Lecture 1 (PM) revised.docx

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Department
Management Core
Course
MGCR 382
Professor
David Schumacher
Semester
Fall

Description
11/25/2013 7:54:00 AM International business  Business transactions b/w parties from more than one country Business opportunities are shaped by  Linguistic and cultural ties  Policital associations past & present  Military alliances As restrictions proliferate, international trading opportunities decline and all countries end up losing  Better to cooperate than to try to beat out other countries through government regulations Differences in Domestic and international business  Boundaries  Legal systems  Resources  Skills and knowledge  Currencies  Cultures International business activities:  Exporting: selling of products made in ones own country for us or resale in other county  Importing: the buying of products made in another country for use or resale in ones own country  Other activities: o International licensing o Franchising o Management contracting Products used for exporting / importing  Tangible –> measurable assets o Merchandise  aka “Visible trade” by UK definition  Intangible  unmeasurabe assets o Services  aka “Invisible trade” by UK definition Inernational investment  FDI: active control of property, assets of companies located in host country  FPI: purchases of foreign financial assets (stocks, bonds, certificates of deposits) for a purpose other than control Who participates in international business?  Multinational corporations (MNC) o Commercial businesses  Multinational enterprises (MNE) o Non commercial businesses  Multinational organizations (MNO) o Non-profit organizations The worlds 2 main economic groups:  The triad o Japan, US, EU  The quad o Japan, US, EU, Canada  represents 69% of the WORLDS GDP the Era of Globalization 11/25/2013 7:54:00 AM Globalization: inexorable (impossible to stop) integration of markets, nationa-states, and technology in a way that is enabling individuals, corporations, and nation –states to reach around the world farther, deeper and cheaper than every before (Friedman) Why globalization?  Lower transaction & labor costs  Increased efficiency o Ex. communication & transport  Internet facilitated this  Higher standards of living  Improved technology  globaliziation was a big movement post WWII due to the huge amount of destruction that was seen all over Europe o increased GDP post 1960 o can see the drop again at the financial crisis of 2008 shows that many firms are interested in FDI  this means a flow of capital into FOREIGN countries Causes of globalization  Strategic imperatives = internal forces o Core competency  Something the firm can do better than competitors  Ex. brand name, resources o New markets  Use corcompetencies to leverage themselves in the new market o Resources and supplies  May be cheaper and more abundant abroad o Industry rivals  If your rivals have gone international you must do the same in order to still be a competitior in the market  Environmental imperatives = external forces o Political changes (3 agreements/political unions)  General agreement on tariffs and trade (GATT)  Goal: promote free and competitive international trade beneficiating producers without discrimination achieved through Most Favored Nation (MFN) principle:  MFN: requires that any preferential treatment granted to one country be extended to all countries  2 exceptions to this rule: o assist poorer developing countries by allowing altered regulations (lower tariffs) o those involved in comprehensive trade agreements are allowed to have more preferential trade conditions with those involved in said agreement  i.e. those involed in NAFTA (Mexico, US and Canada) will have better trading conditions with each other  note that while it promotes free and competitive trade, GATT does allow the countries to protect themselves against too much competition by implementing tariffs and NTB when appropriate  typically use quotas and NTB because they are less discriminatory and are easy to identify (less transparent)  The world trade organization (WTO)  Contracts and agreements b/w members to promote trade and follow a set of guide lines:  Promote trade flows by encouraging nations to adopt nondiscriminatory predictable trade policies  Reduce remaining trade barriers through multilateral negotiations  Establish impartial procedures for resolving trade disputes among members  Uses many different methods of promoting fair free trade  Ex. national treatment: the way country deals with domestic firms is the SAME as how they deal with foreign firms  Differs from GATT in 2 main ways  GATT was more focused on promoting trade in goods, WTO was more broad- focused on trades of goods, services, intellectual property protection, trade related investments o TRIM: Trade related investment measures agreement  makes sure there are equal rights  Balancing rules- countries may require foreign investors to limit their imports to equal that of their exports of domestic producers  Foreign exchange access- countires may not restrict foreign investors access to foreign exchange  Domestic sales requirements- countries may require investor to sell a perentage of factory’s output in local market  Enforcement powers of WTO are much greater tha GATT o GATT are