MASTER OF BUSINESS ADMINISTRATION

ONLINE DISTANCE LEARNING

INTERNATIONAL BUSINESS
(MPIB 7103)
ASSIGNMENT 1

PREPARED FOR
DR SIMON KWONG CHOONG MUN

PREPARED BY
MASRI BIN ABDUL LASI
[STUDENT ID]

SUBMISSION DATE
15TH JUNE 2018
MPIB7103 – Assignment 01

1. In a short essay, discuss the four stages of the international product life cycle.

The product life cycle has 4 very clearly defined stages, each with its own characteristics that mean
different things for business that are trying to manage the life cycle of their products.

1.0 INTRODUCTION STAGE

This stage of the cycle could be the most expensive for a company launching a new product. The size
of the market for the product is small, which means sales are low, although they will be increasing.
On the other hand, the cost of things like research and development, consumer testing, and the
marketing needed to launch the product can be very high, especially if it’s a competitive sector.

1.1 GROWTH STAGE

The growth stage is typically characterized by a strong growth in sales and profits, and because the
company can start to benefit from economies of scale in production, the profit margins, as well as the
overall amount of profit, will increase. This makes it possible for businesses to invest more money in
the promotional activity to maximize the potential of this growth stage.

1.2 MATURITY STAGE

During the maturity stage, the product is established and the aim for the manufacturer is now to
maintain the market share they have built up. This is probably the most competitive time for most
products and businesses need to invest wisely in any marketing they undertake. They also need to
consider any product modifications or improvements to the production process which might give
them a competitive advantage.

1.3 DECLINE STAGE

Eventually, the market for a product will start to shrink, and this is what’s known as the decline stage.
This shrinkage could be due to the market becoming saturated (i.e. all the customers who will buy
the product have already purchased it), or because the consumers are switching to a different type of
product. While this decline may be inevitable, it may still be possible for companies to make some
profit by switching to less-expensive production methods and cheaper markets.
 2. Why do developing countries sometimes impose import restrictions to increase their
levels of industrialization?

Developing countries promote industrialization by restricting imports to encourage local production

for local consumption goods which they formerly imported. This is known as import substitution. If
the protected industries do not become efficient, consumers may have to support them by paying
higher prices or higher taxes. In contrast to import substitution, some countries have achieved rapid
economic growth by promoting export industries, an approach known as export-led development.
These countries try to develop industries for which export markets should logically exist.
Industrialization may result initially in import substitution, yet export-led development of the same
products may be feasible later.

Countries with a large manufacturing base generally have higher per capita incomes than do countries
without such a base. Moreover, several countries, such as the United States and Japan, developed an
industrial base while largely preventing competition from foreign-based production. Many
developing countries use protection to increase their level of industrialization because of industrial
countries' economic success and experience. Specifically, they believe:

 Surplus workers can more easily increase manufacturing output than they can increase
agricultural output.
 Inflows of foreign investment in the industrial area will promote growth.
 Prices and sales of traditional agricultural products and raw materials fluctuate too much,
harming economies that depend on too few of them.
 Markets and prices for industrial products will grow faster than those for agricultural
products.
 3. Describe the different types of regional economic integration and give an example
of each type.

Regional economic integration has enabled countries to focus on issues that are relevant to their stage
of development as well as encourage trade between neighbors. There are four main types of regional
economic integration.

3.1 Free trade area

This is the most basic form of economic cooperation. Member countries remove all barriers to trade
between themselves but are free to independently determine trade policies with nonmember nations.
An example is the North American Free Trade Agreement (NAFTA).

3.2 Customs union

This type provides for economic cooperation as in a free-trade zone. Barriers to trade are removed
between member countries. The primary difference from the free trade area is that members agree to
treat trade with nonmember countries in a similar manner. The Gulf Cooperation Council (GCC) is
an example.

3.3 Common market

This type allows for the creation of economically integrated markets between member countries.
Trade barriers are removed, as are any restrictions on the movement of labor and capital between
member countries. Like customs unions, there is a common trade policy for trade with nonmember
nations. The primary advantage to workers is that they no longer need a visa or work permit to work
in another member country of a common market. An example is the Common Market for Eastern and
Southern Africa (COMESA).

3.4 Economic union

This type is created when countries enter into an economic agreement to remove barriers to trade and
adopt common economic policies. An example is the European Union (EU).
 4. Identify and briefly compare the major regional trading groups in Latin America,
Asia, and Africa.

The major trade group in South America is MERCOSUR. In 1991, Brazil, Argentina, Paraguay, and
Uruguay established MERCOSUR. MERCOSUR is significant because of its size; it generates 75
percent of South America's GNP. Another major group in South America is the Andean Group
(CAN), which is composed of Bolivia, Colombia, Ecuador, and Peru.

