Đang tải... (xem toàn văn)
(BQ) Part 1 book International business - Environments and operations has contents: Overview of international business and globalization, culture, governmental and legal systems, economic systems and market methods, trade and factor mobility theory, trade protectionism,...and other contents.
Find more at http://www.downloadslide.com Environments and Operations International Business For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version fifteenth edition Pearson Global Edition Daniels • Radebaugh • Sullivan This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author Global edition Global edition Global edition ISBN-13: 978-1-292-01679-5 ISBN-10: 1-292-01679-5 781292 016795 0 0 International Business Environments and Operations fifteenth edition John D Daniels • Lee H Radebaugh • Daniel P Sullivan Find more at http://www.downloadslide.com International Business Environments and Operations Fifteenth Edition Global Edition John D Daniels University of Miami Lee H Radebaugh Brigham Young University Daniel P Sullivan University of Delaware Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com Editor in Chief: Stephanie Wall Senior Editor: Kris Ellis-Levy Senior Acquisitions Editor, Global Editions: Steven Jackson Head of Learning Asset Acquisition, Global Editions: Laura Dent Associate Editor, Global Editions: Toril Cooper Project Editor, Global Editions: Arundati Dandapani Program Manager Lead: Ashley Santora Program Manager: Sarah Holle Editorial Assistant: Bernard Ollila Director of Marketing: Maggie Moylan Director of International Marketing: Ann Oravetz Senior Marketing Manager: Erin Gardner Marketing Assistant: Gianna Sandri Marketing Manager, Global Editions: Kristin Borgert Project Manager Lead: Judy Leale Art Director: Steve Frim Text Designer: Black Horse Designs Cover Designer: Jodi Notowitz Cover Photo: © Ohmega1982/Shutterstock VP, Director of Digital Strategy & Assessment: Paul Gentile Digital Editor: Brian Surette Digital Development Manager: Robin Lazrus Digital Project Manager: Alana Coles MyLab Product Manager: Joan Waxman Digital Production Project Manager: Lisa Rinaldi Senior Manufacturing Controller, Production, Global Editions: Trudy Kimber Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2015 The right of John Daniels, Lee Radebaugh, and Daniel Sullivan to be identified as authors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorised adaptation from the United States edition, entitled International Business, 15th edition, ISBN 978-0-13-345723-0 by John Daniels, Lee Radebaugh, and Daniel Sullivan, published by Pearson Education © 2015 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A and other countries Screen shots and icons reprinted with permission from the Microsoft Corporation This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation ISBN 10: 1-292-01679-5 ISBN 13: 978-1-292-01679-5 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 15 14 13 12 11 Typeset in 10/12 Palatino by Integra Software Services Private Limited Printed and bound by Courier Kendallville in United States of America A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com Brief Contents Preface 24 About the Authors 40 PART ONE: Introduction 43 Overview of International Business and Globalization 43 An Atlas 74 PART TWO: National Environmental Differences 87 Culture 87 Governmental and Legal Systems 129 Economic Systems and Market Methods 179 PART THREE: Connecting Countries through Trade and Factor Movements 229 Trade and Factor Mobility Theory 229 Trade Protectionism 271 Economic Integration and Cooperation 301 PART FOUR: The Global Monetary Environment 339 Markets for Foreign Exchange 339 Factors that Influence Exchange Rates 371 10 Global Debt and Equity Markets 407 PART FIVE: Corporate Policy and Strategy 441 11 12 13 14 15 16 Ethics and Social Responsibility 441 Strategies for International Business 475 Evaluation of Countries for Operations 525 Modes of Trading Internationally 561 Forms and Ownership of Foreign Production 611 The Organization and Governance of Foreign Operations 653 PART SIX: Functional Management and Operations 697 17 18 19 20 Global Marketing 697 Global Production and Supply Chains 737 Global Accounting and Financial Management 771 Global Management of Human Resources 807 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com Contents Cases with or company denotes a case that emphasizes a country, cases with denotes a case that emphasizes an industry Preface 24 About the Authors 40 • PART ONE: Introduction 43 Overview of International Business and Globalization 43 CASE: The Globalized Business of Sports 44 Introduction 47 How Does International Business Fit In? 47 The Forces Driving Globalization 48 Factors in Increased Globalization 49 The Costs of Globalization 54 Threats to National Sovereignty 55 Environmental Stress 55 Growing Income Inequality and Personal Stress 56 Point-Counterpoint Is Offshoring Good Strategy? 56 Why Companies Engage in International Business 58 Expanding Sales 59 Acquiring Resources 59 Reducing Risk 59 Modes of Operations in International Business 60 Merchandise Exports and Imports 60 Service Exports and Imports 60 Investments 61 Types of International Organizations 61 Why International Business Differs from Domestic Business 62 Physical and Social Factors 62 The Competitive Environment 64 Looking to the Future Three Ways of Looking at Globalization 65 CASE: Transportation and Logistics: The Case for Dubai Ports World 66 Summary 71 Key Terms 71 Endnotes 72 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com C o n t e n t s An Atlas 74 Map Index 82 • PART TWO: National Environmental Differences 87 Culture 87 CASE: Saudi Arabia’s Dynamic Culture 88 Introduction 92 The People Factor 92 Cultural Awareness 93 A Little Learning Goes a Long Way 94 The Idea of a “Nation”: Delineating Cultures 95 The Nation as a Point of Reference 95 How Cultures Form and Change 95 Sources of Change 95 Language as Both a Diffuser and Stabilizer of Culture 96 Why English Travels So Well 98 Religion as a Cultural Stabilizer 99 Behavioral Practices Affecting Business 100 Issues in Social Stratification 100 Does Geography Matter? Birds of a Feather Flock Together 101 Work Motivation 103 Relationship Preferences 106 Risk-Taking Behavior 107 Information and Task Processing 108 Communications 109 Spoken and Written Language 109 Silent Language 111 Dealing with Cultural Differences 112 Host Society Acceptance 112 Degree of Cultural Differences 113 Ability to Adjust: Culture Shock 113 Company and Management Orientations 114 Strategies for Instituting Change 115 Point-Counterpoint Does International Business Lead to Cultural Imperialism? 115 Looking to the Future What Will Happen to National Cultures? 118 CASE: Tesco PLC: Leveraging Global Knowledge 120 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com Co ntents Summary 125 Key Terms 125 Endnotes 126 Governmental and Legal Systems 129 CASE: China—Complicated Risks, Big Opportunities 130 Introduction 133 The Political Environment 134 Individualism Versus Collectivism 135 Individualism 135 Collectivism 136 Political Ideology 136 Spectrum Analysis 137 Democracy 138 Totalitarianism 139 The Standard of Freedom 140 Trends in Political Ideologies 141 Engines of Democracy 142 Democracy: Recession and Retreat 143 Authoritarianism’s Surge 145 Looking to the Future Political Ideology and MNEs’ Actions 146 Political Risk 148 Classifying Political Risk 149 Classes and Characteristics of Political Risks 149 Point-Counterpoint Proactive Political Risk Management: The Best Approach 151 The Legal Environment 153 Types of Legal Systems 154 Trends in Legal Systems 155 Implications for Managers 157 The Confound of Democracy’s Retreat 157 Which Rule When? 158 Legal Issues in International Business 160 Operational Concerns 160 A Key Relationship: Wealth and Regulation 162 Strategic Concerns 163 Country Characteristics 163 Product Safety and Liability 164 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com C o n t e n t s Legal Jurisdiction 164 Intellectual Property 164 The Basis of Political and Legal Differences 165 Historical Legacies 165 Economic Circumstances 166 Cultural Orientation 166 The Potential for Cross-National Convergence 167 CASE: It’s a Knockoff World 168 Summary 171 Key Terms 172 Endnotes 172 Economic Systems and Market Methods 179 CASE: The Comeback Accelerates 180 Introduction 184 New Markets, New Perspectives 184 International Economic Analysis 187 Does Geography Matter? Consequence of Change in Arctic Sea Ice 188 Economic Freedom 189 Economic Freedom Today 190 The Value of Economic Freedom 191 Trends in Economic Freedom 191 Types of Economic Systems 194 Market Economy 194 Command Economy 195 Mixed Economy 196 Looking to the Future State Capitalism: Detour or Destination? 