introduction to international business chapter 2

CHAPTER 2: GLOBAL

MARKETPLACE & BUSINESS CENTRE

INTRODUCTION TO INTERNATIONAL BUSINESS

(MGT361)

INTERNATIONAL BUSINESS

It is very important to understand at how international business people look at the

world economy.

Three common features of Econ Structures:

GeographyEconomic SystemPolitical System

Political System The political system is the way a country

govern their country Changes of government mean changing in

system practice.

DEMOCRACY, MONARCHY, TOTALITARIAN??????

Economic System Refer to system on how monetary and

fiscal policies which include currency system, banking and taxation policies, government spending, trade and investment policies.

COMMUNIST, SOCIALIST, FREE MARKET SYSTEM???????

Geography Refer to locations, size and distance of the

market. Try to look for this countries:

Bahamas Iceland Cyprus Luxembourg San Marino

DESCRIBE THESECOUNTRY IN TERM

OF GEOGRAPHIC FACTORS

Culture: Shared borders Common heritage Similar income levels (Triad and Quad

Countries) Ownership of Natural Resources

The World Economy

Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Marketplaces of North America

United States Canada Mexico Greenland Countries of Central America and the

Caribbean


United States Third largest population in world Fourth largest land mass Largest economy 27 percent of world’s GDP in 2006 Prime market for exports


The U.S. Dollar

Invoicingcurrency

Flightcapital


Canada Second largest land mass 80 percent of population concentrated

along U.S./Canadian border Rich natural resources Trade with U.S. - single largest bilateral

trade relationship in the world


Advantages of Canada Proximity to U.S. market Stability of legal and political systems Excellent infrastructure and educational

systems


Mexico Largest Spanish-speaking nation Federal government system Participant in NAFTA along with U.S. and

Canada


Central America and the Caribbean

Economic development hindered by: Political instability Chronic U.S. military intervention Inadequate educational systems Weak middle class Poverty Import limitations


Marketplaces of Western Europe

European Union Member Countries

Other Countries in Western Europe


Map 2.2 Western Europe


Euro Countries Belgium France Luxembourg Germany Italy Netherlands

Ireland Greece Portugal Spain Austria Finland


Marketplaces of Eastern Europe Russia Estonia Latvia Lithuania Armenia

Belarus Georgia Moldova Ukraine Azerbaijan


Marketplaces of Central Europe Romania Bosnia-Herzegovina Croatia Macedonia Slovenia Serbia Montenegro

Albania Austria Bulgaria Czech Republic Slovak Republic Hungary Poland


Map 2.3 The Former Soviet Union


Marketplaces of Asia Japan Australia and New

Zealand The Four Tigers China

India Afghanistan and

Central Asian Republics

Southeast Asian Countries


Map 2.4 Asia


Japan Second largest economy GDP of $4.3 trillion in 2006 Industries controlled by keiretsu GDP growth rate of 1.6 percent

(since 2000)


Map 2.5 Australia and New Zealand


The Four Tigers

South Korea Taiwan

Singapore Hong Kong


China World’s most populous country –

approximately 1.3 billion people Communist ideology mixed with market-

oriented economic policies Heavy FDI


Figure 2.3 Annual FDI Flows to China 1982-2006


India World’s second most populous country

Per capita GDP of $820

British colony until 1947


Southeast Asian Countries Thailand, Malaysia, and Indonesia

(Archipelago) Low labor costs Significant FDI in recent years Continued recovery from currency crisis in

1997 and 1998


Marketplaces of Africa and the Middle East

Africa 867 million people 54 countries Major economies:

South Africa Ivory Coast Algeria Nigeria

Middle East Cradle of civilization Major economies:

