bab

Document Sample
bab Powered By Docstoc
					     Business Across Borders
• Objectives of this session
  – Define ―international.‖
  – Introduce the key international business (IB)
    transactions and entities.
  – Analyze the factors that make international
    business more costly than domestic business
    and—potentially—more rewarding: The six
    forms of separation.
                Transactions
• Current Account
  – Goods
  – Services
  – Income payments
• Financial Account
  – Portfolio Investment
  – Direct Investment
 Foreign exchange transactions underlie these
 transactions
         Goods transactions
• The transfer of ownership of a tangible
  and moveable object. Trade is usually
  accompanied by the transfer of ―title of
  ownership.‖
• Identifying the ―nationality‖ of a good can
  be tricky because portions of goods are
  produced in different countries.
          Services transactions
• Def.: Actions performed by a provider that benefit a
  consumer.
• Balance of payments transactions are based on the
  residence test. They include:
   – a lawyer resident in Canada giving legal advice via
     phone, email, fax to a client in the United States
   – Chinese accountants travelling to Canada to learn
     about international business from an American who is
     resident in Canada
• WTO covers other modes of service provision as well:
   – ―Commercial presence‖ covers services provided by
     foreign branches and subsidiaries
  Service categories used by WTO
(1) business (including professional and computer)
(2) communication
(3) construction and related engineering
(4) distribution
(5) educational
(6) environmental
(7) financial (insurance and banking)
(8) health-related and social services
(9) tourism and travel-related
(10) recreational, cultural, and sporting
(11) transport
(12) other
          Income payments
• Primarily payments to foreign investors
  – Dividends
  – Interest payments
             Financial account
• The financial account records changes in foreign
  ownership of assets
• Direct investment occurs when ownership involves ―an
  effective voice in management.‖
   – The International Monetary Fund recommends 10%
     equity as the critical share necessary for ―an effect
     voice‖
• Portfolio investments are ―passive‖
• Multinational enterprises (MNEs) are defined as
  companies with direct investment
    Canada’s IB transactions in 2008, $Cdn

Transaction           + Money in (Bn$)   - Money out (Bn$)

Goods (exports+)            489.9              443.0

Services (exports+)          70.5               93.0

Income (receipts+)           71.7               86.9

Portfolio (inward+)          29.0              -13.6

Direct (inward+)             47.7               83.9
      China’s IB transactions in 2008, $US

Transaction           + Money in (Bn$)   - Money out (Bn$)

Goods (exports+)           1434.6              1073.9

Services (exports+)         147.1              158.9

Income (receipts+)           91.6               60.2

Portfolio (inward+)          67.7               25.0

Direct (inward+)            163.1               68.7
          Test your knowledge of
            international trade
• What is the ratio of world exports (goods and services) to
  world GDP in 2007? (10%, 30%, 50%)
• What is the ratio of world service exports to world goods
  trade in 2007? (10%, 23%, 53%)
• Name 3 of the top 5 exporting countries in the world
• Name 3 of the top 5 countries with the highest exports to
  GDP ratios
• What are Canada’s leading imports, exports?
• What is the U.S. share of 2007 Canadian exports (50%,
  65%, 80%)?
• What are China’s leading imports, exports?
• What country receives the most Chinese exports? What
  country does China import most from?
                World GDP and Trade (US$ trillion)
$50


$45

$40                 GDP

$35                 Goods exports

$30                 Services exports

$25

$20


$15


$10

$5


$0
      1975   1980         1985         1990   1995   2000   2005
Top Goods Exporters, 2008, US$ bill.
 Country                Exports
 Germany                 1498.2
 China                   1434.6
 United States           1295.4
 Japan                    746.5
 France                   601.8
 Italy                    546.9
 Netherlands              534.1
 Russian Federation       471.6
 Canada                   462.7
 Korea, Rep.              433.5
 Belgium                  373.0
 Hong Kong, China         365.2
Top Goods Importers, 2008, US$ bill.
  Country               Imports
 United States           2166.0
 Germany                 1206.2
 China                   1133.0
 Japan                    762.0
 France                   707.7
 United Kingdom           631.9
 Netherlands              573.9
 Italy                    556.3
 Belgium                  469.9
 Korea, Rep.              435.3
 Canada                   418.3
 Spain                    402.3
Goods Trade Balances, 2008, US$ bill.

 Country                Balance
 China                    295.4
 Germany                  259.0
 Saudi Arabia             217.1
 Russian Federation       179.8
 Norway                    78.9
 United Arab Emirates      72.7
 Turkey                   -70.0
 France                   -99.0
 India                   -112.5
 Spain                   -134.2
 United Kingdom          -173.9
 United States           -865.5
China’s Exaggerated Trade Surplus with the U.S.