197 Assessing Economic Development, Performance, and Potential 199 Measures of Economic Performance 200 Adjusting Analytics 201 Performance and Potential: Alternative Interpretations 204 Point-Counterpoint Growth: Positive and Productive? 207 Economic Analysis 209 Inflation 209 Unemployment 210 Debt 211 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com Co ntents Income Distribution 211 Poverty 212 The Balance of Payments 215 Elaborating Economic Analysis with Global Indices 215 CASE: The BRICs: Vanguard of the Revolution 217 Summary 222 Key Terms 222 Endnotes 223 • PART THREE: Connecting Countries through Trade and Factor Movements 229 Trade and Factor Mobility Theory 229 CASE: Costa Rica’s Trade Evolution 230 Introduction 233 Laissez-Faire Versus Interventionist Approaches to Exports and Imports 233 Theories of Trade Patterns 234 Trade Theories and Business 234 Factor-Mobility Theory 234 Interventionist Theories 235 Mercantilism 235 Neomercantilism 236 Free-Trade Theories 236 Theory of Absolute Advantage 236 Theory of Comparative Advantage 239 Theories of Specialization: Some Assumptions and Limitations 240 Trade Pattern Theories 242 How Much Does a Country Trade? 242 What Types of Products Does a Country Trade? 243 With Whom Do Countries Trade? 246 Does Geography Matter? Variety Is the Spice of Life 247 The Statics and Dynamics of Trade 248 Product Life Cycle (PLC) Theory 248 The Diamond of National Competitive Advantage 250 Factor-Mobility Theory 252 Point-Counterpoint Should Nations Use Strategic Trade Policies? 253 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com C o n t e n t s Why Production Factors Move 255 Effects of Factor Movements 256 The Relationship Between Trade and Factor Mobility 258 Looking to the Future In What Direction Will Trade Winds Blow? 260 CASE: LUKOIL: Foreign Trade and Investment 262 Summary 267 Key Terms 268 Endnotes 268 Trade Protectionism 271 CASE: The U.S.–Vietnamese Catfish Dispute 272 Introduction 275 Conflicting Results of Trade Policies 275 The Role of Stakeholders 275 Economic Rationales for Governmental Intervention 276 Fighting Unemployment 276 Protecting “Infant Industries” 277 Developing an Industrial Base 278 Economic Relationships with Other Countries 279 Noneconomic Rationales for Government Intervention 282 Maintaining Essential Industries 282 Promoting Acceptable Practices Abroad 282 Point-Counterpoint Should Governments Impose Trade Sanctions? 284 Maintaining or Extending Spheres of Influence 285 Preserving National Culture 286 Instruments of Trade Control 286 Tariffs 286 Nontariff Barriers: Direct Price Influences 287 Nontariff Barriers: Quantity Controls 289 Dealing with Governmental Trade Influences 292 Tactics for Dealing with Import Competition 292 Convincing Decision Makers 292 Involving the Industry and Stakeholders 293 Preparing for Changes in the Competitive Environment 293 Looking to the Future Dynamics and Complexity 293 CASE: Doing Business in Singapore 294 A01_DANI6795_15_GE_FM.indd 15/04/14 9:41 PM Find more at http://www.downloadslide.com 324 PART Connecting Countries through Trade and Factor Movements America Although proponents of the deal assert that it will stem illegal immigration from these poorer nations, the shift in jobs will most likely increase immigration, as it did with NAFTA Furthermore, it will trigger a “race to the bottom” when it comes to wages The accord will open up U.S labor markets to competition from a low-wage area, which could drive down the current wage level Because the accord involves developing countries with vastly different interests than the United States, it will be hard to please all parties For example, Costa Rica faced opposition from trade unions, farm groups, and even businesses, as well as fears about the accord’s stringent intellectual-property clauses and the chance that it might force the country to privatize its free universal healthcare system In spite of all the concerns, the agreement has been implemented by all of the parties U.S exports to CAFTA-DR increased by 43 percent in the first five years that the agreement was in force, compared with an increase of only 25 percent in the five years prior to the agreement It seems to have helped U.S exports to the region, but have the CAFTA-DR countries benefited as well? Why you think it was so important for the members of CAFTA-DR to sign an agreement with the United States given that tariffs on goods entering the U.S were already so low? Regional Economic Integration In Asia There are several RTAs in Asia as recognized by the WTO and a few significant trade initiatives in process Of the officially approved RTAs, the most important is the Association of Southeast Asian Nations/ASEAN Free Trade Area As is the case in Latin America, regional integration in Asia has not been as successful as in Europe or North America because most of the countries in the region have relied on U.S and EU markets for as much as 20 to 30 percent of their exports—not as extensive as in Latin America but still significant In addition, China and Japan, which are not members of ASEAN/AFTA, are significant players in the region in terms of trade and investment Association of Southeast Asian Nations (ASEAN) Organized in 1967, ASEAN is a comprehensive association that includes preferential trade as one of its many goals This preferential trade agreement comprises Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam (see Map 7.4) With a combined GDP of $2.28 trillion and an estimated population of 622.5 million people38—it is a significant organization The ASEAN Free Trade Area is a successful trade agreement among countries in Southeast Asia M07_DANI6795_15_GE_C07.indd 324 ASEAN Free Trade Area On January 1, 1993, ASEAN officially formed the ASEAN Free Trade Area (AFTA) with the goal of cutting tariffs on all intrazonal trade to a maximum of percent by January 1, 2008 The weaker ASEAN countries would be allowed to phase in their tariff reductions over a longer period By 2005, most products traded among the AFTA countries were subject to duties from to percent, so AFTA has been successful in its objectives Free trade is crucial to the member countries because their ratio of exports to GDP is almost 70 percent The best achievement of AFTA is that is has reduced tariffs, attracted FDI, and turned the region into a huge network of production, leading to what some call “factory Asia.”39 Although China is not a part of ASEAN, it is essential to ASEAN’s future China’s working-age population is 795.4 million people, compared with 298 million for the ASEAN countries Although the average monthly wage for manufacturing workers is much higher in Singapore ($2,832) and Malaysia ($666.10) than in China ($412.50), it is much lower in the other ASEAN countries As wages continue to rise in China, there are opportunities for ASEAN countries to attract more FDI, but those countries need to work hard to improve their infrastructure, especially supply chain and manufacturing infrastructure.40 These opportunities combined with China’s competitive position are forcing ASEAN to work harder to strengthen the ties among member countries In addition to the FTA, ASEAN has a goal of 04/04/14 6:17 PM Find more at http://www.downloadslide.com Chapter Economic Integration and Cooperation 325 Map 7.4 The Association of Southeast Asian Nations Although the total population of ASEAN countries (as of 2013) is larger than that of either the EU or NAFTA, per capita GDP is considerably lower Economic growth rates among ASEAN members, however, are among the highest in the world ASEAN Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam MYANMAR LAOS THAILAND CAMBODIA VIETNAM PHILIPPINES Pacific Ocean BRUNEI DARUSSALAM M A L A Y S I A SINGAPORE I N D O N E S I A 0 1000 mi 1000 km establishing the ASEAN Economic Community (AEC) by 2015, which the member countries hope will go beyond trade liberalization and help establish the region as a single market and production base APEC comprises 21 countries that border the Pacific Rim; progress toward free trade is hampered by size and geographic distance between member countries and by the lack of a treaty Asia Pacific Economic Cooperation (APEC) Formed in November 1989 to promote multilateral economic cooperation in trade and investment in the Pacific Rim,41 Asia Pacific Economic Cooperation (APEC) is composed of 21 countries that border both Asia and the Americas All but three members of AFTA are members of APEC, plus Canada, the U.S., Mexico, Peru, and Chile in the Americas; Australia and New Zealand; and China, Japan, Korea, Russia, and