Transcript Chapter 1:Trade and Investment in a Global Economy EU US China Australia Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides.

Chapter 1:Trade and Investment in a
Global Economy
EU
US
China
Australia
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
Lecture Plan:
• Scope of international business
• Exports of goods and services
• International contracting
• Foreign direct investment
• What is globalisation? Main indicators.
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•
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The drivers of globalisation
Arguments pro and against globalisation
International business versus domestic business
Why study the area of international business?
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
The Changing Pattern of World GDP and
Exports, %, 1970, 1999, 2000
Country
United States
Japan
Canada
Australia
S.Korea
China
Malaysia
Indonesia
Singapore
Share of World
Output 1970
36.0%
7.2%
2.6%
1.4%
0.3%
NA
0.1%
0.30%
0.1
Share of World Share of World
GDP 1999
Exports 2000
29.6%
12.3%
14.1%
7.5%
2.0%
4.3%
1.3%
1.0%
1.3%
2.7%
3.2%
3.9%
0.3%
1.5%
0.5%
1.0%
0.3%
2.2%
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
Scope of International Business
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•
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•
Exports (goods & services)
Contracting
Joint ventures
Wholly owned direct investment
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EXPORTS OF GOODS
• Primary Products
–
–
Agricultural Products (Food, Raw materials)
Mining Products (Ores, Fuels, Non-Ferrous Metals)
• Manufactures
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–
–
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–
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Iron and Steel
Chemicals
Other semi-manufactures
Machinery and Transport Equipment
Textiles & Clothing
Other Consumer Goods
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International Trade and Investment by John Gionea
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EXPORTS OF SERVICES
• Transportation (shipment & other)
• Travel
• Other Services
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–
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Telecommunications
Non-merchandise insurance
Banking
Other professional services (engineering, legal,
accounting, education, market research etc.)
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International Trade and Investment by John Gionea
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CONTRACTING
• Licensing
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Rights for production and sales of a product
Licensing fee
Territorial restrictions
• Franchising
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Pepsi Cola, Shangri La, Burger King
• Turnkey Project
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Planning, construction, commissioning, training
Large plant projects
• Sub-contracting (eg. the car sector)
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
FOREIGN INVESTMENT
• Foreign Direct Investment ( F.D.I.)
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Joint ventures & wholly owned investment
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Effective control; Managerial participation
• Portfolio Investment
– Investment income; Capital gains
• Dividing line: 10% of the company shares
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FDI concepts
• FDI (Flow): measures movement of FDI in a given
period, usually a year.
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FDI Outflows
FDI Inflows
• FDI (Stock): the book value of the accumulated
investment flows over the years.
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Outward FDI (stock)
Inward FDI (stock)
• Foreign Production: the value of goods and services
produced abroad by multinationals.
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Global-Multinational-Transnational
• Global Company: Company operating globally,
e.g.- exporting to many countries
- investing in many countries etc.
• Multinational (MNE): engages in foreign
production in three or more countries.
• Transnational (TNC): a corporation with owners
in more than one nation.
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Global Integration
“The process by which markets and
production in different countries are
becoming increasingly interdependent due
to the dynamics of trade in goods and
services and the flows of capital and
technology.”
O.E.C.D
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Drivers of globalisation
• Two key factors seem to underlie the
trend towards the increasing
globalisation of markets and
production:
1) the decline of barriers to trade and
investment
2) technological change.
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Indicators of globalisation
• The increasing trade/GDP ratio
• FDI as % of GDP up
• Growth of the intra-industry trade
• Declining concentration of
international business flows
• Aggregate international business as a
% of GDP
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Share of Exports of Goods&Services
in GDP
60
50
40
1970
30
1999
20
10
0
Low& Middle
Income
High Income
countries
World
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International Trade and Investment by John Gionea
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Why is FDI growing more rapidly
than world trade or world output?
• Can circumvent future trade barriers
• World political and economic
change.
– Democratization of markets.
• Globalization of world markets.
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Anti-globalisation arguments
• It is empowering corporations at the expense
of nation states
• It is not a democratic choice, but an option to
suit multinationals
• International institutions such as the WTO and
World Bank
– are NOT democratic
– open the world to the influence of transnational
corporations
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Slides prepared by John Gionea
Anti-globalisation arguments
• Destroys manufacturing jobs in wealthy,
advanced countries.
• Wage rates of unskilled workers in
advanced countries decline.
• Companies move to countries with fewer
labour and environment regulations
(“Export of jobs”).
• Loss of sovereignty.
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International Trade and Investment by John Gionea
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Answers to critics of
globalisation
• Decisions in WTO and other international
organisations are made by consensus of
governments
• Globalisation is more effective with strong
governments and sound institutions
• Globalisation benefits both large and
small/medium companies
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Globalisation - Arguments Pro
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Lower prices for goods and services
Economic growth stimulation
Increase in consumer income
Creates jobs
– Countries specialise in production of goods and
services that are produced most efficiently
• Unprecedented advances in living standards
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International Trade and Investment by John Gionea
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International Business vs. Domestic
Business
• International Risk
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Financial (exchange, interest, inflation)
Political (nationalisation, expropriation)
Regulatory (legal systems, policies)
Marketing (income levels, marketing
practices)
• Multinational Conflicts
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Multinational strategies vs. National
interest Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
International Business Training
REASONS :
• "Multinationalisation"
• Internationalisation (small and medium
companies)
• International business policies (government)
• Globalisation of financial markets
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
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Job Opportunities
• Export Departments of manufacturing firms (joint
ventures) in Australia or overseas.
• International Traders
• Exporters of Services or
• Providers of Services to International Companies
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Banking, Insurance
Shipping
Construction-Engineering
• Government; International organisations
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea