JAWABAN ATAS KELUHAN

Ketika kita mengeluh : “Ah mana mungkin.....”
Allah menjawab : “Jika AKU menghendaki, cukup Ku berkata “Jadi”, maka jadilah (QS. Yasin ; 82)

... ... ... Ketika kita mengeluh : “Capek banget gw....”
Allah menjawab : “...dan KAMI jadikan tidurmu untuk istirahat.” (QS.An-Naba :9)

Ketika kita mengeluh : “Berat banget yah, gak sanggup rasanya...”
Allah menjawab : “AKU tidak membebani seseorang, melainkan sesuai kesanggupan.” (QS. Al-Baqarah : 286)

Ketika kita mengeluh : “Stressss nih...Panik...”
Allah menjawab : “Hanya dengan mengingatku hati akan menjadi tenang”. (QS. Ar-Ro’d :28)

Ketika kita mengeluh : “Yaaaahh... ini mah semua bakal sia-sia..”
Allah menjawab :”Siapa yang mengerjakan kebaikan sebesar biji dzarah sekalipun, niscaya ia akan melihat balasannya”. (QS. Al-Zalzalah :7)

Ketika kita mengeluh : “Gile aje..gw sendirian..gak ada seorangpun yang mau bantuin...”
Allah menjawab : “Berdoalah (mintalah) kepadaKU, niscaya Aku kabulkan untukmu”. (QS. Al-Mukmin :60

Ketika kita mengeluh : “ Duh..sedih banget deh gw...”
Allah menjawab : “La Tahzan, Innallaha Ma’ana. Janganlah kamu berduka cita, sesungguhnya Allah beserta kita:. (QS. At-Taubah :40)

Cinta dan waktu

Alkisah Disuatu pualu kecil, tiggallah berbagai macam benda abstrak: ada cinta, kesedian, kekayaan, kegembiraan dan sebagainya. Mereka hidup berdampingan dengan baik.

Namun suatu ketika, badai menghempas pulau kecil itu dan air laut tiba-tiba naik dan akan Menggelamkan pulai itu. Semua penghuni pulau cepat-cepat berusaha menyelamatkan diri. Cinta sangat kebingungan sebab ia tidak memiliki perahu dan ia tidak dapat berenang. Ia berdiri ditepi pantai mencoba mencari pertolongan. Sementara itu air makin naik membasahi kaki cinta.

Ikan kecil dan air

Suatu hari seorang ayah dan anaknya sedang duduk berbincang-bincang ditepi sungai. Kata ayah kepada anaknya, “lihatlah anakku, air begitu penting dalam kehidupan ini, tanpa air kita semua akan mati.”

Pada saat yang bersamaan, seekor ikan kecil mendengarkan percakapan itu dari bawah permukaan air, ia mendadak menjadi gelisah dan ingin tahu apakah air itu, yang katanya begitu penting dalam kehidupan ini. Ikan kecil itu berenang dari hulu sampai ke hilir sungai sambil bertanya kepada setiap ikan yang ditemuinya, “hai,tahukah kamu dimana air itu? Aku telah mendengar percakapan manusia bahwa tanpa air kehidupan akan mati”

Selalu ada sisi baik.

Jadilah pihak yang selalu optimis dan berusaha untuk melihat kesempatan disetiap kegagalan. Jangan bersikap pesimis yang hanya melihat kegagaan di setiap kesempatan, orang optimis melihat donat, sedangkan orang pesimis melihat lubangnya saja.

Meningkirkan duri

Kita berbuat baik tentunya bukan untuk mengharaokan sesuatu. Karena kita sadar itulah peran yang harus kita mainkan. Adalah kewajiban kita untuk menyingkirkan duri dijalan yang sedang kita lalui, bukan saja agar tak melukai ita, namun untuk menjaga para perjalan lain.

Singkirkan ketakutan

Jaln keberhasilan ini adalah milik anda. Pada saat anda menyadari bahwa and bertanggung jawab penuh atas segala sesuatunya, dan anda tak menemukan alsan apa pun untuk menyalahkan orang lain, di saat anda menemukan jalan anda sendiri. Disaat itulah anda nenyadari kebebasan dan kehilangan ketakutan. Hanya anda yang mampu memikul hidup anda, bukan orang lain.

Delapan kado terindah.

Delapan macam kado terindah ini adalah hadiah dan tak ternilai bagi orang-orang yang akan anda sayangi.

Kehadiran

Kehadiran orang yang dikasihi rasanya adalah kado yang tak ternillai harganya. memang kita bisa juga hadir dihadapannya lewat surat, telpon, foto atau faks. Namun denagn berada disampingnya, anda dan dia dapat berbagi perasaan, perhatian dan kasih sayang secara lebih utuh dan intensif. Jadikan kehadiran anda sebagai pembawa kebahagiaan.

Pertunjukan terakhir.

Seorang pemain sirkus memasuki hutan untuk mencari anak ular yang akan dilatih bermain sirkus. Beberapa hari kemudian, ia menemukan beberapa anak ular dan mulai melatihnya. Mula-mula anak ular itu dibelitkan pada kakinya. Setelah ular itu menjadi besar dilati untuk meakukan permainan yang lebih berbahaya, diantaranya membelit tubuhnya.

Relatif.

Panggung 1. Jauh disebuah dusun nelayan dengan bau laut yang kental. Seorang paman menanyakan kabar keponakannya yang telah lama pergi kekota. Dengan bangga, ibunya menjawab, “sukurlah, sekarang hidup bejo sudah enak. Dia bekerja sebagai petugas kebersiha digedung tinggi.”

Panggung 2. Disebuah gedung perkantoran ditengah kota yang sibuk, seorang bos berdasi menanyakan tentang seorang pegawai yang tampak lusuh. Dengan gugup, manajernya menjawab, “namanya bejo pak! Pegawai rendaah dibagian kebersihan. Sayang, nasibnya tidak sebaik namanya.”

Tak ada yang sia-sia

Optimisme adalah memandang hidup ini sebagai persembahan terbaik. Tidak ada sesuatu yang terjadi begitu saja dan mengalir sia-sia. Pasti ada tujuan. Pasti ada maksud. Mungkin saja anda mengalami pengalaman buruk yang tak mengenakkan, maka keburukan itu hanya karena anda melihat dari salah satu sisi mata uang saja. Bila anda berani menengok ke sisi yang lain, anda akanmenemukan pemandangan yang jauh berbeda.

