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Slide 1.1
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Introduction to
International business
Chapter 1
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Slide 1.2
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Patterns and trends
• Rapid growth in:
– World trade (exports and/or imports)
– Foreign direct investment (fdi)
– Foreign portfolio investment
– Cross-border mergers/acquisitions.
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Slide 1.3
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Growth in world trade
Figure 1.1 Changes in trade and capital flows Sources: World Bank, UNCTAD (various)
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Slide 1.4
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Growth in fdi
Figure 1.2 FDI inflows: global and by groups of economies, 1980–2007 Source: World Investment Report (UNCTAD 2008), p. 3
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Slide 1.5
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Reasons for increased
internationalisation • 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 treaties
– Bilateral Investment Treaties (BITs)
– Double Taxation Treaties (DTTs).
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Slide 1.6
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
More ‘open’ global markets
Item 1993
1995 1997 1999 2001 2003 2005 2007
Number of countries
that introduced
change
56 63 76 65 71 82 92 58
Number of regulatory
changes
100 112 150 139 207 242 203 98
More favourable to fdi 99 106 134 130 193 218 162 74
Less favourable to fdi 1 6 16 9 14 24 41 24
Source: Adapted from World Investment Report (2008)
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Slide 1.7
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
More globally dispersed value chains (1)
Average annual growth rates (%)
2007 ($bn) 1986–90 1991–95 1996–2000
Sales of foreign
affiliates of MNEs
31,197 19.3 8.8 8.4
Total exports of
goods and
services
7430 15.8 8.7 4.2
Employment of
foreign affiliates
(thousands)
81,615 5.3 5.5 11.5
Total assets of
foreign affiliates
68,716 17.7 13.7 19.3
Source: Adapted from World Development Report 2008
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Slide 1.8
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
More globally dispersed value chains (2)
Region 1990–95
(annual
average)
1996-
2000
2001 2002 2003 2004 2005 2006 2007
Developed
countries
145 581 610 484 364 410 680 920 1248
Developing
countries
74 198 206 220 220 265 310 405 495
South East
Europe and
CIS
6 8 10 11 20 30 31 58 87
Source: Adapted from World Development Report 2008
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Slide 1.9
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Bi-polar to tri-polar (triad)
Figure 1.3 Growth of the global economy, 1992–2020 (index numbers, USA =100) *Forecasts assume countries grow at regional rates projected in the World Bank’s Global Economic Prospects report. Source: World Bank and author’s own work
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Slide 1.10
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Transnationality index (TNI)
• TNI is the average of three ratios:
– Foreign sales : total sales
– Foreign employment: total employment
– Foreign assets : total assets.
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Slide 1.11
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
World’s top 5 multinationals ranked by
foreign assets (and TNI)
Source: Adapted from World Development Report 2008
Ranking
Foreign
assets
Transnationality
index
Company Country Industry Transnationality
index (%)
1 71 General
Electric
USA Electrical and
electrical equipment
53
2 14 British
Petroleum
UK Petroleum 80
3 87 Toyota Motor Japan Motor vehicle 45
4 34 Royal
Dutch/Shell
UK/Netherla
nds
Petroleum 70
5 84 Exxon/Mobil
Corporation
USA Petroleum 68
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Slide 1.12
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
World’s top 5 multinationals ranked by the
transnationality index (and foreign assets), 2006
Ranking
Transnationality
index
Foreign assets Company Country Industry Transnationality
index (%)
1 92 Barrick Gold
Corporation
Canada Gold/Mining 94
2 37 Xstrata plc UK Mining and
quarrying
92
3 48 Linde AG Germany Industrial
trucks/ trailers
89
4 77 Pernard Ricard
SA
France Beverages 87
5 68 WPP Group UK Business
Services
87
Source: Adapted from World Development Report 2008
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Slide 1.13
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Transnationality 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)
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Slide 1.14
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Transnationality Index of the 100 largest
MNEs from developing economies: by
region 2006 Top 100 MNEs from
developing economies
Average TNI
Region/economy
of which
TNI Number of companies
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
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Slide 1.15
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Internationalisation Index (II)
• Number of host economies in which the MNE
has foreign affiliate is a useful indicator of
‘internationalisation’.
• Internationalisation Index (II)
– Ratio of MNE foreign affiliates to total
affiliates, expressed as a percentage.
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Slide 1.16
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Top 5 MNEs, ranked by number of host
economies in their affiliates
Company Home country No. of host
economies
Internationalisati
on index (II)%
Transnationality
index (TNI)%
Deutsche Post AG Germany 111 83 37
Royal Dutch/Shell
Group
Netherlands/United
Kingdom
98 56 70
Nestle SA Switzerland 96 93 83
Siemens AG Germany 89 75 66
BASF AG Germany 88 78 57
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Slide 1.17
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Other global patterns and trends
Growth in:
• Regional Trading Arrangements (RTAs)
– Bilateral Investment Treaties (BITs)
– Double Taxation Treaties (DTTs)
• Sovereign Wealth Funds (SWFs)
• Global security – related costs.
