1. Globalization and Recent Economic Developments Chapter 1, Part 2

2. Doing Business in the EU Each country is different Products may have to be adapted to local needs Employees may have different expectations of managers and the company. Manufacturers often put assembly plants in a low-wage country Component plants may be elsewhere EU has strict regulations about environmental protection and data privacy.

3. Doing Business in the EU (2) Laws and regulations differ in different countries Wage and hour law Labor law – labor unions often have more power Employee benefits are often more generous than in the U. S. Corporate taxes Taxes on individuals It is usually more difficult to terminate employees in the EU than in the U. S.

4. Business in New EU Countries Most privatization of state-owned industries have been completed Laws and regulations are not always enforced consistently. Excessive regulations and bureaucracy is a continuing problem Less of a problem in some countries than others Within the same country, it may be easier to do business in some areas than in others

5. Doing Business in Russia Potential market of 143 million people Abundant natural resources: oil, gas, coal, other minerals, timber Business taxes are not enforced fairly Tax laws are not always clear The government recently used the tax system to seize a large, efficient private oil company. Under President Putin, Russia seems to be moving toward a dictatorship.

6. Economic Performance North America U. S., Canada and Mexico combine for $12 trillion in purchasing power United States U.S. firms hold market dominance in many European markets and are gaining market share in Asia Foreign MNC’s find the U. S. to be a lucrative market in which to expand

7. Economic Performance North America (2) Canada The largest U.S. trading partner. Legal and business environment similar to the U.S.

8. Economic Performance North America (3) Mexico maquiladoras: U. S. manufacturers can send materials to their Mexican-based plants, process or assemble the products, and then ship them to U.S. with only the value added being taxed. For U. S. firms, Mexican suppliers offer lower transportation costs and faster delivery than Asian suppliers Mexican firms are increasingly active in EU and Asian markets

9. North American Free Trade Agreement (NAFTA) Free trade agreement among Canada, United States, and Mexico Free trade agreement means that there are no tariffs on goods traded among member countries This provision applies only to goods that were produced in one of the 3 countries Most restrictions on foreign investment among the 3 countries have been abolished. Firms in member countries can compete for government contracts.

10. NAFTA (2) Financial services firms can do business in all 3 countries by 2007. There is a dispute resolution procedure. Each country agreed to enforce its own laws related to Environmental protection Child labor Minimum wages Workplace safety

11. Economic Performance South America South American countries have experienced difficult economic problems High inflation Heavy foreign debt Trade agreements have helped economies grow Business leaders want to do more business with the U. S.

12. Types of Trade Agreements Bilateral trade agreements: agreements between 2 countries Free trade area: tariffs on goods and possibly services are reduced or eliminated. Customs union: Free trade area, plus All countries in the customs union have the same tariffs on goods coming in from outside the customs union

15. Trade Agreements in the Western Hemisphere Free trade areas: NAFTA: U. S., Canada, Mexico Central American Free Trade Area (CAFTA): U. S., plus several countries in central America A free trade area of the Americas (FTAA) has been proposed – negotiations stalled Customs unions Mercosur: Brazil, Argentina, Paraguay, Uruguay Andean Community: Bolivia, Columbia, Ecuador, Peru, Venezuela

16. Trade Agreements in the Western Hemisphere (2) Customs unions (continued) Central American Common Market (CACM): 4 countries in Central America ALADI: Mercosur + Andean Community + Mexico + CACM + Chile + several Caribbean countries (20 countries total) CARICOM: 15 countries in the Caribbean

18. Business in China (1) Economy Mixed economy, with private firms and state enterprises Growth rate for the first half of 2004: 9.7% Most growth comes from manufacturing China plans to diversify into more high-tech businesses, such as software development Market 1.3 billion people U. S. exports to China in 2003: $118 billion A middle class is developing in the cities and new economic zones. Good market research is essential.

19. Business in China (2) Chinese business Some Chinese brands are becoming established in other countries – Example: Haier Growing emphasis on improving quality Excess capacity in some industries

20. Business in China (3) China joined WTO in 2001 Creates new opportunities for foreign firms. Protection of intellectual property is a major problem Concerns of foreign firms High level of regulation Inconsistent regulation in different regions – tendency to protect local industries from competition Contracts are hard to enforce.

21. Economic Performance - Japan 2 nd largest economy in the world Major investor in the U.S., Europe, and Asia Keiretsus – networks of companies under common ownership. Usually includes a bank & a trading company. Long-term supplier relationships Sometimes emphasize market share at the expense of profit. This is now changing. WTO member, but uses administrative trade barriers Consumers have high quality standards and often prefer Japanese products

22. Economic Performance – Japan(2) Decade long recession in 1990s Bank loans were backed by real estate or projected revenues By 2000, most major banks had billions of dollars in uncollectible loans Several large bank failures International competition has increased in recent years

23. Asian Economic Model Originated in Japan, copied by others Government targeted industries for growth Industry restructuring, led by government. Loans and subsidies Tax breaks Cooperative research and development. Protect the home market, and export aggressively

24. Asia's Four Tigers South Korea (11 th largest economy) Chaebols: large family-held conglomerates Affected by declining economies of South east Asia in 1990s Hong Kong Major trading center Now part of People’s Republic of China Contacts in Hong Kong can be helpful in doing business in China

25. Asia's Four Tigers (2) Singapore: Major trading center Taiwan (Chinese Taipei) China sees Taiwan as part of China Has progressed from a labor-intensive economy to one dominated by technologically sophisticated industries (banking, electricity generation, petroleum refining and computers) All four tigers now have higher wage rates than China and other nearby countries.

26. India 12 th largest economy More that 1 billion people – growing middle class Low-wage manufacturing Center for software development, call centers, transcription, technical support, financial research Low per capita GDP

27. Middle East Large oil reserves in some countries Authoritarian governments High unemployment and many poor people Radical Islamic influence in education Social and religious unrest

28. Africa Diverse countries South Africa is the largest economy Many authoritarian governments Ethnic strife Considerable natural resources in some countries Most exports are agricultural products and natural resources Poverty, starvation, illiteracy, corruption, disease, overcrowding are among many social problems negatively affecting economic sector