Anda tidak harus menjadi orang tersenyu terus atau menampakkan wajah yang ceria. Optimisme terletak di dalam hati, bukan hanya terampang di muka. Jadilah optimis, karena hidup ini terlalu rumit untuk dipandang dengan mengerutkan alis.

INTERNATIONAL MARKET ANALYSIS INDOFOOD SUKSES MAKMUR TBK

A.    Company Profile

                   PT Indofood Sukses Makmur Tbk (“the Company”) was established in the Republic of Indonesia on August 14th, 1990 under its original name PT Panganjaya Intikusuma, based on Notarial Deed No. 228 of Benny Kristianto, S.H.

                   The Company’s head office is located at Sudirman Plaza, Indofood Tower, 27th Floor, Jln. Jend. Sudirman Kav. 76 ‐ 78, Jakarta, Indonesia, while its factories are situated in various locations in Java, Sumatera, Kalimantan, Sulawesi islands and Malaysia.

Kisah sebuah batu kusam

Suatu ketika seorang pengrajin batu berjalan di gunung yang sangat gersang dan melihat seonggok batu dengan warna coklat kusam yang telah diseimuti oleh lumut dan kenampakan luarnya relatif lapuk. Kemudian dengan sekuat tenaga sang pengrajin tersebut mengayun godamnya mengenai batu hingga mendapatkan bongkahan batu sebesar kepala dan mulai terlihat warna asli dari batu tersebut adalah putih.

Gagal siapa takut?

Apakah anda taut gagal? Sedemikian takutnya sampai anda tidak berusaha untuk mencoba? Coba anda pikirkan kembali, hal tersebut benar-benar tidak masuk akal, dengan dengantidak mencoba barang sekalipun, sebenarnya anda gagal. Jadi rasa takut gagal adalah penyebab kegagalan yang pasti.

Masalah adalah tantangan

Bila anda menganggap masalah sebagai beban, anda mungkin akan menghindarinya. Bila anda menganggap masalah sebagai tantangan, anda mungkin akan menghadapinya. Namun, masalahnya adalah hadiah yang dapat anda terima dengan suka cita. Dengan pandangan tajam, anda melihat keberhasilan di balik setiap masalah.

Kesempatan yang tersembunyi

Bila anda tak pernah melakukan kesalahan, ada baiknya anda melihat lagi langkah anda. Jangn-jangan anda tak melangkah setapak pun. Kesalahan memang tak mengenakkan, namun aeorang optimis lebih banyak belajar dari kesalahan dari pada keberhasilan. Kesalahan menuntun anda untuk mempelajari kembali anda untuk mengambil tindakan yang lebih baik.

Satu langkah kedepan

Tetaplah bergerak maju, sekalipun lambat. Karena dalam keadaan tetap bergerak, anda menciptakan kemajuan. Adalah jauh lebih bergerak maju, sekali pun pelan, dari tidak bergerak sama sekali.

Dalam hidup kita sering merasa buntu hanya karena kita ingin mengambil satu langkah yang terlalu besar, langkah raksasa. Akhibatnya, masalah kita jadi terlihat besar sekali, kompleks dan tak terselesaikan. Hasilnya, anda hanya termenung dan tidak bergerak.

Melawan diri sendiri

Kemenangan sejati bukan lah kemenangan atas orang lain. Namun, kemenangan atas diri sendiri. Berpacu di jalur keberhasilan diri adalah pertandingan untuk mengalahkan rasa ketakutan, keengganan, dan semua beban yang menambat diri ditempat start.

Tujuh keajaiban dunia

Sekelompok siswakelas geografi sedang mempelajari “tujuh keajaiban dunia”. Pada awal dari pelajaran, mereka diminta untuk membuat daftar apa yang mereka pikir merupakan “tujuh keajaiban dunia” saat ini. Walau pun ada beberapa ketidaksesuaian, sebagian besar daftar berisi:

Mempertaruhkan hidup.

Didepan para muridnya, seorang guru menceritakan pengalaman bertemu dengan seorang veteran prajuri mantan penerbangan perang dunia II. Pada suatu hari, prajurit tersebut harus menerbangkan ratusan pekerja rodi dari cina untuk menggarap proyek jalan lalulintas hutan di myanmar.

Merasakan keindahan

Bukalah mata anda. Apa yang anda lihat? Sekumpulan orang sibuk berjalan dan bergumam tak mementu? Lihat lah wajah mereka? Wajahnya muram, ketus? Raut muka yang curiga, atau bahkan tak berekspresi? Namun, tidakkah anda perhatikan, ada seseorang yang tersenyum kepada anda? Lihatlah sekai lagi. Coba, lebih  teliti lagi kali ini. Tidakkah anda melihat pohon-pohon yang melambai, menyampaikan salam kepada anda?

Rasa sebuah ketulusan

Seorang teman karib mengahampiri meja kerja anda, dan memungut sebatang pencil yang patah. Pintanya, “boleh aku pinjam ini?” anda yang sibuk hanya dengan menengok sekelebat dan berkata, “ambil saja”. Setelah itu anda lupa akan kejadian itu selamanya. Padahal bagi teman anda, pensill patah itu amat berharga demi pengerjaan tugasnya.

Hukum menabur dan menuai

Pada suatu hari seorang pemuda sedang berjalan ditengah hutan, tiba-tiba ia mendengar jeritan minta tolong. Ternyata ia melihat seorang emuda sebaya dengan dia sedang bergumul dengan lumpur yang mengambang, semakin bergerak malah semakin dalam ia terperosok. Pemuda yang pertama tadi hendak sekuat tenaga memberikan pertolongannya, dengan susah payah pemuda yang pertama memapah pemuda yang terperosak ini pulang ke rumahnya.

Hadiah

Bayangkan ada sebuah bank yang memberikan anda pinjaman uang sejumlah Rp 86.400,- setiap paginya. Semua uang itu harus anda gunakan. Pada malam hari, bank akan menghapus sisa uang yang tidak anda gunakan sehari. Coba tebak apa yang akan anda lakukan? Tentu saja, menhabiskan semua uang pinjaman itu.

hidup adalah pilihan

ada dua buah bibit tanaman yang terhampar di sebuah ladang yang subur. Bibit yang terhampar di sebuah ladang yang subur. Bibit yang pertama berkata, “aku ingin tumbuh besar, aku ingin menjejekkan akarku dalam-dalam ditanah ini, dan menjulangkan tunas-tunasku di atas kerasnya tanah ini.  Aku ingin membentangkan semua tunas ku, untuk menyampaikan salam musim semi. Aku ingin merasakan kehangatan matahari, dan kelembutan embun pagi di pucuk-pucuk daunku”

dan bibit itu tumbuh, makin menjulang.