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Slide 1.18
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Regional Trading Arrangements (RTAs)
• Free trade areas
• Customs unions
• Common markets
• Economic unions.
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Slide 1.19
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Free trade area
• Where member countries reduce or abolish
restrictions on trade with each other while
maintaining their individual protectionist
measures against non-members.
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Slide 1.20
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
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.
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Slide 1.21
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Common market
• Where the customs union is extended to
include the free movement of factors of
production as well as products within the
designated area.
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Slide 1.22
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Economic union
• Where national economic policies are also
harmonised among member states within the
common market.
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Slide 1.23
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
International competitiveness (1)
• Most widely used indicator is Relative Unit
Labour Costs (RULCs)
• RULC
Relative Labour Costs × Relative Exchange Rate
Relative Labour Productivity
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Slide 1.24
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
International competitiveness (2)
Country
Total labour costs ($ per
hour)
Total labour costs ($ per
hour Index: UK = 100)
Labour productivity
(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)
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Slide 1.25
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
International competitiveness (3)
Country Rank 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
Source: Global Competitiveness Report 2007 – 8 (adapted)
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Slide 1.26
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Globalisation
• Different perspectives
– Economists
– Political scientists
– Sociologists
– International relations specialists.
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Slide 1.27
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Globalisation definitions (1)
• ‘…the process of transformation 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 function together. This process is a combination of economic, technological, sociocultural and political 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).
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Slide 1.28
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Globalisation definitions (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 communications integration.
Globalisation implies opening out beyond local and
nationalistic perspectives to a broader outlook of an
interconnected and inter-dependent world with the
free transfer of capital, goods and services across
national frontiers’ (Business Dictionary).
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Slide 1.29
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
• ‘…refers to the shift toward a more integrated and
interdependent world economy…[through] the
merging of historically distinct and separate
national 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 information and the results
of research flow readily between countries’ (Black,
J. 2002).
Globalisation definitions (3)
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Slide 1.30
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
• ‘…reflects a business orientation based on the
belief that the world is becoming more
homogenous and that distinctions between
national markets are not only fading but, for some
products, will eventually disappear’ (Czinkota, M.,
Ronkainen, I., Moffat, M. 1999, p.454).
Globalisation definitions (4)
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Slide 1.31
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Globalisation characteristics (1)
• Shrinking space
• Shrinking time
• Disappearing borders.
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Slide 1.32
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
• New markets
• New tools of communications
• New actors
• New rules and norms.
Globalisation characteristics (2)
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Slide 1.33
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
New markets
• Growing global markets in services – banking,
insurance, transport.
• New financial markets – deregulated, globally
linked, working around the clock, with action at
a distance in real time, with new instruments
such as derivatives.
• Deregulation of antitrust laws and growth of
mergers and acquisitions.
• Global consumer markets with global brands.
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Slide 1.34
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
New tools of communication
• Internet and electronic communications 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.
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Slide 1.35
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
New actors (1)
• Multinational corporations integrating their
production and marketing, dominating world
production.
• The World Trade Organisation – the first
multilateral organisation with authority to force
national governments to comply with trade
rules.
• A growing international network of non-
governmental organisations (NGOs).
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Slide 1.36
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
New actors (2)
• Regional blocs proliferating and gaining
importance – European Union, Association of
South-East Asian Nations, Mercosur, North
American Free Trade Association, Southern
African Development Community, among
many others
• More policy coordination groups : G-7, G-8,
OECD, IMF, World Bank.
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Slide 1.37
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
New rules and norms (1)
• Market economic policies spreading around the
world, with greater privatisation and liberalisation
than in earlier decades
• Widespread adoption of democracy as the choice
of political regime
• Human rights conventions and instruments
building up in both coverage and number of
signatories – and growing awareness among
people around the world
• Consensus goals and action agenda for
development.
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Slide 1.38
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
New rules and norms (2)
• Conventions and agreements on the global
environment – biodiversity, ozone layer, disposal
of hazardous wastes, desertification, climate
change
• Multilateral agreements in trade, taking on such
new agendas as environmental and social
conditions
• New multilateral agreements – for services,
intellectual property, communications – more
binding on national governments than any
previous agreements.
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Slide 1.39
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Globalisation outcomes
• Hyperglobalists: powerless nations at the
mercy of ‘footloose’ MNEs which grow ever
stronger
• Transformationalists: no clear predictions
possible as to eventual outcomes of
globalisation.
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Slide 1.40
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Transformationalist view of
globalisation • Conflicting tendencies
– Universalisation v particularisation
– Homogenisation v differentiation
– Integration v fragmentation.
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Slide 1.41
Wall, Minocha and Rees, International Business, 3rd Edition, © Pearson Education Limited 2010
Globalisation and nation state
• Issues include:
– Loss of competence
– Loss of autonomy
– Loss of legitimacy.