Chinese Taipei It is a large and powerful organization that is focused on a wide range of activities related to trade and investment, security, energy, sustainability, anticorruption, and transparency, among other things However, it is not an RTA as defined by the WTO and does not show up on that list of RTAs The sheer size of APEC is what sets it apart: 55 percent of global GDP and 43 percent of world trade The U.S hosted APEC in 2011 for the first time since 1993, and its meetings rotate among the 21 member nations Trans-Pacific Partnership (TPP) The TPP was initiated by the U.S to spur economic growth and create jobs, and it involves Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam The formation of the initiative was announced in 2011, and Japan was added as a member in 2013 A main goal of the TPP is to enhance trade and investment Interestingly, the TPP does not include all members of APEC but it provides a more limited scope of negotiations in the Pacific region for the U.S in the same way that U.S negotiations with Europe provide an Atlantic initiative The latest movement is the goal of establishing a Free Trade Area of the Pacific M07_DANI6795_15_GE_C07.indd 325 04/04/14 6:17 PM Find more at http://www.downloadslide.com 326 PART Connecting Countries through Trade and Factor Movements Regional Economic Integration In Africa There are several African trade groups, but they rely more on their former colonial powers and other developed markets for trade than they on each other Africa is truly the new frontier Between 2001–2010, six of the fastest growing economies in the world were in Africa Real GDP growth has been strong, and FDI has risen significantly In addition, Africa has the fastest-expanding labor force in the world with more than 500 million people of working age (15–64), and is expected to surpass China and India in working-age population by 2040.42 From the standpoint of regional integration, however, Africa is complicated because of the large number of countries on the continent and the fact that there are three regional m onetary unions and five existing regional trade associations On Map 7.5, we have selected only four of the RTAs to illustrate the situation in Africa The problem is that African countries have been struggling to establish a political identity, and the different trade groups have political as well as economic underpinnings The key to continued growth in Africa is the reduction of risk as conflicts drop and peace improves Some African countries are members of more Map 7.5 Regional Integration in Africa Although African nations have joined to form several groups for the purpose of economic integration, the total amount of trade among members remains relatively small African nations tend to rely heavily on trading relationships with countries elsewhere in the world—notably with industrialized nations LIBYA EGYPT ERITREA MALI GAMBIA SENEGAL GUINEABISSAU SUDAN DJIBOUTI BURKINA FASO COTE D’IVOIRE NIGERIA SOUTH SUDAN GHANA BENIN SIERRA LEONE TOGO LIBERIA UGANDA DEM REP CONGO (ZAIRE) CAPE VERDE ANGOLA ZAMBIA ZIMBABWE NAMIBIA BOTSWANA ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS): Benin, Burkina Faso, Cape Verde, Coˆte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo PAN ARAB FREE TRADE AREA (PAFTA): Bahrain, Egypt, Iraq, Jordan, Saudi Arabia, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Sudan, Syria, Palestine, Tunisia, United Arab Emirates, Yemen M07_DANI6795_15_GE_C07.indd 326 RWANDA BURUNDI SEYCHELLES TANZANIA MALAWI COMOROS ZAM BIQ COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA): Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe KENYA MADAGASCAR MO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC): Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe ETHIOPIA UE GUINEA NIGER 0 SOUTH AFRICA MAURITIUS SWAZILAND LESOTHO 2000 mi 2000 km 04/04/14 6:17 PM Find more at http://www.downloadslide.com Chapter Economic Integration and Cooperation 327 than one RTA An example is Zambia, which is a member of both SADC and COMESA That makes sense in one respect since Zambia borders COMESA on the North and SADC on the South Another example is Egypt which is a member of the Pan Arab Free Trade Area (also called the Greater Arab Free Trade Area) and COMESA In addition, Egypt has access to Europe through free trade agreements with the EU and EFTA Former colonial links are also important Most but not all of the members of ECOWAS are former French colonies and thus still have economic ties with France The Pan Arab Free Trade Area (PAFTA) is an interesting group because its members span North Africa (Egypt, Tunisia, Sudan, Libya, and Morocco) and the Middle East (UAE, Bahrain, Jordan, Saudi Arabia, Syria, Iraq, Oman, Palestine, Qatar, Kuwait, Lebanon, and Yemen) Officially recognized by the WTO as an RTA, its goal is to reduce trade barriers among its member countries In addition to PAFTA, the Arab League represents more countries but with political rather than economic objectives Subsets of Arab League countries, such as the Gulf Cooperation Council are more effective than the larger Arab League and PAFTA because of the smaller number of countries involved The GCC basically includes Bahrain, Saudi Arabia, Kuwait, Oman, Qatar, and the UAE Whereas the African countries have large populations and a variety of natural resources in high demand, PAFTA and the GCC have smaller populations but huge oil and natural gas reserves Political instability, especially the repercussions of the Arab Spring of 2011 and the overthrow in 2013 of the government in Egypt, makes economic collaboration a huge challenge, at least in the short run The African Union (AU) One group not shown on Map 7.5 is the African Union, c reated by 53 countries in 2002 to focus on political issues in Africa, notably colonialism and r acism It has gotten involved in civilian conflicts throughout Africa and is not the organization pushing for trade liberalization Civil war, corruption, diseases such as AIDS, and poor government infrastructures have hampered African countries and their ability to progress economically The AU now includes every country in Africa except Morocco, and it is pushing aggressively to promote peace and security through openness and democracy Eventually, the AU wants to push for economic integration, but it is not formally negotiating trade deals, but rather letting the various regional trade groups that.43 Because most African countries rely more on trade links with former colonial powers than with each other, intrazonal trade is not significant The markets, with the notable exception of South Africa, are relatively small and undeveloped, making trade liberalization a relatively minor contributor to economic growth in the region However, any type of market expansion through regional integration will help these small countries Other Forms of International Cooperation Up to now, this chapter has focused on treaties between nations designed to reduce trade and investment barriers and increase trade and investment among member nations We have moved from the global—the WTO—to the bilateral and the regional However, there are other forms of cooperation worth mentioning that could have an influence on MNE strategies The UN was established in 1945 following World War II to promote international peace and security It deals with economic development, antiterrorism, and humanitarian movements M07_DANI6795_15_GE_C07.indd 327 The United Nations The first form of cooperation worth exploring is the United Nations, which was established in 1945 in response to the devastation of World War II to promote international peace and security and to help solve global problems in such diverse areas as economic development, antiterrorism, and humanitarian actions If the UN performs its responsibilities, it should improve the environment in which MNEs operate around the world, reducing risk and providing greater opportunities Organization and Membership The UN family of organizations is too large to list, but it includes the WTO, the International Monetary Fund, and the World Bank (the latter two discussed in subsequent chapters) These organizations are all part of the Economic and 04/04/14 6:17 PM Find more at http://www.downloadslide.com 328 PART Connecting Countries through Trade and Factor Movements Social Council, one of six principal organs of the UN System, which also includes the General Assembly, the Security Council, and the International Court of Justice The UN has 193 member states represented in the General Assembly, including 15 that comprise the Security Council There are five permanent members of the Security Council— China, France, the Russian Federation, the