module7 - global perspective
TRANSCRIPT
-
7/30/2019 Module7 - Global Perspective
1/58
GLOBAL ENVIRONMENT
-
7/30/2019 Module7 - Global Perspective
2/58
GLOBALIZATION - IMF
The growing economic inter-dependence of countries through
increasing volume and variety of cross-border transactions in goods &
services, freer international capitalflows, and more rapid & widespread
diffusion of technology
-
7/30/2019 Module7 - Global Perspective
3/58
GLOBALIZATION World Bank
Freedom and ability of individuals
and firms to initiate voluntary
economic transactions with residents
of other countries
-
7/30/2019 Module7 - Global Perspective
4/58
GLOBALIZATION
Process of international integration
of products, technologies, humanresources, capital, information and
cultures.
-
7/30/2019 Module7 - Global Perspective
5/58
ECONOMIC GLOBALIZATION
4 different flows:
Flow of goods/services (free trade)
Flow of people (migration)
Flow of Capital (FII & FDI)
Flow of Technology (Technology Transfer)
-
7/30/2019 Module7 - Global Perspective
6/58
WORLD ECONOMY
in recent years Capital movements, rather than Trade, as
driving force of World Economy
Production uncoupled from Employment
World Economy dominates not the
macro-economics of individual countries
Growth of e-commerce has madegeographical boundaries irrelevant
-
7/30/2019 Module7 - Global Perspective
7/58
LEVELS OF GLOBALIZATION
World-level
Country-level
Industry-level
Firm-level
-
7/30/2019 Module7 - Global Perspective
8/58
World-level Globalization
Highest level at which perceived
Theoretically, no globalization if each
county was self-sufficient Process begins with international
economic, social & political relations
From business environment point of view,focus is on economic & business relations
-
7/30/2019 Module7 - Global Perspective
9/58
Indicators of world-level..
Share of world trade in World GDP FDI in the world as % of world investment
Foreign output of MNCs as % of world GDP Global transactions in foreign exchange as a
proportion of world GDP
Aggregate turnover in forex markets
Total BoP receipts of all countries as a
proportion of GDP
-
7/30/2019 Module7 - Global Perspective
10/58
World Trade Organization
an organization that intends
to supervise and liberalize
international trade.
-
7/30/2019 Module7 - Global Perspective
11/58
Objectives - GATT
Raising the standard of living
Ensuring full employment
Ensuring a large & steadily growingvolume of real income & demand
Developing full utilization of resources
Expansion of production andinternational trade
-
7/30/2019 Module7 - Global Perspective
12/58
GATT - Principles
NON DISCRIMINATION
PROHIBITION OF QUANTITATIVERESTRICTIONS
CONSULTATION
-
7/30/2019 Module7 - Global Perspective
13/58
Country-level Globalization
EXTENT TO WHICH A COUNTRY ISINTEGRATED WITH THE WORLD
-
7/30/2019 Module7 - Global Perspective
14/58
Indicators of Country-level Globalization
Share of foreign trade in national income Foreign investment as % of national income
Emigrant & immigrant population as a % oftotal population
International tourism traffic as a % oftotal population
Share of (foreign output of domesticMNCs + domestic output of foreign MNCs)as a % of national income
-
7/30/2019 Module7 - Global Perspective
15/58
Globalization level of a country can also beassessed in terms of its sensitivity tochanges in economic or social conditions inother regions of the world. Followingcorrelations can be viewed:
World price index & home price index Key stock price indices world & home
Mean level of rate of interest
World growth rate & home exports World growth rate & home growth rate
Exchange rate variations leading world
currencies & home currency
-
7/30/2019 Module7 - Global Perspective
16/58
Industry-level Globalization
A few industries may be operating atglobal level while others are home-oriented
Such industries have: high degree of tech advancement &
competitive advantages and can compete
large presence of MNCs Better access to foreign markets, suppliers,
finance & tech expertise
-
7/30/2019 Module7 - Global Perspective
17/58
Indicators of Industry-level.