simply guidelines to follow, whereas WTO is an organization that will enforce its rules  Will be mitigation intermediate for trade disputes – help reolsve them  If the accused country fails to comply to WTO’s changes, then WTO will grant the complaining country the ability to implement their own retaliation in the form of tariffs and other trade barriers  Issues with WTO:  Reduces barriers to trades in services is difficult when trying to remain non- discriminatory  Difficilut to keep tabs on intellectual property rights and prevent stealing/illegal usage  Hard to set guide lines for services which are heterogenous in nature  Must deal in sectors of the economy that receive government funding as a necessary means of survival/competitive advantage o Ex. agricultural industries rely heaving on funding from gov and if the WTO says they can’t do this because its unfair then many people will get upset o European union, mercosur accord and NAFTA  Technological changes o Improved communication technology o Improved transportation methods o Improved information processing Globalization and the emerging market  During the cold war: o First world = North America, Australia, asia, Europe  i.e. countires that were major trading nations o second world = soviet untion and allied communist states o third world = latin America, Africa, most of asia  i.e. low to medium income countries  emerging markets to consider: o BRIC countires  Brazil, Russia, india, china o Big ten countries  o Non-high income countries 11/25/2013 7:54:00 AM North American Market place  32% of the worlds GDP  NAFTA= trade agreement b/w US, Canada and Mexico United states: o worlds largest economy  24% of the worlds GDP  accounts for 1/10 of the worlds exports  1/7 of the worlds imports o political stability o prime export market (due to USD being international reserve currency)  also high amount of disposable income make it a very attractive market place o USD :  Invoicing currency: many countries use this as the base dollar for exchanges of services and goods  Flight capital- many emerging countires will invest “flight capital” into the US because they have a very stable political environment and a high military strength meaning their investments will be safe and available should the country enter into some economic hardship  Long-term FDI  Due to the fact that the SUD is the international reserve currency Canada o Major exporter  24% of worlds GDP  50% of Canadian exports are with the US  single largest bilateral trading relationship in the world o abundance of natural resources  forests, water, minerals, petroleum, grains o advantages of Canadian market  close proximity to economic powerhouse USA  note that the majority of the population is located close to the US border  political and legal stability  infrastructure and education are strong Mexico o federal government o open- market system  embraces international trade making FDI very attractive  used to have economic nationalism which prevented and discouraged FDI through high tariffs in order to protect domestic industries but have since dropped all this to become an open market  achieved this by reducing government’s role in economy – sold off public firms to become private ones central America and the Caribbean o high population o siginificant economic challenges  political instability that requires constant US military intervention  inadequate educational systems  weak middle class – not attractive for FDI due to lack of disposible income  not good – may have 2x larger population than Canada making them appear more attractive, but their average income is much lower then that of the average Canadian making them very unattractive  economic policies create a huge poverty problem  import liitations with US and other developed countries Western Europe Market place European Union o 27 member countires  17 of these members use the euro  called the “euro zone”  most influential members  Germany  Strongest force  rd o 3 largest economy after US and Japan o Government has antiinflation regulations which aid in its authority within the EU  France  strong political leadership  but strong economic nationalism (as seen in agricultural sector)  Great Britain  Strong supporter of free trade and balances the strong nationalism coming from france  Many of these members came from the former soviet union which disbanded in 1989  Disbanding means that they had to restructure their economies from centralized communist systems to decentralized market systems through political legal and institutional reforms  Note: countries not in EU  High income: Iceland, Norway, Switzerland, croatia  Middle income: kosovo, Albania, bosnia- herzegovina, Macedonia, serbia o parliamentary democracy o high GDP  also large population with established middle class amking investments and FDI attractive o free market oriented  most of the countries involved in EU are freee market oriented  others still want to preserve their domestic industries  ex. France- still gives government subsidies to agricultural industry in order to keep them competitive against the highly established US market Market palce of Eastern Europe and central asia  Evolution of economics and politics o Union of soviet socialist republics  All countires were under communist control, this collapsed after the