There are three major regional trading groups in Central America and the Caribbean the Central
American Common Market, the Central American Free Trade Agreement-Dominican Republic
(which includes the United States), and the Caribbean Community and Common Market
(CARICOM). These groups are hampered by their small markets and dependence on the United States
for trade.

In Asia, the key group is the Association of South East Asian Nations (ASEAN), which was organized
in 1967 and comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Thailand, and Vietnam. It is promoting cooperation in many areas, including industry and
trade. In 1993, the ASEAN countries formed the ASEAN Free Trade Area (AFTA) to deal with the
specific intrazonal trade issues.

The Asia Pacific Economic Cooperation (APEC) is massive since it includes every country that
borders the Pacific Ocean. In spite of the size of APEC, it does not engage in treaties like the other
trade agreements, so it has potential but not much teeth.

Africa is divided into many different trading groups based on geographic proximity and links to
former colonial powers. Most groups are hampered by poverty, small market size, and dependence
on former colonial powers. The African Union is modeled loosely on the EU, but that type of
integration will likely be very difficult.
 5. In a brief essay, explain the roles of the World Trade Organization and the United
Nations in international trade.

The World Trade Organization (WTO) is the only global international organization dealing with the
rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the
bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of
goods and services, exporters, and importers conduct their business. The main roles of WTO as
below:

5.1 Trade negotiations

The WTO agreements cover goods, services and intellectual property. They spell out the principles
of liberalization, and the permitted exceptions. They include individual countries’ commitments to
lower customs tariffs and other trade barriers, and to open and keep open services markets. They set
procedures for settling disputes. These agreements are not static; they are renegotiated from time to
time and new agreements can be added to the package. Many are now being negotiated under the
Doha Development Agenda, launched by WTO trade ministers in Doha, Qatar, in November 2001.

5.2 Implementation and monitoring

WTO agreements require governments to make their trade policies transparent by notifying the WTO
about laws in force and measures adopted. Various WTO councils and committees seek to ensure that
these requirements are being followed and that WTO agreements are being properly implemented.
All WTO members must undergo periodic scrutiny of their trade policies and practices, each review
containing reports by the country concerned and the WTO Secretariat.

5.3 Dispute settlement

The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is
vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring
disputes to the WTO if they think their rights under the agreements are being infringed. Judgements
by specially appointed independent experts are based on interpretations of the agreements and
individual countries’ commitments.

5.4 Building trade capacity

WTO agreements contain special provision for developing countries, including longer time periods
to implement agreements and commitments, measures to increase their trading opportunities, and
support to help them build their trade capacity, to handle disputes and to implement technical
standards. The WTO organizes hundreds of technical cooperation missions to developing countries
annually. It also holds numerous courses each year in Geneva for government officials. Aid for Trade
aims to help developing countries develop the skills and infrastructure needed to expand their trade.
 6. What is dumping? What are the possible effects of dumping on a country's
economy?

When companies export below cost or below their home country price, this is called dumping. Most
countries prohibit imports of dumped products, but enforcement usually occurs only if the imported
product disrupts domestic production. If there is no domestic production, then the only host country
effect is a low price to its consumers. Companies may dump because they cannot otherwise build a
market abroad.

They can afford to dump if the competitive landscape allows them to charge high domestic prices or
if their home country government subsidizes them. They may also incur short-term losses abroad if
they believe they can recoup those losses after eliminating competitors in the market.

Home country consumers or taxpayers seldom realize that they are, in effect, paying so that foreign
consumers have low prices. A company believing it is competing against dumped products may ask
its government to restrict the imports.
 7. Why do developing countries sometimes impose import restrictions to increase their
levels of industrialization?

Developing countries promote industrialization by restricting imports to encourage local production

for local consumption goods which they formerly imported. This is known as import substitution. If
the protected industries do not become efficient, consumers may have to support them by paying
higher prices or higher taxes. In contrast to import substitution, some countries have achieved rapid
economic growth by promoting export industries, an approach known as export-led development.
These countries try to develop industries for which export markets should logically exist.
Industrialization may result initially in import substitution, yet export-led development of the same
products may be feasible later.

Countries with a large manufacturing base generally have higher per capita incomes than do countries
without such a base. Moreover, several countries, such as the United States and Japan, developed an
industrial base while largely preventing competition from foreign-based production. Many
developing countries use protection to increase their level of industrialization because of industrial
countries' economic success and experience. Specifically, they believe:

 Surplus workers can more easily increase manufacturing output than they can increase
agricultural output.
 Inflows of foreign investment in the industrial area will promote growth.
 Prices and sales of traditional agricultural products and raw materials fluctuate too much,
harming economies that depend on too few of them.
 Markets and prices for industrial products will grow faster than those for agricultural
products.
 8. Describe the different types of regional economic integration and give an example
of each type.

