4greements on &rade in ,oods including t%e ,4&& 1EE; and t%e &rade 3elated Investment .easures+&3I.SServices H t%e ,eneral 4greement on &rade in Services Intellectual propert H t%e 4greement on &rade=3elated 4spects of Intellectual Propert 3ig%ts +&3IPS1ispute settlement +1S/3eviews of governmentsG trade policies +&P3.-

#rinciples of :.O

1. .rade *it$out discri

ination

a# %ost&favoured&nation '%F()* treating other people e+ually " /nder t%e ?&8 agreements, countries cannot normall discriminate between t%eir trading partners# ,rant someone a special favour +suc% as a lower customs dut rate for one of t%eir products- and ou %ave to do t%e same for all ot%er ?&8 members# b# (ational treatment* ,reating foreigners and locals e+ually " Imported and locall =produced goods s%ould be treated e2uall after t%e foreign goods %ave entered t%e mar*et# &%e same s%ould appl to foreign and domestic services, and to foreign and local trademar*s, cop rig%ts and patents# 2. (reer trade: graduall%/ t$roug$ negotiation @owering trade barriers is one of t%e most obvious means of encouraging trade# &%e barriers concerned include customs duties +or tariffs- and measures suc% as import bans or 2uotas t%at restrict 2uantities selectivel # >rom time to time ot%er issues suc% as red tape and e7c%ange rate policies %ave also been discussed# #. #redictabilit%: t$roug$ binding and transparenc% Predictabilit and stabilit is improved b t%e following" a# ?%en countries agree to open t%eir mar*ets for goods or services, t%e KbindL t%eir commitments# >or goods, t%ese bindings amount to ceilings on customs tariff rates# Sometimes countries ta7 imports at rates t%at are lower t%an t%e bound rates# b# 1iscourage t%e use of 2uotas and ot%er measures used to set limits on 2uantities of imports# c# .a*e countries! trade rules as clear and public +KtransparentL- as possible b ma*ing governments disclose t%eir policies and practices publicl

-. #ro

oting fair co

petition

?&8 allows tariffs and, in limited circumstances, ot%er forms of protection# &%ese rules dedicated to open, fair and undistorted competition# &%e rules tr to establis% w%at is fair or unfair, and %ow governments can respond b c%arging additional import duties to compensate for damage caused b unfair trade#

&%e rules on non=discrimination H .>N and national treatment H are designed to secure fair conditions of trade# 1umping rules +e7porting at below cost to gain mar*et s%are- and subsidies# ent and econo ic refor

9< Encouraging develop

&%e ?&8 s stem contributes to development# 'owever, developing countries need fle7ibilit in t%e time t%e ta*e to implement t%e ?&8!s agreements# .a:orit developing countr members %ave implemented trade liberali0ation programmes autonomousl # &%e are prepared to ta*e on most of t%e obligations t%at are re2uired of developed countries# ?&8 gives t%em transition periods to ad:ust to t%ese provisions

:.O Organi!ational 'tructure

Question =
Models of M5+4s #ressure for 8lobal Integration ,ig $ 8lobal )iews t%e world as a single mar*et# &ig%tl controls global operations from %ead2uarters to preserce focus on standardi0ation International /se e7isting core competence to e7ploit opportunities in foreign mar*ets .ransnational Prefers a fle7ible value c%ain to facilitate local responsiveness# 4dopts comple7 coordination mec%anisms to facilitate global integration Multido estic 3elies on foreign subsidiaries operating as autonomous units to customi0e products and processes for local mar*ets#

-o *

-o* ,ig$ #ressure for 5ational Responsiveness Advantages of M5+>s for t$e $ost countr% .NCGs %elp t%e %ost countr in t%e following wa s 1# &%e investment level, emplo ment level, and income level of t%e %ost countr increases due to t%e operation of .NCGs# 2# &%e industries of %ost countr get latest tec%nolog from foreign countries t%roug% .NCGs# 5# &%e %ost countr Gs business also gets management e7pertise from .NCGs# ;# &%e domestic traders and mar*et intermediaries of t%e %ost countr gets increased business from t%e operation of .NCGs# <# .NCGs brea* protectionalism, curb local monopolies, create competition among domestic companies and t%us en%ance t%eir competitiveness# F# 1omestic industries can ma*e use of 3 and 1 outcomes of .NCGs# C# &%e %ost countr can reduce imports and increase e7ports due to goods produced b .NCGs in t%e %ost countr # &%is %elps to improve balance of pa ment# D# @evel of industrial and economic development increases due to t%e growt% of .NCGs in t%e %ost countr # Advantages of M5+>s for t$e $o e countr%

