Free Trade Policy

When creating trade policies both the interests of businesses and their employees and consumer interests should be considered. The government is mandated to formulate trade policies that will ensure the companies have a competitive advantage in the world market. One aim of government policies is to protect local businesses as well as create an enabling environment for Foreign Direct Investments, thus giving customers opportunities for diverse products (Zhu, 2017).

According to Porter’s theory a firm acquires competitive advantage if it can match its consumer’s complex demands. Such consumers force local firms to be innovative and meet the required product standards (Porter, 1989). Free trade policy, in this case, will, therefore, benefit the continuing consumer and businesses.

References

Porter, M. E. (1989). How Competitive Forces Shape Strategy. Readings in Strategic Management, 133-143. doi:10.1007/978-1-349-20317-8_10

Zhu, T. (2017). International Context and China’s Business–Government Relations. Business, Government and Economic Institutions in China, 195-221. doi:10.1007/978-3-319-64486-8_7

Question 2

Even though internalization and Knickerbocker’s theory are similar in scope, that is, exploring and guiding businesses wishing to undertake Foreign Direct Investment (FDI), the arguments differ both in definition and approach to international trade. The internalization theory favors investment in the foreign subsidiary as a way to expand to international markets. Internalization theory suggests that investing in a foreign subsidiary helps send knowledge across borders while keeping it within the company and yields high investment returns (Buckley, 2016).

McGrattan (2011) on the other hand, explains Knickerbocker’s theory as the strategic behaviours of rivals dictated by the FDI. However, the approach does not demonstrate FDI’s efficiency than other foreign expansion strategies like exporting and licensing. Internalization theory is the best approach to FDI because it explains the cost factor, efficiency, knowledge transfer to host countries.

References

Buckley, P. (2016). Internalization Theory. The Palgrave Encyclopedia of Strategic Management, 1-6. doi:10.1057/978-1-349-94848-2_423-1

McGrattan, E. (2011). Transition to FDI Openness: Reconciling Theory and Evidence. doi:10.3386/w16774

Question 3

The value of US dollar will fall because most consumers will purchase similar cheaper goods from other countries, hence low demand for the US dollar (Al-Zyoud, 2015). Purchasing Power Parity theory postulates that ratio of the rate of exchange and price level must be equal between two nations (Lo & Morley, 2015). Thus, a product should cost similar price in two countries after factoring in the exchange rates.

References

Lo, M. C., & Morley, J. (2015). Bayesian analysis of nonlinear exchange rate dynamics and the purchasing power parity persistence puzzle. Journal of International Money and Finance, 51, 285-302.

Al-Zyoud, H. (2015). An Empirical Test of Purchasing Power Parity Theory for Canadian Dollar-US Dollar Exchange Rates. International Journal of Economics and Finance, 7(3). doi:10.5539/ijef.v7n3p233

Question 4

A strategic alliance is the coming together of two or more entities such as governments, business, or business and governments for the achievement of common goals such as venturing into new foreign markets, sharing resources and risks, and overcoming threats of competition (Gomes, Barnes & Mahmood, 2016). Lin & Darnall, (2015) the following strategies for developing and maintain a successful alliance. For instance, the parties should: focus more on building and strengthening the relationship that the business plan; develop parameters based on the goals of the alliance and also on the alliance progress; leverage on the existing differences between the two parties for value creation; extend beyond the formal structures to embed a collaborative culture.

References

Gomes, E., Barnes, B. R., & Mahmood, T. (2016). A 22-year review of strategic alliance research in the leading management journals. International business review, 25(1), 15-27.

Lin, H., & Darnall, N. (2015). Strategic alliance formation and structural configuration. Journal of Business Ethics, 127(3), 549-564.

Question 5

Outsourcing is the activity of manufacturers seeking finished products or parts used in the production process or used in the course of administration (Alonso, Clifton, & Díaz-Fuentes, 2015). Outsourcing is good for companies because it allows the company to focus on more products or services it can produce efficiently and effectively. Therefore, enabling an outsourcing company to be more flexible and manage costs. Gorla & Somers, (2014) contend that outsourcing is cheaper because it exonerates the company costs such as hiring, setting up production plants, and costs associated with idle machinery. Thus, a company only outsources when there is the need.

References

Alonso, J. M., Clifton, J., & Díaz-Fuentes, D. (2015). Did new public management matter? An empirical analysis of the outsourcing and decentralization effects on public sector size. Public Management Review, 17(5), 643-660.

Gorla, N., & Somers, T. M. (2014). The impact of IT outsourcing on information systems success. Information & Management, 51(3), 320-335.

Question 6

 As companies expand and move to international markets, the most significant challenge is acquiring the best employees while paying attention to constraints such as culture, politics, and legal aspects. There are three international staffing approaches, namely polycentric, ethnocentric, and geocentric. Ethnocentric approach is hiring of personnel hailing from nationalities as the parent company (Lakshman, Lakshman & Estay, 2017). Companies mostly employ ethnocentric approach when hiring senior managers especially at the time of establishment to promote prevailing company culture and setting up systems and procedures.

The polycentric approach, on the other hand, is the recruitment of employees from the host country mainly to reduce foreign operations costs and understand the underlying aspects of the local market. Van Veen, Sahib & Aangeenbrug (2014) argue polycentric approach is primarily used by companies with a considerable presence in the host country.

 Lastly, geocentric approach to staffing is the recruitment of qualified candidates regardless of their nationalities. This approach is particularly practical when seeking best candidates for a particular role and if the company has a mature international presence.

References

Lakshman, S., Lakshman, C., & Estay, C. (2017). The relationship between MNCs’ strategies and executive staffing. International Journal of Organizational Analysis, 25(2), 233-250. doi:10.1108/ijoa-10-2015-0913

Van Veen, K., Sahib, P. R., & Aangeenbrug, E. (2014). Where do international board members come from? Country-level antecedents of international board member selection in European boards. International Business Review, 23(2), 407-417.