The presentation begins with a discussion on the case study; Dumping on Trade Complaints and related questions. Further it analyses the Global Environment – Political, Economic, Social, Cultural, Legal, Technological and Physical and Natural environment. It discusses country risk analysis in detail with special reference to political risk, exchange rate risk, economic risk, sovereign risk and transfer and convertibility risk. Opportunities and threats for Intl. business and rise of new economies like Brazil, Russia, India, China (BRIC) and Asian Countries are also covered.

1. International Trade Environment,
Country Risk Analysis,
Opportunities and Threats for
International Business, BRIC
Economies
International Business Management
Mrs. Charu Rastogi, Asst. Prof.

2. Agenda
 Case Study on Anti-Dumping
 Analysis of Global Environment –
Political, Economic, Social, Cultural,
Legal Technological, Natural
environment
 Country Risk Analysis
 Opportunities and threats for Intl.
business
 Rise of new economies like Brazil,
Russia, India, China (BRIC) and Asian
Mrs. Charu Rastogi, Asst. Prof.

3. Dumping on Trade Complaints
CASE STUDY
Mrs. Charu Rastogi, Asst. Prof.

4.  One of the biggest problems in international trade
is the ability of domestic producers to lobby their
home governments to erect barriers to trade. In
the past, the textile, apparel, and shoe industries
were able to obtain protection from cheaper
imports through tariffs, quotas, and special
measures.
 Now multilateral trade agreements under the GATT
and WTO (and also regional and bilateral
agreements such as NAFTA and the emerging
Asian Pacific Economic Cooperation forum) outlaw
such blatant instruments of protection. However,
these agreements have been replaced by more
subtle ones.
Mrs. Charu Rastogi, Asst. Prof.

5.  Prominent as a new type of protectionist device is
the use of “unfair trade laws”, especially
antidumping (AD) and countervailing duty actions
(CVD).
 The economic logic of AD and CVD makes some
sense. It is unfair for a foreign producer to “dump”
a product in your country below its price in the
home country, or below the cost of producing it.
 Similarly, subsidized foreign products should be
offset by a countervailing duty of equivalent effect.
The problem, however, lies with the administration
of the trade laws, which is subject to political
lobbying.
Mrs. Charu Rastogi, Asst. Prof.

6.  A variety of studies have found that the bureaucrats
who administer AD and CVD laws are subject to
capture by the home industries, who then use AD
and CVD cases as harassment tools against often
economically efficient foreign rival producers.
 For example, Rugman and Anderson (1987) found
that the US administration of AD and CVD was
used in a biased manner against Canadian
producers, especially in resource-based industries
such as soft-wood lumber, fishing, and agriculture.
 Thus in the Canadian-US Free Trade Agreement
of 1989, and again in NAFTA, five-person bi-
national panels of trade law experts were set up to
review the decision of the US (and Canadian) trade
law agencies.
Mrs. Charu Rastogi, Asst. Prof.

7.  In a subsequent study, Rugman and Anderson
(1997) found that these bi-national panels were
able to remand back (i.e., successfully challenge)
the decision of the US agencies twice as often in
cases involving Canada as in AD and CVD cases
involving the rest of the world.
 In related work it has been found that the EU is just
as bad as the US in that the EU brings in
questionable AD measures, especially against
Asian countries. Indeed, one of the unresolved
problems is how smaller countries can secure
access to the protected markets of triad economies
(USA, Japan, Western Europe) such as the US and
the EU.
 In Japan’s case there are similar arguments
(including those from its triad rivals) that there are
entry barriers in place preventing market access.
Mrs. Charu Rastogi, Asst. Prof.

8. Questions:
 Why are anti-dumping and countervailing duty
measures brought and imposed?
 What is the impact on a firm from a non-triad
country if it faces an AD or CVD case in its major
market?
 What is the solution to the abusive use of AD and
CVD measures by triad economies?
Mrs. Charu Rastogi, Asst. Prof.

9. Countervailing Duty
 GATT Article VI (1994) allows the use of CVD to
offset public subsidies for the manufacture,
production or export of any merchandise.
 CVD use requires
◦ proving the existence of subsidy
◦ proving that the subsidized import causes or threatens to
cause injury to domestic industry.
Mrs. Charu Rastogi, Asst. Prof.

10. Anti-dumping Duty
 Dumping: the introduction of a product of one
country into the commerce of another country at
less than its fair or normal value.
 Normal value: comparable price for the product, in
the ordinary course of trade, when destined for
domestic consumption.
 AD duties can be used if it is proven that
◦ Dumping exists
◦ Causes or threatens to cause material injury.
Mrs. Charu Rastogi, Asst. Prof.

