Chapter 15 - Emerging markets and developing economies (EMDEs). The main goals of this chapter are to: Outline the main characteristics of emerging markets and developing economies (EMDEs); explain the role of the government sector in EMDEs, and the main government concerns and strategies; examine the importance of trade to development and the main trade strategies used by the emerging market and developing economies;...
Chapter 15 Doing business in Emerging Markets and Developing Economies (EMDEs) 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 15–1 Lecture plan • Definition of Emerging Markets and Developing Economies (EMDEs) • Import markets in EMDEs • Trade policy issues in EMDEs • Export marketing aspects in EMDEs • Considerations for investing in EMDEs 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 15–2 Definition of EMDEs • In principle, the group of the emerging market and developing economies (EMDEs) includes all countries that are not classified as advanced economies and which are at a lower level of development than the advanced economies 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 15–3 General features of developing countries • High levels of rural population • Relatively high population growth rates • High proportion of population living in absolute poverty • Not well developed banking/credit facilities 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 15–4 General features of developing countries cont • Relative lack of financial capital (espec FX) • Relatively low level of infrastructure (roads, telecommunications, education institutions) • Low marketing facilities (e.g storage, distribution) 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 15–5 Government sector in developing countries • Bigger size government sector than in ICs (lower tax base) • However, more government regulation than in ICs – big concern: control over the national economy • More development planning than in ICs, e.g – Indonesia: ‘Repellita’ (5-year plans) • Malaysia,Taiwan 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 15–6 Trade and development • Trade as engine of growth • Import substitution vs export orientation • Development strategies – Stage 1: Exports of natural resources/ imports of manufactures – Stage 2: Import substitution – Stage 3: Export-led growth 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 15–7 The import market of EMDEs in 2003 (total merchandise and services imports) by main groupings (%); Total: US$2260b Latin America 19% Middle East 9% Developing Asia 42% Africa 9% CIS C & E Europe 12% 9% Source: adapted from WTO, International Trade Statistics 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 15–8 Imports of EMDEs by regional groupings by product, 2003, % Source Devel’g Latin Asia America Total Farm products Minerals Manufact -ured goods C&E Europe Middle East Africa 100 100 100 100 100 10 10 12 16 17 12 11 11 73 75 78 79 71 Source: adapted from WTO, International Statistics 2004 and World Bank, World Development Indicators 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 15–9 The share of China and Eastern Europe* in world merchandise imports, 1948–2000 % of World Imports 12 10 China E.Europe 1948 1953 1963 1973 1983 1993 2000 * Eastern Europe = Former Soviet Union and C & E Europe 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 15–10 China’s share of world merchandise imports, by product, 1990, 2000, % % Farm products Energy Iron and Chemicals Machinery Textiles steel 1990 1.8 1.4 2.5 2.2 1.8 4.9 2000 2.4 2.2 5.4 4.4 2.9 7.1 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 15–11 Trade policy issues Tariffs • Generally higher than in ICs • Lower proportion of tariffs are bound • Regional economic groupings (e.g AFTA, MERCOSUR) discriminate against nonmembers (See impact of AFTA’s intra-regional tariff cuts on next slide.) 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 15–12 Comparison of 1999 MFN simple tariff rates and average CEPT rates in selected AFTA countries 1999, 2003 Country Indonesia Malaysia Philippines Singapore Thailand Vietnam MFN 1999 10.9 7.1 10.0 0.0 21.6 15.1 Intra-AFTA (%) 1999 2003 5.85 3.71 3.17 2.06 7.00 3.75 0.0 0.0 9.75 4.64 3.78 2.02 Source: adapted from World Bank Development Indicators, 2004, table 6.6 and ASEAN Secretariat website 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 15–13 Trade policy issues • Non-tariff measures – South Korea : ‘Pigs is pigs!’ – Malaysia: import licences (plastics raw materials) • Barriers to trade in services 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 15–14 Export marketing issues • Cultural differences – language – cultural restrictions on consumption/imports • Price strategies – differentiated prices (on low side) – ‘price 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 15–15 Export marketing issues cont • Distribution – longer distribution channels than in ICs • Promotion – Less spending required compared to ICs – However, growing promotion expenditure in Asia and Latin America (See Table 15.10 in textbook for data on advertising expenditure.) 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 15–16 Leading EMDEs in developing Asia in terms of trend growth in advertising expenditure, 1998– 2003 % p.a Indonesia 34.6 17.9 China Thailand 14.0 Malaysia 11.0 India 8.8 4.0 Philippines Sri Lanka 2.1 Source: adapted from Euromonitor, GMID, 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 15–17 Australia’s position in the import markets of transition economies • Best position in China: A$6.5 billion in 2000–2001; 2% of China’s imports; 8th rank • Small exports to other markets: the share of Australian exports varies between 0.1% and 0.7% (Romania) • Exports include primary products, but also some elaborately transformed manufactures (e.g telecom equipment, measuring and controlling instruments, medicinal and pharmaceutical goods Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 15–18 Transition economies • Current and former centrally planned economies in transition to a market-based economy – former Soviet Union countries; C & E Europe; PR China and Vietnam • China – the world's 3rd largest economy (PPP method) • Government sector – still the leading sector in FSU; however, in 2001 it accounted for less than 50% in most C & E European countries • Privatisation of state enterprises Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 15–19 Trade issues in transition economies • Decentralisation of foreign trade (China since 1985) • From central plan to tariff protection • Members of WTO: Czech Republic, Hungary, Poland, Slovak Rep., Romania, China (November, 2001) • countries joined the EU in 2004 with more to follow (Bulgaria, Romania and Croatia) • Abolition of import licences/quotas • Over 1992–2001, China has undertaken a number of reductions of non-tariff measures Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 15–20 FDI inflows into EMDEs by main geographic grouping, 1993–2003, US$b 120 100 80 US$Billion Developing Asia 60 C&E Europe Middle East Africa 40 Latin America 20 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -20 Source: adapted from UNCTAD, World Investment Report, 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 15–21 Trends and issues in direct investment in EMDEs • Developing Asia – the largest beneficiary of inward FDI among EMDEs ( US$68b in 2003) China: top destination 2001–2003 • FDI in the service sector growing fast, but manufacturing still takes about 55% of inward FDI • Political stability: key consideration for FDI • Government controls • Government attitude to FDI (the ‘obsolescing bargain’) • Joint venture – preferred form of FDI? 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 15–22 Trends and issues in direct investment in EMDEs cont • Government controls • Ease to business – best performers: Lithuania (ranked 17th), Slovakia (18th), Botswana(19th), and Thailand (20th) • Copyright issues (e.g China) • Transfer pricing • Incentives • Personnel 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 15–23 Sectoral trends in FDI inward stock in transition economies, 1999 • Leading sector: tertiary (US$49.3b, 50.1% of total) – finance; trade; transport, storage and communications • Secondary sector: US$43.5b (43.5%) – food, beverages; motor vehicles and other transport equipment; machinery and equipment • Primary: US$2.4b (2.5%) 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 15–24 ... 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 15 22 Trends and issues in direct investment. .. International Trade Statistics 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 15 8... 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 15 9 The share of China and Eastern