Bài giảng International Business - Chapter two: International Trade and Foreign Direct Investment

International Trade and Foreign Direct InvestmentMcGraw-Hill/IrwinInternational Business, 11/eCopyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.chapter twoLearning ObjectivesAppreciate the magnitude of international tradeIdentify the direction of trade, or who trades with whomExplain the size, growth, and direction of U.S. foreign direct investment, worldwide and in the U.S.Identify who invests and how much is invested in U.S.Understand the reasons for entering foreign marketsComprehend that globalization of international firm occurs over seven dimensions and that a company can be partially global in some dimensions and completely global in others3Large International Firms Invest Overseas, and They Also ExportLarge American international firms responding to such factors as:Global competitionLiberalization by host governments in regard to foreign investmentAdvances in technology4Large International Firms Invest Overseas, and They Also ExportNote: Foreign sales refers to sales outside the home country of the company. All figures are based on 2005 fiscal year, as reported in 2006, except for Wal-Mart Stores, whose fiscal year ended January 31, 2006. This list excludes BP, which was ranked the 4th largest, because the company’s annual report did not provide information on either foreign sales or net income from foreign operations.— information not provided in company annual report.Source: Company annual reports, Fortune magazine’s 2006 Global 500 listing of world’s largest companies, (July 14, 2006).5Large International Firms Invest Overseas, and They Also ExportSupplying overseas marketsExporting to and production in those marketsIn order to establish and expand overseas operationsInternational Trade - Including exports and importsForeign Direct InvestmentForeign Sourcing6International TradeIncrease in volume of tradeSource: Monthly Bulletin of Statistics (New York: United Nations, June 1997), pp. 92–102 and 266–71; Monthly Bulletin of Statistics (New York: United Nations, August 2000), pp. 92–111 and 122; “World Merchandise Exports by Region and Selected Economy, 1980, 1985, 1990, 1995 and 1999–2001,” World Trade Organization, Statistics Division, www.wto.org/english/res_e/statis_e/statis_e.htm (June 30, 2002); “World Exports of Commercial Services by Selected Region and Economy, 1980–2001,” World Trade Organization, Statistics Division, www.wto.org/english/res_e/statis_e/statis_e.htm (June 5, 2002); “World Service Exports by Region and Selected Economy, 1992–02,” International Trade Statistics 2003 (Geneva: World Trade Organization, 2003), pp. 171–74, 179–81; and “Growth in the Value of World Merchandise Trade by Region, 2004,” International Trade Statistics 2005 (Geneva: World Trade Organization, 2005) pp. 20, 23.7International TradeLocation of Worldwide Manufacturing Value-Added for Selected Regions (percentage of value added at current prices)n.a. data not available. * 1980 data are actually for 1981, but listed at constant 1980 prices. Source: “Foreign Direct Investment: Foreign Direct Investment Flows,” United Nations Conference on Trade and Development, (July 14, 2006).8International TradeNote: Rankings are based on trade data for 2004.Source: World Trade Organization, International Trade Statistics 2005 (Geneva: World Trade Organization, 2005), pp. 21, 23.9Direction of TradeIncreasing Regionalization of TradeSource: Monthly Bulletin of Statistics (New York: United Nations), July 2001, pp. 266–71, July 2000, pp. 258–61, June 1997, pp. 255–62, June 1993, pp. 266–71; Statistical Yearbook (New York: United Nations, 1969), pp. 376–83; and “International Trade—World Exports by Provenance and Destination,” (July 14, 2006).10Major Trading Partners: Their Relevance for ManagersWhy Focus on Major Trading Partners?The business climate in the importing nation is relatively favorableExport and import regulations are not insurmountableThere should be no strong cultural objections to buying that nation’s goodsSatisfactory transportation facilities have already been established11Major Trading Partners: Their Relevance for Managers5. Import channel members (merchants, banks, and customs brokers) are experienced in handling import shipments from the exporter’s area.6. Foreign exchange to pay for the exports is available.7. The government of a trading partner may be applying pressure on importers to buy from countries that are good customers for that nation’s exports. 