    Korea
                                       USA
            Parts
                         Final goods
            $100
                         $110


             China            China registers a $110 export to USA
            (assembly)        but there is only $10 of Chinese value
                              added!
Top Service Exporters, 2008, US$ bill.
 Country                 Exports
 United States            540.4
 Germany                  246.7
 France                   161.7
 Japan                    148.8
 China                    147.1
 Spain                    143.6
 Italy                    123.5
 Netherlands              104.5
 Ireland                   99.3
 Hong Kong, China          92.5
 Belgium                   88.6
 Switzerland               76.9
Top Service Importers, 2008, US$ bill.

  Country                Imports
 United States            404.7
 Germany                  285.0
 Japan                    169.5
 China                    158.9
 France                   140.7
 Italy                    134.4
 Ireland                  106.2
 Spain                    104.4
 Korea, Rep.               92.7
 Netherlands               91.6
 Canada                    87.7
 Belgium                   82.2
Service Trade Balances, 2008, US$ bill.

Country                  Balance
United States             135.7
Hong Kong, China           46.6
Switzerland                40.1
Spain                      39.2
Luxembourg                 28.6
Greece                     25.6
Brazil                    -16.7
Korea, Rep.               -16.7
Japan                     -20.8
Canada                    -21.3
Russian Federation        -25.0
Germany                   -38.2
   Exports of Goods and Services as % of GDP
Rank   Country                     Amount (top to bottom)
  #1   Singapore                                   173.56
 #11   Belgium                                      84.42
 #22   Thailand                                     66.26
 #23   Netherlands                                  65.06
 #55   Sweden                                       46.45
 #65   Canada                                       43.81
 #70   Indonesia                                    41.08
 #84   Russia                                       36.81
 #85   New Zealand                                  36.74
#102   Spain                                        29.92
#105   Poland                                       29.12
#110   France                                       27.91
#113   Mexico                                       27.61
#115   United Kingdom                               27.12
#119   China                                        25.83
#126   Australia                                    22.85
#149   India                                        13.65
#150   Brazil                                       13.36
Canadian Trade ($cdn billion)
                                    2004    2005    2006    2007    2008
Exports                             429.0   450.2   454.0   463.1   489.9
Agricultural and fishing products    30.7   30.1     31.2   34.4    40.9
Energy products                      68.1   86.9     86.8   91.3    125.8
Forestry products                    39.4   36.4     33.4   29.3    25.7
Industrial goods and materials       78.0   84.2     94.2   104.8   111.5
Machinery and equipment              91.1   93.0     93.3   93.4    93.0
Automotive products                  90.4   88.0     82.3   77.3    61.1


                                    2004    2005    2006    2007    2008
Imports                             363.2   387.8   404.3   415.2   443.0
Agricultural and fishing products    21.4    22.0    23.5    25.5   28.5
Energy products                      24.8    33.7    34.7    36.7   53.1
Forestry products                    3.2      3.1    3.1      3.0    2.9
Industrial goods and materials       73.5    78.5    83.9    85.1   91.6
Machinery and equipment             104.1   110.9   114.7   116.7   122.6
Automotive products                  77.4    78.4    79.8    79.9   72.0
Canada
Exports         2003    2004    2005    2006    2007
(billion $US)
U.S.            326.7   348.1   365.8   359.3   356.0
UK                6.1     7.7     8.3    10.1    12.8
China             4.8     6.8     7.1     7.7     9.3
Japan             8.2     8.6     9.2     9.4     9.2
Mexico            2.2     3.1     3.4     4.4     5.0
Netherlands       1.6     1.9     2.2     3.1     4.0
Total           381.1   412.3   436.3   440.3   450.4
Canada
Imports         2003    2004     2005    2006    2007
(billion $US)
U.S.            203.8   209.0   215.2   217.6   220.5
China            18.6    24.1    29.5    34.5    38.3
Mexico           12.2    13.4    14.6    16.0    17.2
Japan            13.8    13.5    14.8    15.3    15.5
Germany           8.6     9.4    10.3    11.1     11.5
UK                9.2     9.7    10.4    10.9     11.5
Total           336.1   355.9   380.9   396.6   406.7
        Chinese trade, 2006, $billion
China’s exports

United States                           305.8
Hong Kong                               153.7
Japan                                   118.4
Germany                                  54.5
Korea, Rep.                              44.1
Netherlands                              39.0

China’s imports

Japan                                   115.8
Korea, Rep.                              89.8
United States                            59.3
Germany                                  37.9
Malaysia                                 23.6
Australia                                19.2
       Six Forms of Separation
•   Political separation
•   Physical separation
•   Relational separation
•   Environmental separation
•   Developmental separation
•   Cultural separation
Political Separation
       Political Borders Impede
•   Movement of goods: Customs
•   Movement of people: Immigration
•   Movement of money: Currency exchange
•   Movement of capital: Regulation, Taxation
   Political separation and standards

• Societies must adopt standards to ensure
  compatibility
  – currency
  – language
  – voltage
  – paper size
• These standards may vary across political
  boundaries
           Different Keyboard Standards


QWERTY




France’s
AZERTY
What share of the world drives on the left?




