International Business

Environment

Chapter 1

1
 Pa#erns and Trends
•  Rapid growth in:
–  World trade (exports and/or imports)
–  Foreign direct investment (fdi)
–  Foreign por?olio investment
–  Cross-border mergers / acquisiEons

2
 Reasons for increased
internaEonalisaEon
•  More ‘open’ global markets
•  More globally dispersed value chains
•  Move from bi-polar to tri-polar (triad)
•  Growth of Regional Trading Arrangements
(RTAs)
•  Growth of bilateral treaEes
–  Bilateral Investment TreaEes (BITs)
–  Double TaxaEon TreaEes (DTTs)
3
 More ‘open’ global markets
Item 1993 1995 1997 1999 2001 2003 2005 2007

Number of countries 56 63 76 65 71 82 92 58
that introduced
change

Number of regulatory 100 112 150 139 207 242 203 98

changes

More favourable to 99 106 134 130 193 218 162 74

fdi

Less favourable to fdi 1 6 16 9 14 24 41 24

Source: Adapted from World Investment Report (2008) 4

Source: Adapted from World Development Report 2008
More globally dispersed value chains
(1)
Average annual growth rates (%)

2007 ($bn) 1986–90 1991–95 1996–2000

Sales of foreign 31,197 19.3 8.8 8.4

affiliates of MNEs

Total exports of 7,430 15.8 8.7 4.2

goods and
services

Employment of 81,615 5.3 5.5 11.5

Foreign affiliates
(thousands)

Total assets of 68,716 17.7 13.7 19.3

foreign affiliates

Source: Adapted from World Development Report 2008

5
 More globally dispersed value chains
(2)
Region 1990–95 1996-200 2001 2002 2003 2004 2005 2006 2007
(annual 0
average)

Developed 145 581 610 484 364 410 680 920 1,248
countries

Developing 74 198 206 220 220 265 310 405 495

countries

South and 6 8 10 11 20 30 31 58 87
CIS

Source: Adapted from World Development Report 2008 6

 TransnaEonality index (TNI)
•  TNI is the average of three raEos:
–  Foreign sales : total sales
–  Foreign employment: total employment
–  Foreign assets : total assets

7
 World top 5 mulEnaEonals ranked by
foreign assets (and TNI)
Ranking

Foreign Transnationality Company Country Industry Transnationality

assets index index (%)

1 71 General USA Electrical and 53

Electric Electrical Equipment

2 14 British UK Petroleum 80
Petroleum

3 87 Toyota Motor Japan Motor Vehicle 45

4 34 Royal Dutch/ UK/ Petroleum 70

Shell Netherlands

5 84 Exxon/Mobil USA Petroleum 68

Corporation

Source: Adapted from World Development Report 2008 8

 World’s top 5 mul-na-onals ranked by the transna-onality
index (and foreign assets), 2006

Ranking

Transnationality Foreign assets Company Country Industry Transnationality

index index (%)

1 92 Barrick Gold Canada Gold/Mining 94

Corporation

2 37 Xstrata plc UK Mining and 92

quarrying

3 48 Linde AG Germany Industrial trucks / 89

trailers

4 77 Pernard Ricard France Beverages 87

SA

5 68 WPP Group UK Business 87

Services
9
Source: Adapted from World Development Report 2008
 Transna-onality Index for the world’s largest 100
MNEs in their home economies, 1990 and 2006
Average TNI (%) Number of MNEs

Economy 1990 2006 1990 2006

European Union 56.7 74.7 48 52

France 50.9 63.8 14 15

Germany 44.4 54.8 9 14

UK 68.5 72.8 12 13

North America 41.2 60.2 30 25

US 38.5 57.8 28 22

Canada 79.2 78.1 2 3

Japan 35.5 52.1 12 9

Rest of the World n.a. n.a. 10 14

All Economies 51.1 61.6 100 100

Source: Adapted from World Investment Report (2008)

