Chapter 2: Global Marketplaces and Business Centers

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Chapter 2: Global Marketplaces and Business Centers

Week 2 Day 1

Su Jin Victoria Yeon, Copyright 2015

Learning Objectives


1. Evaluate the impact of the political and economic characteristics of the world’s various marketplaces on the opportunities available to international businesses

2. Appreciate the use of national income data in making business decisions

3. Discuss North America as a major marketplace and business center in the world economy

4. Discuss Western Europe as a major marketplace and business center in the world economy

5. Discuss Asia as a major marketplace and business center in the world economy

6. Assess the development challenges facing African, Middle Eastern, and South American countries

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Outline of Chapter 2


The Marketplaces of North America The United States Canada Mexico Central America and the Caribbean

The Marketplaces of Western Europe

The Marketplaces of Eastern Europe and Central Asia

The Marketplaces of Asia Japan Australia and New Zealand

The Four Tigers South Korea Taiwan Singapore Hong Kong

China India Southeast Asian Countries

The Marketplaces of Africa and the Middle East Africa Middle East

The Marketplaces of South America

Opening case – Trade is Blossoming


The boom in the floral industry around the world in countries including Colombia, Ecuador and China, which in turn is driving economic growth in these regions.

Key Points The growth in the floral industry is the result of technological changes and trade liberalization. The Netherlands had long been the centre of the international commercial flower industry.

FLORAHOLLAND has been the most important flower auctioneer in the world. In 2009, they had auctioned over €3.9 billion worth of plants and flowers. They used e-commerce to expand beyond their regional market. This growing trade has also impacted other industries (i.e. airline industry). These opportunities were the result of globalization and the company’s ability to obtain

market research information, which has been the key to their ability to internationalize the operations.

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The Importance of Knowledge on Global Market


Failure of international business Failure to obtain vital information

Basic geography, market characteristics, culture, politics etc.

Factors influencing the world pattern of trade & investment Linguistic & cultural ties Past political associations Military alliances

E.g. London’s importance as a world financial centre political & military power of the British Empire in the 19th Century

Austria: a bridge between Western & Eastern Europe geographical reason: transportation, educational and cultural linkages

The World Economy


Developed Nations (North America, the EU, Japan) Accounts for about 63% (as of 2009) of

world’s economic activity

The Rising Importance of Emerging Markets Faster growth rates China: 10.9%; India: 7.8% Japan: 1.1%; Germany: 0.9%; the US: 2.1%

Currently, the world economy is changing very fast

Harder to predict the economy of the future

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United States USA GDP growth(annual %)NY.GDP.MKTP.KD.ZG

World WLD GDP growth(annual %)NY.GDP.MKTP.KD.ZG

Source: World Bank (2015), Retrieved from: http://data.worldbank.org/indicator

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Annual GDP Growth Rate (1960~2014) – Major Markets


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China CHN GDP growth (annual %) NY.GDP.MKTP.KD.ZG

European Union EUU GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Japan JPN GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Korea, Rep. KOR GDP growth (annual %) NY.GDP.MKTP.KD.ZG

United States USA GDP growth (annual %) NY.GDP.MKTP.KD.ZG

World WLD GDP growth (annual %) NY.GDP.MKTP.KD.ZG


Annual GDP Growth Rate (1960~2014) – our countries


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GDP Growth Rate p.a. (1960~2014)

China CHN GDP growth (annual %) NY.GDP.MKTP.KD.ZG Korea, Rep. KOR GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Malaysia MYS GDP growth (annual %) NY.GDP.MKTP.KD.ZG New Zealand NZL GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Korea, Dem. Rep. PRK GDP growth (annual %) NY.GDP.MKTP.KD.ZG Senegal SEN GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Uzbekistan UZB GDP growth (annual %) NY.GDP.MKTP.KD.ZG World WLD GDP growth (annual %) NY.GDP.MKTP.KD.ZG


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Terminology


Per annum (p.a.) For each year

E.g. GDP p.a. – GDP per year

Gross Domestic Product (GDP) The total market value of all goods and services produced in a country during some period –

e.g. a year

Gross National Income (GNI) GDP + net income Net income: dividends and interest received from residents of other countries – those paid

to residents of other countries

Organization for Economic Cooperation and Development (OECD) A group of 34 market-oriented democracies formed to promote economic growth