  1/3 of the world’s population drives on the left!
  (so their cars should have steering wheels on the right)
Standard changes are rare, but there are strong pressures
     to conform to practices of neighboring countries.
BC (1922), New Brunswick (1922),     Sweden switched twice!
Nova Scotia (1923), PEI (1924),      (in 1736 to the left and
and                                  1967 back to the right)
Newfoundland (1947) switched.
            AC Power Plugs


U.K., Hong Kong, parts of Africa



   Europe, parts of Middle East


          Australia, China
―Metrication‖ everywhere (except US, Liberia, and Burma)
        Paper sizes




210mm X 297mm     216mm X
(rest of world)   279mm
English is the 3rd or 4th most common native
                   language.

  English is an official language in 52 countries




It is spoken/understood to some extent by 1/4 to 1/3 of the world
        Physical Separation
• Natural barriers to movement of goods,
  people, and information.
  – Oceans
  – Mountains
  – Distance: costs associated with transport
    (goods, people) and communication
    (information) costs
    • Costs include shipping costs as well as time costs
      (inventory holding costs, costs of delay getting
      goods to customers)
Physical Separation
Relational Separation
    Relationships, Trust, & Trade
• Ingredients for a profitable transaction
  – Matchmaking: profitable match between buyer and
    seller
  – Seller fulfills promise: must deliver good/service on
    time and in proper quantity and quality
  – Buyer fulfills promise: must pay seller
For domestic transactions
  – How do sellers match to buyers?
  – What ensures buyer and seller fulfill promises?

  What difficulties exist when transaction is international?
Environmental Separation
Environmental Separation
 Environmental Separation: Why?
• Foreign countries are far away (physical
  separation)
• Far away countries tend to be different
  – Temperature (distance to equator, coast,
    altitude)
  – Precipitation
  – Soil types and underground mineral reserves
  – Population density
 Environmental Separation: So What?

• Differences create opportunities (counter-
  seasonal fruit exports from Chile, Saudi
  oil)
• Differences change consumer demands
  – Trucks in mountainous countries must have thicker
    axels, more likely to prefer diesel engines.
  – Trucks in dense countries must have a tight turning
    radius.
Developmental Separation
  Developmental Separation: How to Measure it?

• Multiple indexes: Life expectancy, poverty, …
   – Canada: 79.2 years, 0% live on <$1/day
   – China: 70.2 years, 16% live on <$1/day
   – Indonesia: 66.2 years, 7.2% live on <$1/day
   – Nigeria: 51.8 years, 70% live on <$1/day
• Economists focus on real income per person (also
  known as per capita GDP)
PPP
Developmental Separation
 Developmental Separation: So What?

• Income differences affect how much
  consumers can purchase and also the
  attributes of goods that they demand.
• Incomes differences may reflect
  differences in skill levels. Poor countries
  may not be cheap countries if production
  requires high skills
Cultural Separation
            Globalization
• International trade and investment has
  been growing over time. Of course, world
  output (GDP) has grown over time as well.
• Globalization occurs when international
  transactions increase more rapidly than
  GDP
2000


                           Merchandis e trade
1000




                                          GDP



200




100


             GATT                         WTO
            created                      created
 50
     32
 1929/ 38    48       60   70    80     90 1995
Growth of trade and GDP (1975=100)

1700



1500


                                    Goods
1300
                                    GDP

1100                                Services


 900



 700



 500



 300



 100
   75

          77

                 79

                        81

                               83

                                       85

                                              87

                                                     89

                                                            91

                                                                   93

                                                                          95

                                                                                 97

                                                                                        99

                                                                                               01

                                                                                                      03

                                                                                                             05
 19

        19

               19

                      19

                             19

                                     19

                                            19

                                                   19

                                                          19

                                                                 19

                                                                        19

                                                                               19

                                                                                      19

                                                                                             20

                                                                                                    20

                                                                                                           20
       Globalization of firms
• Foreign sales: many multinationals sell the
  majority of their products abroad. Often
  they employ more workers abroad than at
  home.
• Multinational vertical networks:
  multinationals have divided the product
  into (vertical) stages and dispersed these
  stages across the globe.
         Article-One World
• Reasons for globalization
  (1) Falling transportation and
  communication costs
  (2) Reductions in trade barriers
• Historical perspective: Some countries
  were as ―globalized‖ in 1914 as they are
  today.
• Labour is still somewhat immobile across
  countries.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:49
posted:9/25/2011
language:English
pages:56