United Kingdom, and the United States—and 10 other members elected by the General Assembly to serve two-year terms.44 UNCTAD was established to help developing countries participate in international trade UNCTAD The UN Conference on Trade and Development, or UNCTAD, was established in 1964 to integrate developing countries into the global economy UNCTAD’s main activities include globalization and development strategies, trade in goods and services, commodities, investment and enterprise development, and trade logistics and human resource development In particular, UNCTAD has been active in contributing to the debate on issues related to developing countries and the global economy.45 NGOs: Private nonprofit institutions that are independent of the government Nongovernmental Organizations (NGOs) Nongovernmental, nonprofit voluntary rganizations are all lumped under the category of NGOs: private institutions that are o independent of any government Some NGOs operate only within the confines of a specific country, whereas others are international in scope An example of the latter is the International Red Cross, which is concerned with humanitarian issues around the world, not just in one country One of the functions of UNCTAD is to work with NGOs in helping shape policies and activities related to concerns of developing countries Many NGOs, such as Doctors without Borders, are like the Red Cross in that they are concerned about humanitarian issues Others came about as a response to what is perceived as the negative side of globalization Many NGOs that deal with the environment and labor issues will be discussed in Chapter 11 NGOs perform an important role in bringing potential abuses to light and tend to be very narrowly focused, usually on a specific issue In addition to UNCTAD, there is a Committee on Non-Governmental Organizations that is a part of the Economic and Social Council (ECOSOC) of the UN that meets to discuss issues of importance to general and specific NGOs Commodity Agreements Commodities refer to raw materials or primary products that enter into trade, such as metals or agricultural products Primary commodity exports—such as crude petroleum, natural gas, copper, tobacco, coffee, cocoa, tea, and sugar—are still important to developing countries Out of 151 developing countries, 100, two-thirds of the total, derive more than 50 percent of their export value from commodities.46 The attempts of countries to stabilize commodity prices through producer alliances and commodity agreements have been largely unsuccessful Concept Check Commodities often represent natural advantages, which we define in Chapter as advantages in producing products resulting from climatic conditions, access to certain natural resources, or availability of certain labor forces M07_DANI6795_15_GE_C07.indd 328 Commodities and The World Economy Both long-term trends and short-term fluctuations in commodity prices have important consequences for the world economy On the demand side, commodity markets play an important role in industrial countries, transmitting business cycle disturbances to the rest of the economy and affecting the growth rate of prices On the supply side, as noted above, primary products account for a significant portion of the GDP and exports of many commodity-producing countries Consumers and Producers For many years, countries tried to band together as producer alliances or joint producer/ consumer alliances to try to stabilize commodity prices However, these efforts—with the exception of OPEC, which we discuss below—have not been very successful UNCTAD 04/04/14 6:17 PM Find more at http://www.downloadslide.com Chapter Concept Check Remember from Chapter the fact that lower-income countries depend much more on the production of primary products than wealthier nations; consequently, they depend more heavily on natural advantage as opposed to the kinds of acquired advantage that involve more advanced technologies and processes Many commodity agreements now exist for the purpose of • Discussing issues, • Disseminating information, • Improving product safety Economic Integration and Cooperation 329 established a Special Unit on Commodities to attempt to deal with the issues facing developing countries because of high dependence on commodities, especially agricultural commodities, for export revenues Given such reliance, UNCTAD is concerned that it will be impossible to resolve poverty issues, especially in Africa, without dealing with fluctuating commodity prices The most important international commodity organizations and bodies, such as the International Cocoa Organization and the International Copper Study Group, take part in UN-led discussions to help commodity-dependent countries establish effective policies and strategies However, each one, such as the International Coffee Organization (ICO), has its own organizational structure independent of the UN The ICO is composed of 38 coffeeexporting nations—all of them developing countries—and 32 importing nations, most of which are developed countries ICO members are responsible for over 97 percent of the world’s coffee exports and 80 percent of the world’s coffee consumption.47 Whereas many of the original commodity agreements were designed to influence price through a variety of market-interfering mechanisms, most of the existing ones have been established to discuss issues, disseminate information, improve product safety, and so on Very little can be done outside of market forces to influence price The ICO, for example, helps fund projects for coffee growing nations to combat pests and diseases and to expand coffee consumption through promotion efforts Coffee consumption varies a lot from country to country, so the promotion efforts supported by ICO are designed to increase per capita consumption in low-consuming countries Because commodities are the raw materials used in the production process, it is important for managers of companies that use them to understand the factors that influence their prices Investment and pricing decisions must be based on the cost of inputs, and it is difficult to forecast those costs when the commodities markets are highly volatile For many years, commodity prices fluctuated but did not increase dramatically In the decade of the 2000s, however, global economic growth pulled them up China, in particular, was growing so fast that it was pulling up most of them, leading to trade agreements between China and many commodity-producing countries, as well as substantial foreign investment The global economic crisis, however, caused a significant contraction in commodity prices of nearly 17 percent in 2009, which had a very negative impact on the economies of the commodity-producing countries The prices increased by 23 percent from January 1, 2010 to January 2011 as the global economy began to recover.48 However, as the Chinese economy began to contract in 2013, commodity prices dropped again The Organization of The Petroleum Exporting Countries (OPEC) OPEC is a producers’ alliance in oil that has been successful in using quotas to keep oil prices high The Organization of the Petroleum Exporting Countries (OPEC) is an example of a producer cartel that relies on quotas to influence prices It is a group of 12 oil-producing countries that have significant control over supply and band together to control output and price Its members include Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela Indonesia suspended its membership in January 2009, and several of the largest oil exporting countries, including the Russia, Norway, Canada, the U.S., and Mexico, are not members of OPEC Price Controls and Politics OPEC controls prices by establishing production quotas on member countries Saudi Arabia has historically performed the role of the dominant supplier in influencing supply and price Periodically OPEC oil ministers gather together to determine the quota for each country based on estimates of supply and demand Politics is also an important dimension of the deliberations OPEC member countries with large populations need large oil revenues to fund government programs As a result, they are tempted to exceed their export quotas to generate more revenues M07_DANI6795_15_GE_C07.indd 329 04/04/14 6:17 PM Find more at http://www.downloadslide.com 330 PART Connecting Countries through Trade and Factor Movements Output and Exports OPEC member countries produce about 33.6 percent of the world’s crude oil and 19 percent of its natural gas However, its oil exports represent about 60.4 percent of the oil traded internationally.49 In addition, OPEC has 81 percent of the world’s oil reserves, with the Middle East containing 66.4 percent of OPEC’s