10
Transna-onality Index of the 100 largest MNEs from
developing economies: by region 2006

Top 100 MNEs from Average TNI
developing economies
Region/ economy TNI Number of companies

of which

Africa (South Africa) 45.0 11

South East Asia 52.3 20

East Asia 58.6 56

West Asia 56.5 3

Latin America and the Caribbean 40.1 10

Total 53.9 100

Source: Adapted from World Investment Report 2008

11
 InternaEonalisaEon Index (II)
•  Number of host economies in which the MNE
has foreign affiliate is a useful indicator of
‘internaEonalisaEon’
•  InternaEonalisaEon Index (II)
–  RaEo of MNE foreign affiliates to total affiliates,
expressed as a percentage

12
 Top 5 MNEs, ranked by number of host
economies in their affiliates
Company Home country No. of host Internationalisati Transnationality
economies on Index (II)% Index (TNI)%

Deutsche Post AG Germany 111 83 37

Royal Dutch/Shell Netherlands/ 98 56 70

Group United Kingdom

Nestle SA Switzerland 96 93 83

Siemens AG Germany 89 75 66

BASF AG Germany 88 78 57

13
 Other global pa#erns and trends
Growth in:
•  Regional Trading Arrangements (RTAs)
–  Bilateral Investment TreaEes (BITs)
–  Double TaxaEon TreaEes (DTTs)
•  Sovereign Wealth Funds (SWFs)
•  Global security – related costs

14
 Regional Trading Arrangements (RTAs)

•  Free trade areas

•  Customs unions
•  Common markets
•  Economic unions

15
 Free trade area

•  Where member countries reduce or abolish

restricEons on trade with each other while
maintaining their individual protecEonist
measures against non-members

16
 Custom unions

•  Where, as well as freeing trade among

members, a common external tariff is
established to protect the group from imports
from any non-member.

17
 Common market

•  Where the customs union is extended to

include the free movement of factors of
producEon as well as products within the
designated area.

18
 Economic union

•  Where naEonal economic policies are also

harmonised among member states within the
common market.

19
 InternaEonal compeEEveness (1)
•  Most widely used indicator is Rela-ve Unit
Labour Costs (RULCs)
•  RULC
RelaEve Labour Costs x RelaEve Exchange Rate
RelaEve Labour ProducEvity

20
 InternaEonal compeEEveness (2)
Total labour costs ($
Total labour costs ($ per hour Index: UK = Labour productivity
Country per hour) 100) (Index UK = 100)
Mexico 2.6 21.8 35.2

Korea 13.6 20.9 48.4

France 24.6 95.7 118.1

UK 25.7 100.0 100.0

Japan 21.8 84.8 82.4

US 23.7 92.2 116.2

Germany 33.0 128.4 109.7

Source: Adapted from US Department of Labor (2007) Hourly Compensation Costs in Manufacturing: OECD (2007) 21
 InternaEonal compeEEveness (3)
Country Rank

USA 1 Austria 8

Germany 2 Singapore 9

Finland 3 Japan 10

Sweden 4 UK 11

Denmark 5 Hong Kong 12

Switzerland 6 Norway 13

Netherlands 7 Canada 14

22
Source: Global Competitiveness Report 2007 – 8 (adapted)
 GlobalisaEon
•  Different perspecEves
–  Economists
–  PoliEcal scienEsts
–  Sociologists
–  InternaEonal relaEons specialists

23
 GlobalisaEon DefiniEons (1)
•  ‘…the process of transformaEon of local phenomena into
global ones. It can be described as a process by which the
people of the world are unified into a single society and
funcEon together. This process is a combinaEon of economic,
technological, sociocultural and poliEcal forces’ (Croucher, S.
2003)
•  ‘…a widening, deepening and speeding up of
interconnectedness in all aspects of contemporary social life
from the cultural to the criminal, the financial to the
spiritual’ (Held et al 1999)

