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Chapter 2

MGCR382 Chapter 2 Notes - Global Marketplaces and Business Centers.docx

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McGill University
Management Core
MGCR 382
Nicholas Matziorinis

MGCR382 Chapter 2 Notes: Global Marketplaces and Business Centres Businesses trying to internationalize their operations often blunder because they fail to obtain information vital to their success. Ignorance of basic geography, market characteristics, culture, and politics may lead to lost profits or doom a venture to failure. Linguistic and cultural ties, past political associations, and military alliances play significant roles in the world pattern of trade and investment and in shaping the opportunities available to businesses today Triad – Japan, the European Union, and the United States Quad – the Triad plus Canada  together the 948 million residents of the Quad countries produce 69% of the world’s GDP Global strategic thinking typifies industries such as airlines, banking, securities, automobiles, computers, and accounting services. Emerging markets are responsible for much of the growth in the world economy. The Marketplaces of North America Includes the United States, Canada, Mexico, Greenland, and the countries of Central America and the Caribbean, which produce approximately 32% of the world’s output. The United States  Possesses the largest economy, accounting for 24% of the world’s GDP  Highest per capita income of the North American countries  Occupies a unithe position in the world economy because of its size anthpolitical stability, accounting for about 1/10 of world exports of goods and services and about 1/7 of world imports of goods and services  Prime market for lower-income countries trying to raise their standards of living through export-oriented economic development strategies  educated middle class  U.S. dollar serves as invoicing currency (currency in which the sale of goods and services is denominated) for about half of all international transactions and is an important component of foreign- currency reserves worldwide  Due to its political stability and military strength, the U.S. attracts flight capital (money sent out of a politically or economically unstable country to one perceived as a safe haven)  Important recipient of long-term foreign investment  Because of the country’s large size, trade that might be counted as international in smaller countries is considered domestic in the U.S.  31% of the world’s largest corporations are headquartered in the U.S. Canada  exports are vital to the Canadian economy, accounting for 31% of its GDP  most important exports reflect its rich natural resources: forest products, petroleum, minerals, and grain  U.S. is the dominant market for Canadian goods, receiving over ¾ of Canada’s exports in a typical year  Two-way trade between the U.S. and Canada forms the single largest bilateral trading relationship in the world  Canada’s excellent infrastructure and educational systems also contribute to the performance of its economy  Lingering threat to political stability is the long-standing conflict between French-speaking Canadians and English-speaking Canadians. A strong separatist movement has existed in Quebec since the 1960s  Firms exporting products to Canada must be aware of the country’s bilingual labeling laws  Riskiness of loans to Quebec firms would increase substantially, at least in the short run, if the province were to become a separate nation Mexico  Federal system but one whose head of government is elected by popular vote every six years  For over half a century the Mexican government implemented a program of economic nationalism under which Mexico discouraged foreign investment and erected high tariff walls to protect its domestic industries  During the past two decades, Mexico has abandoned these policies and opened it markets to foreign goods and investors. Also reduced the government’s role in its economy by selling off many publicly owned firms  In 1994, Canada, Mexico, and the U.S. initiated the North American Free Trade Agreement (NAFTA), which is reducing barriers to trade among the three countries  Thousands of foreign companies have established new factories in Mexico to take advantage of NAFTA, generating hundreds of thousands of new jobs in the process Central America and the Caribbean  Total GDP is a quarter of that of Canada  With a few exceptions (notably Costa Rica), the economic development of these countries has suffered from a variety of problems, including political instability, chronic U.S. military intervention, inadequate educational systems, a weak middle class, economic policies that have created large pockets of poverty, and import limitations by the U.S. and other developed countries on Central American and Caribbean goods, such as sugar and clothing The Marketplaces of Western Europe  Among the world’s most prosperous, attracting the attention of businesses eager to market their products to the region’s wealthy consumers  Population of 499 million, 17 members use Euro  EU comprises 27 countries that are seeking to promote European peace and prosperity by reducing mutual barriers to trade and investment  Members are free-market-oriented, parliamentary democracies. However, government intervention and ownership generally play a more important role in these countries’ economies than in the economy of the U.S.  