total reserves Therefore, OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of production However, the biggest producer of crude oil is Russia, followed by Saudi Arabia, the U.S., China, and Iran In 2007, Brazil, which is not a member of OPEC, announced a deep-sea oil discovery that was supposed to launch Petrobras into one of the biggest oil companies in the world and help Brazil to become a major oil exporter However, Brazilian economic policies have forced state-owned Petrobras to buy ships, oil platforms, and other equipment from Brazilian companies not well-positioned to compete in the global economy, and oil production in Brazil has fallen Petrobras’ stock price has fallen, pushing down the market value of the company below that of many smaller countries, including Colombia.50 Sometimes OPEC policies work; sometimes they don’t In addition, events beyond its control can influence prices The rapidly escalating price of crude oil prior to the global economic crisis was a mixture of rising demand worldwide (especially in China), political instability in the Middle East, and a shortage of refining capacity, caused in part by environmental rules in some countries that preclude the building of new refineries At the height of the global economic growth and strong demand for all commodities, oil prices spiked to $145 a barrel in July 2008 and then dropped to $33 a barrel that December Prices have continued to rise and fall in recent years due to fluctuations in the global economy as well as political instability The Downside of High Prices Keeping oil prices high has some downside for OPEC Competition from non-OPEC countries rises because the revenues accruing to the competitors are higher Because some OPEC countries are putting up roadblocks to production, major producers like BP, ExxonMobil, and Shell are investing heavily in areas like the Caspian Basin, the Gulf of Mexico, and Angola and are trying to enter areas like the Russian Federation Production in these areas is expected to grow significantly High prices also attract competition to conventional oil, including nonconventional oil (such as oil shale and biofuels) and The downside of high oil prices for OPEC: • Producers investing in countries outside of OPEC • Complication of balancing social, political, and economic objectives An offshore oil rig at the Campos Basin by Rio de Janeiro, Brazil Brazil, though not a member of OPEC, has the potential to be a major producer and exporter of oil as its deep water wells are tapped ▶ Source: Leo Francini/Shutterstock M07_DANI6795_15_GE_C07.indd 330 04/04/14 6:17 PM Find more at http://www.downloadslide.com Chapter Economic Integration and Cooperation 331 Figure 7.2 Source: Norman Jung/CartoonStock, Ltd nuclear energy, although the damage to the nuclear reactors in Japan as a result of the earthquake and tsunami in 2011 had a chilling effect on nuclear energy Political and social forces also affect oil prices The civil war in Libya impacted oil markets in 2011, causing oil prices to spike due to the fear that the unrest could spread to other big Middle East oil producers Looking to the Future: Will the WTO Overcome Bilateral and Regional Integration Efforts? Will regional integration be the wave of the future, or will the World Trade Organization become the focus of global economic integration? The WTO’s objective is to reduce barriers to trade in goods, services, and investment Regional groups attempt to that and more Although the EU has introduced a common currency and is increasing the degree of cooperation in areas such as security and foreign policy, the WTO will likely never engage in those issues Regional integration deals with the specific problems facing member countries, whereas the WTO needs to be concerned about all countries in the world M07_DANI6795_15_GE_C07.indd 331 However, regional integration might actually help the WTO achieve its objectives in three major ways: Regionalism can lead to liberalization of issues not covered by the WTO 2 Regionalism is more flexible, given that it typically involves fewer countries with similar conditions and objectives Regional deals lock in liberalization, especially in developing countries As we have seen in this chapter, no trade agreement is easy or perfect The WTO has serious challenges 04/04/14 6:17 PM Find more at http://www.downloadslide.com 332 PART Connecting Countries through Trade and Factor Movements due to its size Regional agreements like NAFTA, the EU, Mercosur, and others have many different challenges as well In cases of NAFTA and Mercosur, one dominant country in each (the U.S and Brazil, respectively) implies that the balance of power among the member countries is not equal The EU has its own challenges due to enlargement and the debt crises of several member countries, especially Greece Regional integration in Africa will continue at a slow pace due to the vast size of the continent and that fact that so many countries have common borders with countries that are involved in different regional economic groups However, Africa is flush with natural resources and will be a favorite trading partner of resource-hungry China for a long time to come That will help fill the foreign exchange coffers of the African countries and possibly help them resolve some of their long-standing problems In addition, greater peace and stability in Africa and Case the rise in working-age population will make the continent an interesting place in which to invest and a potential source for consumer growth Asian integration, primarily in AFTA, APEC and possibly the Trans Pacific Partnership, will pick up steam as the economies of East and Southeast continue to open up and as they collaborate to meet the challenge of China Since the beginning of the decade, Asian countries have signed over 70 trade agreements among themselves Japan, which is not a member of AFTA, has signed a number of bilateral agreements with other countries in Asia, including an FTA with the members of ASEAN It became a member of the Trans Pacific Partnership in 2013 and is in the process of implementing new agreements with Australia, the Gulf Cooperation Council, India, and Korea However, the key to the growth of most countries in Southeast Asia may be China and its rapidly growing influence in Asia and the rest of the world ■ Unilever Goes East51 The creation of ASEAN, one of the oldest regional blocs, dates back to 1967, when the five main economies of Southeast Asia—Thailand, Malaysia, Singapore, Philippines, and Indonesia—signed an association agreement The other five members (Myanmar, Laos, Cambodia, Vietnam, and Brunei) have aggregated over time, until the last one, Cambodia, joined in 1999 The importance of ASEAN has been growing over time, linked to the progressive growth of the economies of Southeast Asia since the early 80s, and only temporarily slowed down by the Asian crisis in the 90s Increasingly, a number of multinationals with a steady interest in Asia Pacific have been selecting the region as their manufacturing base, also serving as a hub for their operations The list of reasons for this choice is long and substantial The area is currently a market of 617 million people (about 10 percent of the world population), with a global GDP projected to reach US$4.7 trillion in 2020 (approximately Japan’s level of today) and a share of world trade of about percent ASEAN has been working towards creating an East Asian Community (EAC) by the end of 2015, by integrating into a single and coherent market the 10 economies that up to now have been functioning at different speeds Whilst there are still a lot of differences among member states, the main economies of the region share a long tradition in manufacturing, and some of them enjoy excellent facilities in terms of infrastructure, ports, and technology (Singapore is the best example, but not the only one), which makes them an excellent choice for offshoring M07_DANI6795_15_GE_C07.indd 332 04/04/14 6:17 PM Find more at http://www.downloadslide.com The Unilever Building in Albert Embankment, London, overlooking the Thames The business has a diversified worldwide presence Chapter Economic Integration and Cooperation 333 ▶ Source: © starekase - Fotolia.com Unilever and the ASEAN countries: a success story The world’s third largest FMCG company, with 173,000 employees in 190 countries and an established presence in food and personal care, Unilever features in its vast portfolio some of the world’s most famous food and household products, including Dove, Lipton, Rexona, Vaseline, Magnum, Omo, Cif, Ponds, P&G, and Knorr Founded in 1930—even though some of the companies that later on joined forces to create it were already existing