Sandal kulit sang raja

Seorang maharaja akan berkeliling negri untuk melihat keadaan rakyatnya. Ia memutuskan untuk berjalan kaki saja. Baru beberapa meter berjalan di luar istana kakinya terluka karena kakinya terantuk batu. Ia berfikir,”ternyata jalan-jalan di negriku ini jelek sekali. Aku harus memperbaikinya.”

Sahabat

 Periksalah kembali persahabatan yang pernah anda rajut. Apakah masih terbentang disana? Atau anda telah melupakannya jauh sebelum ini. Bekerja keras dan meniti jalan karier bukan berarti memisahkan anda dari persahabatan. Beberapa orang mengatakan bahwa menjadi pemimpin itu berteman sepi, selalu mengerjakan apapun sendiri. Memang pohon yang menjulang tinggi berdiri sendiri. Perdu yang rendah tumbuh bersemak-semak. Demikian hidup yang ingin anda jalani? Bukan. Jangan kacaukan karier dengan kehidupan yang semestinya. Persahabatan merupakan bagian dari hidup anda. Binalah persahabatan. Anda akan merasakan betapa kayaknya hidup anda. Berbagi kebahagiaan pada sahabat, memperkokoh kebahagiaan.

Jendela rumah sakit.

Dua orang pria, keduanya menderita sakit keras, sedang dirawat di sebuah kamar rumah sakit. Seorang diantaranya menderita suatu penyakit yang mengharuskannya duduk ditempat tidur selama satu jam disetiap sore untuk megosongkan cairan dari paru-parunya. Kebetulan, tempat tidurnya berada tepat disisi jendela satu-satunya yang ada dikamar itu.Sedangkan pria yang lain harus berbarng lurus di atas punggungnya.

Setiap hari mereka saling bercakap-cakap selama berjam-jam. Mereka membicarakan istri dan keluarga mereka, rumah, pekerjaan, keterlibatan mereka diketentaraan, dan tempat-tempat yang pernah mereka kunjungi selama liburan.

Kesempatan terbaik.

Kesempatan adalah waktu, karena ia hanya datang sekali. Kesempatan adalah peluang, karena anda dapat mengambil atau mengabaikanya, kesempatan adalah keleluasaan, karena ia membuka jalan-jalan baru dimasa depan. Dihadapan anda berjajar pintu-pintu kesempatan tak terhingga yang terbuka lebar, anda hanya bisa memilih satu dan tak ada jalan kembali. Karenanya, putuskanlah yang terbaik bagi anda. Nasib anda tidak memihak pada siapa-siapa, melainkan pada keputusan anda.

Kasih sayang

Apalah artinya perbedaan dibandingkan dengan persamaan diantara kita. Bukan kah kita sama sama membutuhkan sesuap nasi tanak dan seteguk air segar demi memenuhi lapar dan dahaga? Kita juuga sama sama menangis dikala sedih dan tertawa dikala gembira. Kita sama-sama gemetar sewaktu ketakutan melanda serta tergelak ketika kegembiraan menerpa. Kita sama-sama berkeringat dibawah terik matahari, dan menggigil ditelan dininnya malam. Tidakkah kita melihat begitu banyaknya persamaan diantara kita sampai-sampai sulit menghitungnya?

Nikmatilah hidup ini.

Seberapa luas dunia yandg anda ciptakan? Beberapa orang hanya memmiliki dunia seluas meja tulisnya. Atau sepetak ruang kerjanya. Atau mungkin sebesar gedung kantornya saja. Pandang lah keluar. Tebarkan pandangan anda dan carilah ujung cakrawala. nikmatilah cahaya matahari sore meneani perjalanan pulang anda kerumah. Dunia anda jauh lebih luas dari yang anda sangka. Ruang yang tersedia bukan hanya antara rumah dan ruang kerja anda. Anda diamugerahi lautan, pegunungan, hutan mata air dan berbagai keindahan alam lainya. Sadarilah bahwa semua ini takkalah berharganya. Karena itu, jangan sia siakan waktu anda untuk meleburkan keindahan yang tiada tara. Jangan ragu untuk meninggalkan pekerjaan anda, esok masih ada, kecuali anda mau menyesal karena disaat pandangan anda telah lamur, anda baru tersadar akan keelokan alam ini.

Surat Untuk Ibu

              ibu,,,,, sudah terlalu banyak berkorban untuk anak-anak mu, ku masih ingat semua perkataan dan nasehat serta harapan-harapan mu. ku dapat melihat setiap rangkaian kata yang terucap membawa harapan yang ingin terwujudkan. semua harapan mu menjadi semagat bagi ku untuk terus melangkah mengarungi bahtera kehidupan. meskipun terkadang anak mu ini terkadang mereka merasa tak mampu untuk itu. namun, anakmu ini akan terus berjuang demi senyuman seorang ibu,

     

ORGANISASI KOPERASI

          Organisasi koperasi adalah suatu cara atau sistem hubungan kerja sama antara orang-orang yang mempunyai kepentingan yang sama antara orang-orang yang mempunyai kepentingan yang sama dan bermaksud mencapai tujuan yang ditetapkan bersama-sama dalam suatu wadah koperasi.

          Sebagai organisasi koperasi mempunyai tujuan organisasi yang merupakan kumpulan dari tujuan-tujuan individu dari anggotanya, jadi tujuan koperasi sedapat mungkin harus mengacu dan memperjuangkan pemuasan tujuan individu anggotanya, dalam operasionalnya harus sinkron.

Managing Diversification

Introduction

Jindals, the Indian steel group have moved into various new businesses in recent years.  After having set up a captive power plant to support their Vijayanagar steel plant in the mid-1990s, the group has been looking at electricity as a separate revenue stream and started supplying power to the Karnataka Power Transmission Corporation through an independent entity, JSW Energy.  The Jindals are also expanding their power capacity with the aim of selling surplus power especially when the spot rates are high.  A senior Jindal executive[1] recently mentioned: “We want to enter all fields of energy including wind and solar… our aim is to be in all segments such as transmission, generation and trading in the next five years. “The other sectors Jindal is looking seriously at, are cement and aluminium. Jindal is clearly betting on diversification to generate growth.