25 Western European countries + 4 Pacific Rim countries (KOR, NZ, AU, Jap)+ Canada, Mexico, the US, Israel and Chile

Classifying Countries by Income Levels


Income levels Most important piece of information needed by international businesspeople Provide clues to;-

the purchasing power of residents,

the technological sophistication of local production process, and

the status of the public infrastructure

Benefits to the firms Able to use this information to help identify the best markets for their products Able to offer different strategies depending on the country’s income level

Sophisticated products for high-income nations; low-priced products for low-income nations

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World Bank’s Classification of Income Levels


High-Income (annual per capita of at least $12,196) Cluster 1: 31 member states of OECD (total 34) + China Cluster 2: oil-rich countries

Bahrain, Brunei, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) Cluster 3: smaller industrialized countries and island states

Croatia, Latvia, Hong Kong, Singapore, Taiwan, Bermuda, the Bahamas, and the Cayman Islands

Middle-Income (annual per capita: $12,196 < Middle-Income < $995) Upper middle income (Per capita income between $3,945 ~ $12,196)

3 nations from OECD: Mexico, Turkey, and Chile Costa Rica, Mauritius undergoing successful industrialization and economic growth Former Soviet republics: enjoyed high income level in the 1930s but fell behind after WWII

Lower middle income (Per capita income between $996~$3,945)

Low-Income / Developing countries

World Bank’s Classification of Income Levels


Low-Income / Developing countries Under-developed (by UN)

Substantial growth of economies due to external aid, sound domestic economic policies, FDI andexploitation of natural resources, great potential for above-average economic growth

Undeveloped / Least Developed (by UN) Low literacy rates, low per capita income, less attractive to MNEs, poor infrastructures

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GDP per capita (p.a.) [1960~2014]


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High income HIC GDP per capita (current US$) NY.GDP.PCAP.CD Heavily indebted poor countries (HIPC) HPC GDP per capita (current US$) NY.GDP.PCAP.CD

Least developed countries: UN classification LDC GDP per capita (current US$) NY.GDP.PCAP.CD Low income LIC GDP per capita (current US$) NY.GDP.PCAP.CD

Lower middle income LMC GDP per capita (current US$) NY.GDP.PCAP.CD Low & middle income LMY GDP per capita (current US$) NY.GDP.PCAP.CD

Middle income MIC GDP per capita (current US$) NY.GDP.PCAP.CD High income: nonOECD NOC GDP per capita (current US$) NY.GDP.PCAP.CD

High income: OECD OEC GDP per capita (current US$) NY.GDP.PCAP.CD Upper middle income UMC GDP per capita (current US$) NY.GDP.PCAP.CD

World WLD GDP per capita (current US$) NY.GDP.PCAP.CD


GDP Growth Rate (1960~2014)


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GDP Growth Rate (1960~2014)

High income HIC GDP growth (annual %) NY.GDP.MKTP.KD.ZG Heavily indebted poor countries (HIPC) HPC GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Least developed countries: UN classification LDC GDP growth (annual %) NY.GDP.MKTP.KD.ZG Low income LIC GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Lower middle income LMC GDP growth (annual %) NY.GDP.MKTP.KD.ZG Low & middle income LMY GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Middle income MIC GDP growth (annual %) NY.GDP.MKTP.KD.ZG High income: nonOECD NOC GDP growth (annual %) NY.GDP.MKTP.KD.ZG

High income: OECD OEC GDP growth (annual %) NY.GDP.MKTP.KD.ZG OECD members OED GDP growth (annual %) NY.GDP.MKTP.KD.ZG

Upper middle income UMC GDP growth (annual %) NY.GDP.MKTP.KD.ZG World WLD GDP growth (annual %) NY.GDP.MKTP.KD.ZG


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The Marketplaces of North America


North America The US Canada Mexico The countries of Central America & the Caribbean

Population 531 million people

Output Produce 29% of the world’s output

Su Jin Victoria Yeon, Copyright 2015Source: Griffin & Pustay (2013), International Business

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The United States


The world’s 3rd largest population; 4th largest land mass The world’s largest economy Accounted 24% of the world’s GDP in 2009 Accounting for;-

