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Nov 2008 - IBMP

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Nov 2008 - IBMP Powered By Docstoc
					      Integrated Bachelor’s and Master’s Degree Program
       In Accounting and Business Management (IBMP)
 Faculty of Commerce and Accountancy, Thammasat University




กธ. 322 กลยทธ และการดำเนนธรกจระดบโลก
BI. 322 Global Business and Strategy

                    13 November 2009



                Mr. Gavintorn Atthakor
              Email: gavin.boat@gmail.com
                Presentation From Last Week’s Readings

1   “Sidestepping Economies of Scale”, 5 Future Strategies You Need to Know Right Now
    by George Stalk (Senior partner of The Boston Consulting Group)

2   “Losing its shine” (Japan’s luxury goods market), The Economist (September 20th,
       2008)

    “Minding the Cost Gap”, Globality: Competing with Everyone From Everywhere For
3
       Everything, HL Sirkin, JW Hemerling, AK Bhattacharya




                                                                                        1
                             Homework and Readings

1 Find out information about these international organizations and prepare a short 5-10
     minutes presentation on their roles and responsibilities. How do they affect
     multinational companies? What are the arguments in favor of international
     organizations? What are the arguments against? Which do you think are stronger?
      • WTO
      • IMF
      • World Bank
      • UN

2 “The Rise of State Capitalism”, The Economist (September 20th, 2008)




                                                                                          2
Top Sovereign Wealth Funds




                             3
                             Who Are the Global Institutions?
                               And What Are Their Roles?


WTO                                              IMF


• Established in 1995 (out of GATT)
• Objective: Promote free trade
      - Deals with international trade issues    • Established at the end of WW2 (Dec, 1945)
      - Ensure that member countries adhere to   • Objective: Provide loans to its members in time
      policies and agreements                     of crisis




WorldBank                                        UN


• Established in 1944                            • Established in 1945 after WW2
• Objective: Provide financial support to        • Objective to maintain international law, protect
 developing countries to reduce poverty and       human rights and promote world peace
 promote sustainable development




                                                                                                      4
                           Recent Loans by IMF



• Sep 2008 - $750 mil. To Georgia (following conflict with Russia)

• Nov 2008 - $7.6 bil. To Pakistan

• Nov 2008 - $ 2.1 bil. To Iceland




        Who are the recent recipients of loans from IMF since subprime crisis?




                                                                                 5
                 Other Loans and Policies Didn’t Do So Well


                  Thailand                                              Argentina

In August 1997, Thailand received a                  In the 1990’s, Argentina was the “poster child”
$ 14.5 bil. Loan from IMF                            of the IMF model
                                                       • Tear down trade/investment barriers
                                                       • Privatize public services
Conditions:                                            • Weaken labour laws
 • Baht floats                                         • Abolished price controls (Tariff went from
 • Increase interest rates                               40% to 9%)
 • Balance budget (reduced government                Late 1990’s, economy took a downturn, but IMF
   spending)                                         kept pumping in $ (with conditions)

                                                     By 2001, total debt was $ 141 bil. which it wasn’t
                                                     able to pay – Major recession
                                                      • Bank froze deposits
                                                      • Currency depreciated
                                                      • Unemployment was 50%




           Businesses went bankrupt, foreign investors swooped in to buy “cheap assets”

                                                                                                          6
                                     “The Unholy Trinity”


World Bank and IMF                               WTO




• Richer countries gets more votes               • Voting System
For example,                                           - One country, One vote
                                                       - But actually done by consensus
USA gets ~16-18% of shares (or quotas)
G-7 controls 47% of IMF’s votes                  • In order to get a consensus…
                                                       - Break out into small groups
• Voting System                                        - Thus, favoring large countries who can
      - “Supermajority” = requires > 85%               send large delegates and has more
                                                       negotiating power
USA can veto any issues/policies it does not
agree.                                           • Stated aim of “Promote Free Trade”
                                                       - Abolish tariffs, quotas, regulations and
                                                       barriers
                                                       - Divergence of income


                                                                                                    7
                    How Does Politics Impact Business?

Political uncertainty leads to poor public (domestic and international) sentiments.