Germany is the EU’s most important member  possesses the world’s third largest economy, after Japan and the U.S.; world’s largest exporter of goods in 2006; because of the strength of the German economy and the government’s strict anti-inflation policies, Germany has played a major role in formulating the economic policies of the EU o The German central bank had de facto control over the monetary policies of EU members, but its role was taken over by the European Central Bank in 1999. The ECB now controls monetary policy for countries using the euro  France exerts strong leadership within the EU. The French government has been a leading proponent of promoting common European defense and foreign policies and strengthening human rights and workers’ rights in the EU  criticism for promoting an agenda of economic nationalism, defending takeover efforts, and protecting large subsidies paid to French farmers o As the political leader of the EU, France has long been a strong advocate of strengthening human and workers’ rights in the EU  UK has resisted many of the initiatives to broaden the EU’s powers and provides an important counterweight to French protectionist tendencies; London is a major international finance center; major exporter and importer of goods, an important destination for and source of foreign investment, and home to numerous MNCs o As the EU’s leading voice favouring free trade, the United Kingdom provides a strong counterweight to France’s protectionist tendencies  Many of the newest EU members were either part of the Soviet Union or allied with the Soviet Union politically and economically (Estonia, Latvia, Lithuania, Bulgaria, Slovenia, Czech Republic, Hungary, Poland, Slovakia, Romania)  After the Soviet Union broke down, satellite states had to adjust to the loss of guaranteed export markets, restructure their economies from centrally planned communist systems to decentralized market systems and implement necessary reforms (Czech Republic, Estonia, Slovenia are furthest along in process)  Rich, non-EU members account for 2% of the world’s GDP (Iceland, Norway, Switzerland, Andorra, Monaco, Croatia, Liechtenstein)  Economies of Balkan countries are classified as middle income by the World Bank  disintegration of Yugoslavia, Bosnian conflict (Albania, Bosnia, Macedonia, Kosovo, Montenegro, and Serbia) The Marketplaces of Eastern Europe and Central Asia  Many countries carved out of the former Soviet Union are in the midst of converting from communism to capitalism and from totalitarianism to democracy  Gorbachev’s economic and political reforms led to the Soviet Union’s collapse in 1991 and subsequent declarations of independence by the 15 Soviet Republics (Newly Independent States)  In 1992, 12 of the NIS formed the Commonwealth of Independent States (CIS) as a forum to discuss issues of mutual concern  most important is Russia  Russia is the world’s largest country in land mass  well-endowed with natural resources  Yeltsin tried to privatize many of Russia’s state-owned firms. Although some newly privatized firms improved their productivity, many fell into the hands of individuals who were more concerned with looting corporate assets than restoring the companies’ economic health and performance  Russia’s central government staggered from one financial crisis to another, burdened by an inability to collect taxes and a political need to subsidize the inefficient state-owned enterprises that it was unable to sell to private interests  Russia is the world’s second largest oil producer and exporter, has also benefited from the increased prices of oil and other raw materials  The three Baltic republics were conquered by Soviet troops in 1940. They were among the first of the republics to claim their independence and are the only ones that did not join the Commonwealth of Independent States  The five Central Asian republics of the former Soviet Union have the importance of Russia in their recent political history  all were part of czarist Russia (Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan, Kyrgyzstan) o The five Central Asian republics are populated largely by Muslims, whose cultural heritage is very different from that of their former countrymen in Russia, Belarus, and Ukraine. The area is rich in natural resources such as oil and gas  all suffer from a scarcity of arable land  low per capita income The Marketplaces of Asia  home to over half the world’s population, yet it produces less than a quarter of the world’s GDP  region is a source of both high-quality and low-quality products and of both skilled and unskilled labour  major destination for foreign investments by MNCs and a major supplier of capital to non-Asian countries  aggressive, efficient entrepreneurs have increasingly put competitive pressure on European and North American firms to improve their productivity and the quality of their products  of the top 20 trading nations – based on the sum of imports and exports of goods – 7 are countries in East Asia  China, India, and Indonesia are the first, second, and fourth most populous countries in the world; China alone is home to more than one-fifth of the human race Japan  rapid growth during the past 50 years is due in part to the partnership between its Ministry of International Trade and Industry (MITI) and its industrial sector  has used its formal and informal powers to guide the production and investment strategies of the country’s corporate elite  industry is controlled by large families of interrelated companies (keiretsu) that are typically centred on a major Japanese bank  takes primary responsibility for meeting the keiretsu’s financing needs  members often act as suppliers to each other, thus making it more difficult for outsiders to penetrate Japanese markets; also protected from hostile takeovers by an elaborate system of cross-ownership of shares in which keiretsu members own shares in one another’s companies  keiretsu members often rely on a sogo shosha (an exp
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