Should companies concentrate on one business or should they be holding a portfolio of businesses? That is the topic which we will discuss in this article. Concentration enables a company to focus on the business it knows best. Yet, concentration beyond a point is a risky strategy. Indeed, most firms are diversified to some extent. Rare is the firm which is focused only on one business.

Accounting in the International Business

Country Differences in Accounting Standards

Accounting is shaped by the environment in which it operates. Just as different countries have different political systems, economic systems, and cultures, they also have different accounting systems. In each country, the accounting system has evolved in response to the demands for accounting information.

Despite attempts to harmonize standards by developing internationally acceptable accounting conventions , a myriad of differences between national accounting systems still remain.

Global Human Resource Management

Introduction

Human resource management refers to the activities an organization carries out to use its human resource effectively. These activities include determining the firm's human resource strategy, staffing, performance evaluation, management development, compensation, and labor relations.

The strategic role of HRM is complex enough in a purely domestic firm, but it is more complex in an international business, where staffing, management development, performance evaluation, and compensation activities are complicated by profound differences between countries in labor markets, culture, legal systems, economic systems, and the like .

Global Marketing and R&D

The Globalization of Markets?

In a now-famous Harvard Business Review article, Theodore Levitt wrote lyrically about the globalization of world markets. Levitt's arguments have become something of a lightning rod in the debate about the extent of globalization. The rise of global media such as MTV , and the ability of such media to help shape a global culture, would seem to lend weight to Levitt's argument. If Levitt is correct, his argument has major implications for the marketing strategies pursued by international business. However, the current consensus  among academics seems to be that Levitt overstates his case. Although Levitt may have a point when it comes to many basic industrial products, such as steel, bulk chemicals, and semiconductor chips, globalization seems to be the exception rather than the rule in many consumer goods markets and industrial markets.

Global Manufacturing and Materials Management

Introduction

In this chapter, we look at the problems that Li & Fung and many other enterprises are facing and at the various solutions. We will be concerned with answering three central questions:

·                 Where in the world should productive activities be located?

·                 How much production should be performed in-house and how much should be out-sourced to foreign suppliers?

·                 What is the best way to coordinate a globally dispersed supply chain?

We will examine each of the three questions posed above in turn.

Entry Strategy and Strategic Alliances

Introduction

This chapter is concerned with three closely related topics: (1) The decision of which foreign markets to enter, when to enter them, and on what scale; (2) the choice of entry mode, and (3) the role of strategic alliances. Any firm contemplating foreign expansion must first struggle with the issue of which foreign markets to enter and the timing and scale of entry. The choice of which markets to enter should be driven by an assessment of relative long-run growth and profit potential.The company was too early.

Strategic alliances are cooperative agreements between actual or potential competitors. The term strategic alliances is often used loosely to embrace a variety of arrangements between actual or potential competitors including cross-shareholding deals, licensing arrangements, formal joint ventures, and informal cooperative arrangements.

The Organization of International Business

Introduction

The objective of this chapter is to identify the organizational structures and internal control mechanisms international businesses use to manage and direct their global operations. We will be concerned not just with formal structures and control mechanisms but also with informal structures and control mechanisms such as corporate culture and companywide networks. To succeed, an international business must have appropriate formal and informal organizational structure and control mechanisms. The strategy of the firm determines what is "appropriate." Firms pursuing a global strategy require different structures and control mechanisms than firms pursuing a multidomestic or a transnational strategy. To succeed, a firm's structure and control systems must match its strategy in discriminating ways.

The Strategy of International Business

Introduction

In this chapter, we look at how firms can increase their profitability by expanding their operations in foreign markets. We discuss the different strategies that firms pursue when competing internationally, consider the pros and cons of these strategies, discuss the various factors that affect a firm's choice of strategy, and look at the tactics firms adopt when competing head to head across various national markets.

The Global Capital Market

Introduction

We begin this chapter by looking at the benefits associated with the globalization of capital markets. This is followed by a more detailed look at the growth of the international capital market and the risks associated with such growth. Next, there is a detailed review of three important segments of the global capital market: the Eurocurrency market, the international bond market, and the international equity market. As usual, we close the chapter by pointing out some of the implications for the practice of international business.

The International Monetary System

Introduction

This chapter will explain how the international monetary system works and point out its implications for international business

Finally, we will discuss the implications of all this material for international business. We will see how the exchange rate policy adopted by a government can have an important impact on the outlook for business operations in a given country. If government exchange rate policies result in a currency devaluation, for example, exporters based in that country may benefit as their products become more price competitive in foreign markets. Alternatively, importers will suffer from an increase in the price of their products. We will also look at how the policies adopted by the IMF can have an impact on the economic outlook for a country and, accordingly, on the costs and benefits of doing business in that country.

The Foreign Exchange Market

Introduction

This has three main objectives. The first is to explain how the foreign exchange market works. The second is to examine the forces that determine exchange rates and to discuss the degree to which it is possible to predict future exchange rate movements. The third objective is to map the implications for international business of exchange rate movements and the foreign exchange market. This is the first of three that deal with the international monetary system and its relationship to international business.

Regional Economic Integration

Introduction

One of the most notable trends in the global economy in recent years has been the accelerated movement toward regional economic integration. By regional economic integration, we mean agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. Consistent with the predictions of international trade theory, particularly the theory of comparative advantage (see Chapter 4), the belief has been that agreements designed to promote freer trade within regions will produce gains from trade for all member countries

Levels of Economic Integration

Free Trade Area

In a free trade area, all barriers to the trade of goods and services among member countries are removed. In the theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between members. Each country, however, is allowed to determine its own trade policies with regard to nonmembers.

 There are also active attempts at regional economic integration in Central America, the Andean Region of South America, Southeast Asia, and parts of Africa.

As the opening case on the European Insurance industry demonstrates, a move toward greater regional economic integration can deliver important benefits to consumers and present firms with new challenges. In the European insurance industry, the creation of a single EU insurance market opened formerly protected national markets to increased competition, resulting in lower prices for insurance products. This benefits consumers, who now have more money to spend on other goods and services. As for insurance companies, the increase in competition and greater price pressure that has followed the creation of a single market have forced them to look for cost savings from economies of scale. They have also sought to increase their presence in different nations. The mergers occurring in the European insurance industry are seen as a way of achieving both these goals.

