Transcript Chpt01
Chapter 1 WORLDWIDE DEVELOPMENTS Irwin/McGraw-Hill [Modified by EvS] © McGraw-Hill Companies, Inc, 2000 Mgt 470-1-1 Regional Developments Impacting Internationalization North American Free Trade Agreement (NAFTA) – U.S., Canada, Mexico Removed all barriers to trade between countries created a huge North American market Agreement will expand to include Latin American countries, Chile, Argentina, and Brazil © Irwin / McGraw-Hill, Modified by EvS. 1-2 European Union (EU) Consists of 15 western European nations Trade barriers between EU members have been removed a unified currency called the “euro” has been adopted © Irwin / McGraw-Hill, Modified by EvS. 1-3 General Agreement on Tariffs and Trade (GATT) – reduces or completely eliminates tariffs – has been replaced by the World Trade Organization (WTO) has more power to enforce rulings on trade disputes and to monitor trade policies © Irwin / McGraw-Hill, Modified by EvS. 1-4 ASIA – Japan continues to be the primary economic force – China is quickly becoming the biggest economy in the world – the Southeast Asian countries have recently been major export-driven economies – ASEAN (Association of Southeast Asian Nations) promotes exports to other countries © Irwin / McGraw-Hill, Modified by EvS. 1-5 Central and Eastern Europe/ Russia The Czech Republic, Poland, and Hungary have transitioned to market economies Is an untapped area being targeted by MNCs looking for expansion opportunities Example: Coca-cola’s business in Central and Eastern Europe has been expanding at twice the rate of its other foreign operations © Irwin / McGraw-Hill, Modified by EvS. 1-6 Latin America & Less Developed Nations Latin America: – economic growth and export volume remain strong – Regional Trade Agreements: Mercosur Andean Common Market © Irwin / McGraw-Hill, Modified by EvS. Less Developed Nations: India – Recent economic progress – Due to the india’s reduction of bureaucratic red tape, MNCs have recently been attracted to the area 1-7 International Investment & Trade 80% of all international investments come from developed countries (the triad or golden triangle) North America Europe Asia Pacific Triad or Golden Triangle © Irwin / McGraw-Hill, Modified by EvS. 1-8 Top Trading Partners of the U. S. © Irwin / McGraw-Hill, Modified by EvS. 1-9 Regional Economic Status & Issues North America – NAFTA has resulted in: Elimination of tariffs as well as import and export quotas Opening of government procurement markets to companies in partner countries Increased opportunity to make investments in partner countries Increased ease of travel between partner countries Removal of restrictions on agricultural products, auto parts, and energy goods – United States U.S. MNCs have holdings throughout the world Foreign MNCs find U.S. to be a lucrative market © Irwin / McGraw-Hill, Modified by EvS. 1-10 Regional Economic Status & Issues North America (cont.) – Canada U.S.’s largest trading partner Cultural, legal and business environments similar to those of the U.S. Target of increased international investment – Mexico Economic fortunes have varied in the recent past Maquiladora industry – Arrangement created by the government that permits the flow of materials and products in and out of Mexico with only the value added being taxed – Different views about effect on American jobs Mexican firms expanding worldwide operations © Irwin / McGraw-Hill, Modified by EvS. 1-11 Regional Economic Status & Issues South America – Countries have experienced difficult economic problems Brazil – Attracted substantial foreign investment – Economic future still uncertain Chile – Economic success story in South America – Future still uncertain – Mercosur and Andean Common Market promote economic and social integration and cooperation – Inter-country trade is increasing – Countries increasingly looking to trade with the U.S. © Irwin / McGraw-Hill, Modified by EvS. 1-12 Regional Economic Status & Issues Europe – Privatization of traditionally nationalized industries – EU intended eliminate all trade barriers among member countries EU-based firms “plan globally, act locally” To gain a foothold in the EU, foreign MNCs have: – created acquisitions and alliances – begun co-operative research and development programs European Research Cooperation Agency (Eureka) – EU agency that funds projects in a number of fields to make Europe more productive and competitive in the world market Future challenge is the absorption of formerly communist Eastern neighbors © Irwin / McGraw-Hill, Modified by EvS. 1-13 Regional Economic Status & Issues Europe (cont.) – Central and Eastern Europe Collapse of the Soviet Union in 1991 – Glasnost (openness) – Perestroika (economic and political restructuring) Russia – – – – Undergone economic reform Many attempts to stimulate the economy Greater privatization required Criminal activity increasing Czech Republic, Hungary, and Poland – Former communist countries that have become most visible in international arena Some former communist countries are struggling © Irwin / McGraw-Hill, Modified by EvS. 1-14 Regional Economic Status & Issues Asia – Japan Economic success in the 1970s and 1980s attributed to: – Cultural values – Ministry of International Trade and Industry (MITI) • Government agency that identifies and ranks national commercial pursuits • Guides the distribution of national resources to meet these goals – Keiretsus • Organizational arrangement in which a large group of vertically integrated companies are bound together by cross-ownership, interlocking directorates, and social ties provide goods and services Severe recession during the past ten years Target for foreign investment © Irwin / McGraw-Hill, Modified by EvS. 1-15 Regional Economic Status & Issues Asia (cont.) – China Large reported annual growth in GDP Attracts substantial foreign investment Remains a political risk for investors MNCs find it difficult to do business in China – The Four Tigers South Korea – Chaebols • Large,family-held conglomerates that have considerable political and economic power – Hit hardest by Southeast Asia economic crisis © Irwin / McGraw-Hill, Modified by EvS. 1-16 Regional Economic Status & Issues Asia (cont.) – The Four Tigers (cont) Hong Kong – Headquarters for successful multinational operations in Asia – Uncertainty regarding governance issues due to subservience to China Singapore – Leader and financial center of Southeast Asia – One of the most competitive nations Taiwan – Economy dominated by technologically sophisticated industries – Uncertainty due to designs on the country by China – Southeast Asian Countries ‘Baby Tigers’ lack the economic prowess of the Four Tigers © Irwin / McGraw-Hill, Modified by EvS. 1-17 The Most Competitive Nations © Irwin / McGraw-Hill, Modified by EvS. 1-18 GCI = Technology, Public Institutions, Macroeconomics © Irwin / McGraw-Hill, Modified by EvS. 1-19 Characteristics of Less Developed Countries High Unemployment Low GDP Less Developed Countries Slow (or negative) GDP growth per capita © Irwin / McGraw-Hill, Modified by EvS. Inexpensive unskilled or semi-skilled labor High international debt Large population 1-20