Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea US EU Australia China FDI GOODS SERVICES Chapter 1:Trade and Investment in a Global Economy
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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 the area of international business?
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea The Changing Pattern of World GDP and Exports, %, 1970, 1999, 2000
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Scope of International Business Exports (goods & services) Contracting Joint ventures Wholly owned direct investment
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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 & Clothing – Other Consumer Goods
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea EXPORTS OF SERVICES Transportation (shipment & other) Travel Other Services – Telecommunications – Non-merchandise insurance – Banking – Other professional services (engineering, legal, accounting, education, market research etc.)
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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 Sub-contracting (eg. the car sector)
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea FOREIGN INVESTMENT Foreign Direct Investment ( F.D.I.) – Joint ventures & wholly owned investment – Effective control; Managerial participation Portfolio Investment – Investment income; Capital gains Dividing line: 10% of the company shares
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea FDI concepts FDI (Flow): measures movement of FDI in a given period, usually a year. – FDI Outflows – FDI Inflows FDI (Stock): the book value of the accumulated investment flows over the years. – Outward FDI (stock) – Inward FDI (stock) Foreign Production: the value of goods and services produced abroad by multinationals.
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Global-Multinational-Transnational Global Company: Company operating globally, e.g.- exporting to many countries - investing in many countries etc. Multinational (MNE): engages in foreign production in three or more countries. Transnational (TNC): a corporation with owners in more than one nation.
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea THE WORLD'S TOP 500 GLOBAL CORPORATIONS BY REGION (1992) See Overhead
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea THE WORLD ’ S TOP 500 GLOBAL CORPORATION BY REGION (2000) See Overhead
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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.” O.E.C.D
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Drivers of globalisation Two key factors seem to underlie the trend towards the increasing globalisation of markets and production: 1) the decline of barriers to trade and investment 2) technological change.
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Indicators of globalisation The increasing trade/GDP ratio FDI as % of GDP up Growth of the intra-industry trade Declining concentration of international business flows Aggregate international business as a % of GDP
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Share of Exports of Goods&Services in GDP
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Why is FDI growing more rapidly than world trade or world output? Can circumvent future trade barriers World political and economic change. –Democratization of markets. Globalization of world markets.
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Anti-globalisation arguments It is empowering corporations at the expense of nation states It is not a democratic choice, but an option to suit multinationals International institutions such as the WTO and World Bank – are NOT democratic –open the world to the influence of transnational corporations
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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 ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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 ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Globalisation - Arguments Pro Lower prices for goods and services Economic growth stimulation Increase in consumer income Creates jobs –Countries specialise in production of goods and services that are produced most efficiently Unprecedented advances in living standards
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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 ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea International Business Training REASONS : "Multinationalisation" Internationalisation (small and medium companies) International business policies (government) Globalisation of financial markets
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Job Opportunities Export Departments of manufacturing firms (joint ventures) in Australia or overseas. International Traders Exporters of Services or Providers of Services to International Companies – Banking, Insurance – Shipping – Construction-Engineering Government; International organisations