INTERNATIONAL BUSINESS, TACTICS AND STRATEGY

DR. KIP BECKER

BOSTON UNIVERSITY

NOW LETS TAKE A LOOK AT FOREIGN DIRECT INVESTMENT !!

FOREIGN DIRECT INVESTMENT

KIP BECKER

WAIKIKI BEACH IN 80S ALMOST OWNED BY JAPANESE

NOW LETS TAKE A LOOK AT FOREIGN DIRECT INVESTMENT !!

Foreign Investment

• Two components of foreign investment– Portfolio investment

• Purchase of stocks and bonds solely for a return on the funds invested

– Direct investment• equity participation ratio is 10 percent or

more

• FDI WAVE AND WHO REALLY OWNS AN FID? Patterns (e.g. manuf >financing)

Video_fdiintro

REASONS FOREIGN INVESTMENT

1. CONVENTIONAL ECONOMIC THEORY CAPITAL MOVES BETTER INVESTMENT

2. MONOPOLISTIC ADVANTAGE HORIZONAL AND VERTICAL IDI (TECHNOLOGY)

3. INTERNATIONAL PRODUCT LIFE CYCLE THEORY

4. OLIGOPOLISTIC THEORY MAJOR MARKETS OF COMPETITION and “LEMINGS” MOVE BECAUSE OTHERS DO

FDI LIABILITIES

1. POOR INVESTMENT DECISIONS– BRIDGESTONE OVER BIDS FIRESTONE

– 1.8 BILLION

2. CHANGING GOVERNMENT

ATTITUDES

CUBA SELL BACARDI (70 MILLION TAKEN)

“E AST GERMANY”

UNITED ISSUES

3. OVER ESTIMATION

of PROFITS

Who is effected:1. GOVERNMENT

JOB LOSS, DEFENSE, ANTI TRUST, REPATRIATION OF PROFITS –ONCE 70% WAIKIKI’S BEACH COMMERCIAL PROPERTY OWNED by JAPANESE

2. COMPETITORS

3. COMPANIES +OWNERS, MANAGERS

4. WORKERSWHO REALLY OWNS A FOREIGN DIRECT INVESTMENT ?

Lesotho_text

• The United States is by far the largest foreign investor – As indicated on following slide

• 1 American firms have invested much more in developed nations than they have in developing nations

• 2 trade loss

Foreign Manufacturing• Wholly Owned Subsidiary

– A company that wishes to own a foreign subsidiary outright may

1. start from the ground up by building a new plant (historically the preference of American companies)

2. acquire a going concern (currently the preference of foreign investors)

3. purchase its distributor, thus obtaining a distribution network familiar with its products.

Tariffs • Tariffs, or import duties are

– taxes levied on imported goods for the purpose of raising their prices to reduce competition for local producers.

• Ad Valorem Duty– Duty stated as a percentage of the invoice value

• Specific Duty– Fixed sum of money charged for a physical unit

• Compound Duty– A combination of specific and ad valorem duties

High cost protection

2

3

4

100s HAVE ADAPTED Brussels's Tariff Nomenclature (BAN) categorizes thousands of products (and some services).

BAN

PREFERENTIAL TRADING

• The Federal Reserve Bank of New England noted the increase preferential trading arrangements

• World Bank suggests that over forty percent of trade falls within existing regional preferential trading agreements.

• It is actually hard to find a nation which does not grant, or receive from, other countries some form of preferential treatment in trade.

• In fact, no fewer than 76 free trade areas or customs unions have been established since 1948 and more than half of these have been established since 1990!

• Copy business night boeing

NAFTA AND SOUTH

BILATERIAL AGREEMENTS• On January 1, 1990 Canada and the United formally the

Free Trade Act The Canadian-US. FTA • North American trading system comprised of 272 million

North American customers (244 million Americans plus 26 million Canadians). This is more than twice the size of Japan's domestic market of 123 million customers and not far below the EU marketplace.

• SOUTH AMERICAN HOPES NOT FAR BEHIND• LATIN AMERICAN TALKS

DOES NOT GUARENTEE TRADE WILL REMAIN

• Small Business and Free Trade to Mexico• Apprehensions exist for smaller companies that often

lack the necessary capital and generally are less informed about trade possibilities. Of significant concern to small business employees is the possible loss of from 150,000 to 500,000 jobs. For example, A.O. Smith Corporation has been transferring jobs to Mexico where workers earn about one-fifth of the $8 an hour workers make at the Ohio plant. Those who have been put out of work find it hard to understand how a plant in the middle of Mexico can have such a profound impact on their lives

• Click the following link for a more detailed look at the A.O. Smith situation.

• Implications of Free Trade for Small Business

Common market and Free trade area

Free Trade AreaTariffs are abolished among members-countriesEach member-country maintains its own external tariffs on imports from nonmember countries

Customs UnionA Free Trade Area where member-countries add a common external tariff EU 20% of world trade 14% United States 9 % Japan

Common MarketA Customs Union plus the abolition of restrictions on the mobility of capital and labor among member-countries

Complete Economic IntegrationInvolves a high degree of political integration as member-countries surrender important elements of their sovereignty

OTHER TYPES OF TRADE AGREEMENTS

Organization of Petroleum Exporting Countries (OPEC)

• OPEC is– an international organization dedicated to

promoting economic expansion in its member-nations

– Most OPEC members are in the Middle East• Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab

Emirates

– Three members are in Africa• Algeria, Libya, and Nigeria

– Two members are elsewhere in the world• Indonesia and Venezuela

Other Regional National Groups

• Association of Southeast Asian Nations (ASEAN)

• European Free Trade Association (EFTA)

• African Trade Agreements

• Asia-Pacific Economic Cooperation (APEC)

• World Trade Organization

• The central authority, the Ministerial Conference,

all WTO members- meets every two years.

• The daily work is done by subsidiary bodies

• The General Council has the two important responsibilities of dispute settlement and trade policy.

• Organization of the WTOwtostrucxture2

NOT EVERYONE AGREES WITH WTO

General Agreement of Tariffs and Trade (GATT)

• Established in 1947, negotiations are conducted in “rounds”– 1947 to 1986, eight “rounds” have taken place

• First seven rounds was reduction of tariffs among industrial countries from 40 percent to 5 percent

• 9 out of 10 disputes among trading nations brought to GATT were settled satisfactorily

– January 1, 1995, the WTO replaced GATT

THE END !!