Globalization and RecentEconomic Developments

Chapter 1, Part 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.

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.

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

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.

Economic PerformanceNorth 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

Economic PerformanceNorth America (2)

Canada The largest U.S. trading partner. Legal and business environment

similar to the U.S.

Economic PerformanceNorth 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

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.

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

Economic PerformanceSouth 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.

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

Trade Agreements in theWestern 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

Trade Agreements in theWestern 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

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.

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

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.

Economic Performance - Japan

2nd 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

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

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

Asia's Four Tigers

South Korea (11th 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

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.

India 12th 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

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

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