1/10 of world exports of goods and services

1/8 of world imports of goods and services

A prime market for;- Lower-income countries trying to develop their economies through export-oriented strategy

Higher-income countries trying to attract business from large, well-educated middle class

The United States


US Dollar (US$) Serves as the invoicing currency

Invoice currency: the currency that a business uses to charge its customers Represents the way of measuring the price for an order E.g. Trip to Europe – when buying a souvenir in the airport

Attracts flight capital Flight capital: money transferred abroad to avoid taxes or inflation, achieve better investment

returns, or to provide for possible emigration

Putting money into safer country that is politically, economically more stable

Headquarters of the world’s largest corporations in 2010 (See Figure 2.2) 27% were headquartered in the US

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Canada


The world’s second largest land mass Population: 34 million (Korea: 50 million)

80% of its population is concentrated within 100-mile brand along the US border Trade Most important exports: natural resources

E.g. forest products, petroleum, minerals and grain The US: the dominant market for Canadian goods Two-way trade between the US and Canada

The world’s single largest trading relationship

Investment Pros: great infrastructure, educational systems Cons: Conflict between French-speaking vs. English-speaking Canadians

Strong separatist movement existed in Quebec since the 1960s E.g. firms exporting products to Canada must be aware of the country’s bilingual labelling laws

Mexico


The world’s most populous Spanish-speaking nation Declared independence from Spain in 1810 Federal system – head of government: a President (elected every 6 years) Government Policy & the Economy Government implemented a program of economic nationalism

Discoursed foreign trade and investments, huge trade barriers to protected the domestic market Opening up of the market for the past 30 years

Abandoned economic nationalism, Privatisation of many Stated Owned Enterprises e.g. Telefonos de Mexico, Aeromexico

Free Trade Agreements 1994: North American Free Tree Agreements (NAFTA): with Canada and the US 1999: FTA with the EU 2000: FTA with El Salvador, Guatemala, and Honduras 2004: FTA with Japan and Uruguay

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Central America & the Caribbean


Central America & the island states of Caribbean Total population: 83 million (more than twice of Canada’s population) Total GDP: $393 billion (1/3 of Canadian total GDP)

Economic Problems of most countries in the region Political instability Chronic US military intervention Inadequate educational systems A weak middle class Economic policies that have created poverty Import limitations by the US and other developed countries

The Marketplaces of Western Europe


Western Europe Among the world’s most prosperous, attract the attention of international businesses Can be divided into two parts

Member countries of the European Union (the EU) Non-member countries of the EU

The EU Comprises 28 member countries Seeking to promote European peace and prosperity

By reducing mutual barriers to trade and investment Movement towards one market

Free-market oriented, parliamentary democracies Government intervention & ownership plays an important role Own Currency – Euro € is used by 19 member states

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Croatia: became EU member in 2013

Source: Griffin & Pustay (2013), International Business

The European Union


Strong Economy as a whole GDP ranked 1st in 2013 GDP per capita: US$ 32,152 (in 2013)

(ranked 2nd in the world)

When treated as a single country Stable growth

The new EU member states enjoy higher average percentage growth rate

Reasons: stable monetary policy, export-oriented trade policies, low flat-tax rates, the utilization of relatively cheap labor

Trade World’s largest exporter and importer

European Debt Crisis A multi-year debt crisis that has taken

place in several Eurozone member states Unable to repay or refinance their

government debt Since the end of 2009

After the Global Financial Crisis Overly high government structural deficits &

accelerating debt levels Failed to limit their deficit spending

Bailout programs By IMF, European Commission, the European

Central Bank Problem countries

Greece, Ireland, Portugal, Spain and Cyprus

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Source: Bloomberg Business (2015), Retrieved from: http://www.bloomberg.com/markets/european-debt-crisis/

Main EU countries


Germany The EU’s most important member in terms of economy World’s second largest exporter of goods in 2009 GDP: 3.7 trillion USD (4th largest), GDP per capita: 46,268 USD (5th largest) (in 2013) Germany plays a major role in formulating the economic policies of the EU

France Strong political leadership within the EU Has been a leading proponent of promoting common European defense and foreign

policies, human rights and workers’ right in the EU Criticized for promoting an agenda of economic nationalism

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Main EU countries


The UK Resisted many of the initiatives to broaden the EU’s powers

Uses its own currency

Strong supporter of free trade London: a major international financial center

The newest EU members Historically either part of the Soviet Union or allied with the Soviet Union Had to restructure their economies since the collapse of the Soviet Union

Movement from centrally planned communist system to decentralized market systems

Implementation of necessary political, legal and institutional reforms The process facilitated by their joining the European Union

Non-(EU)member European Nations


Some rich Western European countries that are not EU members Iceland, Norway, and Switzerland Andorra, Monaco, Liechtenstein European Free Trade Association (EFTA)

Iceland, Norway, Switzerland, and Liechtenstein

Free trade organization between four European countries that operates in parallel with the EU

Balkan countries Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia

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The Marketplaces of Eastern Europe and Central Asia


The former Soviet Union Russia, Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lit

huania, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan 1986 reform by Soviet leader, Mikhail Gorbachev

Initiatives of openness and economic restructuring

Led to collapse of the Soviet Union in 1991

Declaration of independence by the 15 Soviet republics (Newly Independent States – NIS)

Had to deal with the painful process of converting;- Communism Capitalism; Totalitarianism Democracy

The 12 of NIS formed the Commonwealth of Independent States (CIS) A forum to discuss issues of mutual concerns


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Russia


World’s largest country in land mass (6.5 million square miles) 9th largest population (142 million) Well endowed with natural resources Gold, oil, natural gas, minerals, diamonds, and fertile farmland

Government administration The Yeltsin administration

the country’s first democratically elected president Tried privatization

Individuals were more concerned with corporate assets than companies’ economic health and performance failure Failure of the policy

Financial crises, inability to collect taxes and a political need to subsidize the inefficient state-owned enterprises The government was forced to devalue the ruble & impose a 90-day moratorium on payments to foreign

creditors The Putin administration

Quickly overhauled the country’s tax system with flat income tax of 13% Increased government revenue Benefited from increased oil price during the 2000s Annual GDP growth rate of 5.9% since 2000

Other parts of the region


The five Central Asian republics Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan and Kyrgyzstan

Common feature The importance of Russia in their political history Muslim faith dominated the region Natural resources: fossil fuel reserves Poor people

Per capita income: USD 700 in Tajikistan ~ USD6,740 in Kazakhstan

Current Issue Conflict between Russia and Ukraine over Crimean Peninsula

The Ukrainian ambassador to Russia has been called off since March 2014, Ukrainian government declared a draft decree on suspending diplomatic relations with Russia

on Feb 2015

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The Marketplaces of Asia


Asia Covers over ½ of the world’s population Produces ¼ of the world’s GDP Produces both high- and low- quality products with both skilled and unskilled labour Major destination and supplier of foreign investments by MNEs


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Japan


Population: 126 million Economy

Became one of the world’s economic superpower since WWII GDP: US$5.1 trillion in 2009 China’s GDP surpassed Japan’s since 2010 Japan: No. 3

Ministry of International Trade and Industry (MITI) New name: Ministry of Economy, Trade, and Industry since 2001 Used its formal and informal powers to guide the production and investment strategies of country’s corporate

elite Aided by Japan’s concentrated industrial structure

Keiretsu Large families of interrelated companies Typically cantered on a major Japanese bank

The bank takes primary responsibility for meeting the keretsu’s financing needs An elaborate system of cross-ownership of shares

Keiretsu members own shares in one another’s companies Protected from hostile takeovers

Japan


Economic slowdown since 1990s Annual GDP growth since 2000: 1.1 %

Well below 2.9% average growth rate of world economy

Possible reasons for the economic slowdown Japanese political and economic systems have not been able to adjust quickly enough

to the changes in the world economy Growth of e-commerce, and the emerging markets

Received much international criticism for employing unfair trading practices Numerous non-tariff barriers to restrict imports

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Australia and New Zealand


Australia 22 million people live an area of 2.97

million square miles Most of the population is concentrated in

wetter coastal regions 40% of the people living in either Sydney or

Melbourne Rich in natural resources

E.g. gold, iron ore, and coal Relatively small workforce Merchandise exports accounted for 17%

of its GDP Natural resources and land intensive

agricultural goods (e.g. wool, beef, and wheat)

New Zealand 4.3 million people Main islands: North Island, South Island,

and Stewart Island Systematic deregulation and privatization

in the1980s The forefront of the worldwide shift toward

greater reliance on market-based policies Merchandise exports accounted for 20%

of its GDP E.g. dairy products, meat, and wool Major MNEs

Fonterra, Zespri etc.


