Mgt © McGraw-Hill Companies, Inc, 2000 Irwin/McGraw-Hill [Modified by EvS] Chapter 1 WORLDWIDE DEVELOPMENTS

© Irwin / McGraw-Hill, Modified by EvS. 1-2 Regional Developments Impacting Internationalization North American Free Trade Agreement (NAFTA) –U.S., Canada, Mexico  Removed all barriers to trade between countries  created a huge North American market  Agreement will expand to include Latin American countries, Chile, Argentina, and Brazil

© Irwin / McGraw-Hill, Modified by EvS. 1-3 European Union (EU)  Consists of 15 western European nations  Trade barriers between EU members have been removed  a unified currency called the “euro” has been adopted

© Irwin / McGraw-Hill, Modified by EvS. 1-4 General Agreement on Tariffs and Trade (GATT) –reduces or completely eliminates tariffs –has been replaced by the World Trade Organization (WTO)  has more power to enforce rulings on trade disputes and to monitor trade policies

© Irwin / McGraw-Hill, Modified by EvS. 1-5 ASIA –Japan continues to be the primary economic force –China is quickly becoming the biggest economy in the world –the Southeast Asian countries have recently been major export-driven economies –ASEAN (Association of Southeast Asian Nations) promotes exports to other countries

© Irwin / McGraw-Hill, Modified by EvS. 1-6 Central and Eastern Europe/ Russia  The Czech Republic, Poland, and Hungary have transitioned to market economies  Is an untapped area being targeted by MNCs looking for expansion opportunities Example: Coca-cola’s business in Central and Eastern Europe has been expanding at twice the rate of its other foreign operations

© Irwin / McGraw-Hill, Modified by EvS. 1-7 Latin America & Less Developed Nations  Latin America: –economic growth and export volume remain strong –Regional Trade Agreements:  Mercosur  Andean Common Market  Less Developed Nations : India –Recent economic progress –Due to the india’s reduction of bureaucratic red tape, MNCs have recently been attracted to the area

© Irwin / McGraw-Hill, Modified by EvS. 1-8 International Investment & Trade  80% of all international investments come from developed countries (the triad or golden triangle) North America EuropeAsia Pacific Triad or Golden Triangle

© Irwin / McGraw-Hill, Modified by EvS. 1-9 Top Trading Partners of the U. S.

© Irwin / McGraw-Hill, Modified by EvS  North America –NAFTA has resulted in:  Elimination of tariffs as well as import and export quotas  Opening of government procurement markets to companies in partner countries  Increased opportunity to make investments in partner countries  Increased ease of travel between partner countries  Removal of restrictions on agricultural products, auto parts, and energy goods –United States  U.S. MNCs have holdings throughout the world  Foreign MNCs find U.S. to be a lucrative market Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  North America (cont.) –Canada  U.S.’s largest trading partner  Cultural, legal and business environments similar to those of the U.S.  Target of increased international investment –Mexico  Economic fortunes have varied in the recent past  Maquiladora industry –Arrangement created by the government that permits the flow of materials and products in and out of Mexico with only the value added being taxed –Different views about effect on American jobs  Mexican firms expanding worldwide operations Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  South America –Countries have experienced difficult economic problems  Brazil –Attracted substantial foreign investment –Economic future still uncertain  Chile –Economic success story in South America –Future still uncertain –Mercosur and Andean Common Market  promote economic and social integration and cooperation –Inter-country trade is increasing –Countries increasingly looking to trade with the U.S. Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  Europe –Privatization of traditionally nationalized industries –EU  intended eliminate all trade barriers among member countries  EU-based firms “plan globally, act locally”  To gain a foothold in the EU, foreign MNCs have: –created acquisitions and alliances –begun co-operative research and development programs  European Research Cooperation Agency (Eureka) –EU agency that funds projects in a number of fields to make Europe more productive and competitive in the world market  Future challenge is the absorption of formerly communist Eastern neighbors Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  Europe (cont.) –Central and Eastern Europe  Collapse of the Soviet Union in 1991 –Glasnost (openness) –Perestroika (economic and political restructuring)  Russia –Undergone economic reform –Many attempts to stimulate the economy –Greater privatization required –Criminal activity increasing  Czech Republic, Hungary, and Poland –Former communist countries that have become most visible in international arena  Some former communist countries are struggling Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  Asia –Japan  Economic success in the 1970s and 1980s attributed to: –Cultural values –Ministry of International Trade and Industry (MITI) Government agency that identifies and ranks national commercial pursuits Guides the distribution of national resources to meet these goals –Keiretsus Organizational arrangement in which a large group of vertically integrated companies are bound together by cross-ownership, interlocking directorates, and social ties provide goods and services  Severe recession during the past ten years  Target for foreign investment Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  Asia (cont.) –China  Large reported annual growth in GDP  Attracts substantial foreign investment  Remains a political risk for investors  MNCs find it difficult to do business in China –The Four Tigers  South Korea –Chaebols Large,family-held conglomerates that have considerable political and economic power –Hit hardest by Southeast Asia economic crisis Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS  Asia (cont.) –The Four Tigers (cont)  Hong Kong –Headquarters for successful multinational operations in Asia –Uncertainty regarding governance issues due to subservience to China  Singapore –Leader and financial center of Southeast Asia –One of the most competitive nations  Taiwan –Economy dominated by technologically sophisticated industries –Uncertainty due to designs on the country by China –Southeast Asian Countries  ‘Baby Tigers’ lack the economic prowess of the Four Tigers Regional Economic Status & Issues

© Irwin / McGraw-Hill, Modified by EvS The Most Competitive Nations

© Irwin / McGraw-Hill, Modified by EvS GCI = Technology, Public Institutions, Macroeconomics

© Irwin / McGraw-Hill, Modified by EvS Characteristics of Less Developed Countries Less Developed Countries Low GDP High international debt Slow (or negative) GDP growth per capita Large population High Unemployment Inexpensive unskilled or semi-skilled labor