chapter 2 Global Marketplaces and Business Centers International Business, 6th Edition 2-1 Griffin & Pustay Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Chapter Objectives Evaluate the impact of the political and economic characteristics of the world’s various marketplaces on business Appreciate the uses of national income data in making business decisions Discuss North America as a major marketplace and business center in the world economy 2-2 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Chapter Objectives (continued) Describe Western Europe as a major marketplace and business center in the world Discuss Asia as a major marketplace and business center in the world economy Assess the development challenges facing African, Middle Eastern, and South American countries 2-3 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

The World Economy Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall 2-4

Marketplaces of North America United States Canada Mexico Greenland Countries of Central America and the Caribbean Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall 2-5

United States Third largest population in world Fourth largest land mass Largest economy 27 percent of world’s GDP in 2006 Prime market for exports The U.S. has the world’s third largest population and fourth largest land mass, but possesses the largest economy. It accounted for about 30% of the world’s $40.9 trillion GDP in 2004. It accounts for about 1/8 of the world’s trade in goods and services. It is the prime market for lower-income countries trying to raise the standard of living through exports. 2-6 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

The U.S. Dollar Invoicing currency Flight capital 2-7 The U.S. dollar serves as the invoicing current for about half of all international transactions. This means it is the currency in which the sale of goods and services is dominated. The U.S. also attracts flight capital. Flight capital is money sent out of a politically or economically unstable country to one perceived as a safe haven. Citizens unsure of the value of their home country’s currency often choose to keep their wealth in dollars. 2-7 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Canada Second largest land mass 80 percent of population concentrated along U.S./Canadian border Rich natural resources Trade with U.S. - single largest bilateral trade relationship in the world Although Canada’s population is only 32 million, it has the world’s second largest land mass. 80% of its population is concentrated within a 100-mile band along country’s southern border with the U.S. Exports are important to the Canadian economy and accounted for 38% of its 2004 GDP of $980 billion. Its most important exports reflect its rich natural resources including forest products, petroleum, minerals, and grain. The U.S. is the dominant market for Canada’s goods, receiving 75% of its exports each year. Two-way trade between the U.S. and Canada totaled $514 billion in 2004. 2-8 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Advantages of Canada Proximity to U.S. market Stability of legal and political systems Excellent infrastructure and educational systems International investors have long been attracted to Canada because of its proximity to the U.S. market and the stability of its legal and political systems. It has excellent infrastructure and educational systems. There is a lingering threat of political instability related to the long-standing conflict between French-speaking Canadians and English-speaking Canadians. 2-9 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.1 North America 2-10 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 2.2 Headquarters of World’s Largest Corporations in 2007 by Country 2-11 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Mexico Largest Spanish-speaking nation Federal government system Participant in NAFTA along with U.S. and Canada Mexico uses a federal system like the U.S., but its president is elected every 6 years. For many years, Mexico implemented economic nationalism under which Mexico discouraged foreign investment and erected high tariff walls to protect its domestic industries. Over the past two decades, Mexico has abandoned these policies and opened its markets to foreign goods and investors. It joined NAFTA in 1994. To take advantage of NAFTA, thousands of companies have established factories in Mexico. It also has free-trade pacts with El Salvador, Guatemala, Honduras, Japan, Uruguay, and the EU. 2-12 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Central America and the Caribbean Economic development hindered by: Political instability Chronic U.S. military intervention Inadequate educational systems Weak middle class Poverty Import limitations Central America and the island states of the Caribbean have a collective population of 77 million, but its total GDP is just $250 billion. Its economic development has suffered due to the reasons presented in the slide. 2-13 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of Western Europe European Union Member Countries Other Countries in Western Europe The EU is made up of 25 countries who have reduced barriers to trade and investment. Many of the member countries have adopted a single currency, the Euro (these countries are listed on the following slide). It has a population of 455 million and a GDP of $12.7 trillion (2004). From an economic perspective, Germany is the EU’s most important member. It has the world’s third largest economy and a GDP in 2004 of $2.7 trillion. France also exerts strong leadership in the EU. The United Kingdom is an EU member but has resisted many of the EU initiatives. Western countries that are not EU members include Iceland, Norway, and Switzerland, plus several small countries (Andorra, Monaco, and Liechtenstein). 2-14 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.2 Western Europe 2-15 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Euro Countries Belgium France Luxembourg Germany Italy Netherlands Ireland Greece Portugal Spain Austria Finland 2-16 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of Eastern Europe Russia Estonia Latvia Lithuania Armenia Belarus Georgia Moldova Ukraine Azerbaijan The Soviet Union collapsed in 1991 and its 15 Soviet republics declared independence. They are now referred to as the Newly Independent States (NIS). In 1992, 12 of the NIS (all but Estonia, Latvia, and Lithuania) formed the Commonwealth of Independent States (CIS). Russia is the most important of these countries. It has the world’s largest land mass and the sixth largest population (143 million people). It is blessed with many natural resources including gold, oil, natural gas, minerals, diamonds, and fertile farmland. Russia has attracted little foreign direct investment (FDI) for its size ($98 billion in 2004). Foreign businesses have been concerned with Russia’s corruption and governmental favoritism toward state-owned firms. Transforming the economies of these countries has been a challenge. 2-17 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of Central Europe Romania Bosnia-Herzegovina Croatia Macedonia Slovenia Serbia Montenegro Albania Austria Bulgaria Czech Republic Slovak Republic Hungary Poland The most successful countries of Central Europe are Czech Republic, Hungary, and Poland. These are all now classified as upper/middle-income countries by the World Bank. They are members of OECD, NATO, and the EU. Economic reforms are less advanced in the other countries of Central Europe. 2-18 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.3 The Former Soviet Union 2-19 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of Asia Japan Australia and New Zealand The Four Tigers China India Afghanistan and Central Asian Republics Southeast Asian Countries Asia is home to more than half of the world’s population but it produces less than 25% of its GDP. The region is a source of high-quality and low-quality products and skilled and unskilled labor. It is a major destination of FDI and a major supplier of capital to non-Asian countries. A map of the region is provided on the next slide. 2-20 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.4 Asia 2-21 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Japan Second largest economy GDP of $4.3 trillion in 2006 Industries controlled by keiretsu GDP growth rate of 1.6 percent (since 2000) Keiretsu are large families of interrelated companies that are typically centered around a major bank. The bank takes care of the keiretsu’s financial needs. Keiretsu members may rely upon a sogo sosha (an export trading company) to market exports worldwide. Since 1990, Japan’s annual growth rate for GDP is just 1.3%, far below the 2.5% average worldwide. 2-22 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.5 Australia and New Zealand Australia and New Zealand share a common cultural heritage but there are many differences between the two countries. Australia’s population is 20 million, 40% of whom live in Sydney or Melbourne. Australia is rich in natural resources but has a relatively small workforce. Its exports are concentrated in natural resources (gold, coal, and iron ore) and in land-intensive agricultural goods (wool, beef, and wheat). New Zealand’s 4 million people live on two main islands. In 2004, its exports constituted 20% of its $100 billion GDP. Exports include dairy products, meat, and wool. Its primary trading partners are Australia, Japan, and the United States. 2-23 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

