Question #1
The NAFTA was created in 1994 in order to improve the condition and process of business trade in North America. Specifically, it does this by getting rid of the tariff barriers and improving the trade infrastructures (“Chapter 8”). One particular business that benefited from the emergence of NAFTA was Walmart in Mexico. The combination of Mexico’s low-costs labor and NAFTA’S improved infrastructure and lower tariffs gave Walmart an extremely high competitive advantage. This is because while businesses like Comerci, Walmart’s main competitor, chose to make a profit out of the differences the lower tariffs made, Walmart chose to lower their prices in order to attract more consumers. And it worked. NAFTA established the foundations of Walmart’s success, but their own strategies were what solidified their triumph.
It wasn’t just Walmart that benefited from this success; the citizens of Mexico did as well. Walmart provided more jobs for Mexicans and they actually pay relatively well considering the Mexican standards. Walmart also provides its employees with state health and pension systems (Lyons, 2007). Unfortunately, some Mexicans are not happy with the fact that Walmart accounts for half of the country’s over-all supermarket sales. In short, Walmart is giving local markets and shopkeepers a run for their money (Lyons, 2007).
These competitors that Walmart has should develop their own competitive strategies that can match that of Walmart’s. Lowering prices has already been done by Walmart and no matter how low Comerci priced their products, they cannot seem to compete with the huge success of Walmart. What Comerci and other local competitors should do is think of another way to distinguish their own businesses from Walmart. They should attract more consumers by showing how their products are unique and, in turn, better than those found in Walmart.
Question #2
Multi-national enterprises such as Coca-Cola and Anglo American rely on complementarity to maintain their corporation’s success. Complementarity is when two businesses benefit from each other because one can provide a certain need of the other and vice versa. This concept of complementarity can be applied to equipment, components, or products that corporations need in order to stimulate foreign trade. Coca-cola is the best known and most successful softdrinks manufacturer in the world, and as such, they need millions of bottles to be able to package their products. This results in a complementary relationship with canning and bottling companies in South Africa. Their bottling partners manufacture, package, merchandise, and distribute their final products (Coca-Cola, 2014). In turn, these bottling manufacturers need Coca-cola’s beverages; otherwise, they would just be selling empty bottles.
Anglo American, on the other hand, is one of the world’s largest mining companies. Because of this, they have entered into a complementary partnership with mining equipment suppliers (Carroll, 2010). These suppliers provide Anglo American with excavation equipment such as drills, explosives, trucks, bulldozers, cranes, and mining shovels. They also provide equipment for mine transport such as lifts and trams; minerals processing equipment like mills, roasters, sluices, jigs, crushers, and screens; and mining safety products like helmets and gloves. In return, Anglo American provides these mining equipment suppliers with good money and good business. It is even part of their company values to be able to establish a durable relationship with their local business partners that will enhance the opportunities and capacities of the people they are collaborating with (Carroll, 2010).
Question #3
The Big Mac Index was created in 1986 by The Economist as a playful guide to knowing the condition of countries’ currencies (The Economist, 2014). It was based on the theory of the purchasing-power parity, which states that exchange rates must move towards a rate that equalizes the prices of identical goods in any two countries. In this case, The Economist thought of the Big Mac as that identical good because of McDonald’s extremely high presence in the global market (The Economist, 2014). It was never intended to be a serious tool to gauge currency misalignment; rather, it was intended only to make the exchange-rate theory more understandable to lay people. Nevertheless, the Big Mac Index has gained both popularity and credibility.
For example, with the use of the Big Mac Index, it can be concurred that the price of the Big Mac has increased from the year 2009 to the year 2014. The prices of Big Mac are shown in both the local currency of each country and in US dollars. Almost all countries, with the exception of Japan and Argentina, have seen the rise of Big Mac prices. In United States alone, there has been a $1.08 increase. The the highest price increase is in Austria, with their Big Mac costing $2.19 in 2009 and costing $4.6 now (“Chapter 9”; The Economist, 2014). Another change is that in 2009, it was least expensive to buy a Big Mac in Malaysia but now it is least expensive to buy it in South Africa (“Chapter 9”; The Economist, 2014). What hasn’t changed is that Norway is still the country where it is most expensive to buy a Big Mac (“Chapter 9”; The Economist, 2014). Other than currency overvaluation and undervaluation, the differences in Big Mac prices among countries can also be attributed to the different production costs. Each country has different costs for labor, raw materials, and transportation. There are also different tax structures and different consumers with different buying powers.