Uncertainty usually leads to lower retail (consumer) spending and business investments.
   • Reduced foreign direct investments
   • Adverse affects on tourism
   • Disrupts trade (imports and exports)




                                                                                          8
Examples of Political Uncertainties (1)
           Protests in Thailand




                                          9
                          Examples of Political Uncertainties (2)
                                            Unrest in Somalia


Civil war and political unrest led to inflation and
food shortages…
      • Drove many Somalian into piracy

In 2008 alone, there have been 95 attacks on
commercial ships and fishing boats of the coast
of Somalia
     • 39 successful hijacks
     • Estimated $ 150mil. paid on ransom

Largest hijacked ship, MV Sirius Star on 17 Nov
2008
     • 330-meter oil tanker
     • Carrying crude oil worth $100 mil.
     • Ransom = $ 15-25 mil.

Impacts…
    • Disrupt shipping and trade routes
    • Increased shipping insurance costs
    • …not to mention ransom money paid


                                                                    10
How Will The New US President Affect Thailand?

               Democrats                                              Republicans
               Prefers regulations and                   Favours free market and
               protectionism                                            capitalism
               Believes that government should             Favours deregulations
               play active role in the economy          Believes the economy will
               Government are best allocator of                     corrects itself
               resources                            Companies are best allocator of
               (Increased corp. taxes)                                  resources
                                                            (Reduced corp. taxes)




                 Therefore, Obama is more likely to favour and protect American
                 industries ?

                                      • How will it affect exports from Thailand?




        Protectionism or Free-Market? Which is Better?


                                                                                      11
                                          Mozambique’s Economic Miracle

      • In June of 2061, Tres Estrelas, the largest African business group, unveiled a
        breakthrough technology for mass production of hydrogen fuel cells.
      • This new technology is set to replace alcohol as the main source of power for
        automobiles. Tres Estrelas is bound to pose a threat to the leading fuel producers, like
        Petrobras of Brazil and Alconas of Malaysia
      • Tres Estrelas came from humble beginnings. It started out exporting cashew nuts and
        then diversified into textiles and sugar refining. It later made bolder moves into
        electronics.
      • Its move into fuel cells initially generated much skepticism. The division ended up
        bleeding money for the first 17 years.
      • However, the company persisted and has become the symbol of the economic miracle
        of Mozambique.
      • Only just 60 years ago, Mozambique had a per capita income of $80 and was one of the
        poorest countries in the world. It had deep political divisions and its government had
        rampant corruption.
      • However, since then, Mozambique’s economic miracle has transformed it into one of
        the richest economies in Africa.



Source: “Bad Samaritans”, Ha-Joon Chang
                                                                                                   12
                                   Tre Estrales = Three Stars = Samsung


            •    Sumsung is now one of the world’s leading exporters of mobile phones,

                 semiconductors and computers

            •    In 1938, it started out as an exporter of fish, vegetables and fruits.

            •    In early 1970’s it main lines of business were sugar refining and textiles

            •    In 1974, it acquired a 50% stake in Korea Semiconductor

            •    In 1983, it declared it’s intention to design its own chips….. (Few were convinced)




Source: “Bad Samaritans”, Ha-Joon Chang
                                                                                                       13
             What’s the reason for Korea’s successes? Neo-Liberalism?

      Neo-Liberal = Concept by Adam Smith (18th Century)

            •    Follow free market
            •    Sound monetary policies (low inflation)
            •    Small government
            •    Private enterprise
            •    Free trade
            •    Friendliness towards foreign investment
            •    Unlimited competition in free market




Source: “Bad Samaritans”, Ha-Joon Chang
                                                                        14
                                                         No
                                     What Korea Did Between the 1960’s and 1980’s…



      •    Nurture certain new industries

      •    Government owns ALL banks – control all credit

      •    Government has absolute control over scarce foreign exchange

      •    Heavily controlled foreign investments

      •    Laxed attitude towards foreign patents




Source: “Bad Samaritans”, Ha-Joon Chang
                                                                                     15
                                     Another Non- “Neo-Liberal” Story….