.NCGs %ome countr %as t%e following advantages# 1# .NCGs create opportunities for mar*eting t%e products produced in t%e %ome countr t%roug%out t%e world# 2# &%e create emplo ment opportunities to t%e people of %ome countr bot% at %ome and abroad# 5# It gives a boost to t%e industrial activities of %ome countr # ;# .NCGs %elp to maintain favourable balance of pa ment of t%e %ome countr in t%e long run# <# 'ome countr can also get t%e benefit of foreign culture broug%t b .NCGs# )isadvantages of M5+>s for t$e $ost countr% 1# .NCGs ma transfer tec%nolog w%ic% %as become outdated in t%e %ome countr # 2# 4s .NCGs do not operate wit%in t%e national autonom , t%e ma pose a t%reat to t%e economic and political sovereignt of %ost countries# 5# .NCGs ma *ill t%e domestic industr b monpolising t%e %ost countr Gs mar*et# ;# In order to ma*e profit, .NCGs ma use natural resources of t%e %ome countr indiscriminatel and cause depletion of t%e resources# <# 4 large sums of mone flows to foreign countries in terms of pa ments towards profits, dividends and ro alt # )isadvantages of M5+>s for t$e $o e countr%

1# .NCGs transfer t%e capital from t%e %ome countr to various %ost countries causing unfavourable balance of pa ment# 2# .NCGs ma not create emplo ment opportunities to t%e people of %ome countr if it adopts geocentric approac%# 5# 4s investments in foreign countries is more profitable, .NCGs ma neglect t%e %ome countries industrial and economic development# Exa ples

.NCGs is suitable in t%e following cases# 1# ?%ere t%e ,overnment wants to avail of foreign tec%nolog and foreign capital e#g# .aruti/d og @imited, 'ind lever, P%ilips, 'P, 'one well etc# 2# ?%ere it is desirable in t%e national interest to increase emplo ment opportunities in t%e countr e#g#, 'industan @ever#

5# ?%ere foreign management e7pertise is needed e#g# 'one well, Samsung, @, (lectronics etc# ;# ?%ere it is desirable to diversif activities into untapped and priorit areas li*e core and infrastructure industries, e#g# I&C is more acceptable to Indians @6& etc# <# P%armaceutical industries e#g# ,la7o, Ba er etc#

Question ? 2a3
### .$eor% Purc%asing Power Parit &%eor defines t%e relations%ip between currencies# It states t%at a c%ange in relative inflation between two countries must cause c%ange in e7c%ange rates to *eep t%e process of goods in two countries fairl similar# &%e Big .ac Inde7 of currencies was used b &%e (conomist to estimate t%e e7c%ange rate between t%e dollar and anot%er currenc # ,iven t%e Big .ac is sold in man countriesJ it is eas to compare prices# PPP suggest t%at t%e e7c%ange s%ould leave t%e Big .ac costing t%e same in /S and abroad# 'owever, t%e Big .ac sometime costs more and sometimes less comparatives# &%is demonstrates %ow undervalued$overvalued t%e currencies are to t%e dollar# Several (uropean countries are overvalued# &%is ma*es it easier for /S companies to e7port to (urope and %arder for (uropean countries to e7port to t%e /S# 8n t%e ot%er %and, C%ina is undervalued against t%e dollar and %ence it is easier for 4sian companies to e7port to t%e /S and %arder vice=versa#

Question ? 2b3
5A(.A &%e Nort% 4merican >ree &rade 4greement +N4>&4- is an agreement signed b t%e governments of Canada, .e7ico, and t%e /nited States, creating a trilateral trade bloc in Nort% 4merica# &%e agreement came into force on Ianuar 1, 1EE;# It superseded t%e Canada /nited States >ree &rade 4greement between t%e /#S# and Canada# Advantages of t$e 5A(.A

Increase in .rade: &rade between t%e N4>&4 signatories tripled, from M2EC billion in 1EE5 to ME05 billion in200C# Specificall , /#S# goods e7ports to Canada and .e7ico grew 1<CN, from M1;2billion to M5F;#F billion# (7ports from Canada and .e7ico to t%e /#S# grew 251N, fromM1<1 billion in to M<01 billion# N4>&4 provides t%e abilit for firms in member countries to bid on government contracts# It also protects intellectual properties# Increase in ;<'< Agricultural Exports: N4>&4 is especiall %elpful for agricultural e7ports because it reduces %ig% .e7icantariffs# .e7ico is t%e top e7port destination for beef, rice, so bean meal, cornsweeteners, apples and beans# It is t%e second largest for corn, so beans and oils# 4s a result of N4>&4, t%e percent of /#S# agricultural e7ports to Canada and .e7ico %ave grown considerabl # Increase in .rade of 'ervices: .ore t%an ;0N of /#S# ,1P is services, including financial services and %ealt% care# &%ese arenGt as easil transported as are goods, so being able to e7pand services to nearb countries is important# &%an*s to N4>&4, /#S# services e7ports to Canada and .e7ico grew 12<N, from M2< billion to MF2 billion in 200F# Services e7ports from Canada and .e7ico grew to M5C billion# N4>&4 eliminates trade barriers in nearl all service sectors# Increase in (oreign )irect Invest ent:

Since N4>&4 was enacted, /#S# foreign direct investment +>1I- in Canada and .e7ico tripled to M551 billion +as of 200F, latest data available-# Canadian and .e7ican >1I in t%e /#S# was M1F< billion# N4>&4 reduces ris* for investors b guaranteeing t%e will %ave t%e same legal rig%ts as local investors# It also guarantees t%e will receive fair mar*et value for t%eir investments in case t%e government decides to nationali0e t%e industr or ta*e t%e propert b eminent domain# N4>&4 provides a legal mec%anism for investors to ma*e claims against a government, if needed# )isadvantages of 5A(.A N4>&4 %as been critici0ed for bot% displacing 4merican wor*ers and decreasing wage levels for t%ose t%at remain# .e7ican wor*ers %ave also suffered, as %ave .e7ican farmers and its environment# >ind out t%e facts be%ind t%ese accusations, and %ow N4>&4 contributed to t%ese problems# N4>&4 %as man disadvantages# N4>&4 allowed /#S# manufacturers to move :obs to lower=cost .e7ico# &%ose manufacturers t%at remained %ad to decrease wages to compete# .an of .e7icoGs farmers were put out of business b /#S#=subsidi0ed farm products# N4>&4 provisions for .e7ican labor and environmental protection were not strong enoug%, allowing for e7ploitation# -oss of ;<'< @obs:

Since t%e cost of labor is c%eaper in .e7ico, man manufacturing industries moved partof t%eir production from %ig%=cost /#S# states# Between 1EE; and 2002, t%e /#S# lost 1#Cmillion :obs, gaining onl CE;,00, for a net loss of DCE,000 :obs# .ost of t%ese :obs +CDN-were in manufacturing# States %it %ard included California, New 9or*, .ic%igan and &e7as# &%ese states %ad %ig% concentrations of t%e industries t%at moved plants to .e7ico# &%ese industries included motor ve%icles, te7tiles, computers, and electrical appliances# -o*er ;<'< :ages: (mplo ers in industries t%at could move to .e7ico used t%at as a t%reat during union organi0ing drives, t%us suppressing wage growt%# Between 1EE5 and 1EE<, <0N of all companies used t%e t%reatJ b 1EEE, t%at rate %ad grown to F<N# Mexico>s (ar ers Are Being #ut Out of Business:

&%an*s to t%e 2002 >arm Bill, /#S# agribusiness is %eavil subsidi0ed = as muc% as ;0Nof net farm income# 4s tariffs are removed, corn and ot%er food is e7ported to .e7ico below cost# &%is benefits consumers, w%o pa less for food, but ma*es it impossible for rural .e7ican farmers to compete# In contrast, between 1EE0=2001, In response to N4>&4 competitive pressure, .e7ico agribusiness %as increased its use of fertili0ers and ot%er c%emicals, costing M5F billion per ear in pollution# .e7ico decreased its subsidies to farmers from 55#2N to 15#2N of total farm income# .ost of t%ose subsidies go to .e7icoGs large farms )egradation of Mexico>s Environ ent ,as Increased:

3ural farmers %ave e7panded into more marginal land, resulting in deforestation at a rate of F50,000%ectares per ear#

Question ? 2c3
&%ree modes of doing IB are .urn"e% Operations Certain companies earn revenue from services in t%e form of fees or pa ments for service performance# Internationall , companies ma pa fees for engineering services, vi0# construction pro:ects t%at are performed under contract and t%en transferred to t%e owners once operational &%is is *nown as turn*e operations# (#g# = @6& Power offers turn*e solutions for large, up to 1000 .?, coal= based power plant pro:ects based on supercritical standards

-icensing and (ranc$ising

?%en a compan allows anot%er to use assets suc% as trademar*s, patents, cop rig%ts or e7pertise under contracts *nown as licensing agreements, t%e are *nown as ro alties In franc%ising, t%e franc%isor allows t%e franc%isee to use a trademar* as an essential asset of t%e franc%isee!s business# &%e franc%isor also assists continuousl in operations b providing management services or tec%nolog (g .ac 1onalds Invest ents

1ividend and interest paid on foreign investments are also considered service e7ports and imports because it involved use of capita$assets )irect Invest ent

4lso *nown as >oreign 1irect Investment Investor ta*es controlling interest in a foreign compan Control need not be even <0N (#g# 3oman 4bramovic% boug%t C%elsea >ootball Club# &%is was 3ussian >1I into (ngland ent

#ortfolio Invest

It is a non=controlling interest in a compan or owners%ip of loan made to anot%er part Is usuall a stoc* or a loan or a bond, bill or note purc%ased b investor +used mostl s%ort=term e7cept for stoc*Important for most companies wit% international investment