since 1885—the Anglo-Dutch giant was one of the first to enter Southeast Asian markets and has certainly been one of the most successful worldwide In 2011, Paul Polman, the newly appointed CEO, decided to make the corporation more dynamic and even further oriented to emerging markets At the same time, he created the post of COO, with the directive of concentrating on these new regions and elaborating a unique strategy for them This meant instead of replicating what Unilever was doing in first-world markets— where food represents half their business—the Asian subsidiaries were going to heavily invest in personal and health care, allotting food products a more marginal space in their business plans This winning strategy has yielded remarkable results Albeit the global slowdown and problems in some of its core markets (namely Europe), Unilever’s 2012 operative results were remarkably good, with an increase in turnover of 10.5 percent which brought it to € 51.3 billion overall Moreover, during the 2012 World Economic Forum at Davos, Harish Manwani, Unilever’s COO allegedly declared that the company’s diversified portfolio and its presence in Asia has helped it offset its weakness in Europe Unlike competitors P&G and Nestle, who were more focused on mature markets, Unilever, whose business comprises 56 percent emerging markets, has been less affected by challenging global economic conditions than some of its rivals because of its extensive portfolio of brands and its emphasis on emerging markets Preliminary results for 2013 confirmed this trend of a shifting importance towards extraEurope markets, still growing in contrast with the slowing sales in the EU The company has an established presence in Southeast Asia, going back to the end of World War II, and has been steadily growing since M07_DANI6795_15_GE_C07.indd 333 04/04/14 6:17 PM Find more at http://www.downloadslide.com 334 PART Connecting Countries through Trade and Factor Movements From the regional HQ in Kuala Lampur, Unilever has been active in Malaysia since 1947 As recently as 2013, Unilever Malaysia, also responsible for Singapore, has opened up Four Acres Singapore, a huge training facility of 2.3 hectares for its management, the only center of its kind outside the UK—a clear indication of the importance the Anglo-Dutch multinational attaches to the region Unilever Thailand is another rapidly expanding subsidiary Currently Thailand’s largest FMCG firm, the corporation is going to spend B$2.8 billion (US$ 90 million) on building additional facilities to support its growth Among them is the projected manufacturing plant for homecare products due for completion by the end of 2013 Indonesia currently represents for Unilever, one of the largest emerging markets where it had invested more than US $625.9 million over the period 2007-2012 Unilever Indonesia’s turnover had reached US$ 2.3 billion in 2011 (around percent of Unilever’s global turnover for that year), and registered an internal growth of almost twice the worldwide equivalent Unilever Vietnam has achieved a strong and sustained growth over the last 14 years, with an astounding average of over 30 percent making it one of the fastest growing companies within Unilever Asia, as well as in Vietnam’s FMCG sector In 2008, the company’s total sales represented around percent of Vietnam’s GDP, with a network of about 200 distributors and over 400,000 retail outlets A case study conducted by the Central Institute for Economic Management (CIEM), a think tank under the Vietnamese Ministry of Planning & Investment with an advisory role, has investigated the reasons for its exceptional performance According to its findings, a substantial part of its success was due to the fact that the company is a long-term investor, representing a model of constructive partnership and efficient collaboration between an MNC and local business Also, its positive spillover is not only linked to capacity building and technology transfer, but also involves a global socioeconomic development for the country Unilever Philippines aims to source all of its peanut, tamarind, and tuber supplies from local farmers as part of its strategy to support indigenous business growth in the regions it operates The Unilever Sustainable Living Plan, in fact, targets to halve the environmental footprint of the multinational’s products and source 100 percent of the agricultural raw materials by local farmers in a sustainable fashion Future developments More is to come from Unilever in the near future, as the company enlarges its operations, reaching out to countries outside its area of recent interest Investments into China are going to keep their pace, even if moving inward, in the so-called fourth pole of China’s socio-economic development after the Yangtze River Delta, the Pearl River Delta and the Beijing-Tianjin-Hebei region This is the Sichuan Province, geographically and logistically connected to Yunnan and the Mekong area, and therefore nearer to the ASEAN countries Other bases are being developed as well The most remarkable case in point being Myanmar, where Unilever was present since the 1960s and then left when the junta seized power to institute a dictatorship Following news of the country’s reopening and its democratic elections, the company returned in 2010 as one of the first to invest Furthermore, to strengthen the relevance and standing of Unilever in Myanmar and the whole region on 30th May 2012, Aung San Suu Kyi, General Secretary of Myanmar’s National League for Democracy, paid a visit to Unilever Thailand’s Minburi factory, during her first overseas visit in over 24 years What lies ahead? Unilever represents the clear success story of a multinational that has been able to diversify its portfolios of countries and products, showing no sign of slowing down Its focus on emerging M07_DANI6795_15_GE_C07.indd 334 04/04/14 6:17 PM Find more at http://www.downloadslide.com Chapter Economic Integration and Cooperation 335 Unilever is home to some of ▶ the world’s best known brands in FMCG including products like Vaseline, Dove and Lipton Source: © Irina Brinza - Fotolia.com markets, primarily ASEAN, seems to have reaped good dividends More companies are going to follow this approach, especially at the completion of the EAC in 2015 The future will most likely witness additional foreign investments pouring into the regions both as M&A and as greenfield investments, especially since even more multinationals will aim at cutting their operation costs and pursuing a more aggressive integration with China and India’s consumer markets Furthermore, consumer spending in Asia-Pacific will keep rising, making the whole region even more attractive to investors Corporations will certainly profit from Singapore’s centrality as a hub its highly sophisticated facilities, technology infrastructures and deep-sea container port Unsurprisingly, 75 percent of the companies also run their regional operations from there, followed by a 10 percent in the nearby Kuala Lumpur (Malaysia) It is no mystery that China’s labor costs have been steadily rising over the years, becoming almost aligned with U.S costs (even if, by hourly measure, China’s is still substantially lower The difference here is clearly in productivity) ASEAN is therefore becoming increasingly popular as a manufacturing center and a constant presence in the global supply chain of multinationals, using countries like Indonesia and Vietnam—with a labor cost only 37 percent of the U.S level—as favorite production bases Analysts observed that this offshoring process toward the region is only beginning However, challenges loom ahead Southeast Asia faces a series of obstacles on its road to achieving full economic integration, comparable to the EU—which nonetheless remains, since the beginning the model ASEAN is constantly striving towards Protectionism in the region keeps running high, even in the framework of free-trade areas, which yet allow for sensitivity lists for particular products, without even mentioning non-tariff barriers like industrial standards and red tape Other problematic issues include the implementation of AFTA (ASEAN Free Trade Area) While AFTA has been a success, together with the one-to-one preferential trade agreements linking each one of the ASEAN countries to the rest of East Asia, a more cautious evaluation has to be M07_DANI6795_15_GE_C07.indd 335 04/04/14 6:17 PM Find more at http://www.downloadslide.com 336 PART Connecting Countries through Trade and Factor Movements done of the complex regional trade agreements of the Asia Pacific region More often than not, its hurdles have outweighed its advantages, and it has been reported that its implementation is