The rapid spread of regional trade agreements raises the fear among some of a world in which regional trade blocs compete against each other. In this scenario of the future, free trade will exist within each bloc, but each bloc will protect its market from outside competition with high tariffs. The specter of the EU and NAFTA turning into "economic fortresses" that shut out foreign producers with high tariff barriers is particularly worrisome to those who believe in unrestricted free trade. If such a scenario were to materialize, the resulting decline in trade between blocs could more than offset the gains from free trade within blocs.

Levels of Economic Integration

Free Trade Area

In a free trade area, all barriers to the trade of goods and services among member countries are removed. In the theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between members. Each country, however, is allowed to determine its own trade policies with regard to nonmembers. Thus, for example, the tariffs placed on the products of nonmember countries may vary from member to member. 

Customs Union

The customs union is one step further along the road to full economic and political integration. A customs union eliminates trade barriers between member countries and adopts a common external trade policy. Establishment of a common external trade policy necessitates significant administrative machinery to oversee trade relations with nonmembers. Most countries that enter into a customs union desire even greater economic integration down the road. The EU began as a customs union and has moved beyond this stage.

Common Market

Like a customs union, the theoretically ideal common market has no barriers to trade between member countries and a common external trade policy. Unlike a customs union, a common market also allows factors of production to move freely between members. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital between member countries. The EU is currently a common market, although its goal is full economic union. The EU is the only successful common market ever established, although several regional groupings have aspired to this goal. Establishing a common market demands a significant degree of harmony and cooperation on fiscal, monetary, and employment policies. Achieving this degree of cooperation has proven very difficult.

Economic Union

An economic union entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production between member countries and the adoption of a common external trade policy. Unlike a common market, a full economic union  also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy. Such a high degree of integration demands a coordinating bureaucracy and the sacrifice of significant amounts of national sovereignty to that bureaucracy.

Political Union

The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. The answer is through political union. The EU is on the road toward political union.

The Case for Regional Integration 

The Economic Case for Integration

The economic case for regional integration is relatively straightforward. We saw in Chapter 4 how economic theories of international trade predict that unrestricted free trade will allow countries to specialize in the production of goods and services that they can produce most efficiently. The result is greater world production than would be possible with trade restrictions. Although international institutions such as GATT and the WTO have been moving the world toward a free trade regime, success has been less than total. In a world of many nations and many political ideologies, it is very difficult to get all countries to agree to a common set of rules.

Against this background, regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as GATT and the WTO. It is easier to establish a free trade and investment regime  among a limited number of adjacent countries than among the world community. Problems of coordination and policy harmonization are largely a function of the number of countries that seek agreement. The greater the number of countries involved, the greater the number of perspectives that must be reconciled, and the harder it will be to reach agreement. Thus, attempts at regional economic integration are motivated by a desire to exploit the gains from free trade and investment.

The Political Case for Integration

The political case for regional economic integration has also loomed large in most attempts to establish free trade areas, customs unions, and the like. By linking neighboring economies and making them increasingly dependent on each other, incentives are created for political cooperation between the neighboring states. In turn, the potential for violent conflict between the states is reduced. In addition, by grouping their economies, the countries can enhance their political weight in the world.

These considerations underlay establishment of the European Community (EC) in 1957 (the EC was the forerunner of the EU). Europe had suffered two devastating wars in the first half of the century, both arising out of the unbridled ambitions of nation-states.

Impediments to Integration

Despite the strong economic and political arguments for integration, it has never been easy to achieve or sustain. There are two main reasons for this. First, although economic integration benefits the majority, it has its costs. While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. Moving to a free trade regime involves some painful adjustments. A second impediment to integration arises from concerns over national sovereignty.

The Case Against Regional Integration

Although the tide has been running strongly in favor of regional free trade agreements in recent years, some economists have expressed concern that the benefits of regional integration have been oversold, while the costs have often been ignored. They point out that the benefits of regional integration are determined by the extent of trade creation, as opposed to trade diversion. Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area. Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.

Regional Economic Integration in Europe

Political Structure of the European Union

The European Council

The European Council is composed of the heads of state of the EU's member nations and the president of the European Commission. Each head of state is normally accompanied by a foreign minister to these meetings.

The European Commission

The European Commission is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states. Headquartered in Brussels, Belgium, the commission has more than 10,000 employees. It is run by a group of 20 commissioners appointed by each member country for four-year renewable terms. The commission has a monopoly in proposing European Union legislation. The commission starts the legislative ball rolling by making a proposal, which goes to the Council of Ministers and then to the European Parliament. The Council of Ministers cannot legislate without a commission proposal in front of it. The Treaty of Rome gave the commission this power in an attempt to limit national infighting by taking the right to propose legislation away from nationally elected political representatives, giving it to "independent" commissioners.

The commission is also responsible for implementing aspects of EU law, although in practice much of this must be delegated to member states. Another responsibility of the commission is to monitor member states to make sure they are complying with EU laws. In this policing role, the commission will normally ask a state to comply with any EU laws that are being broken. If this persuasion is not sufficient, the commission can refer a case to the Court of Justice.

The Council of Ministers

The interests of member states are represented in the Council of Ministers. It is clearly the ultimate controlling authority within the EU since draft legislation from the commission can become EU law only if the council agrees. The council is composed of one representative from the government of each member state. The membership, however, varies depending on the topic being discussed. When agricultural issues are being discussed, the agriculture ministers from each state attend council meetings; when transportation is being discussed transportation ministers attend, and so on.

The European Parliament

The parliament, which meets in Strasbourg, France, is primarily a consultative rather than legislative body. It debates legislation proposed by the commission and forwarded to it by the council. It can propose amendments to that legislation, which the commission  are not obliged to take up but often will. The power of the parliament recently has been increasing, although not by as much as parliamentarians would like. The European Parliament now has the right to vote on the appointment of commissioners, as well as veto power over some laws. One major debate now being waged in Europe is whether the council or the parliament should ultimately be the most powerful body in the EU.

The Single European Act

The Stimulus for the Single European Act

There were four main reasons for this:

·                 Different technical standards required cars to be customized to national requirements .

·                 Different tax regimes created price differentials across countries that would not be found in a single market.

·                 An agreement to allow automobile companies to sell cars through exclusive dealer networks allowed auto companies and their dealers to adapt their model ranges and prices on a country-by-country basis with little fear that these differences would be undermined by competing retailers.