24
 GlobalisaEon DefiniEons (2)
•  ‘….increasing global interconnectedness, so that events in
one part of the world are affected by, have to take account of,
and also influence, other parts of the world. It also refers to
an increasing sense of a single global whole (Tiplady, R. 2003)
•  ‘…the worldwide movement towards economic, financial,
trade and communicaEons integraEon. GlobalisaEon implies
opening out beyond local and naEonalisEc perspecEves to a
broader outlook of an interconnected and inter-dependent
world with the free transfer of capital, goods and services
across naEonal fronEers’ (Business DicEonary)

25
 GlobalisaEon DefiniEons (3)
•  ‘…refers to the shie toward a more integrated and
interdependent world economy…[through] the
merging of historically disEnct and separate naEonal
markets into one huge global market place’ (Hill, C.
2005, p.6)
•  ‘…process by which the whole world becomes a
single market. This means that goods and services,
capital and labour are traded on a worldwide basis,
and informaEon and the results of research flow
readily between countries’ (Black, J. 2002)

26
 GlobalisaEon DefiniEons (4)
•  ‘…reflects a business orientaEon based on the
belief that the world is becoming more
homogenous and that disEncEons between
naEonal markets are not only fading but, for
some products, will eventually
disappear’ (Czinkota, M., Ronkainen, I.,
Moffat, M. 1999, p.454)

27
 GlobalisaEon characterisEcs (1)
•  Shrinking space
•  Shrinking Eme
•  Disappearing borders

28
 GlobalisaEon characterisEcs (2)
•  New markets
•  New tools of communicaEons
•  New actors
•  New rules and norms

29
 New markets
•  Growing global markets in services – banking,
insurance, transport.
•  New financial markets – deregulated, globally
linked, working around the clock, with acEon
at a distance in real Eme, with new
instruments such as derivaEves.
•  DeregulaEon of anEtrust laws and growth of
mergers and acquisiEons.
•  Global consumer markets with global brands
30
 New tools of communicaEon
•  Internet and electronic communicaEons
linking many people simultaneously.
•  Cellular phones and mobile telephony.
•  Fax machines.
•  Faster and cheaper transport by air, rail, sea
and road.
•  Computer-aided design and manufacture

31
 New actors (1)
•  MulEnaEonal corporaEons integraEng their
producEon and markeEng, dominaEng world
producEon.
•  The World Trade OrganisaEon – the first mulElateral
organisaEon with authority to force naEonal
governments to comply with trade rules.
•  A growing internaEonal network of non-
governmental organisaEons (NGOs).

32
 New actors (2)
•  Regional blocs proliferaEng and gaining
importance – European Union, AssociaEon of
South-East Asian NaEons, Mercosur, North
American Free Trade AssociaEon, Southern
African Development Community, among
many others
•  More policy coordinaEon groups : G-7, G-8,
OECD, IMF, World Bank

33
 New rules and norms (1)
•  Market economic policies spreading around the
world, with greater privaEsaEon and liberalisaEon
than in earlier decades
•  Widespread adopEon of democracy as the choice of
poliEcal regime
•  Human rights convenEons and instruments building
up in both coverage and number of signatories – and
growing awareness among people around the world.
•  Consensus goals and acEon agenda for development

34
 New rules and norms (2)
•  ConvenEons and agreements on the global
environment – biodiversity, ozone layer, disposal of
hazardous wastes, deserEficaEon, climate change
•  MulElateral agreements in trade, taking on such new
agendas as environmental and social condiEons
•  New mulElateral agreements – for services,
intellectual property, communicaEons – more
binding on naEonal governments than any previous
agreements

35
 GlobalisaEon outcomes
•  Hyperglobalists: powerless naEons at the
mercy of ‘footloose’ MNEs which grow ever
stronger
•  Transforma5onalists: no clear predicEons
possible as to eventual outcomes of
globalisaEon

36
 TransformaEonalist view of
globalisaEon
•  ConflicEng tendencies
–  UniversalisaEon v parEcularisaEon
–  HomogenisaEon v differenEaEon
–  IntegraEon v fragmentaEon

37
 GlobalisaEon and NaEon State
•  Issues include:
–  Loss of competence
–  Loss of autonomy
–  Loss of legiEmacy

38