collapse of the Russian empire after WWI o Newly independent states (15 of them)  Dispanded the communist union and became separate individual states  Allows for collectivizing of country’s farm lands in order to reduce the enormous income inequalities but at a cost of a decreased standard of living o Commonwealth of independent sates (12/15 independent states involved in this)  Realized the states couldn’t survive on their own so they became a common wealth of independent states  Most important member: Russian Federation  As an independent state, Russia is the worlds largest country in land mass, 6 thlargest population and well endowed with natural resources (gold, oil, natural gas, minerals, diamonds, fertile lands)  It has experienced solid GDP growth in the past few years  High amount of cash reserves thanks to abdundance of local resources  Has political instability and corruption which deter many investors Central asian republics o Countires:  Kazakhstan  Uzbekistan  Tajikistan  Turkmenistan  Kyrgyzstan o Common heritage of the countries:  Russian influence  Religion and language  Scarce arable land  Many deserts, unfit for agricultural uses  Low per capita income  Huge amounts of poverty, and no middle class to promote investments  Fossil fuel reserves Market Place of Asia  Asia has half of the world’s population BUT only ¼ of the worlds’ GDP Japan o High GDP nd  2 largest world economy o MITI= ministry for investments trades and industry  Governmental agency of Japan  Formal and informal power that guide the production and investment strategies of the country’s corporate elite o Keiratsu = large family of interrelated companies centered on a major Japanese bank  Members protect one another from hostile take overs through elaborate stream of cross ownership shares in which keiratsu members share ownership of one another companies so they are interested in the success of all the companies within keiratsu instead of just their own  Ex. Mischubishi  Does cars, and oil and banking  Theoretically a good idea, but not a lot of flexibility for the individual o Issues for Japanese economy:  Lack of GDP growth due to deflation of yen  Trade issues due to unfair trading practices  Many NTB that limit imports to domestic market  Demographics: there is a huge issue surrounding the rate of aging of its population  There are a lot of old people in japan  Moreover, due to their strict culture, it is hard for immegrants to move to japan and settle down, also their culture makes it hard for people to establish relationships with one another and have babies to rejuvinate their population  This provides a huge future risk for their production Australia and New Zealand o Both have high populations  Differences lay in where their population density is greatest  Syndey and Melbourne are near water and where autralian population is densest  other areas more interior on this contintent are too inhospitable for people to really live  New zealands population is densest on 2 island, North and south islands  Differences also lay in source of economic strength  Austrlia: merchandise exports are important in natural resources industry due to low work force but high amounts of natural resources  New Zealand: merchandise trade is important in industry of pasture lands  i.e. dairy products, meat and wool  low amount of merchandise export which means many natural resources and agricultural products are exported 4 tigers: Newly industrialized economies/countries (NIE or NIC) o South korea  Economic development relies on tight cooperation b/w government and privately owned and family centered corporations  Follows in the foot steps of japan  Limit imports, governmental leadership of economy, large reliance on economic communions for industrliziation (like keirastu) o Singapore  Former british colony  Good harbour country --? Does a lot of re-exporting  Could be one of the major power houses for commodities (labor intensive industries)  Does have an issue with being labor short, even though the cost of labor is quite low and appealing o Taiwan  Strong economy through communistis who repaired the country after it separated from China by  Redistribution of land to increase agricultural productivity  Heavy reliance on family owned private businesses instead of government owned and export oriented trade policies (in order to promote domestic production)  Focus on high value added industries (automotives and electronics) o Hong kong  High amounts of autonomy from china  Own legistalture, economic freedom, free-port status  Attractive area for business because:  Highly educated and productive labor force  Cultural similaries with china allow it to be an important intermediary for foreign companies who with to enter Chinese market  Acts as a bridge b/w the political tense countires of Taiwan and china China o Huge population – attractive market o Communist party  Lots of political instability which is a set back for economic development  Still controls the cultural issues and politics o Market oriented policies  Slowly abandoning the communist market policty to be more market oriented  This allowed the market to open up and increased the amount of FDI seen (shown in graph below) India o british influence  parliamentary system
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