1. THE TRIAD
AND
INTERNATIONAL
BUSINESS
By Aziz Ahmed Chaudhry

2. TRIAD
O The three major trading and investment
blocs in the international arena:
O the United States,
O the EU,
O and Japan.

3. INTRODUCTION
O Over the last decade international
business activity has increased
dramatically, especially among the triad
nations.
O Foreign direct investment and trade are at
an all-time high.
O However, the most active economies of
the EU, specially Germany, France, the
UK, and Italy.

4. INTRODUCTION
O A growing number of other countries will
become increasingly prominent on the
international business stage.
O China is moving quickly to establish itself
as a major player.

5. INTRODUCTION
O Yet despite the increase of international
activity by these countries and others in
emerging economies, MNEs from the triad
will continue to account for most of the
world’s foreign direct investment and
trade.
O We begin by examining some of the main
reasons for foreign direct investment in a
triad context.

6. REASONS FOR FOREIGN
DIRECT INVESTMENT
O Foreign direct investment (FDI) is the
ownership and control of foreign assets.
O In practice, FDI usually involves the
ownership, whole or partial, of a company
in a foreign country. This is called a
foreign subsidiary.
O Equity investment can take a variety of
forms. One is through the purchase of an
ongoing company.

7. REASONS FOR FOREIGN
DIRECT INVESTMENT
O Another common example of FDI is to set
up a new overseas operation as either a
joint venture or a totally owned enterprise.
O It is important to remember that FDI is
different from portfolio investment, which
entails the purchase of financial securities
(especially bonds) in other firms for the
purpose of realizing a financial gain when
these marketable assets are sold.

8. REASONS FOR FOREIGN
DIRECT INVESTMENT
O The objective of FDI is to provide the
investing company with the opportunity to
actively manage and control a foreign
firm’s activities.
O While the objective of portfolio investment
is to achieve growth in the value of its
financial holdings.

9. REASONS FOR FOREIGN
DIRECT INVESTMENT
O There are a number of reasons that
businesses are interested in taking an
ownership position or gain control of
foreign assets.
O The following examines some of the most
important of these.

10. INCREASE SALES AND
PROFIT:
O Some of the largest and best-known
multinationals earn millions of dollars each
year through overseas sales.
O Companies in smaller economies need to
look outside of their home borders.
O Nearly 90 percent of Nestle’s assets are
outside Switzerland.

11. INCREASE SALES AND
PROFIT
O Over 50 percent of Royal Dutch/Shell’s
sales originate outside its home markets.
O There are also thousands of smaller firms
worldwide that earn the bulk of their
revenue from international customers.

12. INCREASE SALES AND
PROFIT
O SMEs also find that with the growth of
large multinationals there is often a need
for local suppliers and, if they do well,
there is a good chance that the MNE will
extend the contract and allow them to
supply other worldwide locations.
O In addition, global markets often offer
more lucrative opportunities than do
domestic markets.

13. INCREASE SALES AND
PROFIT
O This helps to explain why Coca-Cola and
IBM now earn more sales revenue and
profits overseas than they do in the US,
and why PepsiCo has become Mexico’s
largest consumer products company.
O In Japan, it helps to explain why 83
percent of Nippon Mitsubishi Oil’s and
over 50 percent of Toyota’s revenues
come from overseas sales.

14. ENTER RAPIDLY GROWING
MARKETS
O Some international markets are growing much
faster than others, and FDI provides MNEs
with the chance to take advantage of these
opportunities.
O A good example is China. Over the past few
years the Chinese economy has grown at an
annual rate of around 7-8 percent.
O These date also point to the fact that, if the
country continues to move toward a market-
driven economy, MNEs are likely to find a
huge demand for goods and services that
cannot be satisfied by local firms alone.

15. REDUCE COSTS:
O An MNE can sometimes achieve
substantially lower costs by going abroad
than by producing at home.
O If labor expenses are high and represent a
significant portion of overall costs, an
MNE may be well advised to look to other
geographic areas where the goods can be
produced at a much lower labor price.

16. REDUCE COSTS:
O A second important cost factor is materials. If
materials are in short supply or must be
conveyed a long distance, it may be less
expensive to move production close to the
source of supply than to import the materials.
O A third critical cost factor is energy. If the
domestic cost of energy for making the
product is high, the company may be forced to
set up operations overseas near sources of
cheaper energy.

17. REDUCE COSTS:
O A fourth important factor is transportation
costs. In the recent past Chinese textile
firms had gained a major share of the US
market.
O Production costs were so low that, even
after adding in transportation expenses,
they were able to beat out most
competitors.
O This is no longer true, however.

18. REDUCE COSTS:
O Mexican firms, armed with the latest
technology, can now produce high quality,
low cost textiles that can be quickly
shipped to US customers.
O The US now buys more textile products
from Mexico than from China.

19. GAIN A FOOTHOLD IN
ECONOMIC BLOCS
O There are three major international economics
blocs.
O MNEs that acquire a company in one of these
blocs or that enter into an alliance to do
business in one of these economic
strongholds can obtain a number of benefits
including the right to sell their output without
having to be burdened by import duties or
other restrictions.
O The final result will be three extended triads
and any company that wants to do business
worldwide will have to have a presence in all
three blocs.

20. PROTECT DOMESTIC
MARKETS:
O Another reason for FDI is to protect one’s
domestic market.
O Many MNEs are now entering an
international market in order to attack
potential competitors and thus prevent
them from expanding their operations
overseas.
O These multinationals reason that a
competitor is less likely to enter a foreign
market when it is busy defending its home
market position.

21. PROTECT DOMESTIC
MARKETS:
O Similarly, sometimes an MNE will enter a
foreign market in order to bring pressure
on a company that has already challenged
its own home market.
O For example, 10 days after Fuji began
building its first manufacturing facility in
the US, Kodak announced its decision to
open a manufacturing plant in Japan.

22. PROTECT FOREIGN
MARKETS:
O Sometimes MNEs will use FDI in order to
protect their foreign markets.
O British Petroleum (BP) merged with
Amoco, thus assuring itself of a solid
market share and, in the process,
protecting its investment in this foreign
market.
O Had it not done this, local competitors
would inevitably have eroded the firm’s
position.

23. TRAID ECONOMIES
O The triad nations dominate the world trade
and investment, and a great deal of this
activity takes place both among and within
triad nations.
O For example, the US and Japan do
approximately $210 billion of trade
annually, the US and EU account for over
$380 billion of trade, and the EU and
Japan do $120 billion of business
annually.

24. TRAID ECONOMIES
O One of the major area of triad trade is
automobiles, which provide an excellent
example of the economic
interrelationships that exits between triad
members.