Strengthening International Government Relations

Sources of Trade Regulation GATT and WTO Set up to deal with tariffs and non tariff barriers to trade Tokyo Round in mid 1970s Tariff barriers reduced significantly Partial success with non-tariff barrier reduction mainly due to complexity and sensitivity

Sources of Trade Regulation GATT and WTO Uruguay Round – 1986-1993 Challenging problems addressed – technical barriers, trade in services, intellectual property rights, trade in technology etc. More member countries – 117 Problems of developing countries addressed WTO formed – meets every 2 years

Trade Agreements and Associations U.S. – Canada Free Trade Agreement Formed January 1988 – world’s largest free trade area Dispute resolution mechanisms established NAFTA formed with Mexican representatives

Trade Agreements and Associations Association of Southeast Asian Nations ASEAN formed August 1967 with 5 member states, presently has 10 members Regarded as a loose economic cooperation channel but expected to change, FTA with China expected Move towards ASEAN FTA

Trade Agreements and Associations (cont.) Asia-Pacific Economic Corporation APEC established 1989, presently has 21 members Primary vehicle for open trade and economic cooperation Agreement to develop free trade yet to be reached ANDEAN and MERCOSUR Composed of South American nations with an objective of setting a common external tariff European Union Slow process of European integration Founded on the principle of supra-nationality

Opportunities and Threats Opportunities and Threats from Government Actions Threats Government Actions Opportunities Increase costs Reduce ROI Competitive disadvantage Increased competition Co-opt Regulation Taxation Expenditure Privatization Consultation Control competition Competitive advantage Subsidies, grants, customers Level playing field Influence policy

Political Strategy Essential for a firm to form and implement political strategy Formulation Objectives Issues Stakeholders (allies, opponents, targets) Position/Case (“public interest”)

Political Strategy Implementation Timing Techniques Direct (negotiate, litigate) Indirect (advocacy advertising, political contributions) Vehicles (e.g. coalition, Government Relations department, consultants) Style (e.g., confrontation or conciliation)

Impact of International Business-Government Interaction Objectives and Motivations of MNC-SOE Alliances and Acquisitions Objectives of MNCs Increase profits, reduce potential risks and achieve economies of scale Control/preempt competition, expand market share, achieve first mover advantage Obtain lower-cost production or distribution facilities Develop or adapt technology jointly, obtain new labor or technology resources Expand domestic sales through overseas operations Obtain new labor or technology resources

Objectives of SOEs or Privatized Enterprises Impact of International Business-Government Interaction Objectives and Motivations of MNC-SOE Alliances and Acquisitions Objectives of SOEs or Privatized Enterprises Ensure survival and financial viability Gain competitiveness and become profitable Acquire new technology and improve managerial competence

Objectives of Governments Impact of International Business-Government Interaction Objectives and Motivations of MNC-SOE Alliances and Acquisitions Objectives of Governments Generate public revenues from SOE sales Reduce subsidies to loss making SOEs, foreign debts and public budget deficits Strengthen private sector, increase national productivity and stimulate growth Expand shareholding among citizens and reduce government role in economy

ENSURING THE SUCCESSFUL PRIVATIZATION OF ONTARIO HYDRO Rolling blackouts in California have drawn attention to Ontario’s plans to privatize the production and distribution of electricity. The failure of privatization in California makes it all the more important for Ontario to understand what went wrong there, and why others (such as British Airways and British Telecom, for example) succeeded. This article describes the best practices in privatization, and provides lessons for both the Ontario government and the parties who would manage the privately owned corporations. For government, we recommend a controlled deregulation over time that would enable Ontario Hydro to adjust to market dynamics and avoid the California situation. For potential investors, we offer new ideas and business models to capitalize on the opportunities the opening of this market will provide. BY DAVID W. CONKLIN AND TREVOR HUNTER IVEY BUSINESS JOURNAL JULY/AUGUST 2001

Proactive Management of Relations MNE’s Perception of Government Policy MNE’s approach to Government Policy Viewed as outside the Influence Of MNE Managers Viewed as Potentially Influenced by MNE Managers 1 “Government Policy as lever for global competitiveness” approach Example: Porter’s home base/cluster concept 3 Non-location bound firm specific characteristics in MNE government interaction Example: Use of strategic trade policy arguments to obtain government favors. 2 “Good corporate citizen” approach Government policy not viewed as a major determinant of international competitiveness 4 Location bound firm specific characteristics in MNE government interaction Government policy viewed as something which can be influenced through lobbying, i.e., a proactive strategy To achieve Benefits of integration MNE’s objectives in Business – Government Interactions To achieve Benefits of National Responsiveness

Bargaining Power Discriminatory enforcement occurs due to differing characteristics of subsidiaries – Bargaining Power Sources of Bargaining power for host country Growing capability to replace the MNE’s products Control over access to raw materials, labor and capital Sources of Bargaining power for MNE Vertical integration