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The Changing Global Economic Map

Trade vs production

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5=10

0 exportsproductionworld gdp

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Manufacturing value added

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Changes

The rise of Japan to become second biggest economy ($4.7 trillion), (US $11.7 trillion) (China $1.9 trillion) (Canada $1.0 trillion)Continued dominance of US as largest economyUneven economic performance of Western European economies

Emergence of a number of newly industrializing economies in East AsiaRecent and rapid emergence of China as a major player in world economyWeak performance of most Latin American economiesAppearance of transitional economies in Central Europe

Outsourcing

Offshoring vs OutsourcingFeatures of high probability of out-sourcing

No face to face contact requiredHigh information contentThe work process is telecommunicable and internet enabledHigh wage differentials with similar occupations in destination countryLow set-up barriersLow social networking requirements

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IT Jobs to India

Outsourcing Woes

You can read the transcript on the course website

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Job Outsourcing Benefits

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Captive offshoring

Why keep it in house?Control of activity is considered critical

High transaction costsProprietary expensive tacit knowledge

Communication difficultiesRequires close interaction

Unavailability of capable local firmsLarger scale activities are more likely to be kept

Difficult to achieve economies of scale

Foreign Direct Investment (FDI)Foreign Direct Investment

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Portfolio Investment

The key is that control must be exercised, if not, then it is portfolio investment

Current FDI

Rankings by Inward FDI Performance Index 2001-03

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Front-runners: countries with high FDI potential and performance.

Above potential: countries with low FDI potential but strong FDI performance.

Below potential: countries with high FDI potential but low FDI performance.

Under-performers: countries with both low FDI potential and performance.

Under-performers

Above-potentialLow FDI potential

Below potentialFront-runnersHigh FDI potential

Low FDI Performance

High FDI performance

FDI potential 1999-2001

0.445Finland100.454Netherlands90.454Belgium and Luxembourg80.455Sweden70.457Germany60.481Canada50.489United Kingdom40.489Norway30.490Singapore20.689United States1

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In 1999-2001 countries performing below potential included such major industrial countries as Australia, Italy, Japan and the United States, and such newly industrializing economies as the Republic of Korea, the Philippines and Taiwan. The group also includes the Russian Federation, Saudi Arabia and United Arab Emirates, all countries with enormous resource bases that should be able to attract greater direct investment.

The above-potential group includes Brazil, which scores poorly on recent growth, export shares and skill creation. The underperformers include all the South Asian economies and many poor and least developed countries, along with Turkey, with a weak record on risk and FDI stock.

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Sectors that Attract FDI

Large TNC involvementTechnologically more advanced sectors –pharmaceuticals, computers, synthetic fibers

Large volume, medium technology consumer goods – TVs, autos, appliances

Mass-production consumer goods industries supplying branded products- soft drinks, cereals, cigarettes

Recent changes

Service industries has had most significant relative changeConcentrated in a few sectors

Financial servicesTrade-related servicesTelecommunication services

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Developed World

US still the dominant destination for FDIEurope is a major destinationJapan still has an imbalance between outward and inward, outward far larger

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Meso-scale ViewEurope’s

growthaxis

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