The Four Tigers South Korea Taiwan Singapore Hong Kong 2-24 These four countries are known as the “Four Tigers,” a reference to their Chinese heritage. South Korea (the Republic of Korea) was born after the Korean War divided the Korean peninsula into communist North Korea and capitalist South Korea. Merchandise exports accounted for 37% of its 2004 GDP of $680 billion. Much of Korea’s industry is led by chaebols such as Samsung, Hyundai, Daewoo Group, and LG. Taiwan (the Republic of China) is a small island country off the coast of mainland China. Its population is 23 million people. When nationalist forces led by General Chiag Kai-shek fled to Taiwan after their defeat on mainland China by Mao Tse-tung’s communist army, Chiang declared the island, “the Republic of China.” Singapore is a former British colony. It is a small island off the southern tip of the Malay Peninsula. Its government began emphasizing labor-intensive industries in 1965 when it became independent. Its population is only 4.3 million and it suffers from a labor shortage now. Its 2004 per capita income was $24,220 and its exports were $180 billion or 168% of its GDP of $107 billion. Singapore’s firms benefit from its excellent port facilities. Hong Kong was ruled by the British from the mid 1800s until 1997. It is now a special administrative region (SAR) of China. It has much autonomy including its own legislature, economic freedom, free-port status, and taxation system. 2-24 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

China World’s most populous country – approximately 1.3 billion people Communist ideology mixed with market-oriented economic policies Heavy FDI 2-25 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 2.3 Annual FDI Flows to China 1982-2006 2-26 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

India World’s second most populous country Per capita GDP of $820 British colony until 1947 India’s population exceeds 1 billion, but it is one of the world’s poorest countries. It was part of the British Empire until 1947, when the Indian subcontinent was partitioned along religious lines into India (Hindus), and Pakistan (Muslims). The eastern part of Pakistan later became the independent nation of Bangladesh. India adopted many aspects of British government. Many industries are state-owned including power, transportation, and heavy industry. Until 1991, India discouraged FDI, but more recent reforms are beginning to pay off. Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall 2-27

Southeast Asian Countries Thailand, Malaysia, and Indonesia Low labor costs Significant FDI in recent years Continued recovery from currency crisis in 1997 and 1998 2-28 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of Africa and the Middle East 867 million people 54 countries Major economies: South Africa Ivory Coast Algeria Nigeria Middle East Cradle of civilization Major economies: Saudi Arabia Kuwait UAE The African continent is home to 867 million people in 54 countries. It was colonized in the late nineteenth century by the major European powers (Belgium, France, Germany, Italy, Portugal, Spain, and the UK) for strategic military purposes. Much of Africa’s economy is tied to its natural resources including crude oil production and agriculture. A map of Africa is on the next slide. The Middle East includes the region between southwestern Asia and northwestern Africa. This area is called the ‘cradle of civilization’ because the world’s earliest farms, cities, governments, and legal codes and alphabets originated there. The region was the birthplace to several major religions including Judaism, Christianity, and Islam. It has a history of political unrest and conflict including the Arab-Israeli wars, the Iran-Iraq war, and two Persian Gulf wars. 2-29 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.6 Africa and the Middle East 2-30 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.7 The Middle East 2-31 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of South America Brazil Bolivia Uruguay Argentina Chile Colombia French Guiana Paraguay Peru Ecuador Venezuela Many South American countries suffer from huge income disparities and poverty. For much of the post-WWII period, the majority of South American countries followed import substitution policies as a means of promoting economic development. This means that the country attempts to stimulate the development of local industry by discouraging imports via high tariffs and nontariff barriers. The opposite of import substitution is export promotion, whereby a country pursues economic growth by expanding its exports. For most South American industries, the domestic market is too small to enable domestic producers to gain economies of scale through mass-production techniques or to permit competition among local producers. This results in higher prices for domestic goods. 2-32 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Map 2.8 South America 2-33 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall