Negative impacts of privatization methods on international business
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Negative Impacts of Privatization Methods on International Business. Method Impact Restitution to Emergence of a original owners business class eager to do international business but too small to matter.

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Negative Impacts of Privatization Methods on International Business

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Negative impacts of privatization methods on international business

Negative Impacts of Privatization Methodson International Business

MethodImpact

Restitution toEmergence of a

original ownersbusiness class eager todo international

business but too small to matter


Negative impacts of privatization methods on international business1

Negative Impacts of Privatization Methodson International Business

MethodImpact

Sale of state property - May transfer welfare

stateactivities

new foreign owners

- Existing managers may

resist new control


Negative impacts of privatization methods on international business2

Negative Impacts of Privatization Methodson International Business

MethodImpact

Mass privatizationManagers & employees may retain control

State interference may continue

New domestic owners not interested in foreign investors


Soviet command system impact on current economy

Soviet Command SystemImpact on Current Economy

Command SystemCurrent Economy

Taxing “surplus” → Confiscatory taxes

Consumptionlimits→ Shortage of retail services

Price controls →Prices liberalized, controls on key products remain


Soviet command system impact on current economy1

Soviet Command SystemImpact on Current Economy

Command SystemCurrent Economy

Vertical integration of → Vertical integration of large firms large firms firms

(lack of flexibility)

Weak accounting → Weak accounting for risk and value


Soviet command system impact on current economy2

Soviet Command SystemImpact on Current Economy

Command SystemCurrent Economy

Import substitution → Some import policies substitution

policies remain

Corruption =Corruption


Problems encountered by u s investors in russia

Problems Encountered by U.S.Investors in Russia

Asset strippingJoint venture partners or companies seeking foreign capital look good on paper but

are in poor shape

(Gazpom)


Problems encountered by u s investors in russia1

Problems Encountered by U.S.Investors in Russia

ExtortionPayments for “security

services” can be high.

Marketing and Transportation difficulties, distribution communication difficult, few stores exist


Problems encountered by u s investors in russia2

Problems Encountered by U.S.Investors in Russia

ControlCommercial law regarding

property rights is weak.


Problems encountered by u s investors in russia3

Problems Encountered by U.S.Investors in Russia

So why bother? 


U s investors in china

U.S. Investors in China

Industries

• chemicals• non-electric machinery

• food products• transportation equipment

• service firms• consumer goods


U s investors in china1

U.S. Investors in China

Goals

 • avoid Chinese trade• export of low- barriers tech, low cost

products

• match E.U. and • develop local Japanese competitors’ markets

strategic moves

• obtain infrastructurecontracting work


U s investors in china2

U.S. Investors in China

Government Requirements (occasional)

•technology transfer• hiring and training local managers

•export orientation• location in designated areas

•many industries off • local content

limits

•use of designated trading and distribution

organizations


China more worry over loans

China More Worry Over Loans

NYT 5/10/02


China more worry over loans1

ChinaMore Worry Over Loans

  • Banking system dominated by four giant commercial banks, all state owned

  • Under Mao banks were used to funnel state subsidies to local enterprises

  • How much companies received had nothing to do with how much was repaid

  • 1999 Government directed $179billion write off (12%) of outstanding loans


China more worry over loans2

ChinaMore Worry Over Loans

  • Foreign banks have less than 2% of all deposits and loans

  • WTO rules call for opening banking system to foreign competition over the next 5 years


China more worry over loans3

ChinaMore Worry Over Loans

  • Dai Xianglung, Head of Central Bank recently said 25-30% loans are not being repaid

  • Standard & Poor estimates it is 2X as bad as stated, i.e., 50% loans are bad

  • US banks with assets > $1billion just 1.5% of loans are more than 90 days overdue

  • In Japan bank bad loans are not not more than 15%


China more worry over loans4

ChinaMore Worry Over Loans

  • Banks are propping themselves up by issuing more loans at “furious” rate often for vaguely described projects with little discernable effect on improving the economy

  • More stringent rules on loans will push bad loan % even higher

  • Goal = reduce bad loans to 15% in 5 years


China more worry over loans5

ChinaMore Worry Over Loans

  • Bank of China

  • China Construction Bank

  • Industrial & Commercial Bank of China

  • Agriculture Bank of China

    Preparing to sell minority stakes to offset bad loans

  • Bank of China furthest along – expects to sell stock in HK and NY this year


Bank of china

Bank of China

NY Times 2/1/02


Bank of china1

Bank of China

Lax banking practices in China:

  • $320 mio bank funds diverted through unlawful loans, off-the-books granting of LCs and issuing bank bills


Bank of china2

Bank of China

Lax banking practices in Hong Kong:

  • Scheme to launder $73 mio from Kaiping, China branch


Bank of china3

Bank of China

Lax banking practices in US:

  • Preferential treatment of “certain” customers: fraudulent LCs, pledged assets sold

  • $20 mio fine for similar practices in US


Bank of china4

Bank of China

Lax banking practices in Canada:

  • RCMP investigating money illegally taken from Bank of China ended up in Canada


Bank of china5

Bank of China

  • “These incidents are only the tip of the iceberg”

  • “Every bank in China has problems like this.”

  • Reports from China’s audit office indicate illegal use of 160 bio renminbi ($20 bio)


Foreign fund firms face hurdles in china

Foreign Fund Firms Face Hurdles in China

  • As China joins WTO - European and US fund firms competing to find Chinese partners for access to:

  • $600 million invested in Chinese stock market

  • Hundreds of billions stashed away in bank deposits, state pension funds and social security


Foreign fund firms face hurdles in china1

Foreign Fund Firms Face Hurdles in China

Proposed rules:

  • Joint Venture (very costly) – buy 33% stake, paid for in cash

  • Buy 33% stake in existing domestic fund manager; possible increase to 49% in 3 years

  • Almost all of the 15 Chinese companies have agreements with foreign fund


Foreign fund firms face hurdles in china2

Foreign Fund Firms Face Hurdles in China

  • Buying in a 33% stake in Chinese fund managing $1 billion is a steep price

  • Convince shareholders to pay cash for company they can’t control?

  • Buying in also buys into past liabilities


Foreign fund firms face hurdles in china3

Foreign Fund Firms Face Hurdles in China

  • Setting up joint venture with Chinese funds time consuming and at a disadvantage against the top established Chinese funds


Foreign fund firms face hurdles in china4

Foreign Fund Firms Face Hurdles in China

  • Why only these two options?

  • Chinese Securities Regulatory Commission (CSRC) has limited resources

  • Foreign joint venture creates a new category requiring another level of regulation

  • CSRC may also be favoring domestic funds to ensure they are in good shape before partnering with foreign funds


Chinese multinationals

Chinese Multinationals?

  • Name a famous global Chinese brand?

  • Tsingtao Beer

  • Ever heard of: Haier Group?


Chinese multinationals1

Chinese Multinationals?

Haier Group – China’s largest appliance manufacturing company


Haier group

Haier Group

  • In 1990s opened factories in 10 countries

  • In 2000 opened $30 mio factory in US


Haier group1

Haier Group

  • Camden, SC plant makes compact refrigerators sold by Wal-Mart, Home Depot, and others

  • Captured 30% US market share


Haier group2

Haier Group

  • Shipping from China costly and takes 40 days

  • Able to put “made in USA” on products

  • Cheap R&D & machinery shipped from China provide cost advantages


Haier group3

Haier Group

  • Rolling out other products for US:

    • Freezers, air conditioners, flat panel TV, DVD players, microwave ovens

  • US sales about $500mio – 85% imported – US company is profitable


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