Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–1 Chapter 15 Doing business in Emerging Markets and Developing Economies (EMDEs)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–2 Lecture plan Definition of Emerging Markets and Developing Economies (EMDEs) Import markets in EMDEs Trade policy issues in EMDEs Export marketing aspects in EMDEs Considerations for investing in EMDEs

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–3 Definition of EMDEs In principle, the group of the emerging market and developing economies (EMDEs) includes all countries that are not classified as advanced economies and which are at a lower level of development than the advanced economies.

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–4 General features of developing countries High levels of rural population Relatively high population growth rates High proportion of population living in absolute poverty Not well developed banking/credit facilities

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–5 General features of developing countries cont. Relative lack of financial capital (espec. FX) Relatively low level of infrastructure (roads, telecommunications, education institutions) Low marketing facilities (e.g. storage, distribution)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–6 Government sector in developing countries Bigger size government sector than in ICs (lower tax base) However, more government regulation than in ICs – big concern: control over the national economy More development planning than in ICs, e.g. – Indonesia: ‘Repellita’ (5-year plans) Malaysia,Taiwan

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–7 Trade and development Trade as engine of growth Import substitution vs export orientation Development strategies –Stage 1: Exports of natural resources/ imports of manufactures –Stage 2: Import substitution –Stage 3: Export-led growth

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–8 The import market of EMDEs in 2003 (total merchandise and services imports) by main groupings (%); Total: US$2260b Source: adapted from WTO, International Trade Statistics 2004

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–9 Imports of EMDEs by regional groupings by product, 2003, % SourceDevel’g Asia Latin America C&E Europe Middle East Africa Total100 Farm products Minerals Manufact -ured goods Source: adapted from WTO, International Statistics 2004 and World Bank, World Development Indicators 2004

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–10 The share of China and Eastern Europe* in world merchandise imports, 1948–2000 * Eastern Europe = Former Soviet Union and C. & E. Europe

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–11 China’s share of world merchandise imports, by product, 1990, 2000, % %

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–12 Trade policy issues Tariffs Generally higher than in ICs. Lower proportion of tariffs are bound. Regional economic groupings (e.g. AFTA, MERCOSUR) discriminate against non- members. (See impact of AFTA’s intra-regional tariff cuts on next slide.)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–13 Comparison of 1999 MFN simple tariff rates and average CEPT rates in selected AFTA countries 1999, 2003 Source: adapted from World Bank Development Indicators, 2004, table 6.6 and ASEAN Secretariat website

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–14 Trade policy issues Non-tariff measures –South Korea : ‘Pigs is pigs!’ –Malaysia: import licences (plastics raw materials) Barriers to trade in services

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–15 Export marketing issues Cultural differences –language –cultural restrictions on consumption/imports Price strategies –differentiated prices (on low side) –‘price markets’

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–16 Export marketing issues cont. Distribution –longer distribution channels than in ICs Promotion –Less spending required compared to ICs –However, growing promotion expenditure in Asia and Latin America (See Table in textbook for data on advertising expenditure.)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–17 Leading EMDEs in developing Asia in terms of trend growth in advertising expenditure, 1998– 2003 Source: adapted from Euromonitor, GMID, 2004

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–18 Australia’s position in the import markets of transition economies Best position in China: A$6.5 billion in 2000–2001; 2% of China’s imports; 8th rank Small exports to other markets: the share of Australian exports varies between 0.1% and 0.7% (Romania) Exports include primary products, but also some elaborately transformed manufactures (e.g. telecom equipment, measuring and controlling instruments, medicinal and pharmaceutical goods

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–19 Transition economies Current and former centrally planned economies in transition to a market-based economy –former Soviet Union countries; C. & E. Europe; PR China and Vietnam China – the world's 3rd largest economy (PPP method) Government sector – still the leading sector in FSU; however, in 2001 it accounted for less than 50% in most C. & E. European countries Privatisation of state enterprises

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–20 Trade issues in transition economies Decentralisation of foreign trade (China since 1985) From central plan to tariff protection Members of WTO: Czech Republic, Hungary, Poland, Slovak Rep., Romania, China (November, 2001) 8 countries joined the EU in 2004 with 3 more to follow (Bulgaria, Romania and Croatia) Abolition of import licences/quotas Over 1992–2001, China has undertaken a number of 8 reductions of non-tariff measures

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–21 FDI inflows into EMDEs by main geographic grouping, 1993–2003, US$b Source: adapted from UNCTAD, World Investment Report, 2004

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–22 Trends and issues in direct investment in EMDEs Developing Asia – the largest beneficiary of inward FDI among EMDEs. ( US$68b in 2003). China: top destination 2001–2003. FDI in the service sector growing fast, but manufacturing still takes about 55% of inward FDI. Political stability: key consideration for FDI Government controls Government attitude to FDI (the ‘obsolescing bargain’) Joint venture – preferred form of FDI?

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–23 Trends and issues in direct investment in EMDEs cont. Government controls Ease to do business –best performers: Lithuania (ranked 17th), Slovakia (18th), Botswana(19th), and Thailand (20th) Copyright issues (e.g. China) Transfer pricing Incentives Personnel

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 15–24 Sectoral trends in FDI inward stock in transition economies, 1999 Leading sector: tertiary (US$49.3b, 50.1% of total) –finance; trade; transport, storage and communications Secondary sector: US$43.5b (43.5%) –food, beverages; motor vehicles and other transport equipment; machinery and equipment Primary: US$2.4b (2.5%)