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. 1 1–11–1 Chapter 1 Trade and investment in a global economy

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. 1 1–21–2 Lecture plan Scope of international business –exports of goods and services –international contracting –foreign direct investment What is globalisation? Main indicators The drivers of globalisation Arguments pro and against globalisation International business versus domestic business Why study international business?

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. 1 1–31–3 National GDP and exports as % of world GDP and exports of goods and services % of world GDP% of world exports of goods & services Economy United States Japan Australia New Zealand China Hong Kong Malaysia Singapore Source: adapted from UNCTAD, World Investment Report ( and GATT/WTO data

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. 1 1–41–4 Scope of international business Exports (goods and services) Contracting Joint ventures Wholly owned direct investment

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. 1 1–51–5 Exports of goods Primary products – agricultural products (food, raw materials) – mining products (ores, fuels, non-ferrous metals) Manufactures – iron and steel – chemicals – other semi-manufactures – machinery and transport equipment – textiles and clothing – other consumer 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. 1 1–61–6 Exports of services Transportation (shipment and other) Travel Other services – telecommunications – non-merchandise insurance – banking – other professional services (engineering, legal, accounting, education, market research )

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. 1 1–71–7 Contracting Licensing – rights for production and sales of a product – licensing fee – territorial restrictions Franchising – Pepsi Cola, Shangri-La, Burger King Turnkey project – planning, construction, commissioning, training – Large plant projects Subcontracting (e.g. the car sector)

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. 1 1–81–8 Foreign investment Foreign Direct Investment (FDI) –joint venture and wholly-owned investment –effective control; managerial participation Portfolio investment –investment income; capital gains Dividing line: 10% of the company shares

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. 1 1–91–9 FDI concepts FDI (flow): measures movement of FDI in a given period, usually a year – FDI outflows – FDI inflows FDI (stock): book value of accumulated investment flows over the years – outward FDI (stock) – inward FDI (stock) Foreign production: value of goods and services produced abroad by multinationals.

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. 1 1–10 Global – multinational – transnational Global 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.

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. 1 1–11 The world's top 500 global corporations by region (1992) Source:adapted from Fortune, 22 July 1992, 13 August 1998

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. 1 1–12 The world ’ s top 500 global corporations by region (2003) Source: adapted from Fortune, 8 July 1995, 13 August 1998, and 21 July 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. 1 1–13 Global 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.’ OECD

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. 1 1–14 Drivers 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 change

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. 1 1–15 Indicators of globalisation Increasing trade/GDP ratio FDI as % of GDP Growth of intra-industry trade Declining concentration of international business flows Aggregate international business as % of GDP

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. 1 1–16 Ratio of world exports of goods and services to GDP and ratio of global FDI flows to world fixed investment (GFCF)*, %, 1983–2003 Source: adapted from GATT International Trade 1993, WTO International Trade 2004 and UNCTAD, World Investment Report ( GFCF = Gross Fixed Capital Formation Global FDI Flows = Global FDI Outflows + Global FDI Inflows/2

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. 1 1–17 Share of exports of goods and services in GDP Source: adapted from World Bank, 2003 World Economic Indicators

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. 1 1–18 Why FDI is growing more rapidly than world trade or world output Can circumvent future trade barriers World political and economic change Democratisation of markets Globalisation of world 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. 1 1–19 Answers to critics of globalisation Decisions in WTO and other international organisations are made by consensus of governments Globalisation is more effective with strong governments and sound institutions Globalisation benefits both large and small/medium companies

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. 1 1–20 Anti-globalisation arguments Destroys 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

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. 1 1–21 Globalisation - arguments pro Lower prices for goods and services Economic growth stimulation Increase in consumer income Job creation –countries specialise in production of goods and services that are produced most efficiently Unprecedented advances in living standards

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. 1 1–22 International business vs domestic business International risk – financial (exchange, interest, inflation) – political (nationalisation, expropriation) – regulatory (legal systems, policies) – marketing (income levels, marketing practices) Multinational conflicts – Multinational strategies vs national interest

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. 1 1–23 International business training Reasons - ‘multinationalisation’ - internationalisation (small and medium companies) - international business policies (government) - globalisation of financial 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. 1 1–24 Job opportunities Export departments of manufacturing firms (joint ventures) in Australia or overseas International traders Exporters of services Providers of services to international companies – banking, insurance – shipping – construction; engineering Government; international organisations