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The Four Tigers


One of the world’s most rapidly industrializing regions South Korea, Taiwan, Singapore, and Hong Kong The newly industrialized countries (NICs) or economies (NIEs) Many classify those countries as “emerging markets”

But they are already classified as “high-income” countries by the World Bank for more than a decade

South Korea One of the fastest growing economies Merchandise exports accounted for 44% of its GDP in 2009 Huge growth in economy

Relied on tight cooperation between government and chaebol companies Chaebol

Privately owned, family-centred conglomerates E.g. Samsung, Hyndai, SK, LG, Daewoo (before Asian Financial Crisis) Modelled Japanese’s economic path

Discouragement of imports,

The Four Tigers


South Korea 1997-1998 Asian currency crisis

Due to overexpansion and the poor lending practices of Korean bank More interested in size than profitability Borrowed money to enter industries

Caused many chaebols to collapse or to face financial difficulties

Chaebols after the crisis Became stronger after restructuring E.g. Samsung – choose to concentrate the company’s resources in electronics became world market l

eader in flash memory, DRAM memory chips, flat panel displays, color laser printers and cell phones

Faced bankruptcy or sold off to foreigners E.g. Daewoo, SsangYong etc.

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The Four Tigers


Taiwan (the Republic of China) A small island country off the coast of mainland China Population: 23 million Born after math of the civil war between the nationalist forces by General Chiang Kai-

shek and the Chinese communists led by Mao Tse-tung Chiang Kai-shek’s government fled to Taiwan and declared the island, “the Republic of China”

Economy Redistribution of land from large estate holders to peasants increased agriculture Reliance on family-owned private businesses and export-oriented trade policies

Export: 64% of its GDP in 2009 Taiwanese businesses More focused on high-value-added industries Increasingly investing factories and assembly plants in China to access the low-wage workers

The Four Tigers


Singapore Former British colony - became independent in 1965 Population: 4.7 million Economy

Emphasized development of labor-intensive industries Shift to higher-value-added activities high tech industries

Suffers from labor shortage Threated by Indonesian and Honduras in the production of price-sensitive, labor intensive goods

Heavy reliance on exporting Export accounts 148% of its GDP in 2009 Re-exporting: import foreign goods and then re-export them to other countries (great port facilities)

Provides sophisticated communications and financial services for firms in Pacific Asia

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The Four Tigers


Hong Kong Born of the “opium war” (1839-1842) fought between the UK and China

Hong Kong was ceded to the British 1898 mainland China granted a 99-year lease on Hong Kong July, 1997 – the lease expired Hong Kong became part of China

A Special Administrative Region (SAR) until 2047 China assumed political control of Hong Kong Hong Kong enjoys a fair degree of freedom

Its own legislature, economic freedom, free-port status, and a separation of tax system

The Umbrella Revolution in 2014 Mainland China’s the Standing Committee of the National People's Congress (NPCSC) came to a decision

regarding proposed reforms to the Hong Kong electoral system. The decision was widely seen to be highly restrictive, and tantamount to Communist Party control over which

candidates would be allowed to present themselves to the Hong Kong electorate Economy

Play a role as an entry point to mainland China; act as intermediaries Highly educated, productive labour force of 7 million individuals Re-exporter: merchandise export accounts for 194% of its GDP

China


World’s most populous (1.3 billion) and one of the world’s oldest countries Communist forces entered since 1949 by Mao Tse-tung 1958~1960: force industrialization through the growth of small, labour-intensive

factories The program failure led to the Cultural Revolution in 1966 Youthful communist cadres purged Communist Party members suspected of deviating from Mao’s

doctrines Many of its most productive and educated members were exiled to the countryside

After 1976: government adopted limited free-market policies Agriculture returned to the private sector, entrepreneurs were allowed to start small businesses Foreign companies were permitted through Joint Ventures with Chinese firms

Tiananmen Squire in June 1989 The massacre of several thousand pro-democracy demonstrators in Beijing Chilled economic and political relations between China and the developed countries