sometimes costly and complex, making it impossible for Small and Medium Enterprises (SMEs) to benefit from this An abundance of academic literature on this aspect, together with some firm surveys, seems to confirm this problematic point Another issue is the lack of infrastructure Transportation costs can represent a formidable obstacle in some of the most promising countries for offshoring For example, for Unilever Indonesia the cost of transportation, warehousing, and logistics accounts to about percent sales revenue And the whole system is often slow and unresponsive—with documented cases of containers waiting up to three weeks in the port of arrival Without optimizing the supply chain, further progress is going to be challenging Finally, amazing diversity in the countries of the region constitute a threat as well as an opportunity Consumer purchasing power is a good example, since the ten states p resent a whole range of cases, between Singapore, with almost US$ 50,000 GDP per capita and Myanmar, the poorest member of ASEAN, with only US$ 896 GDP per capita Furthermore, there are huge differences in terms of political systems, religions and languages, making agreements difficult to reach For this reason, it’s often impossible for multinationals to adopt a single market approach and they are often obliged to resort to a variety of strategies The coming years and the implementation of the EAC, will probably make or break the region as one of the new powerhouses of global growth, and significantly affect market results of Unilever and the other MNEs in the region Questions 7-3 Why is Unilever investing so much in emerging markets, especially Southeast Asia? 7-4 Myanmar is a country opening up after decades of having been closed to business due to p olitical issues Based on further data collection, explain Unilever’s investment strategy in the country 7-5 Why does ASEAN represent an area of growing interest for multinationals, to the point that some of them use it as an operations management hub? Cite clearly reasons that make the region an attractive place for manufacturers to set up their bases 7-6 What are the challenges for a real regional integration among ASEAN countries? Mention some of the main issues that make it a difficult and lengthy process and their impact on companies like Unilever Summary • The General Agreement on Tariffs and Trade (GATT), begun in 1947, created a continuing means for countries to negotiate the reduction and elimination of trade barriers and to agree on simplified mechanisms for the conduct of international trade • The World Trade Organization (WTO) replaced GATT in 1995 as a continuing means of trade negotiations that aspires to foster the principle of trade without discrimination and to provide a better means of mediating trade disputes and of enforcing agreements nonmembers There are static effects of the reduction of trade barriers The static effects of economic integration improve the efficiency of resource allocation and affect both production and consumption The dynamic effects are internal and external efficiencies that arise because of changes in market size • Once protection is eliminated among member countries, trade creation allows MNEs to specialize and trade based on comparative advantage • Trade diversion occurs when the supply of products shifts from countries that are not members of an economic bloc to those that are • Efforts at regional economic integration began to emerge after World War II as countries saw benefits of cooperation and larger market sizes The major types of economic integration are the free trade area and the customs union, followed by broader economic and political integration in the common market • Regional, as opposed to global, economic integration occurs because of the greater ease of promoting cooperation on a smaller scale • Free trade agreements result in trade creation and diversion as barriers drop for member countries but remain higher for • The European Union (EU) is an effective common market that has abolished most restrictions on factor mobility and is M07_DANI6795_15_GE_C07.indd 336 04/04/14 6:17 PM Find more at http://www.downloadslide.com Chapter Economic Integration and Cooperation 337 harmonizing national political, economic, and social policies It comprises 28 countries, including 13 from mostly Central and Eastern Europe that have joined since 2004 The EU has abolished trade barriers on intrazonal trade, instituted a common external tariff, and created a common currency, the euro • The North American Free Trade Agreement (NAFTA) is designed to eliminate tariff barriers and liberalize investment opportunities and trade in services Key provisions in NAFTA are labor and environmental agreements • There are key trade groups in other parts of the world, including Latin America, Asia, and Africa, but the U.S has pursued a variety of targeted trade agreements in Asia and the EU to expand exports and create jobs • The United Nations is composed of representatives of most of the countries in the world and influences international trade and development in a number of significant ways • Many developing countries rely on commodity exports to supply the hard currency they need for economic development Instability in commodity prices has resulted in fluctuations in export earnings OPEC is an effective commodity agreement in terms of attempting to stabilize supply and price Key Terms Andean Community (CAN) (p 322) Asia Pacific Economic Cooperation (APEC) (p 325) Association of Southeast Asian Nations (ASEAN) (p 324) Arab League (p 327) bilateral integration (p 304) Caribbean Community (CARICOM) (p 321) common market (p 309) dynamic effect (p 309) economic integration (p 304) economies of scale (p 311) euro (p 315) European Union (EU) (p 311) General Agreement on Tariffs and Trade (GATT) (p 305) global integration (p 304) Gulf Cooperation Council (p 327) MERCOSUR (p 322) most-favored-nation (MFN) clause (p 305) North American Free Trade Agreement (NAFTA) (p 317) Organization of the Petroleum Exporting Countries (OPEC) (p 329) Pacific Alliance (p 322) Pan Arab Free Trade Area (PAFTA) (p 327) regional integration (p 304) static effect (p 309) Treaty of Lisbon (p 315) triad (p 304) UNCTAD (p 328) World Trade Organization (WTO) (p 305) Endnotes 1 Sources include the following: Stephen Power,“EU Auto Industry Faces Overhaul as Japanese Gain in Market Share,” Wall Street Journal (October 14, 2004): A1; Jathon Sapsford,“Toyota Aims to Rival GM Production,” Wall Street Journal (November 2, 2004): A3; Mari Koseki, “Quota on Auto Exports to EC Curbed at 1.089 Million in ’93,” Japan Times (April 12–18, 1993): 14; Nick Maling,“Japan Poised for EU Lift of Export Ceiling,” Marketing Week (May 6, 1999): 26; Todd Zaun and Beth Demain,“Leading the News: Ambitious Toyota, Buoyed by Europe, Sets Global Goals,” Wall Street Journal (October 22, 2002): A3; Mark M Nelson, Thomas F O’Boyle, and E S Browning,“International—The Road to European Unity—1992: EC’s Auto Plan Would Keep Japan at Bay—1992 Unification Effort Smacks of Protectionism,” Wall Street Journal (October 27, 1988): A1; Sapsford,“Toyota Posts 3.5% Profit Rise, Boosts Sales Forecast for Year,” Wall Street Journal (February 4, 2005): A3; Gail Edmondson and Chester Dawson,“Revved Up for Battle,” Businessweek (January 10, 2005): 30; Joe Guy Collier,“Toyota Posts Record $14-Billion Profit,” Knight Ridder Tribune Business News (May 9, 2007): 1; “ACEA Board of Directors Recommends Accepting Toyota Motor Europe Membership Application,” PR Newswire Europe Including UK Disclose (May 4, 2007); Toyota home page,“Toyota—Joining Europe,” at www.toyota-europe.com/experience/the_company/toyotaineurope.aspx (accessed May 10, 2007); Toyota home page,“Toyota: Company Profile,” at www.toyota.co.jp/en/about_toyota/outline/ index.html (accessed May 10, 2007); Christoph Rauwald,“Leading the News: Toyota Sales in Europe Jump as Market Stalls,” Wall Street Journal (March 16, 2007): 2; “World Business Briefing Europe: Germany: Sale of Unit Helps VW,” New York Times (February 21, 2007): C10; Mark Milner, M07_DANI6795_15_GE_C07.indd 337 “Financial: Car Boss Calls on EU to Tackle Yen,” UK Guardian (March 30, 2007): 32; Toyota Annual Report 2010: Toyota Motor Corporation, April, 2010 (accessed March 23, 2011) Peter J Buckley, Jeremy Clagg, Nicolas Forsans, and Kevin T Reilly, “Increasing the Size of the ‘Country’: Regional Economic Integration and Foreign Direct Investment in a Globalised World Economy,” Management International Review 41:3 (2001): 251–75 Alan M Rugman and Alain Verbeke,“A Perspective on Regional and Global Strategies of Multinational Enterprises,” Journal of International Business Studies 35 (2004): Pankaj Ghemawat,“Distance Still Matters: The Hard Reality of Global Expansion,” Harvard Business Review, September 2001, 3–11 “Airbus wins WTO subsidy dispute, but Boeing says it’s the winner,” New Europe, 28 March, 2010 www.neurope.eu/articles/99919.php (accessed 15 April 2011); John Miller and Daniel Michaels,“Boeing Set for Victory Over Airbus in Illegal Subsidy Case,” Wall Street Journal (September 3, 2009): A1, A14 World Trade Organization, Dispute Settlement; DS316 Panel Report (June 30, 2010): “European Communities—Measures Affecting Trade in Large Civil Aircraft” (accessed April 8, 2011) “China – Certain Measures Affecting Electronic Payment Services,” www.wto.org/english/tratop_e/dispu_e/cases_e/ds413_e.htm John W Miller,“Global Trade Talks Fail as New Giants Flex Muscle,” Wall Street Journal (July 30, 2008): A1 Josh Mitchell,“U.S Gains Mixed in Seoul Trade Deal,” The Wall Street Journal, April 15, 2013, A13 04/04/14 6:17 PM Find more at http://www.downloadslide.com 338 PART Connecting Countries through Trade and Factor Movements 10 “Regional Trade Agreements,”World Trade Organization, Facts and Figures, www.wto.org/english/tratop_e/region_e/region_e.htm (accessed April 15, 2013) 11 Bela Balassa, The Theory of Economic Integration (Homewood, IL: Richard D Irwin, 1961): 40 12 Op cit.,Ghemawat 13 Buckley et al.,“Increasing the Size of the ‘Country.’” 14 For more information on the EU, check out its Web site at europa.eu (accessed April 27, 2013) 15 “About EFTA” in www.efta.int (accessed May 6, 2013) 16 “EU Institutions and Other Bodies,” europa.eu (accessed April 27, 2013) 17 “The European Parliament” at europa.eu (accessed on April 27, 2013) 18 “The European Court of Justice” in “Institutions and Bodies,” at europa eu (accessed April 29, 2013) 19 Charles Forelle,“Microsoft Yields to EU on Browsers,” Wall Street Journal (July 25/26, 2009): B1; Kevin J Obrien,“Europe Drops Microsoft Antitrust Case,” The New York Times (online) (December 16, 2009), accessed June 7, 2011 20 James Kanter,“Google Makes Offer in 3-Year European Antitrust Case,” The New York Times (February 1, 2013); Juergen Baetz,“Google Agrees to Change How It Displays Search Results in Europe,” Tech Time (April 25, 2013); Carol Matlack and Stephanie Bodoni,“Google’s EU Antitrust Proposal Will Likely Be Tweaked,” Businessweek (April 15, 2013) 21 Stephen Castle,“Europe Says Tests Show Horse Meat Scandal Is ‘Food Fraud,’” The New York Times (April 16, 2013) 22 “The Treaty of Lisbon,” in europa.edu/lisbon_treaty/index_en.htm (accessed May 6, 2013) 23 Stephen Castle,“British Government Moves to Toughen Rules on Immigrants,” The New York Times (May 9, 2013), A7 24 Eurostat News Release, reference: Stat/13/70, April 30, 2013, europa eu/rapid/press-release_STAT-13-70_en.htm, accessed May 7, 2013; Jack Ewing,“The Downturn in Southern Europe May Be Spreading North,” The New York Times (April 26, 2013), B1 25 Carl B Weinberg, chief economist of High Frequency Economics in Valhalla, NY, as quoted by Jack Ewing in “The Downturn in Southern Europe May Be Spreading North,” The New York Times (April 26, 2013), B1 26 Mitsuru Obe and Toko Sekiguchi,“Japan, EU to Start Trade Talks,” The Wall Street Journal (March 25, 2013) 27 Sudeep Reddy, Mathew Dalton, and Joann S Lubin,“Broad Trade Deal on the Table,” The Wall Street Journal (February 13, 2013).; Annie Lowrey, “Sore Feelings on U.S and Europe Begin Trade Talks,” The New York Times (July 9, 2013, p B8) 28 Joshua Chaffin and James Politi,“Fractures Appear on Trade Pact,” Financial Times (May 24, 2013), 29 Sandra Dibble,“Sony Will Increase Work Force in Tijuana,” The San Diego Union-Tribune (June 26, 2009), E1 30 Text of the North American Free Trade Agreement,“Chapter 4: Rules of Origin,” at www.ustr.gov/trade-agreements/free-tradeagreements/north-american-free-trade-agreement-nafta (accessed May 8, 2013) 31 Office of the United States Trade Representative,“North American Free Trade Agreement,” www.ustr.gov/trade-agreements/free-tradeagreements/north-american-free-trade-agreement-nafta, (accessed May 27, 2013) 32 “Volkswagen Announces Production of the Golf in Mexico,” January 25, 2013, media.vw.com/newsrelease.do;jsessionid=E9B24BF58F0B6D174CB7A7C5628417F3?&id=1352&allImage=1&teaser=volkswagenannounces-production-golf-mexico&mid=125 (accessed May 27, 2013) 33 Andres Oppenheimer,“While Pacific Alliance Thrives, Mercosur Withers,” The Miami Herald (May 27, 2013) M07_DANI6795_15_GE_C07.indd 338 34 Sebastian Sermiento-Saher,“The Pacific Alliance: The Americas’ Bridge to Asia?” Pacific Money: Economics and Business (May 25, 2013), thediplomat.com/pacific-money/2013/05/25/the-pacific-alliance-the-americasbridge-to-asia/ (accessed May 27, 2013) 35 Alan M Field,“Showdown for CAFTA-DR,” Journal of Commerce (April 11, 2005): 36 “CAFTA-DR Partners Agree to Fix Technical Errors in Agreement,” Textile World 161:2 (Mar/Apr 2011), 10 37 Field,“Showdown for CAFTA-DR,” 38 The CIA World Factbook, (accessed May 8, 2013) 39 “AFTA Doha,” The Economist (September 6, 2008): 85 40 Patrick Barta and Alex Frangos,“Southeast Asia Linking Up to Compete with China,” The Wall Street Journal (August 23, 2010), A2 41 Paul Cashin, Hong Liang, and C John McDermott,“Do Commodity Price Shocks Last Too Long for Stabilization Schemes to Work?” Finance & Development 36:3 (Summer 1999); Asia-Pacific Economic Cooperation, “About APEC,” at www.apecsec.org.sg, (accessed October 1, 2009) 42 “Foreign Direct Investment in Africa,” KPMG (June 1, 2012), www.kpmg com/africa/en/issuesandinsights/articles-publications/pages/foreigndirect-investment-in-africa.aspx (accessed on May 27, 2013) 43 “The African Union: Short of Cash and Teeth,” The Economist (January 29, 2011), 46 44 The United Nations, at www.un.org/en/mainbodies/index.shtml (accessed May 27, 2013) 45 “About UNCTAD,” unctad.org 46 United Nations Conference on Trade and Development,“The State of Commodity Dependence 2012,” 11 47 International Coffee Organization, www.ico.org (accessed May 27, 2013) 48 UNCTAD, Commodities at a Glance,” 49 OPEC,“Annual Statistical Bulletin,” www.opec.org/opec_web/ static_files_project/media/downloads/publications/ASB2012.pdf (accessed May 27, 2013) 50 Simon Romero,“Petrobras, Once Symbol of Brazil’s Oil Hopes, Strives to Regain Lost Swagger,” The New York Times (March 26, 2013) 51 Sources include the following: Asean Business News (2013), Unilever spends B$ 28bn on growth, available at: http://asean-business-news.com/ thailand/uncategorized/unilever-spends-b28bn-on-growth/; Baldwin, R (2006), “Multilateralizing Regionalism: Spaghetti Bowls as Building Blocks on the Pathto Global Free Trade.” World Economy 29(11): 1451–518; The Economist (2013)“Riding the ASEAN elephant How business is responding to an unusual animal.”Available at: http:// ftp01.economist.com.hk/ECN_papers/ridingASEAN.pdf; The Jakarta Post (2012) Executive column: Indonesia promises bullish prospects for Unilever, available at: www.thejakartapost.com/news/2012/05/28/ executive-column-indonesia-promises-bullish-prospects-unilever.html; South China Morning Post (2013),“US companies see delay on Asean single market”www.scmp.com/news/asia/article/1298442/americanfirms-doubt-aseans-single-market-will-launch-2015; Paladini, S (2009) “Outlook of ASEAN’s Free Trade Areas”, in Italian Foreign Trade Report 2008–2009, Italian Trade Commission Rome; CIEM (2009), Unilever in Vietnam: a case study, available at: www.unilever.com/images/ sd_Exploring_the_Links_between_International_Businesses_and_Socioeconomic_Development_of_Vietnam_A_Case_Study_of_Unilever_ Vietnam_Executive_Summary_tcm13-212702.pdf; Unilever’s corporate website and news, at www.unilever.com; EDB(2013), Unilever opens global leadership development centre – Four Acres Singapore www.ecobusiness.com/news/unilever-launches-leadership-centre-Singapore/; Interaksyon (2013) Unilever expects sales to grow faster than Philippine economy available at: www.interaksyon.com/business/62293/unileverexpects-sales-to-grow-faster-than-philippine-economy; The Economist (2011)“Unilever looks East”, available at: www.economist.com/blogs/ schumpeter/2011/06/consumer-goods?zid=293&ah=e50f63 04/04/14 6:17 PM ... ISBN 10 : 1- 2 9 2-0 16 7 9-5 ISBN 13 : 97 8 -1 -2 9 2-0 16 7 9-5 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 15 14 13 12 11 ... Policy and Strategy 4 41 11 12 13 14 15 16 Ethics and Social Responsibility 4 41 Strategies for International Business 475 Evaluation of Countries for Operations 525 Modes of Trading Internationally ... 15 14 13 12 11 Typeset in 10 /12 Palatino by Integra Software Services Private Limited Printed and bound by Courier Kendallville in United States of America A 01_ DANI6795 _15 _GE_FM.indd 15 /04 /14 9:41