Question #4
Martin A. Weiss’ article looks back at the purpose of the IMF and how the US Congress believes it can still be improved upon (Weiss, 2014). On December 27, 1945, the International Monetary Fund was conceived to promote international monetary cooperation, to facilitate exchange-rate stability, and to adjust imbalances in the balance-of-payments (Weiss, 2014). Other purposes of the IMF are to help its more than 180 members by providing resources, assisting with poverty reduction, and advising countries on economic policy adjustments (“Chapter 10”). Due to this extremely important responsibility of the IMF, it is only expected that it has gained a substantial influence on each country’s economy and economic policies. One of the countries that are most highly involved with the IMF is the United States. According to Weiss (2014), the US Congressional interest in IMF has heightened due to the financial crisis in the year 2008. The crisis saw the increased IMF lending, especially to countries such as Greece, Portugal, and Ireland (Weiss, 2014).
Another reason as to why US Congress aims to examine the inner workings of the IMF and how it affects countries is that the US has a huge influence on IMF itself. When a country becomes a member of the IMF, it is required to provide a quota. A quota is a sum of money based on the economic capacity of that country and is given as a contribution (Chapter 10). The IMF uses quotas to lend money to countries in need of technical assistance. The quota also determines the voting rights of the members. Since the United States is the IMF’s largest financial contributor, it also has the most significant voting power. With this in mind, along with the huge help that the IMF has given to countries in the past 70 years, the US congress suggests that the IMF increase the voting share of emerging economies, create new facilities for low-income countries, and create a road map for resolving economic imbalances.
Question #5
Upon visiting Alibaba.com, I would purchase a laptop from Ringrow Co. Ltd in Japan. The product is a used HP Elite Book 8440P and is priced at US $487 (Alibaba, n.d.). I chose this product for two reasons: it is cheaper and the supplier is trustworthy. The original price was US $1699 which means that buying this product will save me US $1212, excluding the shipping fees. I chose the supplier Ringrow Co. Ltd because it is a small but well-known and highly praised trading company. It has even won its 2nd year as an Alibaba Gold Supplier (Alibaba, n.d.). I also chose a supplier from Japan because it is the country with the best electronics manufacturer in the world.
But why should I buy a laptop online in the first place? Because there are many benefits to websites such as Alibaba. It is a more convenient way of shopping and the products are significantly cheaper than the ones sold in outlet stores. The other benefits of e-commerce or online businesses are reduced operation costs, higher business efficiency, increased automation of processes, and competitive advantage (Ghadami, Aghaie, & Mohammadkhan, 2009). However, there are still a few disadvantages to websites like these, such as security. Online fraud has always been a huge controversy, especially in the 21st century where e-commerce has become increasingly popular. Another disadvantage is the possibility of technical malfunctions such as the web site crashing. Other than these disadvantages, the global financial crisis could also possibly discourage people to buy online—or even at all. However, despite these drawbacks, more and more people are still supporting the e-commerce industry. This is because despite the possibility of fraud, the new generation still relies heavily on online activities and it doesn’t seem like it is going to stop any time soon. Most of the young people’s lives are lived on the Internet; shopping is just one aspect of their online lives.
Question #6
Every multinational enterprise has to export their products. Because of this, MNEs (Multinational Enterprises) need to develop a highly efficient exporting strategy to ensure optimal results. There are five different kinds of sub-strategy that are involved in the over-all exporting strategy. These are market entry strategy, product/service strategy, business process strategy, operations strategy, and financial strategy (Victorian Business Line, 2013). Every up-and-coming MNE has to first determine which market entry mode it will use and then determine the products or service it will offer. With those in mind, it is important to then determine whether the company will use differential pricing or cost-plus pricing.
The business process strategy has more to do with the actual exporting process as this is the part where a company will choose how to export their products, either by sea freight or air freight. It is of course important for all MNEs to consult first with their freight forwarder. They should also handle all proper insurances for the loss or damage of goods during the exportation processes. Furthermore, an outline of how the export function will be organized is necessary and must include descriptions of roles and responsibilities and organizational charts. The operations strategy entails detailing how the company activities and processes will specifically handle additional export requirements. Lastly, the financial strategy should outline all costs of pre-shipment, working capital, and post shipment. This helps the company better budget and be more financially equipped all throughout the exportation process.
