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Chapter 1 - Trade and investment in a global economy. The main goals of this chapter are to: Introduce the student to the contemporary issues in international trade and investment, define international business and its main components and illustrate the importance of technology in driving the globalisation of products and markets, identify the entities involved in international trade and investment and explore the changing nature of firms that do business outside their national borders.
Chapter Trade and investment in a global economy Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–1 Lecture plan • Scope of international business – exports of goods and services – international contracting – foreign direct investment • What is globalisation? Main indicators • The drivers of globalisation • Arguments pro and against globalisation • International business versus domestic business • Why study international business? Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–2 National GDP and exports as % of world GDP and exports of goods and services % of world GDP Economy 1983 % of world exports of goods & services 2003 1983 2003 United States 31.8 30.3 11.2 11.1 Japan 10.9 11.9 7.1 6.0 Australia 1.7 1.4 1.1 1.0 New Zealand 0.2 0.2 0.3 0.2 China 2.1 3.9 1.1 5.3 Hong Kong 0.3 0.4 1.2 3.0 Malaysia 0.3 0.3 0.7 1.2 Singapore 0.3 0.4 1.2 3.0 Source: adapted from UNCTAD, World Investment Report (http://www.unctad.org/wir) and GATT/WTO data Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–3 Scope of international business • Exports (goods and services) • Contracting • Joint ventures • Wholly owned direct investment Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–4 Exports of goods • Primary products – agricultural products (food, raw materials) – mining products (ores, fuels, non-ferrous metals) • Manufactures – iron and steel – chemicals – other semi-manufactures – machinery and transport equipment – textiles and clothing – other consumer goods Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–5 Exports of services • Transportation (shipment and other) • Travel • Other services – telecommunications – non-merchandise insurance – banking – other professional services (engineering, legal, accounting, education, market research) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–6 Contracting • Licensing – rights for production and sales of a product – licensing fee – territorial restrictions • Franchising – Pepsi Cola, Shangri-La, Burger King • Turnkey project – planning, construction, commissioning, training – Large plant projects • Subcontracting (e.g the car sector) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–7 Foreign investment • Foreign Direct Investment (FDI) – joint venture and wholly-owned investment – effective control; managerial participation • Portfolio investment – investment income; capital gains • Dividing line: 10% of the company shares Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–8 FDI concepts • FDI (flow): measures movement of FDI in a given period, usually a year – FDI outflows – FDI inflows • FDI (stock): book value of accumulated investment flows over the years – outward FDI (stock) – inward FDI (stock) • Foreign production: value of goods and services produced abroad by multinationals Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–9 Global–multinational–transnational • Global company: company operating globally, e.g – exporting to many countries, or – investing in many countries • Multinational (MNE): engages in foreign production in three or more countries • Transnational (TNC): a corporation with owners in more than one nation Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–10 The world's top 500 global corporations by region (1992) Region/HQs Nth America West Europe Nth East Asia SE Asia Sth Asia Australasia Latin America Africa No of Corp’s 169 164 141 10 Main countries US (161) UK (40), Germany (32) Japan (128), S.Korea (12) Thailand (1), Malaysia (1) India (3) Australia (9), NZ (1) Mexico (2) S Africa (4), Zambia (1) Source:adapted from Fortune, 22 July 1992, 13 August 1998 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–11 The world’s top 500 global corporations by region (2003) Region/ Country Nth America West Europe No of Main countries Corp’s 202 US (189), Canada (13) 167 UK (36), Germany (37) Nth East Asia South & SE Asia Australasia Latin America Africa East Europe 109 Japan (82), China (15) South Korea (11) India (4), Thailand (1), Singapore (1), Malaysia (1) Australia (7) Brazil (3), Mexico (1) Russian Fed (3) Source: adapted from Fortune, July 1995, 13 August 1998, and 21 July 2004 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–12 Global integration ‘The process by which markets and production in different countries are becoming increasingly interdependent due to the dynamics of trade in goods and services and the flows of capital and technology.’ OECD Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–13 Drivers of globalisation Two key factors seem to underlie the trend towards the increasing globalisation of markets and production: decline of barriers to trade and investment technological change Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–14 Indicators of globalisation • Increasing trade/GDP ratio • FDI as % of GDP • Growth of intra-industry trade • Declining concentration of international business flows • Aggregate international business as % of GDP Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–15 Ratio of world exports of goods and services to GDP and ratio of global FDI flows to world fixed investment (GFCF)*, %, 1983–2003 30 25 Exports as a % of GDP % 20 FDI flows as a % of GFCF 15 10 GFCF = Gross Fixed Capital Formation Global FDI Flows = Global FDI Outflows + Global FDI Inflows/2 Source: adapted from GATT International Trade 1993, WTO International Trade 2004 and UNCTAD, World Investment Report (http://www.unctad.org/wir) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–16 Share of exports of goods and services in GDP 35 30 25 20 1980 15 2001 10 Low& Middle Income High Income countries World Source: adapted from World Bank, 2003 World Economic Indicators Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–17 Why FDI is growing more rapidly than world trade or world output • Can circumvent future trade barriers • World political and economic change • Democratisation of markets • Globalisation of world markets Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–18 Answers to critics of globalisation • Decisions in WTO and other international organisations are made by consensus of governments • Globalisation is more effective with strong governments and sound institutions • Globalisation benefits both large and small/medium companies Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–19 Anti-globalisation arguments • Destroys manufacturing jobs in wealthy, advanced countries • Wage rates of unskilled workers in advanced countries decline • Companies move to countries with fewer labour and environment regulations (‘export of jobs’) • Loss of sovereignty Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–20 Globalisation - arguments pro • • • • Lower prices for goods and services Economic growth stimulation Increase in consumer income Job creation – countries specialise in production of goods and services that are produced most efficiently • Unprecedented advances in living standards Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–21 International business vs domestic business • International risk – financial (exchange, interest, inflation) – political (nationalisation, expropriation) – regulatory (legal systems, policies) – marketing (income levels, marketing practices) • Multinational conflicts – Multinational strategies vs national interest Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–22 International business training • Reasons - ‘multinationalisation’ - internationalisation (small and medium companies) - international business policies (government) - globalisation of financial markets Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–23 Job opportunities • Export departments of manufacturing firms (joint ventures) in Australia or overseas • International traders • Exporters of services • Providers of services to international companies – banking, insurance – shipping – construction; engineering • Government; international organisations Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1 1–24 ... Economy 19 83 % of world exports of goods & services 2003 19 83 2003 United States 31. 8 30.3 11 .2 11 .1 Japan 10 .9 11 .9 7 .1 6.0 Australia 1. 7 1. 4 1. 1 1. 0 New Zealand 0.2 0.2 0.3 0.2 China 2 .1 3.9 1. 1... McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1< #> 1 7 Foreign investment • Foreign Direct Investment. .. t/a International Trade and Investment: An Asia–Pacific Perspective 2e by Gionea Slides prepared by John Gionea 1< #> 1 18 Answers to critics of globalisation • Decisions in WTO and other international