11. Impact
 Many of the export products in developing
countries are produced by labour intensive, small
and medium enterprises. Imposition of
countervailing duties or even the threat of
imposition of such duties has a serious adverse
impact on the functioning of such units including
fall in production, large unemployment, decline in
incomes and increase in poverty levels.
 The high cost of capital, low level of
infrastructure development, inadequate
integration and organization of the economy,
poorly developed information networks are
characteristics of industry in developing and least
developed countries. It has been recognized that
the state has to assume a more active and
positive role in assisting its industry.
Mrs. Charu Rastogi, Asst. Prof.

12. Recourse against unfair use of
CVD / AD Duty
 WTO
 Countries lodge complaint / petition to one another
diplomatically
 Industry groups file petitions with their
governments to launch investigations against the
country making unfair use of CVD / AD.
 Eg. Companies in the U.S. will file petition in U.S.
Department of Commerce and United States
International Trade Commission while those in
Europe will file it in the European Commission.
Mrs. Charu Rastogi, Asst. Prof.

13. GLOBAL ENVIRONMENT
Mrs. Charu Rastogi, Asst. Prof.

14. Trading Environment of
International Trade
Mrs. Charu Rastogi, Asst. Prof.

15. Trading Environment of International Trade
Foreign Environment
(Uncontrollables)
7. Structure of 1. Competition
Distribution Domestic environment Environmental
(Uncontrollables) uncontrollables
country market A
(Controllables) 1. Competition
Price Product 2. Technology
5. Political- Target Environmental
7
6. Geography and Legal uncontrollables
Market
Infrastructure Promotion Place 2 .Technology country
market B
4.
Culture Environmental
3. Economy
uncontrollables
5. Political- 3. ECONOMY country
Legal market C
4. Culture
Mrs. Charu Rastogi, Asst. Prof.

16. Economic Environment
• Economic development
• Infrastructure
• Resource and product markets
• Per capita Income
• Exchange rates
• Economic conditions
Mrs. Charu Rastogi, Asst. Prof.

17. Politico-Legal Environment
• Political risk
◦ Arises due to events or actions by host governments
● Loss of assets
● Loss of earning power
● Loss of managerial control
● Government takeovers
● Acts of violence
• Government takeovers
• Tariffs, quotas, taxes
• Terrorism, political instability
• Laws, regulations
Mrs. Charu Rastogi, Asst. Prof.

18. Socio-Cultural Environment
 Culture – shared knowledge, beliefs, values, common
modes of behavior, and ways of thinking among
members of a society
◦ Intangible
◦ Pervasive
◦ Difficult for outsider to learn
 Managers need to understand difference in social
values to comprehend local cultures and deal with them
effectively
 Dimensions:
• Socio values, beliefs
• Language
• Religion (objects, taboos, holidays)
• Kinship patterns
• Formal education, literary
• Time orientation
Mrs. Charu Rastogi, Asst. Prof.

19. Physical and Technological
Environment
 Physical Factors, such as geographical factors, weather
and climatic conditions may call for modifications in the
product.
 Physical facilities
◦ Some products, like many consumer durables, have certain
use facility characteristics. The sale of television sets, for
example, is limited by the extent of the coverage of the
telecasting
◦ Similarly, the demand for refrigerators and other electrical
appliances is affected by the extent of electrification and
the reliability of power supply
 Technological factors
◦ Differing technological environment of different markets or
countries may call for product modifications
◦ For example, many appliances and instruments in the
U.S.A. are designed for 110 volts but this needs to be
converted into 240 volts in countries which have that power
system
Mrs. Charu Rastogi, Asst. Prof.

20. Natural Environment
 Geographical and ecological factors, such as
natural resource endowments, weather and
climatic conditions, topographical factors, locational
aspects in the global context, port facilities, etc.,
are all relevant to business.
◦ Climatic and weather conditions affect the location of
certain industries like the cotton textile industry.
◦ Topographical factors may, affect the demand pattern. For
example, in hilly areas with a difficult terrain, jeeps may be
in greater demand than car
 Ecological factors have recently assumed great
importance. The depletion of natural resources,
environmental pollution and the disturbance of the
ecological balance has caused great concern
Mrs. Charu Rastogi, Asst. Prof.

21. Trading Environment of
International Trade
Mrs. Charu Rastogi, Asst. Prof.

22. Country Risk Analysis
 A collection of risks associated with investing in a foreign country.
 These risks include
◦ political risk,
◦ exchange rate risk,
◦ economic risk,
◦ sovereign risk and
◦ Transfer and convertibility risk, which is the risk of capital being locked up
or frozen by government action.
 Country risk can reduce the expected return on an investment and
must be taken into consideration whenever investing abroad. Some
country risk does not have an effective hedge. Other risk, such as
exchange rate risk, can be protected against with a marginal loss of
profit potential.
 The United States is generally considered the benchmark for low
country risk and most nations can have their risk measured as
compared to the U.S. Country risk is higher with longer term
investments and direct investments, which are investments not
made through a regulated market or exchange.
Mrs. Charu Rastogi, Asst. Prof.

