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27.220 International Management Lecture Presentation Overheads Total Foreign Trade as Percent GDP - 1995 & 1999 PC '95 90.00 PC '99 80.00 70.00 Percent 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Canada United States Germany (1994) Japan (1994) Country United Kingdom Mexico Canada Total Foreign Trade as Percent GDP 1966-1999 90.00 80.00 70.00 50.00 40.00 30.00 20.00 10.00 Year 98 94 96 19 19 92 19 90 19 19 88 19 86 19 84 19 82 19 80 19 78 76 19 74 19 19 72 19 70 19 68 19 66 0.00 19 Percent 60.00 Canadian GDP & Foreign Trade 1966-1999 1200.00 GDP 1000.00 Exports 800.00 Total Forn 600.00 400.00 200.00 Year 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 19 78 19 76 19 74 19 72 19 70 19 68 0.00 19 66 Current Cdn $ (Bn) Imports Manitoba Economic Performance (Millions Current Dollars) 1995 1996 1997 1998 1999 Farm Cash Receipts 2523 2816 3065 2946 3029 Manufacturing 8334 8972 9999 10613 10338 Mineral Production 1022 1002 1126 967 893 Electric Power Sales 1026 1073 1111 1130 1179 Retail Sales 7432 7920 8589 8772 9023 Total Exports 5456 6220 7314 8067 7946 Provincial GDP 26978 28270 29323 30061 31212 Exports as % GDP 20.22 22.00 24.94 26.84 25.46 Scale Full scale production The Range of FDI Alternatives Pack & Assembly Warehousing Sales Office Type of None Majority owned Equal ownership Ownership Arrangement Minority Ownership Partner Stages Model of Development of International Business Outward Inward 1. Indirect/ad hoc exporting 1. Importing/sourcing 2. Active exporting and/or licensing 2. Act as licensee/franchisee 3. Equity investment in JV’s 3. Partner foreign co in JV 4. Full-scale multinational marketing and production for foreign parent 4. Manage foreign owned subsidiary Motivation for FDI 1. Seek resources 2. Seek markets 3. Seek efficiency 4. Seek strategic advantage ------------------- 5. Hubris “Make or Buy” Decision Organic growth? Slower but safer? Acquisition? Most acquisitions fail! - pay too much - can’t integrate the managements/ org’n culture 2000 vs 1970 Resource seeking: Differences: - 2000 puts more emphasis on local processing - More local skills and partners are available Same: - issues of availability, price, quality - infrastructure - transport, banking, community - government restrictions - capital, dividends - investment incentives 2000 vs 1970 Market seeking: Differences: - 2000 more middle class (eg. India, China) - More regional trade blocs - more alternatives for suppliers, markets, services - better infrastructure - more realistic/favourable host gov’t plicies - greater need to be close to customers suppliers knowledge Same: - issues of costs - wages, material, transport - infrastructure - transport, banking, community - government restrictions - capital, dividends, protectionism 2000 vs 1970 Efficiency seeking: Differences: - more choice and availability of skilled labour, service & supplier firms, infrastructure - more realistic/favourable host gov’t plicies - less market distorition Same: - focus on production costs - focus on freedom to trade in intermediate and final production - importance of “agglomerative” economics - availability of associated and related businessesd - investment incentives 2000 vs 1970 Strategic Asset seeking: Differences: - More geographic dispersion of knowledge based assets -more support related services (accounting, consulting, lawyers, financial firms) - more “two-way” relationships with host/foreign partners, markets, culture - more reverse flow of ideas - need to be “world class” in terms of scale, design Same: - same issues, but more highly developed. There is a larger choice, range of alternatives to managers now. Outline of the course: Background The Global Business Environment (Ch 2) The world of International Trade (Ch3) - trade, trade blocs, STEP comparative/competitive advantage exchange rates No Equity Investment Exporting (Ch 4) Global sourcing (Ch 5) Licensing (Ch 6)Investing Equity Joint ventures - minority? Equal? Majority? (Ch 7) International Strategy formation (Ch 8) Globalization and organization (Ch 9) The evolving multinational (Ch 10) The global manager (Ch 11) - Human relations issues in multinational management MNE - government relations (Ch 12) Characteristics of global leaders (Ch 13) Ethics (Ch14) Managing Global Workforce (Ch15) Postscript Remind ourselves that international trade and MNE’s are not new phenomena International Trade - Phoenicians traded the length of the Mediterranean, to England and down the coasts of Africa the Roman Empire traded with China, India, tropical Africa, England and the Baltic the Arabs traded from Mozambique to the interior of the Congo to the southern Philippines to the Baltic MNE’s - The Muscovy Company The Levant Company The East India Company The Virginia Company The Company of New France The Hudson’s Bay Co. Jardine Matheson, which became the HSBC All these companies represent not only economics and trade, but also colonialism and imperialism Which raises the question: What is, or ought to be, the role of the MNE in economic development? -Still half the world is living in absolute poverty What about ecological issues - timber, fish, mining, petroleum What about exploitation of the weak? Lack of regulation and inspection, excess cost cutting eg. Bhopal use of DDT in the third world child labour? Abolish it? But it contributes as much as 1/3 of ` family income bonded labour? Close to slavery? The study of international business is not exempt from moral issues!