Question #7
L. M. Ericsson is one of Sweden’s most successful MNEs and it provides products and services to the largest mobile network operators in the world (“Chapter 18”). For the last 138 years since it was founded, Ericsson has astoundingly managed to make a huge impression on different countries from all over the world. 28 percent of its sales are generated in Africa, the Middle East, and Eastern Europe. With Ericsson’s huge sales that equate to huge profits, it is only logical that they implement strict accounting standards and practices.
Because no corporation functions in a vacuum, this means that every company is working within a certain context. This context gives rise to external factors that heavily influence the inner workings of a company. This holds true for the Swedish MNE, Ericsson. Its accounting standards are shaped by things such as culture, capital markets, and regional and global standards-setting groups. Its internal influences, on the other hand, are the management and accountants. Having considered all these, it is especially difficult for Ericsson to establish stable and efficient accounting practices. This is especially so because they have more external influences to consider. Because Sweden is a member of the European Union, it is mandated to adopt IFRS as the foundation of processes involved in financial statements (“Chapter 18”). Being a Swedish MNE, Ericsson is included in this mandate. Although it was estimated that complying with this requirement would result in a difference of 1.5 billion Swedish kronor, this was proven wrong. After meticulous studies and strict implementations, it has been concluded by Ericsson that there are no substantial differences between adopting full IFRS and the IFRS mandated by the EU (Chapter 18). Having arrived at this conclusion, it seems that adopting either of the two accounting practices would still be a win-win situation to an already successful company such as Ericsson.
Question #8
Each company needs to have a perceptive and innovative human resource department that can construct and implement great HRM policies. Their responsibility to the company is to find the most appropriately qualified people for the job. For MNEs, this task is more difficult because they are handling people at a larger and wider scale. They are also constantly handling businesses in different countries outside of their headquarters. This entails the recruitment and training of a whole new group of employees for this specific job alone.
Since the job requires employees to go to other places, companies need people who can control foreign operations, introduce the company’s core business practices into the new territory, enhance the managers’ business skills, and promote an organization culture (“Chapter 18”). To make sure that their employee can fulfill all those, the company must consider the managerial candidate’s technical competence, adaptiveness, and leadership ability. Considering all these, it seems that the best candidate for Tel-Comm-Tek’s new managing director in India is Saumitra Chakraborty. He excels in all three characteristics. Seeing that his performance in operational matters is always rated as competent and his performances in sales, employee relations, and customer relations are rated as excellent, he is qualified to be able to train his new employees properly. His stay and education in Europe, his connections with many people, and his multi-lingual capabilities make him extremely adaptive to various environments. Lastly, his experience as an assistant to the former managing director in India has equipped him with the proper leadership skills that will enable him to immediately gain the trust and respect of all workers, regardless of the country he is working in (“Chapter 18”).
References
Alibaba. (n.d.). Company profile. Retrieved from http://rsscorporation.trustpass.alibaba.com/company_profile.html
Alibaba. (n.d.) Product detail. Retrieved from http://rsscorporation.trustpass.alibaba.com/product/174372102-106014409/Used_HP_Elite_Book_8440P_WJ681AW_ABJ_used_computer_in_fine_condition_20140618_2_1_.html
Caroll, C. (2010). Local procurement at Anglo American. Retrieved from http://www.angloamerican.com/~/media/Files/A/Anglo-American-Plc/siteware/docs/SC_LocalProcurement_Overview.pdf
Coca-Cola. (2014). The Coca-Cola system. Retrieved from http://www.coca-colacompany.com/our-company/the-coca-cola-system
Ghadami, F., Aghaie, A., and Mohammadkhan, M. (2009). The impact of financial crisis on B2C e-commerce. Retrieved from http://www.SciRP.org/journal/ib
Lyons, J. (2007). In Mexico, Wal-Mart is defying its critics. Retrieved from http://online.wsj.com/articles/SB117306306522126623
The Economist. (2014). The Big Mac index. Retrieved from http://www.economist.com/content/big-mac-index
Victorian Business Line. (2013). Developing an export strategy. Retrieved from https://www.business.vic.gov.au/__data/assets/pdf_file/0010/76276/DEVELOPING-AN-EXPORT-STRATEGY-FINAL.pdf
Weiss, M.A. (2014). International Monetary Fund: Background and issues for Congress. Retrieved from http://fas.org/sgp/crs/misc/R42019.pdf