23. Country Risk: Political Risk
 Political risk covers cultural and ethnic risk, socio-
economic risk or changes in political institutions.
 Political risk pertains to the risk of exposure stemming
from the political environment. The factors in this
category relate to the threat of war, social unrest,
disorderly transfers of power, political violence,
international disputes, regime changes, institutional
ineffectiveness, but also include the quality of the
bureaucracy, the transparency and fairness of the
political system, and levels of corruption and crime in
the country in question.
 Factors: Government Stability, Socioeconomic
Conditions, Investment Profile, Internal Conflict,
External Conflict, Corruption
Mrs. Charu Rastogi, Asst. Prof.

24. Country Risk: Exchange Rate
Risk
 The risk that a business' operations or an
investment's value will be affected by changes in
exchange rates
 Investors and multinational businesses exporting or
importing goods and services or making foreign
investments throughout the global economy are
faced with an exchange rate risk which can have
severe financial consequences if not managed
appropriately
 Management: Hedging, forward, future contracts,
options , swaps.
Mrs. Charu Rastogi, Asst. Prof.

25. Country Risk: Economic Risk
 The likelihood that economic developments in one
country may negatively impact international
transactions. Suppose Country A and Country B
enjoy a free trade agreement, which greatly
increased trade between the two nations.
 A protectionist party may be elected to office in
Country B and immediately revoke the FTA. Not
only will this affect business, perhaps both
positively and negatively, within Country B, but
exporters from Country A will suddenly find that
their investments have evaporated.
 Factors: GDP per head, Real GDP growth, Inflation
rate
Mrs. Charu Rastogi, Asst. Prof.

26. Country Risk: Sovereign Risk
 Sovereign risk comes from the government’s
inability or unwillingness to fulfill its loan
obligations.
 It also includes the risk that a country’s central
bank will alter its foreign-exchange regulations
thereby significantly reducing or completely nulling
the value of foreign-exchange contracts
Mrs. Charu Rastogi, Asst. Prof.

27. Country Risk: Transfer Risk
 The risk a government imposes capital or exchange controls
that prevent an entity from converting local currency into
foreign currency and/or transferring funds to creditors located
outside the country
 Transfer risk arises from foreign government’s restrictions on
capital movements and may be a political response to a
permanent growing current account deficit
 Transfer risks can occur when a buyer has received the
goods promised and is ready to make payment. The
government of the buyer’s country sees its foreign reserves
rapidly leaving the country. The law or central bank institutes
regulations to stop all movement of funds out of the country
without specific approval. This program halts the transfer out
of the country of the buyer’s currency as well as the currency
of any other country. The buyer is willing and able to make
the payment to the seller; however, by government
intervention, the payment is blocked from taking place.
Mrs. Charu Rastogi, Asst. Prof.

28. Opportunities for International
Business
 Global Sourcing of raw material
 Outsourcing of services
 Growth of information technology tools, including
the Internet and electronic commerce (e-
commerce) make business transactions are faster
and more global.
 Opportunity to become broad-based. Firms find it
easier to manage downturns as they can enter
markets in emerging economies
Mrs. Charu Rastogi, Asst. Prof.

29. Threats for International
Business
 Risks related to international business:
◦ Political-Legal
◦ Socio-Cultural
◦ Transfer risk/Exchange rate risk
 Lax regulation in international financial
markets leading to financial crisis
 Increased global integration leading to risk
of contagion (spread of crisis)
Mrs. Charu Rastogi, Asst. Prof.

30. Rise of New Economies
 Emerging markets are nations with social or
business activity in the process of rapid growth and
industrialization. The economies of China and India
are considered to be the largest
 The eight largest emerging and developing
economies by either nominal GDP or GDP (PPP)
are Brazil, Russia, India, China, Mexico, South
Korea, Indonesia, and Turkey
 Positive expectations about emerging economies
at The Atlantic and here.
Mrs. Charu Rastogi, Asst. Prof.

31. Dream Decade for Emerging
Economies may be over…
 As per articles in The Economist:
 Refer to your notes on Emerging
Economies.
Mrs. Charu Rastogi, Asst. Prof.

32. Possible Questions
 Explain the concept of country risk analysis.
Discuss political risk and socioeconomic risk and
management of these risks.
 What is country risk analysis? Comment on cultural
environment and ethical practices.
 Explain the concept of country risk analysis.
Comment on socioeconomic risk and its
management.
 Explain the meaning of country risk analysis. What
are the socio-economic and political factors that
may be considered before going international?
Mrs. Charu Rastogi, Asst. Prof.