Tài chính doanh nghiệp - Chapter 1: Trade and investment in a global economy

USEUAustraliaChinaFDIGOODSG L O B A L I S A T I O NSERVICESChapter 1:Trade and Investment in a Global EconomyIM-742 International EconomyLecture Plan:Scope of international businessExports of goods and servicesInternational contractingForeign direct investmentWhat is globalisation? Main indicators.The drivers of globalisationArguments pro and against globalisationInternational business versus domestic businessWhy study the area of international business?IM-742 International EconomyThe Changing Pattern of World GDP and Exports, %, 1970, 1999, 2000IM-742 International Economy Scope of International BusinessExports (goods & services)ContractingJoint venturesWholly owned direct investmentEXPORTS OF GOODS Primary ProductsAgricultural Products (Food, Raw materials)Mining Products (Ores, Fuels, Non-Ferrous Metals)ManufacturesIron and SteelChemicalsOther semi-manufacturesMachinery and Transport EquipmentTextiles & ClothingOther Consumer Goods EXPORTS OF SERVICES Transportation (shipment & other)TravelOther Services TelecommunicationsNon-merchandise insuranceBankingOther professional services (engineering, legal, accounting, education, market research etc.)CONTRACTINGLicensingRights for production and sales of a productLicensing feeTerritorial restrictionsFranchisingPepsi Cola, Shangri La, Burger KingTurnkey ProjectPlanning, construction, commissioning, trainingLarge plant projectsSub-contracting (eg. the car sector)FOREIGN INVESTMENTForeign Direct Investment ( F.D.I.)Joint ventures & wholly owned investmentEffective control; Managerial participationPortfolio InvestmentInvestment income; Capital gainsDividing line: 10% of the company sharesFDI conceptsFDI (Flow): measures movement of FDI in a given period, usually a year.FDI OutflowsFDI InflowsFDI (Stock): the book value of the accumulated investment flows over the years.Outward FDI (stock)Inward FDI (stock)Foreign Production: the value of goods and services produced abroad by multinationals.Global-Multinational-TransnationalGlobal 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.THE WORLD'S TOP 500 GLOBAL CORPORATIONS BY REGION (1992)See OverheadTHE WORLD’S TOP 500 GLOBAL CORPORATION BY REGION (2000)See OverheadGlobal 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.DIM-742 International EconomyDrivers of globalisationTwo 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.IM-742 International EconomyIndicators of globalisationThe increasing trade/GDP ratioFDI as % of GDP upGrowth of the intra-industry tradeDeclining concentration of international business flowsAggregate international business as a % of GDPIM-742 International EconomyShare of Exports of Goods&Services in GDPIM-742 International EconomyWhy is FDI growing more rapidly than world trade or world output?Can circumvent future trade barriersWorld political and economic change.Democratization of markets.Globalization of world markets.IM-742 International EconomyAnti-globalisation argumentsIt is empowering corporations at the expense of nation statesIt is not a democratic choice, but an option to suit multinationalsInternational institutions such as the WTO and World Bank are NOT democraticopen the world to the influence of transnational corporationsIM-742 International EconomyAnti-globalisation argumentsDestroys 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.IM-742 International EconomyAnswers to critics of globalisationDecisions in WTO and other international organisations are made by consensus of governmentsGlobalisation is more effective with strong governments and sound institutionsGlobalisation benefits both large and small/medium companiesIM-742 International EconomyGlobalisation - Arguments ProLower prices for goods and servicesEconomic growth stimulationIncrease in consumer incomeCreates jobsCountries specialise in production of goods and services that are produced most efficientlyUnprecedented advances in living standardsIM-742 International EconomyInternational Business vs. Domestic BusinessInternational RiskFinancial (exchange, interest, inflation)Political (nationalisation, expropriation)Regulatory (legal systems, policies)Marketing (income levels, marketing practices)Multinational ConflictsMultinational strategies vs. National interestInternational Business TrainingREASONS :"Multinationalisation"Internationalisation (small and medium companies)International business policies (government)Globalisation of financial marketsJob OpportunitiesExport Departments of manufacturing firms (joint ventures) in Australia or overseas.International TradersExporters of Services orProviders of Services to International CompaniesBanking, InsuranceShippingConstruction-EngineeringGovernment; International organisations