globalization and emerging markets
TRANSCRIPT
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Globalization and Role of
Emerging Markets
A Classroom PresentationBy
Muhammad Diljan
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Mr. Dawood graduated from CECOS University Peshawar works
in UAE for a German Company financed by China Bank and five
American Investor, Audited by Indian CA firm working under an
MOU with CPA(USA). He has four colleagues. One belongs to
Ghana and the others belong to Moscow, Madagascar and
Baghdad. Their boss is from Ukraine having a doctorate fromUniversity of Sydney. They all speak English and contact with
their families through skype phone. And the most interesting, he
has married to a Russian Lady and his company is following US
GAAP. Mr. Dawood is a practical Muslim of strong values but hispartner is still going to a catholic church, but both are happy in
life believe in freedom, democracy and human rights.
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This paragraph was nothing except
a binary data of the picture ofGLOBALIZATION.
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WHAT IS GLOBALIZATION?
Thus Globalization is the process of
integration of people, companies and
governments of different nations across theGlobe through economic, political and social
activities, aided by high speed means of
transportation and communication.
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ECONOMIC GLOBALIZATION AND EMERGING
MARKETS
Current wave of economic globalization is driven by
policies that have created business and investment
opportunities for international investors in
developing countries due to which these countries
which were ,before 1980, referred to as developing
countries started being called Emerging Markets
after 1980.
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Thus you can say that Financial Globalization
is the mother of EM.
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ROLE OF EMERGING MARKETS IN
GLOBALIZATION
The role of EM in Modern Globalization can be
assessed on three different platforms namely;
Economic Globalization
Political Globalization
Social & Cultural Globalization
But as a students of Business Administration ourdiscussion will revolve around Economic
Globalization.
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Among emerging markets Brazil, Russia, India andChina are the most evaluated and embarked upon byeconomists, social scientists, students and researcherswhenever they intended to explore the global players
of the new world order game among the developingcountries. These countries are collectively called BRICsand were identified in 2001 at that time it was statedthat over the next 50 years these four countries couldbecome a much larger force in the world economy .
Such like statements at that time received attentionbecause it was forecasted that the growth in the BRICcountries would beat the growth of the G7 advancedeconomies.
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ROLE OF EMERGING MARKETS IN
GLOBALIZATION
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After the end of cold war while the United Statesappeared to be the winner from the fall ofcommunism, the new economic order that was emergingin the 1990s had profound political, social and
cultural implications. The new players were emergingand a new generation of leaders appeared in each of thefour countries.
Many governments in emerging markets adopted free-
market economic systems, vastly increasing their ownproductive potential and creating many newopportunities for international trade and investment.
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GLOBALIZATION
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BRICs countries were not and members of the G-7 butthey were going to gain influence and internationalpresence.
The increasing production capacity of BRICs was always
thirsty of external finances. Which motivated developednations to globalize their financial and investmentactivity to these countries.
The interplay between the BRIC economies and the G-7 is viewed by the investment community as acritical aspect of globalization and interdependence.
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The BRICs have slowly gained greater influence overthe international decision making process, which hasbeen dominated by the major industrial countries-the G7- since the end of the Second World War.
There have been important points of convergence onbroad issues since the start of the 21 st century.These issues includes a new global trade regime, anew financial architecture and an expanded role of the
BRIC countries in the workings of the multilateralfinancial institutions such as the InternationalMonetary Fund (IMF) and the World Bank .
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GLOBALIZATION
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While Chinas growth depends on the export ofmanufactured goods to the US and Europe, Brazilfocuses on agricultural exports. Russia sells oil, naturalgas and other natural resources abroad, while Indias
growth has been based largely on its domestic market.The BRICs are geopolitically and economically unique.There is an appealing symmetry in the fact that Russiaand Brazil have an abundance of the raw materials thatChina and India need to grow and improve their
infrastructure. It is interesting to see that China hastaken over as Brazils main trading partner. In 2010,China also became Russians main trading partner.
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GLOBALIZATION
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Up to the most recent financial crisis in 2008, the BRICs have certainly
lived up to their promise. Their rapid growth rate of economic development,
huge developmental potential has attracted a large amount of foreign direct
investment (FDI). In 2010, Direct Investment (FDI) of the BRICs accounted for
two third of the total amount of FDI in G7 countries. China is by far the
leading emerging market destination of FDI, the country received $106
Billion FDI inflows in 2010, followed by Brazil, which received $48.4 billion. India
is on number three in 2009 while Russia still lags behind Indias 2009 statistics.
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Inward FDI to the BRICs have been distributed to different
industries. In China and Russia it has mainly centered on thesecondary industry, while in Brazil and India the focus hasbeen on the tertiary industry. The Service industry has beenthe preferred for inward FDI in Brazil due to its specialopenness policy. It is legal for foreign investors to hold stockshares in manufacturing industry as well as invest inresource utilization and infrastructure construction. Thefinancial sector, transport and telecommunications inparticular, have attracted huge amount of inward FDI. InRussia, fuel industry and metalwork industry has been themain recipient, while in India software, the financial sector
and consulting sector have had incredible development overthe years due to inward FDI. In China, there have been greatinvestments in the manufacturing industry, but the servicesector has also developed significantly.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
China's investment climate has changed dramatically
with more than two decades of reform. In the early
1980s, China restricted foreign investments to
export-oriented operations and required foreigninvestors to form joint-venture partnerships with
Chinese firms.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
Since the early 1990s, the government has allowedforeign investors to manufacture and sell a wide range
of goods on the domestic market, provided some
assurances against nationalization, allowed foreign
partners to become chairs of joint venture boards, andauthorized the establishment of wholly foreign-owned
enterprises. China also authorized some foreign banks
to open branches in Shanghai and allowed foreign
investors to purchase special "B" shares of stock in
selected companies.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
Today foreign-invested enterprises produce about5860% of China's exports (the majority of China's
foreign investment come from Hong Kong, Macau
and Taiwan), and China continues to attract large
investment inflows.
From 1993 up till now , FDI in China is increasing and
in 2010 it was the world's second-largest recipient of
foreign direct investment after the United States.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
In 1991 Chinese government initiated a strategy named GOOut Policy to promote Chinese investments abroad. Since
the launching of the Going out Strategy, interest in overseas
investments by Chinese companies has increased
significantly especially among State Owned Enterprises.
From 1993 to 2010, Chinese companies have been involved
as either an acquirer or acquired company in 25,284 mergers
and acquisitions with a total known value of US$969
billion. The number and value of deals hit a new record in
2010. The number of deals that happened in 2010 has been3,640 which is an increase of 17% compared to 2009. The
value of deals in 2010 was US$196 billion which is an
increase of 25% compared to the year before.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
We see that as the economic globalization isprogressing the connection between chinas economy
and global economy is becoming tighter. Today it is
believed that global economic development can not
go with out China. A doctor from the Hanoi Universityof Vietnam told People's Daily that China's economic
development injecting new energy into the regional
and global economy and China's steady economic
development gives the world's confidence on the early
recovery of the global economy after the drop down
of international financial crisis.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
According to Dr.Martyn Davies (a former Ex:Director of the
Confucius Institute), China is not currently obsessed of
developing hard power such as military force but keeps
showing its soft power using its economic and cultural muscle
to build up the international relations.
Chinas sharp and two-digit economic growth is considered aneconomic miracle in the world fostering and creating many
commercial opportunities which are attracting overseas
investors to invest and start businesses in china. Meanwhile,
products Made in China are also going global and accepted bythe world. Low price and high quality are now a general
impression of Chinese products in the global market.
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ROLE OF CHINA IN ECONOMIC GLOBALIZATION
Kamer Kasim, vice director of Turkeys International Strategic
Research Organization told Peoples Daily that Chinas economicdevelopment is very remarkable and has both economic and
political significance for the world. China, as the 2nd largest
economy of the world, not only produces huge amounts of
industrial products, but also promotes the development of the
whole industrial chain covering from the raw material to the
product research and development. According to him China is
driving the global economy as engine. Further he mentions that in
todays International System of Mutual-Dependence China needs
oversea markets as well as raw materials, and other countries alsoneed Chinas cheap but good products, which reduce the
possibility of a world war breaking out. This phenomenon, which is
especially outstanding in the China-U.S. relations, promotes the
global peace, stability and development. 23
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
Russia is increasingly becoming considered a country with astable investment climate. Russia has witnessed a large increase
in foreign direct investment inflows over the last few years, due
to a growing domestic market, rich human capital, natural
resources and political stability.
Constraints on foreign business are being abolished and the
regulatory environment has improved. However, several sectors
remain closed to foreign investment.
Current regulations restrict foreign involvement in the banking
sector, and the government has restricted foreign access to 39strategic sectors of the Russian economy, including nuclear
energy, natural monopolies, military and special machinery, the
space industry, and subsoil development.
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
Russian investment policy includes tax reliefs, reducedadministrative barriers, and developing private-public
partnerships. The government is planning to invest in
infrastructure projects to promote foreign investment.
Among improvements for investors, Russia now has the lowest
corporate tax rate of any G7 or BRIC country.
The government is planning to shorten the time period for
foreign enterprises to receive permission on investment
projects. The recently formed Department of State Control of
Economics is in-charge of removing barriers for foreigninvestors.
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
From 1993 to 2010, Russian companies have been involved aseither an acquirer or acquired company in 13,834 mergers and
acquisitions with a total known value of $613 billion.
The number of deals that happened in 2010 have been 3,662,
which is a new record. Compared to 2009 this was an increase of12%.
The value of deals in 2010 was US$100 billion, which was the
second highest number ever; compared to 2009 this was an
increase of 143%.
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
Russia were very resistive to the financial globalization up till
1991 but after that it started economic reforms towards gradualprivatization which made it adoptable to global financial
activities.
Up til 2005, Russia was seen as a major buyer of western and US
made consumer goods but after 2005 its trade with Chinaincreased and it become a major consumer market for China
products (24% of China exports).
Russia ranks second in the world in export of armaments and
has always retained solid positions on the global arms market.
Russia contribute a huge number of educated and skillful human
resources to the global economy as most active labor force in
Russia prefers to migrate abroad. There are now about two
million migrants from the former Soviet Union in Germany, and
about a million in the U.S. 30
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ROLE OF RUSSIA IN ECONOMIC GLOBALIZATION
In Russia education standard is high as compared to
international standard. At the Russian universities, the numberof applicants for the departments of physics, biology, mechanics
and mathematics is very high as compared to other countries.
These professions are in great demand in all over the developed
world and Russians in these fields are welcomed and hired at
preference in scientific labs of multinational companies. In U.S.
laboratories Russian Scientists and engineers are seen more
than the average of other countries.
Russia is also a greatest supplier of energy (oil, gas, coal,
aluminum and chemicals) to the global economy.
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ROLE OF BRAZIL IN ECONOMIC GLOBALIZATION
Brazils economy is the largest in Latin America with a GDP of USD 2.1
trillion in 2010 . Years of economic growth, credible macroeconomic policies
and a rising middle class have positioned the country as a leading recipient of
foreign investment and an emerging player in global commerce. These
factors make the economy one of the worlds most dynamic and promising
forces among emerging markets. Brazil is said to be the third-most-attractive
country for future FDI, behind China and India.
Brazil has one of the most liberal investment climates for outside investors.
Foreign investors, both individuals and legal entities, can invest in most of the
financial and capital market instruments available to resident investors,
without any restrictions. However, Foreign investors are required to hire local
entities to act as custodian and representative for regulatory and tax related
issues. Investors are also required to complete other formalities likeregistering with the Brazilian Central Bank, the stock market regulator CVM
and the Federal Revenue Service.
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ROLE OF BRAZIL IN ECONOMIC GLOBALIZATION
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ROLE OF BRAZIL IN ECONOMIC GLOBALIZATION
Between 1993 and 2010, 7.012 mergers & acquisitions with a total known
value of $707 billion USD with the involvement of Brazilian firms have been
announced.The year 2010 was a new record in terms of value with $115 bn. of
transactions. The largest transaction with involvement of Brazilian companies
has been: Cia Vale do Rio Doce acquired Inco in a tender offer valued at
$18.9 billions.
More over, Brazil is emerging as a global economic powerhouse, with agrowing middle class and a booming trade relationship with China fueled by
the Asian giants need for commodities such as soybeans and oil,
According to a prediction, Brazil will surpass Britain this year as the sixth
largest economy in the world, with a GDP of $2.44 trillion against Britains
$2.41 trillion. By 2020, Brazil will be the fifth largest economy in the world.The country is now the leading world exporter of iron, coffee, soybeans,
orange juice, sugar and beef. Brazil is also home to one of the worlds largest
oil reserves.
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ROLE OF BRAZIL IN ECONOMIC GLOBALIZATION
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ROLE OF INDIA IN ECONOMIC GLOBALIZATION
Since liberalization, the value of India's international trade has increased
sharply, with the contribution of total trade in goods and services to the GDPrising from 16% in 199091 to 47% in 200810.
India accounts for 1.44% of exports and 2.12% of imports for merchandise
trade and 3.34% of exports and 3.31% of imports for commercial services
trade worldwide.
India's major trading partners are the European Union, China, the UnitedStates of America and the United Arab Emirates.
In order to encourage FDI in India, the process of regulation and approval has
been substantially liberalized. They have introduced a special procedure for
FDI called FDI Automatic Route. Under automatic route does not require anyprior approval either by the government or Reserve Bank of India (RBI).
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ROLE OF INDIA IN ECONOMIC GLOBALIZATION
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ROLE OF INDIA IN ECONOMIC GLOBALIZATION
India offers low-cost but educated and English speaking youth
consisted human resources to the global economy for IT andBusiness processes outsourcing.
India and China are amongst the most pro-competition
countries. India produces bountiful of software engineers and
software analysts, while China supplies all kinds of equipments.
So, as per the current scenario, the conclusion has been derived,
"India as back office supplier, China as front office supplier.
As many educational institutions of developed countries have
globalized their services, India also has also started to follow
their footsteps.
India is also involved in mergers and acquisitions, throughout its
history from 1991 but showed huge increases from 2005
onward. India is beating Brazil but lagging behind Russia in the
race of Mergers and Acquisitions. 40
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ROLE OF INDIA IN ECONOMIC GLOBALIZATION