Saudi Arabia Kuwait UAE


Map 2.6 Africa and the Middle East


Map 2.7 The Middle East


Marketplaces of South America Brazil Bolivia Uruguay Argentina Chile

Colombia French Guiana Paraguay Peru Ecuador Venezuela


Map 2.8 South America


Chapter Objectives Explain the importance of the GATT and the WTO

to international business Contrast the different forms of economic

integration among cooperating countries Analyze the opportunities for international

businesses created by completion of the EU’s internal market

Describe the other major trading blocs in today’s world economy


General Agreement on Tariffs and Trade

Developed as part of the Havana, Cuba, conference in 1947

Provided forum for trade ministers to discuss barriers to international trade


The Role of the GATT

The GATT’s goal was to promote a free and competitive international trading environment benefiting efficient producers by sponsoring

multilateral negotiations to reduce tariffs, quotas, and other nontariff barriers


Table 10.1 GATT Negotiating Rounds


Most Favored Nation (MFN) Principle

The most favored nation principle requires that any preferential treatment granted to one country

must be extended to all countries.


Exceptions to the MFN Principle

Members permitted to lower tariffs to developing countries without lowering them for more developed countries

Regional arrangements promote economic integration (e.g., EU and NAFTA)


Goals of the World Trade Organization (WTO)

Promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies

Reduce remaining trade barriers through multilateral negotiations

Establish impartial procedures for resolving trade disputes among members


Differences between WTO and GATT

GATT focused on promoting trade in goods; WTO’s mandate includes: trade in goods trade in services international intellectual property protection trade-related investment

WTO’s enforcement powers are stronger


Figure 10.1 The WTO’s Principles of the Trading System


WTO Challenges The Cairns Group Multifibre Agreement General Agreement on Trade in Services

(GATS) Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS) Trade-Related Investment Measures

Agreement (TRIMS)


Enforcement of WTO Decisions

Country failing to live up to the agreement may have a complaint filed against it

WTO panel evaluates complaint If found in violation, the country may be asked to

eliminate the trade barrier


Forms of Economic Integration

Free Trade Area

Common Market

Economic Union

Customs Union

Political Union


Figure 10.2 Forms of Economic Integration


European Union (EU) Most important regional trading bloc 27 member countries 491 million population Combined GDP of $14.4 trillion


Map 10.1 The European Union


Governing Organizations of the EU The Council of the European Union The European Commission The European Parliament The European Court of Justice


The European The European Parliament shares Parliament shares responsibility for responsibility for adopting the EU’s adopting the EU’s budget with the budget with the European CommissionEuropean Commission


Figure 10.3 The Co-Decision Procedure


Three Pillars of the Maastricht Treaty

A new agreement to create common foreign and defense policies among members

A new agreement to cooperate on police, judicial, and public safety matters

The old familiar European Community, with new provisions to create an economic and monetary union among member states


Maastricht Treaty

The most important aspect of the

Maastricht Treaty was the

establishment of the Economic and

Monetary Union.


Economic and Monetary Union The creation of a single currency called the

euro European Central Bank - responsible for

controlling the Eurozone’s money supply, interest rates, and inflation


Components of the Treaty for Europe (Treaty of Amsterdam)

A strong commitment to attack the EU’s chronic high levels of unemployment

A plan to strengthen the role of the European Parliament by expanding the number of areas that require use of the co-decision procedure

Establishment of a two-track system


Treaty of Nice Sought to reduce the risk of political gridlock as

the number of members increases reduced number of areas where unanimity is

required for Council approval adjusted number of votes assigned to each

Council member


The North American Free Trade Agreement

Implemented in 1994 to reduce

barriers to trade and investment

among Canada, Mexico, and the

United States


Major Regional Trade Associations

AFTA ANCOM APEC CACM CARICOM CEMAC CER

ECOWAS EU EFTA GCC MERCOSUR NAFTA SADC


Map 10.2 Free Trade Agreements in Central and South America and the Caribbean


Map 10.3 The ASEAN Members


Map 10.4 Asia-Pacific Economic Cooperation Initiative (APEC)


Map 10.5 Free Trade Agreements in Africa


Review Questions Explain what is Economic Integration Discuss the levels of Economic Integration State the reasons for regional economic

integration Discuss the regional economic integration in

Europe, America and elsewhere Identify the opportunities and threats of

regional economic

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