Slide 3.

Chapter 3

The Triad and international

business

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.2

The Triad and international business

Objectives
Introduction
Reasons for FDI
FDI and trade by triad members
The triad and regional business strategy
The worlds regional automotive industry.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.3

Objectives
Describe the major reasons for FDI.
Explain the role of triad-based MNEs in worldwide
FDI and trade.
Relate select examples of inter-triad MNE
business activity.
Discuss the economic interrelationships among
triad members.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.4

Introduction
Most FDI and trade is conducted by MNEs.
MNEs from the triad continue to dominate
international business.
The triad is the basic unit of analysis in
international business.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.5

Table 3.1

Ten years of intra-regional FDI in the triad, 19932002

Note: EU intra-regional FDI is FDI stocks within Europe as a whole. NAFTA intra-regional FDI is US and Canada stocks within NAFTA. Asia intra
regional FDI is Japan, South Korea, Australia and New Zealand stocks within Asia
Source: Authors calculations based on OECD, International Direct Investment Statistics Yearbook, 2004
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.6

Reasons for FDI

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.7

Foreign direct investment

FDI is the ownership and control of foreign
assets.
FDI usually involves the ownership, whole or
partially, of a company in a foreign country: a
foreign subsidiary.
FDI is different from portfolio investment, which is
the purchase of financial securities in other firms
for the purpose of realizing a financial gain when
these marketable assets are sold.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.8

Some reasons for FDI

Increase sales and profits.

Enter rapidly growing markets.
Reduce costs.
Gain a foothold in economic blocs.
Protect domestic markets.
Protect foreign markets.
Acquire technological and managerial know-how.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.9

FDI and trade by triad members

The triad accounts for about 80% of world FDI.
Two important FDI destinations are:
Intra-regional: from one triad member to another
Inter-regional: from one triad member to the
geographic region that surrounds it. (e.g. from the
US to the Americas).

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.10

Table 3.3a

Ten years of triad FDI

*EU15 numbers are in outward stocks of FDI by every EU15 member and thus include intra-EU15 FDI
Sources: Authors calculations; United Nations, World Investment Report 1998, pp. 379400; United Nations, World Investment Report 2006, pp. 303306
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.11

Table 3.3b

Ten years of triad trade

*EU includes intra-EU FDI.

Note: Exports are calculated by including freight and insurance while imports do not include freight and insurance
Sources: Authors calculations and International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 25; International Monetary Fund, Direction of
Trade Statistics Yearbook, 2002 (Washington, DC: IMF, 2002), pp. 25
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.12

Triad FDI clusters

A group of developing countries usually located in
the same geographic region as a triad member
and having some form of economic link to this
member.
The US tends to be a dominant investor in Latin
America, and countries such as Mexico and Brazil
are part of its FDI cluster.
The EU tends to be a dominant investor in Eastern
Europe and countries like the Czech Republic and
Poland are part of its FDI cluster.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.13

The triad and regional

business strategy
MNEs pursue market opportunities within their
own triad as well as that of the other members.
International expansion does not necessarily
mean global expansion.
The nature of international business is regional,
not global.
For example, Wal-Mart has 94.5% of its sales in
North America, and only about 20% of Wal-Marts
stores are located outside of North America.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.14

Figure 3.1

Wal-Marts globalization: regional distribution of stores

Note: Data are for 2004. US stores include 53 stores in Puerto Rico
Source: Wal-Mart, Annual Report, 2004.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.15

The worlds regional automotive

industry
There are 30 automotive firms in the worlds
largest 500 firms.
None of these are global firms!

23 of the 30 firms are home-region based, with an

average of 60 % of their sales as intra-regional.
There are 2 host-region oriented and 5 bi-regional
automotive firms on the list.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.16

Table 3.4

The regional nature of the motor vehicles and parts industries, 2005

*Weighted intra-regional sales average is weighted according to revenues

Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,
but their regional sales data are not either available or enough to determine their regional characteristics
Source: Authors calculations and the individual annual reports of each company
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.17

The regional nature of the motor vehicles and parts industries, 2005
(Continued)
Table 3.4

*Weighted intra-regional sales average is weighted according to revenues

Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies,
but their regional sales data are not either available or enough to determine their regional characteristics
Source: Authors calculations and the individual annual reports of each company
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009

Slide 3.18

Key reasons for the automotive

industrys regional operations
The auto industry operates in clusters of
localized activity within each major triad region.
Auto firms are strongly embedded in downstream
activities and after-sales markets.
Cultural barriers across regions.
Fuel.
Different environmental regulations.
Tariffs.

Local competitors are more adept at meeting

the demands of their regional markets.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, Pearson Education Limited 2009