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India


World’s second most populous country Population: Exceeded 1 billion in 2000 One of the world’s poorest countries: per capita GNI of USD $1,180

Part of British Empire until 1947 Economy Until 1991: discouraged foreign investment Prime Minister Rao’s 1991 market-opening reforms

Reduced trade barriers, increased FDI, modernized the country’s financial sector Average Annual GDP growth of 7.8% since 2000

Problems Corruption Overburden infrastructure Lack of clarity in government policy

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Southeast Asian Countries


The Philippines, Malaysia, East Timor, Christmas Island, Brunei, Singapore, Cambodia, Laos, Myanmar, Thailand, Vietnam

Many of Southeast Asian countries are experiencing hung economic growth Has great potential for economic growth Growing population of young people

Thailand, Malaysia, and Indonesia Low labour cost recipients of significant FDI in the last 30 years Many Japanese MNEs have built satellite plants US & European MNEs used these countries as production platforms Economy boomed as a result of exports generated by FDI

The Marketplaces of Africa and the Middle East


Covers 22% of the world’s total land area & rich in natural resources Africa 1 billion people, 55 countries Most African countries were colonized by Europeans in the late 19th century

By France, the UK, Germany, Belgium, Italy, Portugal and Spain Vestiges of colonialism remain in today’s Africa

Affecting IB of many African countries E.g. Chad, Niger, Ivory Coast and Senegal close economic ties with France

Currencies linked with France, follow French legal, educational and governmental procedures French manufacturers, financial institutions, and service-sector firms often dominate international commerce

Rich Natural Resources The commodity boom boosted the economies

Algeria, Angola, Gabon, Libya, and Nigeria: major exporters of oil Zambia: cooper Botswana: diamond

Challenges that governments face Leveraging the growth in their commodities sector to create broad-based economies

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Africa Agriculture

Accounts for more than 40% of the GDPs of the central African Republic, Sierra Leone, Tanzania, and Rwanda

Countries where majority of population employed in subsistence farming Burkina Faso, Gambia, Mozambique, Sierra Leone, Tanzania, and Zambia

South Africa Has the greatest potential to be the dominant economic power Possesses fertile farmland, rich deposits of natural resources Many MNEs used South Africa as a base for African operation in 1970s UN imposed sanctions against the country due to government’s apartheid policies 1994: Nelson Mandela became elected president Export accounted for 22% of its GDP in 2009


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Middle East “cradle of civilization”

The origin of the world’s earliest farms, cities, governments, legal codes, alphabets and major religions History of conflict and political unrest

Arab-Israeli wars, the Iran-Iraq war, Persian Gulf wars, Terrorist attracts 2011: political unrest in North African region

Protests against the lack of democracy, poor employment opportunities, high levels of income inequality Resignation of long-time authoritarian leaders in Egypt and Tunisia Civil war in Libya

Economy Saudi Arabia: biggest GDP in the Middle East (in 2009)

45% of GDP was from oil

Israel: highest per capita income in the Middle East (in 2009) Some oil-rich countries are attempting to diversify their economies for “life after oil”

Dubai: attracted many foreign investment through foreign trade zone, excellent infrastructure Sovereign wealth funds

Government-controlled pools of capital


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History 13 countries – formerly colonized by Portugal (Brazil) and Spain (all of the South

American nations except Brazil) Gained independence from 1825 Problems

Suffer from huge income disparities, widespread poverty, political instability

After WWII Followed import substitution policies A country attempts to stimulate the development of industry by discouraging imports through high

tariffs and non-tariff barriers Opposite to export promotion (what major Asian countries did)



Consequences of import substitution policies Domestic markets were too small for economies of scale Inability of domestic MNEs to compete in the world market Companies pay higher prices for domestically produced inputs than do their foreign competitors Inability of government to subsidize the firms Long-term government budget deficit Inflation and destruction of middle class savings

The late 1980s: opening up of the markets Lowered tariff barriers, sought free trade agreements with their neighbours, privatization of State

Owned Enterprises Chile: one of the most free-market oriented economies of the world

Current problem Inability to create policies that reduce the gap between the rich and poor Lack of economic and social mobility

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Homework #2 – due next Friday


Read the case, “China’s Quest for Natural Resources” from page 75~76 Answer the four case discussion questions in page 75 Do not spend more than 2 pages answering the questions You may use bullet points Keep your answers brief but think! Type your answers

Due date: Friday, 13th of March by 11 a.m.

