CH01-Introduction to International Usiness

8/3/2019 CH01-Introduction to International Usiness

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International Business

Chapter 1

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Growth in world trade

Fig 1.1

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Growth in fdi

Fig 1.2

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Reasons for increased

internationalisation

More open global markets

More globally dispersed value chains

Move from bi-polar to tri-polar (triad) Growth of Regional Trading Arrangements

(RTAs)

Growth of bilateral treaties Bilateral Investment Treaties (BITs)

Double Taxation Treaties (DTTs)

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More open global markets

Item 1993 1995 1997 1999 2001 2003 2005 2007

Number of countries

that introducedchange

56 63 76 65 71 82 92 58

Number of regulatory

changes

100 112 150 139 207 242 203 98

More favourable to

fdi

99 106 134 130 193 218 162 74

Less favourable to fdi 1 6 16 9 14 24 41 24

6Source: Adapted from World Investment Report(2008)


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(1)Average annual growth rates (%)

2007 ($bn) 198690 199195 19962000

Sales of foreign

affiliates of MNEs

31,197 19.3 8.8 8.4

Total exports of

goods and

services

7,430 15.8 8.7 4.2

Employment of

Foreign affiliates

(thousands)

81,615 5.3 5.5 11.5

Total assets of

foreign affiliates

68,716 17.7 13.7 19.3

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Source: Adapted from World Development Report2008

Source: Adapted from World Development Report2008


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(2)Region 1990

95

(annual

average)

1996-

2000

2001 2002 2003 2004 2005 2006 2007

Developed

countries

145 581 610 484 364 410 680 920 1,248

Developing

countries

74 198 206 220 220 265 310 405 495

South and

CIS

6 8 10 11 20 30 31 58 87

8Source: Adapted from World Development Report 2008


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Bi-polar to tri-polar (triad)

Fig 1.3

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Transnationality index (TNI)

TNI is the average of three ratios:

Foreign sales : total sales

Foreign employment: total employment

Foreign assets : total assets

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World top 5 multinationals ranked by

foreign assets (and TNI)Ranking

Foreign

assets

Transnationality

index

Company Country Industry Transnationality

index (%)

1 71 General

Electric

USA Electrical and

Electrical Equipment

53

2 14 British

Petroleum

UK Petroleum 80

3 87 Toyota Motor Japan Motor Vehicle 45

4 34 Royal

Dutch/Shell

UK/Netherla

nds

Petroleum 70

5 84 Exxon/Mobil

Corporation

USA Petroleum 68

Source: Adapted from World Development Report2008 11


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Worlds top 5 multinationals ranked by the transnationality

index (and foreign assets), 2006

Ranking

Transnationality

index

Foreign assets Company Country Industry Transnationality

index (%)

1 92 Barrick Gold

Corporation

Canada Gold/Mining 94

2 37 Xstrata plc UK Mining and

quarrying

92

3 48 Linde AG Germany Industrial trucks /

trailers

89

4 77 Pernard Ricard

SA

France Beverages 87

5 68 WPP Group UK Business

Services

87

12Source: Adapted from World Development Report2008


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Transnationality Index for the worlds largest 100

MNEs in their home economies, 1990 and 2006

Average TNI (%) Number of MNEs

Economy 1990 2006 1990 2006

European Union 56.7 74.7 48 52

France 50.9 63.8 14 15

Germany 44.4 54.8 9 14

UK 68.5 72.8 12 13

North America 41.2 60.2 30 25

US 38.5 57.8 28 22

Canada 79.2 78.1 2 3Japan 35.5 52.1 12 9

Rest of the World n.a. n.a. 10 14

All Economies 51.1 61.6 100 100

13Source: Adapted from World Investment Report(2008)


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Transnationality Index of the 100 largest MNEs from

developing economies: by region 2006

Top 100 MNEs from

developing economies

Average TNI

Region/ economy

of which

TNI Number of companies

Africa (South Africa) 45.0 11

South East Asia 52.3 20

East Asia 58.6 56

West Asia 56.5 3

Latin America and the Caribbean 40.1 10

Total 53.9 100

Source: Adapted from World Investment Report2008 14


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Internationalisation Index (II)

Number ofhost economies in which the MNE

has foreign affiliate is a useful indicator of

internationalisation

Internationalisation Index (II)

Ratio of MNE foreign affiliates to total affiliates,

expressed as a percentage

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Top 5 MNEs, ranked by number of host

economies in their affiliates

Company Home country No. of host

economies

Internationalisati

on Index (II)%

Transnationality

Index (TNI)%

Deutsche Post AG Germany 111 83 37

Royal Dutch/Shell

Group

Netherlands/Unite

d Kingdom

98 56 70

Nestle SA Switzerland 96 93 83

Siemens AG Germany 89 75 66

BASF AG Germany 88 78 57

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Other global patterns and trends

Growth in:

Regional Trading Arrangements (RTAs)

Bilateral Investment Treaties (BITs)

Double Taxation Treaties (DTTs)

Sovereign Wealth Funds (SWFs)

Global security related costs

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Regional Trading Arrangements (RTAs)

Free trade areas

Customs unions

Common markets Economic unions

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Free trade area

Where member countries reduce or abolish

restrictions on trade with each other while

maintaining their individual protectionist

measures against non-members

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Custom unions

Where, as well as freeing trade among

members, a common external tariff is

established to protect the group from imports

from any non-member.

