2. Negative Impacts of Privatization Methods on International Business MethodImpact Restitution toEmergence of a original ownersbusiness class eager to do international business but too small to matter

3. Negative Impacts of Privatization Methods on International Business MethodImpact Sale of state property - May transfer welfare state activities new foreign owners - Existing managers may resist new control

4. Negative Impacts of Privatization Methods on International Business MethodImpact Mass privatizationManagers & employees may retain control State interference may continue New domestic owners not interested in foreign investors

5. Soviet Command System Impact on Current Economy Command SystemCurrent Economy Taxing surplus Confiscatory taxes Consumption limits Shortage of retail services Price controls Prices liberalized, controls on key products remain

6. Soviet Command System Impact on Current Economy Command SystemCurrent Economy Vertical integration of Vertical integration of large firms large firms firms (lack of flexibility) Weak accounting Weak accounting for risk and value

7. Soviet Command System Impact on Current Economy Command SystemCurrent Economy Import substitution Some import policies substitution policies remain Corruption =Corruption

8. Problems Encountered by U.S. Investors in Russia Problems Encountered by U.S. Investors in Russia Asset strippingJoint venture partners or companies seeking foreign capital look good on paper but are in poor shape (Gazpom)

9. Problems Encountered by U.S. Investors in Russia Problems Encountered by U.S. Investors in Russia ExtortionPayments for security services can be high. Marketing and Transportation difficulties, distribution communication difficult, few stores exist

10. Problems Encountered by U.S. Investors in Russia Problems Encountered by U.S. Investors in Russia ControlCommercial law regarding property rights is weak.

11. Problems Encountered by U.S. Investors in Russia Problems Encountered by U.S. Investors in Russia So why bother?

12. U.S. Investors in China Industries chemicals non-electric machinery food products transportation equipment service firms consumer goods

13. U.S. Investors in China Goals avoid Chinese trade export of low- barriers tech, low cost products match E.U. and develop local Japanese competitors markets strategic moves obtain infrastructure contracting work

14. U.S. Investors in China Government Requirements (occasional) technology transfer hiring and training local managers export orientation location in designated areas many industries off local content limits use of designated trading and distribution organizations

15. China More Worry Over Loans NYT 5/10/02

16. China More Worry Over Loans Banking system dominated by four giant commercial banks, all state owned Under Mao banks were used to funnel state subsidies to local enterprises How much companies received had nothing to do with how much was repaid 1999 Government directed $179billion write off (12%) of outstanding loans

17. China More Worry Over Loans Foreign banks have less than 2% of all deposits and loans WTO rules call for opening banking system to foreign competition over the next 5 years

18. China More Worry Over Loans Dai Xianglung, Head of Central Bank recently said 25-30% loans are not being repaid Standard & Poor estimates it is 2X as bad as stated, i.e., 50% loans are bad US banks with assets > $1billion just 1.5% of loans are more than 90 days overdue In Japan bank bad loans are not not more than 15%

19. China More Worry Over Loans Banks are propping themselves up by issuing more loans at furious rate often for vaguely described projects with little discernable effect on improving the economy More stringent rules on loans will push bad loan % even higher Goal = reduce bad loans to 15% in 5 years

20. China More Worry Over Loans Bank of China China Construction Bank Industrial & Commercial Bank of China Agriculture Bank of China Preparing to sell minority stakes to offset bad loans Bank of China furthest along – expects to sell stock in HK and NY this year

21. Bank of China NY Times 2/1/02

22. Bank of China Lax banking practices in China: $320 mio bank funds diverted through unlawful loans, off-the-books granting of LCs and issuing bank bills

23. Bank of China Lax banking practices in Hong Kong: Scheme to launder $73 mio from Kaiping, China branch

24. Bank of China Lax banking practices in US: Preferential treatment of certain customers: fraudulent LCs, pledged assets sold $20 mio fine for similar practices in US

25. Bank of China Lax banking practices in Canada: RCMP investigating money illegally taken from Bank of China ended up in Canada

26. Bank of China These incidents are only the tip of the iceberg Every bank in China has problems like this. Reports from Chinas audit office indicate illegal use of 160 bio renminbi ($20 bio)

27. Foreign Fund Firms Face Hurdles in China As China joins WTO - European and US fund firms competing to find Chinese partners for access to: $600 million invested in Chinese stock market Hundreds of billions stashed away in bank deposits, state pension funds and social security

28. Foreign Fund Firms Face Hurdles in China Proposed rules: Joint Venture (very costly) – buy 33% stake, paid for in cash Buy 33% stake in existing domestic fund manager; possible increase to 49% in 3 years Almost all of the 15 Chinese companies have agreements with foreign fund

29. Foreign Fund Firms Face Hurdles in China Buying in a 33% stake in Chinese fund managing $1 billion is a steep price Convince shareholders to pay cash for company they cant control? Buying in also buys into past liabilities

30. Foreign Fund Firms Face Hurdles in China Setting up joint venture with Chinese funds time consuming and at a disadvantage against the top established Chinese funds

31. Foreign Fund Firms Face Hurdles in China Why only these two options? Chinese Securities Regulatory Commission (CSRC) has limited resources Foreign joint venture creates a new category requiring another level of regulation CSRC may also be favoring domestic funds to ensure they are in good shape before partnering with foreign funds

32. Chinese Multinationals? Name a famous global Chinese brand? Tsingtao Beer Ever heard of: Haier Group?

33. Chinese Multinationals? Haier Group – Chinas largest appliance manufacturing company

34. Haier Group In 1990s opened factories in 10 countries In 2000 opened $30 mio factory in US

35. Haier Group Camden, SC plant makes compact refrigerators sold by Wal-Mart, Home Depot, and others Captured 30% US market share

36. Haier Group Shipping from China costly and takes 40 days Able to put made in USA on products Cheap R&D & machinery shipped from China provide cost advantages

37. Haier Group Rolling out other products for US: Freezers, air conditioners, flat panel TV, DVD players, microwave ovens US sales about $500mio – 85% imported – US company is profitable