Download Globalization and Recent Economic Developments

Globalization and Recent
Economic Developments
Chapter 1, Part 2
Doing Business in the EU
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Each country is different
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Products may have to be adapted to local needs
Employees may have different expectations of
managers and the company.
Manufacturers often put assembly plants in a
low-wage country
 Component plants may be elsewhere
EU has strict regulations about environmental
protection and data privacy.
Doing Business in the EU (2)
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Laws and regulations differ in different
countries
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Wage and hour law
Labor law – labor unions often have more power
Employee benefits are often more generous than
in the U. S.
Corporate taxes
Taxes on individuals
It is usually more difficult to terminate
employees in the EU than in the U. S.
Business in New EU Countries
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Most privatization of state-owned industries
have been completed
Laws and regulations are not always enforced
consistently.
Excessive regulations and bureaucracy is a
continuing problem
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Less of a problem in some countries than others
Within the same country, it may be easier to do
business in some areas than in others
Doing Business in Russia
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Potential market of 143 million people
Abundant natural resources: oil, gas, coal,
other minerals, timber
Business taxes are not enforced fairly
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Tax laws are not always clear
The government recently used the tax system to
seize a large, efficient private oil company.
Under President Putin, Russia seems to be
moving toward a dictatorship.
Economic Performance
North America
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U. S., Canada and Mexico combine for $12
trillion in purchasing power
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United States
 U.S. firms hold market dominance in many
European markets and are gaining market
share in Asia
 Foreign MNC’s find the U. S. to be a lucrative
market in which to expand
Economic Performance
North America (2)
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Canada
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The largest U.S. trading partner.
Legal and business environment similar to
the U.S.
Economic Performance
North America (3)
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Mexico
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maquiladoras: U. S. manufacturers can send
materials to their Mexican-based plants, process
or assemble the products, and then ship them to
U.S. with only the value added being taxed.
For U. S. firms, Mexican suppliers offer lower
transportation costs and faster delivery than Asian
suppliers
Mexican firms are increasingly active in EU and
Asian markets
North American Free Trade
Agreement (NAFTA)
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Free trade agreement among Canada, United States,
and Mexico
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Free trade agreement means that there are no tariffs on
goods traded among member countries
This provision applies only to goods that were produced in
one of the 3 countries
Most restrictions on foreign investment among the 3
countries have been abolished.
Firms in member countries can compete for
government contracts.
NAFTA (2)
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Financial services firms can do business in all
3 countries by 2007.
There is a dispute resolution procedure.
Each country agreed to enforce its own laws
related to
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Environmental protection
Child labor
Minimum wages
Workplace safety
Economic Performance
South America
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South American countries have
experienced difficult economic problems
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High inflation
Heavy foreign debt
Trade agreements have helped economies
grow
Business leaders want to do more business
with the U. S.
Types of Trade Agreements
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Bilateral trade agreements: agreements
between 2 countries
Free trade area: tariffs on goods and possibly
services are reduced or eliminated.
Customs union:
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Free trade area, plus
All countries in the customs union have the same
tariffs on goods coming in from outside the
customs union
Trade Agreements in the
Western Hemisphere
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Free trade areas:
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NAFTA: U. S., Canada, Mexico
Central American Free Trade Area (CAFTA): U. S.,
plus several countries in central America
A free trade area of the Americas (FTAA) has been
proposed – negotiations stalled
Customs unions
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Mercosur: Brazil, Argentina, Paraguay, Uruguay
Andean Community: Bolivia, Columbia, Ecuador,
Peru, Venezuela
Trade Agreements in the
Western Hemisphere (2)
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Customs unions (continued)
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Central American Common Market (CACM):
4 countries in Central America
ALADI: Mercosur + Andean Community +
Mexico + CACM + Chile + several
Caribbean countries (20 countries total)
CARICOM: 15 countries in the Caribbean
Business in China (1)
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Economy
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Mixed economy, with private firms and state enterprises
Growth rate for the first half of 2004: 9.7%
Most growth comes from manufacturing
China plans to diversify into more high-tech businesses, such as
software development
Market
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1.3 billion people
U. S. exports to China in 2003: $118 billion
A middle class is developing in the cities and new economic zones.
Good market research is essential.
Business in China (2)
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Chinese business
 Some Chinese brands are becoming established in
other countries – Example: Haier
 Growing emphasis on improving quality
 Excess capacity in some industries
Business in China (3)
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China joined WTO in 2001
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Creates new opportunities for foreign firms.
Protection of intellectual property is a major problem
Concerns of foreign firms
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High level of regulation
Inconsistent regulation in different regions – tendency to
protect local industries from competition
Contracts are hard to enforce.
Economic Performance - Japan
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2nd largest economy in the world
Major investor in the U.S., Europe, and Asia
Keiretsus – networks of companies under common
ownership. Usually includes a bank & a trading
company. Long-term supplier relationships
 Sometimes emphasize market share at the
expense of profit. This is now changing.
WTO member, but uses administrative trade barriers
Consumers have high quality standards and often
prefer Japanese products
Economic Performance – Japan(2)
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Decade long recession in 1990s
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Bank loans were backed by real estate or
projected revenues
By 2000, most major banks had billions of dollars
in uncollectible loans
Several large bank failures
International competition has increased in
recent years
Asian Economic Model
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Originated in Japan, copied by others
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Government targeted industries for growth
Industry restructuring, led by government.
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Loans and subsidies
Tax breaks
Cooperative research and development.
Protect the home market, and export
aggressively
Asia's Four Tigers
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South Korea (11th largest economy)
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Chaebols: large family-held conglomerates
Affected by declining economies of South
east Asia in 1990s
Hong Kong
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Major trading center
Now part of People’s Republic of China
Contacts in Hong Kong can be helpful in
doing business in China
Asia's Four Tigers (2)
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Singapore: Major trading center
Taiwan (Chinese Taipei)
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China sees Taiwan as part of China
Has progressed from a labor-intensive economy to
one dominated by technologically sophisticated
industries (banking, electricity generation,
petroleum refining and computers)
All four tigers now have higher wage rates
than China and other nearby countries.
India
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12th largest economy
More that 1 billion people – growing middle
class
Low-wage manufacturing
Center for software development, call
centers, transcription, technical support,
financial research
Low per capita GDP
Middle East
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Large oil reserves in some countries
Authoritarian governments
High unemployment and many poor
people
Radical Islamic influence in education
Social and religious unrest
Africa
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Diverse countries
South Africa is the largest economy
Many authoritarian governments
Ethnic strife
Considerable natural resources in some countries
Most exports are agricultural products and natural
resources
Poverty, starvation, illiteracy, corruption, disease,
overcrowding are among many social problems
negatively affecting economic sector