      Once upon a time, a leading car maker of a developing country exported its first
      passenger cars to the USA.
         • A cheap subcompact (“four wheels & an ashtray”)
         • A big and proud moment for the country…
         • …unfortunately the product failed

      Critics said…
           • Stick to original business of making simple textile machineries
           • You’ve failed at making cars after 25 years, there’s no future for it
           • Profits are high at home because you’ve kept tariffs high
           • 10 years ago, public money was used to safe the company from bankruptcy
           • Time to re-open the market to foreign car makers (which you’ve kicked out 20
              years ago)




Source: “Bad Samaritans”, Ha-Joon Chang
                                                                                            16
                        The Year Was 1958, The Country Was Japan,
                                 The Company Was Toyota

            •    Car was called Toyopet

            •    Toyota started out as a manufacturer of textile machinery (Toyoda Automatic Loom)

            •    In 1933, it started to manufacture cars

            •    In 1939, The Japan government kicked out General Motors and Ford

            •    In 1949, the government bailed out Toyota with money from the central bank

            •    The company never made a profit from cars for over 20 years.




            •    50 years since it first entered the US market, the Lexus has become an icon of the

                 automotive industry

Source: “Bad Samaritans”, Ha-Joon Chang
                                                                                                      17
                      How Rich Countries Became Rich


                   UK                                          USA

• Protectionism to create the Woolen         • US tariffs on manufactured imports
  manufacturing industry in the 15th           remained highest in the world at 40-
  century                                      50% until WW1
• Walpole’s legislation in 1721, protected   • Only after WW2 (now that it’s industrial
  British industries through subsidies         supremacy is unchallenged) did it
  and tariffs (high on finished products       liberalized its trade
  and low on RM)                             • Between 1950’s – mid 1990’s, the US
• Used to banned export of machinery           govt funded 50-70% of total R&D
• In 1820, Britain’s average tariff rates    • Refused to protect foreign copyright
  where 45-55% (Low Countries 6-8%,            until 1891
  Germany 8-12%)
• Banned exports from its colonies that
  competed with its own (e.g. Indian
  cotton)
• Free trade implemented (no tariff) only
  in 1860



                                                                                          18
                           Rules and Regulations That Affect Businesses


            Business regulations to consider..                   …Other factors

     Ease of doing business                         • Location
       • Simplified business regulations            • Security
       • Ease tax burdens                           • Government transparency
       • Fair labour laws                           • Macroeconomic factors
       • Increase access to credit                  • Underlying strengths
       • Reduced cost of importing and
         exporting
       • Protecting investors




Source: “Doing Business 2008”, World Bank
                                                                                  19
Thailand Ranks #15 In Terms of Ease of Doing Business


                     • Singapore

                    • New Zealand

                       • USA

                     • Hong Kong

                     • Denmark




                                                        20
                       Summary of Today’s Lesson


•   Don’t blindly listen to international organization or “rich countries”

•   Don’t do as they say or do (now that they’re rich), but as they did (when they’re

    poor)

•   Neo-liberalism is not always good. Protectionism is not always bad. (e.g. Korea,

    Japan and India)

•   Politics and business are inter-connected. Each affecting the other

        – Need to consider various geo-political issues




                                                                                        21
                             Homework and Readings


1   “The Meltdown Goes Global”, Time Magazine, October 20th 2008          Discussed
                                                                         on December


2   “The Bigger World”, The Economist, September 20th 2008                Discussed
                                                                         on December
    “The New Champion”, The Economist, September 20th 2008




                Note:


                Short Quiz On Friday 27th November (on all 3 Articles)




                                                                                       22

				
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