12Major Trading Partners of the United States (Table 2.4)13Major Trading Partners of the United States (Table 2.4 cont’d)Source: “U.S. Aggregate Foreign Trade Data, 1999 and Prior Years,” U.S. Foreign Trade Highlights, tables 10 and 11, U.S. Department of Commerce International Trade Administration, www.ita.doc.gov/td/industry/otea/usfth/aggregate/H99t10.txt, www.ita.doc.gov/td/industry/otea/usfth/aggregate/H99t.11.txt “Table 11: Top 50 Suppliers of U.S. Imports in 2004,” U.S. Department of Commerce International Trade Administration, www.ita.doc.gov/td/industry/otea/usfth/tabcon.html (July 14, 2006); “Table 10: Top 50 Purchasers of U.S. Exports in 2004,” U.S. Department of Commerce International Trade Administration, www.ita.doc.gov/td/industry/otea/usfth/tabcon.html (July 14, 2006).14Major Trading Partners of the United StatesInternational trade exists because firms export 15Foreign InvestmentDivided into two partsPortfolio investmentThe purchase of stocks and bonds to obtain a return on the funds investedDirect investmentThe purchase of sufficient stock in a firm to obtain significant management control16Foreign InvestmentFDIVolumeOutstanding Stock of FDIThe book value of all foreign direct investmentAnnual Outflows of FDIThe amount invested each year into other nations17Figure 2.3 Stocks of Outward Foreign Direct Investment, Selected Countries Source: Various “Country Fact Sheets,” World Investment Report 2001, United Nations Conference on Trade and Development, Geneva, October 2001, and World Investment Report 2005, United Nations Conference on Trade and Development, Geneva, September 2005.18Foreign InvestmentAnnual inflows of FDIWhere countries are investments being made and where do investments come from (Table 2.5)19Table 2.5 Direction of Foreign Direct Investment (Annual Flows) for Selected Regions and Countries, 1985-2004 ($ billions)20Table 2.5 Direction of Foreign Direct Investment (Annual Flows) for Selected Regions and Countries, 1985-2004 ($ billions)Note: Because of rounding, values may not equal 100%.Source: Various “Country Fact Sheets,” World Investment Report 2001, United Nations Conference on Trade and Development, Geneva,October 2001, and World Investment Report 2005, United Nations Conference on Trade and Development, Geneva, September 2005.21Foreign InvestmentLevel and Direction of FDICan only get an idea of the rate and amounts of such investments and of the places in which they are being madeTrade Leads to FDIForeign trade is typically less costly and less risky than making a direct investment into foreign markets22Foreign InvestmentU.S. Foreign Direct Investment Abroad (figure 2.4a)Foreign Direct Investment in the United States (figure 2.4b)Acquire Going Companies or Build Ones? (figure 2.5)23Figure 2.4 24Figure 2.5 International Investment Position of the United States, 1976-2005 (billions of dollars)Note: Figures are based on current cost. 2002 figures are preliminary.Source: Elena L. Nguyen, “The International Investment Position of the United States at Year-End 2002,” Survey of Current Business, July 2003, pp. 20–21;25Why Enter Foreign Markets?Increase Profits and SalesEnter New MarketsNew Market CreationPreferential Trading Arrangementsan agreement by a small group of nations to establish free trade among themselves while maintaining trade restrictions with all other nations26Why Enter Foreign Markets?Improved CommunicationsElectronic mail, wireless and wired telephones, and video conferencingObtain Greater ProfitsGreater RevenueLower Cost of Goods SoldHigher Overseas Profits as an Investment Motive27Why Enter Foreign Markets?Test MarketOpportunity to make changes to market mix (product, promotion, price, channels of distribution) Drop entire venture if needed28Protect Markets, Profits, and SalesProtect Domestic MarketAttack in Competitor’s Home MarketUsing Foreign Production to Lower CostsExport processing zones – a government-designated zone in which workers are permitted to import parts and materials without paying import duties, as long as imported items are then exported once they have been processed or assembled.29Protect Markets, Profits, and SalesIn-Bond Plants (Maquiladora) – Production facilities in Mexico that temporarily import raw materials, components, or parts duty-free to be manufactured, processed, or assembled with less expensive local labor, after which the finished or semi finished product is exported 30Protect Markets, Profits, and SalesProtect Foreign MarketsLack of Foreign ExchangeLocal Production of CompetitorsDownstream MarketsProtectionismGuarantee Supply of Raw MaterialsAcquire Technology and Management Know-How31Protect Markets, Profits, and SalesGeographic DiversificationSatisfy management’s Desire for Expansion32Seven Global DimensionsProductMarketsPromotionWhere value is added to the productCompetitive strategyUse of non-home-country personnelExtent of global ownership in the firm33