Chapter 14 Doing business in advanced economies

1. Chapter 14Doing business in advanced economies

2. Lecture plan • Definition of advanced economies (AEs) • Import markets in ICs – Western Europe; North America; Japan; Australia and New Zealand; newly industrialised economies (NIEA-4) • Trade issues in AEs • Export marketing aspects • Investing in AEs

3. Features of advanced economies • High per capita income and standard of living • Market based economic systems; limited government intervention • Mature secondary sector; dynamic tertiary sector • Rational macroeconomic policies • Sophisticated financial systems • Well-developed infrastructures • Advanced communication networks • High-level education and training

4. Advanced economies as mixed economies • Predominance of private sector • domestic firms (small, medium, large) • MNEs • Various degrees of government intervention • Substantial freedom for markets and MNEs

5. Government involvement in production of goods and services • Government sector: about 1/3 of GDP of ICs + 10% of GDP for government companies • Government ownership: electric and telephone utilities; banking, petroleum • Australia • about 1/4 of GDP ( >US and UK; <West Europe) • Privatisation trends in 1990s

6. Government involvement in international business • OECD: Principle of national treatment for non-nationals (no discrimination against foreign firms). • Government control of international trade and investment • tariffs; non-tariff measures; taxes • export support measures

7. Shares of main groupings in total imports of goods and services of advanced economies (AEs) in 2003 NIEA = Newly Industrialised Asian Economies Source: adapted from WTO, International Trade Statistics 2004

8. Merchandise import markets in advanced economies (W. Europe, N. America, Japan), U$S billion and %, 2003 • Merchandise imports of the Triad (US$5065) • primary products (21.5–41.43%) * food; raw materials; ores and minerals • manufactures (58–78%) * iron and steel * chemicals * other semi-manufactures * machinery and transport equipment (28–46.5%) * textiles * clothing * other consumer goods

9. Australia and New Zealand’s merchandise imports by source (%), 1990 and 2003 Source: adapted from WTO International Trade Statistics 2001, 2004, Table A2

10. Merchandise imports of NIEAs by source, 2003, US$ billion and % Source: adapted from Asian Development Bank statistics, http://www.adb.org

11. Trade policy issues • Free trade agreements • Protection policy issues • Export marketing issues • Cultural differences • US vs Europe • US vs Australia/New Zealand

12. Export marketing aspects • Very competitive markets (local/regional and foreign competition) • Intra-MNE trade • Sophisticated marketing techniques • market segmentation

13. Export marketing aspects cont. • Price-setting strategies • standard; dual; market-differentiated pricing • ‘gray markets’ (parallel importation) • High media spending (e.g. US, Switzerland) • legal differences in advertising • Distribution channels tend to be shorter than in developing countries

14. Advertising expenditure per head ($US) and by medium (%) , 2003 Source: adapted from Euromonitor, Global Market Information Database, January 2005

15. Foreign direct investment in the Triad • Increasing concentration (‘the Triad’) 1999–2000 • 80% of global FDI inflows • 78% of global FDI outflows • US and EU > inward FDI than Japan • foreign affiliates: 1.5% of total sales in Japan • Sectoral shifts since mid 1970s • services up; primary/secondary sectors down • banking: the leading service sector

16. FDI inflows into Oceania, 1993–2003, $US billion Source: adapted from UNCTAD, World Investment Report, 2004

17. Investment considerations • Political stability • Nationalisation; government controls • prices, pollution • Economic outlook(e.g. synchronised cycles) • Attitude to foreign investment

18. Investment considerations cont. • Taxes • Incentives • Personnel, labour and social considerations • Exchange rates • Ease of doing business