1. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Chapter 16: Doing Business in Transition Economies FSU C&E Europe Vietnam PRChina

2. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea LECTURE PLAN: Definition of Transition Economies (TEs) Import markets Trade issues in TEs Export marketing issues FDI in TEs, including China Globalisation and China’s economy –Benefits and implications

3. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Transition Economies Current and former Centrally Planned Economies in transition to a market-based economy –Former Soviet Union countries;Central &Eastern Europe;PR China and Vietnam China-the world's 3-rd largest economy (PPP method) Government sector-still the leading sector in FSU;However, in 1998 it accounted for less than 50% in most C&E European countries Privatisation of state enterprises

4. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Former Soviet Union(FSU) Most developed Commonwealth Independent States(CIS) markets –Russia,Ukraine,Belarus,Kazakhstan The Baltic states –Estonia,Latvia,Lithuania CIS Islamic Republics –Azerbaijan,Turkmenistan,Uzbekistan,Tajikistan

5. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea The Share of China and Eastern Europe* in world merchandise imports, 1948-2000 * Eastern Europe= Former Soviet Union and C&E Europe

6. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Fig.16.2:China’s share of world merchandise imports, by product, 1990,% %

7. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Merchandise import markets in Transition economies, 2000,US$B and % Region/ Country Imports US$ Billion Share of World Imports Major sources of Imports In 2000(% of total imports) China2253.5Japan(24%), W.Eur.(15),US(15) C.I.S82.21.3CIS(41%), Japan(1%) Baltic States 12.90.2Baltic States(7.4%), all other Sources(92.6%) C&E Europe 1462.3European Union(48-62%), C&Europe, Asia, Russian Fed. Vietnam

8. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Imports of selected Transition Economies by Product, 1999, US$ Billion and % ChinaEstoniaCzech Republic HungaryRomania Total Imports US$ Billion 165.84.128.828.010.4 Total % - Food -Agricultural Raw materials - Fuels -Ores&Metals - Manufactures 100 4 5 80 100 13 3 7 3 74 100 6 2 7 3 82 100 3 1 6 2 86 100 7 1 10 3 77

9. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Trade Issues in Transition Economies Decentralisation of foreign trade (China since 1985) From central plan to tariff protection Members of WTO:Czech Republic, Hungary,Poland, Slovak Rep., Romania, China(November, 2001) Abolition of import licences /quotas Over 1992-2001, China has undertaken a number of 8 reductions of non-tariff measures.

10. 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 in Transition Economies More marketing efforts required Lack of information about end-users Lack of hard currency –Counter trade Commercial bank lending up again Advertising expenditure up(See next slide)

11. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Advertising expenditure, total(US$ Million)and % by medium, 1999 CountryTotal US$M. TV % Print % Radio % Cinema % Outdoor China3,40348.447.14.5 Czech Republic 59849.545.84.6 Estonia5025.262.911.9 Hungary71367.128.23.80.20.7 Lithuania5947.543.21.33.44.2 Poland1,43556.027.37.50.29.0 Russia397418.31.8 Ukraine6780.215.14.7

12. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Australia’s position in the import markets of Transition Economies Best position in China:A$ 6.5 Billion in 2000/2001; 2% of China’s imports; 8 th rank Small exports to other markets:the share of Australian exports varies between 0.1% and 0.7%(Romania) Exports include primary products, but also some Elaborately Transformed Manufactures( e.g. telecom equipment, measuring and controlling Instruments, medicinal & pharmaceutical goods

13. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea FDI in Transition Economies Emerging FDI markets –Labour cost advantages (Czech Rep. 1/10 of German costs in car manufacturing) –Political stability ? - Finance issues - Hard currency problems –Motor car industry, Food processing in China

14. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea FDI Inflows and FDI Inward Stock in transition economies, 2000, US$B. and % EconomyFDI Inflows US$ Billion % of world FDI inflows FDI Inward Stock No. of affiliates China38.53.0346.7364,345 Vietnam2.10.217.91,544 C&E Europe -Russia -Czech R. -Hungary -Poland - Romania 25.4 2.7 4.6 1.7 9.3 1.0 2.0 0.2 0.4 0.1 0.7 0.1 124.7 19.2 21.1 19.9 36.5 6.4 236,829 7,793 71,385 28,772 35,840 71,318

15. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Sectoral Trends in FDI Inward Stock in Transition Economies,1999 Leading Sector: Tertiary (US$ 49.3 Billion, 50.1% of total) –Finance; Trade; Transport, storage & communications. Secondary Sector:US$ 43.5 Billion (43.5%) –Food, Beverages; Motor Vehicles & Other Transport Equipment; Machinery and Equipment; Primary: US$ 2.4 billion (2.5%)

16. Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Investment considerations Political stability: –High grade:Central Europe; Medium grade (E.Europe); Low grade (CIS) Local content requirements are on the way out Some degree of foreign exchange controls Cost of labour:major consideration for FDI in the area