·                 In violation of Article 3 of the Treaty of Rome, each country had adopted its own trade policy with regard to automobile

The Objectives of the Act

1.              Remove all frontier controls between EC countries, thereby abolishing delays and reducing the resources required for complying with trade bureaucracy.

2.              Apply the principle of "mutual recognition" to product standards. A standard developed in one EC country should be accepted in another, provided it meets basic requirements in such matters as health and safety.

3.              Open public procurement to nonnational suppliers, reducing costs directly by allowing lower-cost suppliers into national economies and indirectly by forcing national suppliers to compete.

4.              Lift barriers to competition in the retail banking and insurance businesses, which should drive down the costs of financial services, including borrowing, throughout the EC.

5.              Remove all restrictions on foreign exchange transactions between member countries by the end of 1992.

6.              Abolish restrictions on cabotage--the right of foreign truckers to pick up and deliver goods within another member state's borders--by the end of 1992. This could reduce the cost of haulage within the EC by 10 to 15 percent.

7.              All those changes should lower the costs of doing business in the EC, but the single-market program was also expected to have more complicated supply-side effects. For example, the expanded market should give EC firms greater opportunities to exploit economies of scale. In addition, the increase in competitive intensity brought about by removing internal barriers to trade and investment should force EC firms to become more efficient.

Implications

The implications of the Single European Act are potentially enormous. We discuss the implications for business practice in more detail in the Implications for Business section at the end of the chapter. For now it should be noted that, as long as the EU is successful in establishing a single market, the member countries can expect significant gains from the free flow of trade and investment. On the other hand, as a result of the Single European Act, many EU firms are facing increased competitive pressure. Countries such as France and Italy have long used administrative trade barriers and subsidies to protect their home markets from foreign competition. Removal of these barriers has increased competition, and some firms may go out of business.

But the shift toward a single market has not been as rapid as many would like. Six years after the Single European Act became EU law, there have been a number of delays in applying the act to certain industries, often because countries have  appealed to the Council of Ministers for more time.

European Monetary Union (EMU: The Adoption of A Single Currency

Benefits of EMU

As with many of the provisions of the Single European Act, the move to a single currency should significantly lower the costs of doing business in the EU. The gains come from reduced exchange costs and reduced risk. As for reduced risk, a single currency would reduce the risks that arise from currency fluctuations. The values of currencies fluctuate against each other continually. As we will see in Chapter 9, this introduces risks into international transactions.

Costs of EMU

The drawback, for some, of a single currency is that national authorities would lose control over monetary policy. Thus, the EU's monetary policy must be well managed. The Maastricht Treaty called for establishment of an independent European Central Bank (ECB), similar in some respects to the US Federal Reserve, with a clear mandate to manage monetary policy so as to ensure price stability. Like the US Federal Reserve, the ECB, based in Frankfurt, is meant to be independent from political pressure--although critics question this. Among other things, the ECB will set interest rates and determine monetary policy across the euro zone. Critics fear that the ECB will respond to political pressure by pursuing a lax monetary policy, which in turn will raise average inflation rates across the euro zone, hampering economic growth.

Several nations were concerned about the effectiveness of such an arrangement and the implied loss of national sovereignty. Reflecting these concerns, Britain, Denmark, and Sweden won the right from other members to stay out of the monetary union if they chose. According to some critics, European monetary union represents putting the economic cart before the political horse. In their view, a single currency should follow, not precede, political union. They argue that the euro will unleash enormous pressures for tax harmonization and fiscal transfers, both policies that cannot be pursued without the appropriate political structure. Some critics also argue that the EMU will result in the imposition of a single interest rate regime on national economies that are not truly convergent and are experiencing divergent economic growth rates.

Regional Economic Integration in the Americas

The North American Free Trade Agreement

NAFTA's Contents

The contents of NAFTA include the following:

·                 Abolition within 10 years of tariffs on 99 percent of the goods traded between Mexico, Canada, and the United States.

·                 Removal of most barriers on the cross-border flow of services, allowing financial institutions.

·                 Protection of intellectual property rights.

·                 Removal of most restrictions on foreign direct investment between the three member countries.

·                 Application of national environmental standards, provided such standards have a scientific basis. Lowering of standards to lure investment is described as being inappropriate.

·                 Establishment of two commissions with the power to impose fines and remove trade privileges when environmental standards or legislation involving health and safety, minimum wages, or child labor are ignored.

Environmentalists have also voiced concerns about NAFTA. They point to the sludge in the Rio Grande River and the smog in the air over Mexico City and warn that Mexico could degrade clean air and toxic-waste standards across the continent. Already, they claim, the lower Rio Grande is the most polluted river in the United States, increasing in chemical waste and sewage along its course from El Paso, Texas, to the Gulf of Mexico.

There is also continued opposition in Mexico to NAFTA from those who fear a loss of national sovereignty. Mexican critics argue that their country will be dominated by US firms that will not really contribute to Mexico's economic growth, but instead will use Mexico as a low-cost assembly site, while keeping their high-paying, high-skilled jobs north of the border.

Central American Common Market and CARICOM

Then there is the customs union that was to have been created in 1991 between the English-speaking Caribbean countries under the auspices of the Caribbean Community. Referred to as CARICOM, it was originally established in 1973. However, it has repeatedly failed to progress toward economic integration. A formal commitment to economic and monetary union was adopted by CARICOM's member states in 1984, but since then little progress has been made.

Regional Economic Integration Elsewhere

Association of Southeast Asian Nations

ASEAN includes Brunei, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Laos, Myanmar, and Vietnam have all joined recently, and their inclusion complicates matters because their economies are a long way behind those of the original members. The basic objectives of ASEAN are to foster freer trade between member countries and to achieve cooperation in their industrial policies. Progress has been very limited, however.

Asia Pacific Economic Cooperation

Asia Pacific Economic Cooperation (APEC) was founded in 1990 at the suggestion of Australia. APEC currently has 18 member states including such economic powerhouses as the United States, Japan, and China. The stated aim of APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region. US support for APEC was also based on the belief that it might prove a viable strategy for heading off any moves to create Asian groupings from which it would be excluded.