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Group discussion Report #1 (due next Friday)


With your group members discuss; About second week reading About the first case And discuss based on case discussion questions

Discuss the following issueSouth Korea is prominently featured in many lists of “emerging markets.” Is South Korea an emerging market? Defend your answer. How would you define an “emerging market”?

Report due date: 13th of March by 11 a.m. Group report / Individual Report (sheets are downloadable from the website

http://ecampus.cbnu.ac.kr)

Case StudyChina’s Quest for Natural Resources

Week 2 Day 2


Learning Objectives – Chapter 2


1. Evaluate the impact of the political and economic characteristics of the world’s various marketplaces on the opportunities available to international businesses

2. Appreciate the use of national income data in making business decisions

3. Discuss North America as a major marketplace and business center in the world economy

4. Discuss Western Europe as a major marketplace and business center in the world economy

5. Discuss Asia as a major marketplace and business center in the world economy

6. Assess the development challenges facing African, Middle Eastern, and South American countries

Globalization


Discuss the following issue

South Korea is prominently featured in many lists of “emerging markets.” Is South Korea an emerging market? Defend your answer. How would you define an “emerging market”?

China’s Quest for Natural Resources


The boom in the mining industry largely caused by China’s rapid economic growth

Key points The mid-2000s: very profitable for mining firms and their supplies Urbanization and the growth in Chinese manufacturing

Leading to a tremendous increase in the demand for raw materials

China estimated to consume;- 47% of the world’s cement output; 37% of its cotton; 26% of its steel; 30% of its coal; 21% of its

aluminum

A significant portion of China’s needs are provided by foreign suppliers



Chinese government’s concerns China would be too vulnerable to the pricing power of foreign companies supplying the vital raw

materials Worried that China’s continuing economic growth would be jeopardized if the country’s access to

the raw materials were threatened

Chinese firms Started to purchase or acquire companies that produces raw materials Started to heavily invest in many of the foreign companies Chinese state owned oil companies played an important role in its quest for secure energy supplies Chinese firms signed a series of JV agreements to boost China’s refining and petrochemical capacity

Critics Concerns over the state owned Chinese companies making these investments Are those Chinese firms profit-seeking? Or they are arms of the stat ,interested primarily in

promoting China’s national security and foreign policy objective?



How important is it for nations to control natural resources? Is China’s growth threatened if it needs to rely on foreign-owned sources of

raw materials?



Should countries have special rules for acquisitions of natural resource companies by foreign-based companies?



Should there be separate rules for state-owned acquirers like Sinopec?



If China’s growth slows, what will be the impact on commodity prices?

Homework #3 – due next Wednesday


Read Chapter 3 – Legal, Technological, Accounting, and Political Environments Answer following questions

1. Describe the four different types of legal systems with which international businesses must deal.2. What is extraterritoriality?3. How can an MNC affect its host country?4. How do expropriation and confiscation differ?5. Why do countries impose restrictions on foreign ownership of domestic firms?6. How do restrictions on repatriation of profits affect MNCs?7. What factors influence the accounting procedures a country adopts?8. What is the impact of differing accounting standards on the international capital market?9. What is political risk? What forms can in take?10. What is OPIC’s role in promoting international business activity?

Do not spend more than 2 pages (Type your answers) Try and keep your answers brief Due date: Wednesday, 18th of March by10 a.m.

Homework #4 – due next Friday


Read the case “Risky Business in Venezuela” Answer the four case discussion questions Do not spend more than 2 pages answering the questions You may use bullet points Keep your answers brief but think! Type your answers

Due date: Friday, 20th of March by 11 a.m.

Group discussion Report #2 (due next Friday)


With your group members discuss; About third week reading About third week case And discuss based on case discussion questions

Discuss following statement“What is the impact of vigorous enforcement of intellectual property rights on the world economy? Who gains and who loses from strict enforcement of these laws?”

Report due date: 20th of March by 11 a.m. Group report / Individual Report (sheets are downloadable from the

website http://ecampus.cbnu.ac.kr)

Documents

Chapter 2: Global Marketplaces and Business Centers