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Common market

Where the customs union is extended to

include the free movement of factors of

production as well as products within the

designated area.

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Economic union

Where national economic policies are also

harmonised among member states within the

common market.

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International competitiveness (1)

Most widely used indicator is Relative Unit

Labour Costs (RULCs)

RULC

Relative Labour Costs x Relative Exchange Rate

Relative Labour Productivity

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Country

Total labour costs ($

per hour)

Total labour costs ($

per hour Index: UK =

100)

Labour productivity

(Index UK = 100)

Mexico 2.6 21.8 35.2

Korea 13.6 20.9 48.4

France 24.6 95.7 118.1

UK 25.7 100.0 100.0

Japan 21.8 84.8 82.4

US 23.7 92.2 116.2

Germany 33.0 128.4 109.7

Source: Adapted from US Department of Labor (2007)Hourly Compensation Costs in Manufacturing: OECD (2007) 24


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Country Rank

USA 1 Austria 8

Germany 2 Singapore 9

Finland 3 Japan 10

Sweden 4 UK 11

Denmark 5 Hong Kong 12

Switzerland 6 Norway 13

Netherlands 7 Canada 14

Source: Global Competitiveness Report 2007 8 (adapted)25


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Globalisation

Different perspectives

Economists

Political scientists

Sociologists

International relations specialists

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Globalisation Definitions (1)

the process of transformation of local phenomena intoglobal ones. It can be described as a process by which the

people of the world are unified into a single society and

function together. This process is a combination of economic,

technological, sociocultural and political forces (Croucher, S.

2003)

a widening, deepening and speeding up of

interconnectedness in all aspects of contemporary social life

from the cultural to the criminal, the financial to the spiritual(Held et al1999)

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.increasing global interconnectedness, so that events in one

part of the world are affected by, have to take account of, and

also influence, other parts of the world. It also refers to an

increasing sense of a single global whole (Tiplady, R. 2003)

the worldwide movement towards economic, financial,

trade and communications integration. Globalisation implies

opening out beyond local and nationalistic perspectives to a

broader outlook of an interconnected and inter-dependent

world with the free transfer of capital, goods and servicesacross national frontiers (Business Dictionary)

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refers to the shift toward a more integrated andinterdependent world economy*through+ the

merging of historically distinct and separate national

markets into one huge global market place (Hill, C.

2005, p.6)

process by which the whole world becomes a

single market. This means that goods and services,

capital and labour are traded on a worldwide basis,

and information and the results of research flow

readily between countries (Black, J. 2002)

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reflects a business orientation based on the

belief that the world is becoming more

homogenous and that distinctions between

national markets are not only fading but, forsome products, will eventually disappear

(Czinkota, M., Ronkainen, I., Moffat, M. 1999,

p.454)

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Globalisation characteristics (1)

Shrinking space

Shrinking time

Disappearing borders

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Globalisation characteristics (2)

New markets

New tools of communications

New actors

New rules and norms

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New markets

Growing global markets in services banking,insurance, transport.

New financial markets deregulated, globally

linked, working around the clock, with actionat a distance in real time, with new

instruments such as derivatives.

Deregulation of antitrust laws and growth ofmergers and acquisitions.

Global consumer markets with global brands

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New tools of communication

Internet and electronic communications

linking many people simultaneously.

Cellular phones and mobile telephony.

Fax machines.

Faster and cheaper transport by air, rail, sea

and road.

Computer-aided design and manufacture

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New actors (1)

Multinational corporations integrating theirproduction and marketing, dominating world

production.

The World Trade Organisation the first multilateral

organisation with authority to force nationalgovernments to comply with trade rules.

A growing international network of non-

governmental organisations (NGOs).

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New actors (2)

Regional blocs proliferating and gaining

importance European Union, Association of

South-East Asian Nations, Mercosur, North

American Free Trade Association, SouthernAfrican Development Community, among

many others

More policy coordination groups : G-7, G-8,OECD, IMF, World Bank

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New rules and norms (1)

Market economic policies spreading around the

world, with greater privatisation and liberalisation

than in earlier decades

Widespread adoption of democracy as the choice ofpolitical regime

Human rights conventions and instruments building

up in both coverage and number of signatories and

growing awareness among people around the world.

Consensus goals and action agenda for development

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New rules and norms (2)

Conventions and agreements on the global

environment biodiversity, ozone layer, disposal of

hazardous wastes, desertification, climate change

Multilateral agreements in trade, taking on such newagendas as environmental and social conditions

New multilateral agreements for services,

intellectual property, communications more

binding on national governments than any previous

agreements

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Globalisation outcomes

Hyperglobalists: powerless nations at the

mercy of footloose MNEs which grow ever

stronger

Transformationalists: no clear predictions

possible as to eventual outcomes of

globalisation

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Transformationalist view of

globalisation

Conflicting tendencies

Universalisation v particularisation

Homogenisation v differentiation

Integration v fragmentation

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Globalisation and Nation State

Issues include:

Loss of competence

Loss of autonomy

Loss of legitimacy

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CH01-Introduction to International Usiness