Implications For Business

Opportunities

Additional opportunities arise from the inherent lower costs of doing business in a single market--as opposed to 15 national markets in the case of the EU or 3 national markets in the case of NAFTA. Free movement of goods across borders, harmonized product standards, and simplified tax regimes make it possible for firms based in the EU and the NAFTA countries to realize potentially enormous cost economies by centralizing production in those EU and NAFTA locations where the mix of factor costs and skills is optimal. Rather than producing a product in each of the 15 EU countries or the 3 NAFTA countries, a firm may be able to serve the whole EU or North American market from a single location. This location must be chosen carefully, of course, with an eye on local factor costs and skills.

Even after the removal of barriers to trade and investment, enduring differences in culture and competitive practices often limit the ability of companies to realize cost economies by centralizing production in key locations and producing a standardized product for a single multicountry market. Consider the case of Atag Holdings NV, a Dutch maker of kitchen appliances that is profiled in the accompanying Management Focus. Due to enduring differences between nations within the EU's single market, Atag still has to produce various "national brands," which clearly limits the company's ability to attain scale economies.

Threats

Just as the emergence of single markets in the EU and the Americas creates opportunities for business, it also presents a number of threats. For one thing, the business environment within each grouping will become more competitive. The lowering of barriers to trade and investment between countries is likely to lead to  increased price competition throughout the EU, NAFTA, and MERCOSUR. This could transform many EU companies into efficient global competitors. The message for non-EU businesses is that they need to prepare for the emergence of more capable European competitors by reducing their own cost structures.

A final threat to firms outside of trading areas is the threat of being shut out of the single market by the creation of "Trade Fortress." The charge that regional economic integration might lead to a fortress mentality is most often leveled at the EU. As noted earlier in the chapter, although the free trade philosophy underpinning the EU theoretically argues against the creation of any "fortress" in Europe, there are signs that the EU may raise barriers to imports and investment in certain "politically sensitive" areas, such as autos. Non-EU firms might be well advised, therefore, to set up their own EU operations as quickly as possible. This could also occur in the NAFTA countries, but it seems less likely.

The Political Economy of Foreign Direct Investment

Introduction

The government of a source country for FDI also can encourage or restrict FDI by domestic firms. In recent years, the Japanese government has pressured many Japanese firms to undertake FDI. The Japanese government sees FDI as a substitute for exporting and thus as a way of reducing Japan's politically embarrassing balance of payments surplus. In contrast, the US government has, for political reasons, from time to time restricted FDI by domestic firms.

Political Ideology and Foreign Direct Investment

The Radical View

The radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries. They argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. Thus, according to the extreme version of this view, no country should ever permit foreign corporations to undertake FDI, since they can never be instruments of economic development, only of economic domination. Where MNEs already exist in a country, they should be immediately nationalized.

The Free Market View

The free market view traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo.. The free market view argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the production of those goods and services that they can produce most efficiently. Within this framework, the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globeFor reasons explored earlier in this book, in recent years, the free market view has been ascendant worldwide, spurring a global move toward the removal of restrictions on inward and outward foreign direct investment.

Pragmatic Nationalism

In practice, many countries have adopted neither a radical policy nor a free market policy toward FDI, but instead a policy that can best be described as pragmatic nationalism. The pragmatic nationalist view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits often come at a cost. When products are produced by a foreign company rather than a domestic company, the profits from that investment go abroad. Many countries are also concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's balance-of-payments position.

The Benefits of FDI to Host Countries

Resource-Transfer Effects

Capital

Given this tension, the mode for transferring technology--licensing or FDI--can be a major negotiating point between an MNE and a host government. Whether the MNE gets its way depends on the relative bargaining powers of the MNE and the host government.

Management

Foreign management skills acquired through FDI may also produce important benefits for the host country. Beneficial spin-off effects arise when local personnel who are trained to occupy managerial, financial, and technical posts in the subsidiary of a foreign MNE leave the firm and help to establish indigenous firms.

The benefits may be considerably reduced if most management and highly skilled jobs in the subsidiaries are reserved for home-country nationals.

Employment Effects

The beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there. Cynics note that not all the "new jobs" created by FDI represent net additions in employment. In the case of FDI by Japanese auto companies in the United States, some argue that the jobs created by this investment have been more than offset by the jobs lost in US-owned auto companies, which have lost market share to their Japanese competitors.

Balance-of-Payments Effects

Balance-of-Payments Accounts

A country's balance-of-payments accounts keep track of both its payments to and its receipts from other countries. Any transaction resulting in a payment to other countries is entered in the balance-of-payments accounts as a debit and given a negative ( - ) sign. Any transaction resulting in a receipt from other countries is entered as a credit and given a positive (+) sign.

Balance-of-payments accounts are divided into two main sections: the current account and the capital account. The first category, merchandise trade, refers to the export or import of goods. The second category is the export or import of services. The third category, investment income, refers to income from foreign investments and payments that have to be made to foreigners investing in a country.

A current account deficit occurs when a country imports more goods, services, and income than it exports. A current account surplus occurs when a country exports more goods, services, and income than it imports. The capital account records transactions that involve the purchase or sale of assets. Thus, when a Japanese firm purchases stock in a US company, the transaction enters the US balance of payments as a credit on the capital account. This is because capital is flowing into the country. When capital flows out of the United States, it enters the capital account as a debit.

Thus, any international transaction automatically gives rise to two offsetting entries in the balance of payments. Because of this, the current account balance and the capital account balance should always add up to zero.

Governments normally are concerned when their country is running a deficit on the current account of their balance of payments. When a country runs a current account deficit, the money that flows to other countries is then used by those countries to purchase assets in the deficit country.

FDI and the Balance of Payments

Given the concern about current account deficits, the balance-of-payments effects of FDI can be an important consideration for a host government. There are three potential balance-of-payments consequences of FDI. First, when an MNE establishes a foreign subsidiary, the capital account of the host country benefits from the initial capital inflow. However, this is a one-time-only effect. Set against this must be the outflow of earnings to the foreign parent company, which will be recorded as a debit on the current account of the host country.

Second, if the FDI is a substitute for imports of goods or services, it can improve the current account of the host country's balance of payments. A third potential benefit to the host country's balance-of-payments position arises when the MNE uses a foreign subsidiary to export goods and services to other countries.

Effect on Competition and Economic Growth

Economic theory tells us that the efficient functioning of markets depends on an adequate level of competition between producers. By increasing consumer choice, foreign direct investment can help to increase the level of competition in national markets, thereby driving down prices and increasing the economic welfare of consumers. As we saw in the Management Focus, foreign direct investment has helped increase competition in the South Korean retail sector. The increase in choices, and the resulting fall in prices, clearly benefits South Korean consumers.

