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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.
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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.
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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– has been replaced by the World Trade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.
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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.
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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.
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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
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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.
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Top Trading Partners of the U. S.
© Irwin / McGraw-Hill, Modified by EvS.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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The Most Competitive Nations
© Irwin / McGraw-Hill, Modified by EvS.
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GCI = Technology, Public Institutions, Macroeconomics
© Irwin / McGraw-Hill, Modified by EvS.
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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
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