the emerging global economy

The Emerging Global Economy

Barriers to trade are coming down Allowing free flow of goods,

services & capital The volume of cross country trade

is increasing Making the economies more

interdependent More countries are joining the

ranks of developed world

List of developed countries

 Andorra•  FaroeIslands•  Ireland•  Monaco•  Spain•  Australia•  Finland•  Israel•  Netherlands•  Sweden•  Austria•  France•  Italy•  New Zealand•  Switzerland•  Belgium•  Germany• Japan•  Norway•  Turkey•  Bermuda Greece•  Liechtenstein•  Portugal•  United Kingdom•  Canada•  HolySee•  Luxembourg• SanMarino•  UnitedStates•  Denmark• Iceland•  Malta•  South Africa

High income      Upper-middle income      Lower-middle income      Low income

Strengthening of Global Economy Adoption of liberal economic

policies State-owned business privatized Deregulation adopted Markets opened to more

competition Commitment increased to

removing barriers to cross-border trade and investment

Powerful Market-oriented economies Czech republic Poland Brazil India China South Africa

INDICATION

Favorable world for the practice of International

business

Other side of the coin…..

Countries may pull back from the current liberal economic ideology if their experiences do not match their expectations

LESSON TO LEARN FROM THE ASIAN CRISIS OF 1997-98

Asian financial Crisis

Trigger for the Asian crisis – 2nd July 1997

Started with the Thai govt. announcement

Reached to Philippines and Malaysian Govt.

Soon other economies become involved – Taiwan, Hong Kong, Singapore

Oct 1997 – crisis roll all over the world

1998 – Russia and Brazil Also threatened the economies of

developed world including US Risks associated with global

financial contagion are also greater

Modes of IB

Merchandise Exports & Imports Service Exports & Imports

Tourism & Transportation Performance of services banking,

insurance) Use of assets (trademarks, patents,

copyrights, licensing agreements) Franchising

Investments Direct Investment Portfolio Investment

Entry Modes

Which Markets to enter When to enter What scale

How ??

Entry Modes

Exporting Licensing Franchising Joint-ventures Wholly-owned subsidiary Turnkey Projects

Exporting

Advantages Ability to realize location and

experience curve economies

Disadvantages High Transport costs Trade barriers Problems with local marketing agents

Licensing

Advantages Low development costs and risks

Disadvantages Lack of control over technology Inability to realize location and

experience curve economies Inability to engage in global strategic

coordination

Franchising

Advantages Low development costs and risks

Disadvantages Lack of control over quality Inability to engage in global strategic

coordination

Joint ventures

Advantages Access to local partner’s knowledge Sharing development costs and risks Politically acceptable

Disadvantages Lack of control over technology Inability to engage in global strategic

coordination Inability to realize location and

experience economies

Wholly owned subsidiaries

Advantages Protection of technology Ability to engage in global strategic

coordination Ability to realize location and

experience economies Disadvantages

High costs and risks