The Costs of FDI to Host Countries 

Adverse Effects on Competition

Although we have just outlined in the previous section how foreign direct investment can boost competition, host governments sometimes worry that the subsidiaries of foreign MNEs may have greater economic power than indigenous competitors. If it is part of a larger international organization, the foreign MNE may be able to draw on funds generated elsewhere to subsidize its costs in the host market, which could drive indigenous companies out of business and allow the firm to monopolize the market.

In practice, the above arguments are often used by inefficient indigenous competitors when lobbying their government to restrict direct investment by foreign MNEs. Although a host government may state publicly in such cases that its restrictions on inward FDI are designed to protect indigenous competitors from the market power of foreign MNEs, they may have been enacted to protect inefficient but politically powerful indigenous competitors from foreign competition.

Adverse Effects on the Balance of Payments

The possible adverse effects of FDI on a host country's balance-of-payments position have been hinted at earlier. There are two main areas of concern with regard to the balance of payments. First, as mentioned earlier, set against the initial capital inflow that comes with FDI must be the subsequent outflow of earnings from the foreign subsidiary to its parent company. Such outflows show up as a debit on the capital account. Some governments have responded to such outflows by restricting the amount of earnings that can be repatriated to a foreign subsidiary's home country.

A second concern arises when a foreign subsidiary imports a substantial number of its inputs from abroad, which results in a debit on the current account of the host country's balance of payments.

National Sovereignty and Autonomy

Many host governments worry that FDI is accompanied by some loss of economic independence. The concern is that key decisions that can affect the host country's economy will be made by a foreign parent that has no real commitment to the host country, and over which the host country's government has no real control.

The Benefits and Costs of FDI to Home Countries

Benefits of FDI to the Home Country

The benefits of FDI to the home country arise from three sources. First, and perhaps most important, the capital account of the home country's balance of payments benefits from the inward flow of foreign earnings.

Second, benefits to the home country from outward FDI arise from employment effects. As with the balance of payments, positive employment effects arise when the foreign subsidiary creates demand for home-country exports of capital equipment, intermediate goods, complementary products, and the like.

Third, benefits arise when the home-country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country. This amounts to a reverse resource-transfer effect. Through its exposure to a foreign market, an MNE can learn about superior management techniques and superior product and process technologies. These resources can then be transferred back to the home country, contributing to the home country's economic growth rate.

 Costs of FDI to the Home Country

Against these benefits must be set the apparent costs of FDI for the home country. The most important concerns center around the balance-of-payments and employment effects of outward FDI. The home country's balance of payments may suffer in three ways. First, the capital account of the balance of payments suffers from the initial capital outflow required to finance the FDI. This effect, however, is usually more than offset by the subsequent inflow of foreign earnings. Second, the current account of the balance of payments suffers if the purpose of the foreign investment is to serve the home market from a low-cost production location. Third, the current account of the balance of payments suffers if the FDI is a substitute for direct exports.

With regard to employment effects, the most serious concerns arise when FDI is seen as a substitute for domestic production. This was the case with Toyota's investments in Europe. One obvious result of such FDI is reduced home-country employment. If the labor market in the home country is already very tight, with little unemployment.

Government Policy Instruments and FDI

Home-Country Policies

Encouraging Outward FDI

Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk. The types of risks insurable through these programs include the risks of expropriation, war losses, and the inability to transfer profits back home. Such programs are particularly useful in encouraging firms to undertake investments in politically unstable countries. In addition, several advanced countries also have special funds or banks that make government loans to firms wishing to invest in developing countries.

Restricting Outward FDI

Virtually all investor countries, including the United States, have exercised some control over outward FDI from time to time. One common policy has been to limit capital outflows out of concern for the country's balance of payments. In addition, countries have occasionally manipulated tax rules to try to encourage their firms to invest at home. The objective behind such policies is to create jobs at home rather than in other nations.

Finally, countries sometimes prohibit national firms from investing in certain countries for political reasons. Such restrictions can be formal or informal.

Host-Country Policies

Encouraging Inward FDI

It is increasingly common for governments to offer incentives to foreign firms to invest in their countries. Such incentives take many forms, but the most common are tax concessions, low-interest loans, and grants or subsidies. Incentives are motivated by a desire to gain from the resource-transfer and employment effects of FDI. They are also motivated by a desire to capture FDI away from other potential host countries.

Restricting Inward FDI

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are ownership restraints and performance requirements. Ownership restraints can take several forms. In some countries, foreign companies are excluded from specific fields. The rationale underlying ownership restraints seems to be twofold. First, foreign firms are often excluded from certain sectors on the grounds of national security or competition. Particularly in less developed countries, the feeling seems to be that local firms might not be able to develop unless foreign competition is restricted by a combination of import tariffs and controls on FDI.

Second, ownership restraints seem to be based on a belief that local owners can help to maximize the resource-transfer and employment benefits of FDI for the host country.

International Institutions and the Liberalization of FDI

Until recently there has been no consistent involvement by multinational institutions in the governing of FDI.

However, the WTO has had less success trying to initiate talks aimed at establishing a universal set of rules designed to promote the liberalization of FDI.

Implications for Business

The Nature of Negotiation

The objective of any negotiation is to reach an agreement that benefits both parties. Negotiation is both an art and a science. The science of it requires analyzing the relative bargaining strengths of each party and the different strategic options available to each party and assessing how the other party might respond to various bargaining ploys. The art of negotiation incorporates "interpersonal skills, the ability to convince and be convinced, the ability to employ a basketful of bargaining ploys, and the wisdom to know when and how to use them."

Bargaining Power

The outcome of any negotiated agreement depends on the relative bargaining power of both parties. Each side's bargaining power depends on three factors (see Table 7.3):

·                 The value each side places on what the other has to offer.

·                 he number of comparable alternatives available to each side.

·                 Each party's time horizon.

From the perspective of a firm negotiating the terms of an investment with a host government, the firm's bargaining power is high when the host government places a high value on what the firm has to offer, the number of comparable alternatives open to the firm is great, and the firm has a long time in which to complete the negotiations. The converse also holds. The firm's bargaining power is low when the host government places a low value on what the firm has to offer, few comparable alternatives are open to the firm, and the firm has a short time in which to complete the negotiations.