How the Concepts of International Business Affect Transactions

Topics: Automotive industry, Volkswagen Group, General Motors Pages: 8 (2576 words) Published: March 4, 2014


How the Concepts of International Business Affect Transactions BUSB348 International Business
University of Redlands

A. Introduction
Halfway through my International Business course, I was able to look at my 2005 purchase of BMW 525 in a new light. Therefore, I now have a clearer understanding of how international business concepts affect me as a consumer, specifically in the area of availability of choice between domestic and foreign brand products. Armed with this new information, I can better appreciate the impact of globalization on my purchases. In this paper, I will attempt to illustrate how a number of international business concepts played a significant role in my ability to purchase my BMW eight years ago, and how my choice may differ considerably today. I will venture to carry out this analysis based on some of the issues we have covered in the class. Before beginning my analysis, a brief summary of the BMW credentials is in order. BMW is one of the leading manufacturers of cars and motorcycles in Europe headquartered in Munich. The company primarily operates in Europe and the Americas. Besides automobile manufacturing, the company also provides information technology and financial services. The company has its manufacturing plants spread over 13 countries on four continents and showrooms across 150 countries worldwide. This allows the company to take advantage of favorable labor rates in developing countries to lower its production costs, as well as to set up platforms to facilitate the logistics of importing vehicles around the world. Chances are that my BMW 525 was produced in the plant located in Toluca, Mexico. It was then shipped to California tariff-free based on NAFTA provisions.

I bought my car at the time when the car market was swarming with good quality cars. As a matter of fact, by mid 2000s, the quality of all (especially the quality of the U.S. automobiles) improved dramatically from the late 1990’s. This made it more difficult to distinguish between attractive makes and models. Unavoidably, design and brand appeal became the distinguishing factors for potential customers. The 2005 BMW 5-series had both the BMW brand name and the new slick, sporty design that to me meant success, style, and class. I focus my analysis in this paper on two topics: (1) Why the BMW, a German auto maker, was so readily available in U.S. and (2) How did BMW convince me to buy their car instead of other cars available to me? My analysis of the first issue is based on Michael Porter’s Diamond model that attempts to explain the competitive advantage some nations or groups have based on four market conditions. B. Porter’s National Diamond Framework

Michael Porter conceived that a nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Porter's study tried to explain why a nation achieves international success in a particular industry. This study found four broad attributes that promote or impede the creation of competitive advantage: factor endowments, demand conditions, relating and supporting industries, and firm strategy, structure, and rivalry. While considering how BMW came to be so popular and accessible in U.S.A., I look to the four elements of Porter’s Diamond (Hill 2013, p. 197):

(1) Factor Endowments: The original concept that the patterns of commerce and production are dependent on the factor of endowments in a trading region was developed by the economists Heckscher and Ohlin at the Stockholm School of Economics. Their model builds on David Ricardo’s theory of comparative advantage. Basically, the model suggested that a nation will export products that use its copious and cheap factors of production and import products that use the country’s limited factors. According to Porter, the traditional factor endowment argument made by Hecksher-Ohlin model is unsophisticated. Porter asserts that the factors most important to comparative...

References: Hill, C. W. L. (2013). International business. (9th ed.). Boston, MA: Irwin/McGraw-Hill.
Johnson, G., Whittington, R., Scholes, K., & Pyle, S. (2011). Exploring strategy: Text & cases. Harlow [etc.: Financial Times Prentice Hall.
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