Regional economic integration has enabled countries to focus on issues that are relevant to their stage
of development as well as encourage trade between neighbors. There are four main types of regional
economic integration.

3.1 Free trade area

This is the most basic form of economic cooperation. Member countries remove all barriers to trade
between themselves but are free to independently determine trade policies with nonmember nations.
An example is the North American Free Trade Agreement (NAFTA).

3.2 Customs union

This type provides for economic cooperation as in a free-trade zone. Barriers to trade are removed
between member countries. The primary difference from the free trade area is that members agree to
treat trade with nonmember countries in a similar manner. The Gulf Cooperation Council (GCC) is
an example.

3.3 Common market

This type allows for the creation of economically integrated markets between member countries.
Trade barriers are removed, as are any restrictions on the movement of labor and capital between
member countries. Like customs unions, there is a common trade policy for trade with nonmember
nations. The primary advantage to workers is that they no longer need a visa or work permit to work
in another member country of a common market. An example is the Common Market for Eastern and
Southern Africa (COMESA).

3.4 Economic union

This type is created when countries enter into an economic agreement to remove barriers to trade and
adopt common economic policies. An example is the European Union (EU).
 9. What is the difference between a free trade agreement and a customs union?
Provide examples of each in your answer.

Free trade union: A free trade union allows member nations to exchange goods across national
boundaries without imposing tariffs or other trade barriers. Otherwise, it respects member
states' freedom to negotiate their own trade policies with outside nations.

Customs union: A customs union allows free trade among member nations but imposes a tariff
between its collective membership and those outside. Members of the customs union cannot negotiate
their own free trade agreements with nations that do not belong to the union.

Both types of arrangements eliminate barriers between the member countries. In an FTA, countries
are free to maintain their own individual barriers to other countries. In a CU, the members also agree
to erect a common barrier to nonmember countries. Examples’: NAFTA (United States, Canada, and
Mexico), LAFTA (Latin American Free Trade Area).CU: the EU, Mercosur (Argentina, Brazil,
Paraguay, and Uruguay)
 10. What is international business? What are the primary reasons that companies
engage in international business?

International Business conducts business transactions all over the world. These transactions include
the transfer of goods, services, technology, managerial knowledge, and capital to other countries.
International business involves exports and imports. International Business is also known, called or
referred as a Global Business or an International Marketing. An international business has many
options for doing business, it includes, exporting goods and services, giving license to produce goods
in the host country, Starting a joint venture with a company, Opening a branch for producing &
distributing goods in the host country, Providing managerial services to companies in the host
country. The main reason why does company engage to the international business as below:

10.1 To Expand Sales

The first and foremost reason is that western multinationals would like to expand their sales and
acquire newer markets so that they can record impressive growth rates. Considering the fact that the
developing countries are peopled with consumers who have aspirations to western lifestyles, it is, but
natural that the western companies would like to target this need and hence, expand into these
markets. Moreover, with declining sales in one region, the western companies hope to recoup the
losses by expanding into other markets. Further, the attractive rates of return in the emerging markets
are another reason as well.

10.2 Acquire Resources

This is one of the most important reasons for companies to expand internationally. Because the
developing and emerging countries have large deposits of minerals, metals and land for agricultural
production, the western multinationals eye these markets in order to get access to the resources. This
is the reason why many international businesses operate in Africa and South Asia where the
humungous deposits of minerals and metals are attractive for the profits that these multinationals can
make. Many emerging markets and developing countries do not have the expertise or the resources
needed to tap their reserves of these minerals and metals. Hence, they welcome the multinationals
with open arms as it gives them royalties and other payments to grow their economies. As can be seen
from the expansion of Vedanta and the South Korean steel company (POSCO) into India, the
eagerness to tap the resources is one of the most important reasons for expansion.

10.3 Minimize Risk

Often, businesses expand internationally to offset the risk of stagnating growth in their home country
as well as in other countries where they are operating. For instance, ever since the Western countries
saw their growth rates slip to below 3% (in cases recording negative growth i.e. depression), the
Western multinationals have made a beeline to the emerging markets that are growing in excess of
5%. Since firms exist to make profits and grow their bottom lines, it is but natural for them to expand
internationally into countries that have better growth rates than their home country. Further, by
operating in a basket of countries as opposed to a few, they are able to manage political, economic,
and societal risks better. We had discussed the characteristics of these risks in earlier articles. Because
they vary from country to country, it makes sense to spread risk across countries and diversify the
portfolio rather than placing all eggs in one basket.

TOTAL MARKS 30%

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