1. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Chapter 15: Doing Business in Developing countries

2. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea TOPIC PLAN Definition of Developing Countries (DCs) Import markets in DCs Trade issues in DCs Export marketing aspects in DCs Considerations for Investing in DCs

3. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Definition of Developing Countries Alternative names: –Less developed countries (LDCs) –The Third World; –The South WTO:Statistical emphasis on geographic criteria –Latin America –Africa –Middle East –Asia(incl.Australia)

4. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 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

5. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea General Features of Developing Countries Relative lack of financial capital (esp. FX) Relatively low level of infrastructure (roads, telecommunications,education institutions) Low marketing facilities (e.g.storage,distribution,)

6. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Government Sector in Developing Countries Bigger size government sector than in IC's (Lower tax base) However, more government regulation than in IC's –Big concern:Control over the national economy. More development planning than in IC's e.g. –Indonesia:"Repellita"(5-year plans) –Malaysia,Taiwan

7. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Trade and Development Trade as engine of growth Import substitution versus Export Orientation Development strategies –Stage 1:Exports of natural resources/ Imports of manufactures –Stage 2:Import substitution –Stage 3:Export-led growth

8. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea The Import market of Developing Countries by main regions(%); 1999 Total: $US 1,631.5 Billion Fig.15.1

9. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Merchandise Imports of Low& Middle Income Regional Groupings by source, 1999,% SourceE.Asia& Pacific Latin America M.East& N.Africa South Asia Sub-Saharan. Africa E.U11.518.545.523.139.7 Japan17.25.64.511.57.9 US11.546.313.611.511.9 Other ICs4.61.94.57.70.8 Other High Income 26.43.74.515.47.9 Low&Mid. Income 27.624.127.330.831.7

10. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Imports of Low& Middle Income Regional Groupings by product, 1999,% SourceE.Asia& Pacific Latin America M.East& N.Africa South Asia Sub-Saharan. Africa Total100 Food59…1211 Farm Raw Materials 32…42 Fuels107…1810 Ores and Metals 52…52 Manufact’s7480…5671

11. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Changes in Merchandise Imports composition in Low and Middle Income countries,%, 1990, 1999

12. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Imports of Singapore and Hong Kong, China by Product, 1999, % Manufactures Singapore Food Manufactures Fuels Ores and Metals FoodFarm Raw Materials Fuels Ores and Metals Hong Kong Manufactures

13. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Trade Policy Issues TARIFFS –Generally higher than in IC's –A 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)

14. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Comparison of 1999 MFN simple tariff rates and average CEPT rate s, in selected AFTA countries 1999, 2003

15. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Trade Policy Issues Non-tariff Measures –South Korea : "Pigs is pigs !" –Malaysia : Import licences (Plastics raw materials) Barriers to Trade in Services

16. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Export Marketing Issues Cultural differences –Language –Cultural restrictions on consumption/imports Price strategies –Differentiated prices (on the low side) –“Price markets”

17. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Export Marketing Issues Distribution –Longer distribution channels than in IC's Promotion –Less spending required compared to IC's –However,growing promotion expenditure in Asia and Latin America (See Table 15.9 in the textbook for data on advertising expenditure)

18. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Direct Investment in LDC's Asia-the largest beneficiary of inward FDI among LDCs. Hong Kong -top attraction in 2000. FDI in the Service sector is 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(?)