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

Chapter 1 Trade and investment in a global economy11Lecture planScope of international businessexports of goods and servicesinternational contractingforeign direct investmentWhat is globalisation? Main indicatorsThe drivers of globalisationArguments pro and against globalisationInternational business versus domestic businessWhy study international business?21National GDP and exports as % of world GDP and exports of goods and services% of world GDP% of world exports of goods & servicesEconomy1983200319832003United States31.830.311.211.1Japan10.911.97.16.0Australia1.71.41.11.0New Zealand0.20.20.30.2China2.13.91.15.3Hong Kong0.30.41.23.0Malaysia0.30.30.71.2Singapore0.30.41.23.0Source: adapted from UNCTAD, World Investment Report ( and GATT/WTO data31Scope of international businessExports (goods and services)ContractingJoint venturesWholly owned direct investment41Exports of goodsPrimary productsagricultural products (food, raw materials)mining products (ores, fuels, non-ferrous metals)Manufacturesiron and steelchemicalsother semi-manufacturesmachinery and transport equipmenttextiles and clothingother consumer goods51Exports of servicesTransportation (shipment and other)TravelOther services telecommunicationsnon-merchandise insurancebankingother professional services (engineering, legal, accounting, education, market research)61ContractingLicensingrights for production and sales of a productlicensing feeterritorial restrictionsFranchisingPepsi Cola, Shangri-La, Burger KingTurnkey projectplanning, construction, commissioning, trainingLarge plant projectsSubcontracting (e.g. the car sector)71Foreign investmentForeign Direct Investment (FDI)joint venture and wholly-owned investmenteffective control; managerial participationPortfolio investmentinvestment income; capital gainsDividing line: 10% of the company shares81FDI conceptsFDI (flow): measures movement of FDI in a given period, usually a yearFDI outflowsFDI inflowsFDI (stock): book value of accumulated investment flows over the yearsoutward FDI (stock)inward FDI (stock)Foreign production: value of goods and services produced abroad by multinationals.91Global–multinational–transnationalGlobal company: company operating globally, e.g. exporting to many countries, or investing in many countries. Multinational (MNE): engages in foreign production in three or more countries.Transnational (TNC): a corporation with owners in more than one nation.101The world's top 500 global corporations by region (1992)Source:adapted from Fortune, 22 July 1992, 13 August 1998111The world’s top 500 global corporations by region (2003)Source: adapted from Fortune, 8 July 1995, 13 August 1998, and 21 July 2004121Global 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.’ OECD131Drivers of globalisation Two key factors seem to underlie the trend towards the increasing globalisation of markets and production: 1. decline of barriers to trade and investment 2. technological change141Indicators of globalisationIncreasing trade/GDP ratioFDI as % of GDP Growth of intra-industry tradeDeclining concentration of international business flowsAggregate international business as % of GDP151Ratio of world exports of goods and services to GDP and ratio of global FDI flows to world fixed investment (GFCF)*, %, 1983–2003Source: adapted from GATT International Trade 1993, WTO International Trade 2004 and UNCTAD, World Investment Report ( = Gross Fixed Capital FormationGlobal FDI Flows = Global FDI Outflows + Global FDI Inflows/2161Share of exports of goods and services in GDPSource: adapted from World Bank, 2003 World Economic Indicators171Why FDI is growing more rapidly than world trade or world outputCan circumvent future trade barriersWorld political and economic changeDemocratisation of marketsGlobalisation of world markets181Answers 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 companies191Anti-globalisation argumentsDestroys manufacturing jobs in wealthy, advanced countriesWage rates of unskilled workers in advanced countries declineCompanies move to countries with fewer labour and environment regulations (‘export of jobs’)Loss of sovereignty201Globalisation - arguments proLower prices for goods and servicesEconomic growth stimulationIncrease in consumer incomeJob creationcountries specialise in production of goods and services that are produced most efficientlyUnprecedented advances in living standards211International 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 interest221International business trainingReasons - ‘multinationalisation’ - internationalisation (small and medium companies) - international business policies (government) - globalisation of financial markets231Job opportunitiesExport departments of manufacturing firms (joint ventures) in Australia or overseasInternational tradersExporters of services Providers of services to international companiesbanking, insuranceshippingconstruction; engineeringGovernment; international organisations241