Industry exports+ imports as % of output Foreign investment in industry + foreign
investment by cos in industry as a
proportion of total investment in industry
Total forex transactions by firms inindustry as % of total transactions
Total foreign output as a proportion oftotal output
-
7/30/2019 Module7 - Global Perspective
18/58
Firm-level Globalization
Individual firms operating globally
Foreign collaborations or global
operations Have high tech development,
competitive advantages,outsourcing connections & access toforeign markets
-
7/30/2019 Module7 - Global Perspective
19/58
Globalization in India
Economic reforms-economy haveopened up
Various sectors open to foreigncompetition directly
-
7/30/2019 Module7 - Global Perspective
20/58
Factors influencing Globalization
1. Integrating role of Technology,Computing, Communication &Transportation
2. Dynamics of Capital flows
3. Production sharing
4. Strategic Alliances & globalCompetition
-
7/30/2019 Module7 - Global Perspective
21/58
Impact of Globalization
Designing in global environment
Production location selection
Rationalised Production
-
7/30/2019 Module7 - Global Perspective
22/58
MNC
A Multi-National Company is an
enterprise headquartered in onecountry but having operations in more
than one country
-
7/30/2019 Module7 - Global Perspective
23/58
Multi-National Company
BY SIZE
BY STRUCTURE
BYPERFORMANCE
BY BEHAVIOUR
B Si
-
7/30/2019 Module7 - Global Perspective
24/58
By Size
Many dimensions:Turnover used most often
Profits
Market value
-
7/30/2019 Module7 - Global Perspective
25/58
By structure
Coca Cola operates in more than
200 countries and has
widespread share holdings.
-
7/30/2019 Module7 - Global Perspective
26/58
By performance
Earnings
Sales & Assets
B b h i
-
7/30/2019 Module7 - Global Perspective
27/58
By behaviour
It is the behavioral characteristics
of the top management which
decides whether a company is an
MNC or not
-
7/30/2019 Module7 - Global Perspective
28/58
Multi-National Enterprise
MNE is a company that takes a global
approach to foreign markets and
production;Willing to consider locations of market
and production anywhere in the world
Not all MNEs are MNCs since not all
companies are organized as Corporations
-
7/30/2019 Module7 - Global Perspective
29/58
Trans-national Company
A Company that:
tries to achieve economies of
scale through global integration of
its functional area while
being highly responsive to
different locational environment
-
7/30/2019 Module7 - Global Perspective
30/58
Global Company
A Global company is one which basically
treats the whole world as a singlehomogeneous market.
It also sources products, raw materials,
financing, human resources worldwide.
-
7/30/2019 Module7 - Global Perspective
31/58
Multi-Domestic Company
A company that operates in several
countries, but treats each different
country as a different domestic market,
and each of its country units as a separate
profit centre.
-
7/30/2019 Module7 - Global Perspective
32/58
Impact of MNCs
Play a pivotal role in global economy
Link rich & poor economies
Transfer of capital, knowledge, ideas andvalue systems across borders
Their interactions with institutions,
organizations & individuals generate both
+ve andve impacts among stakeholders
f C
-
7/30/2019 Module7 - Global Perspective
33/58
Impact of MNCs
On Trade balance they influence
both imports and exports
Promotion of small scale and ancillaryindustries
Knowledge transfer
Level of technology of local firms
I t f MNC
-
7/30/2019 Module7 - Global Perspective
34/58
Impact of MNCs (contd)
Utilization of resources
Development of infrastructure and
economic development
Inter-industry linkages
Forward & backward linkages
Employment
Trade balance
-
7/30/2019 Module7 - Global Perspective
35/58
Trade balance
OUTFLOWS
Intermediate goods
for local assy
M/cery for local prodn
Global products for
local sale
Equity investment
Loans from parent to
affiliate
INFLOWS
Final goods for global
markets
Intermediate goods
for global markets
Profit remittance
Interest payments
Repayment of loans
SSE & A ill
-
7/30/2019 Module7 - Global Perspective
36/58
SSE & Ancillary
MNCs catalyse export of
complex, tech-intensive products
made by SMEs located in host
countries
Knowledge Transfer
-
7/30/2019 Module7 - Global Perspective
37/58
Knowledge Transfer
Host countries especially developing
economies aim to create an indigenouscapability technical, managerial &
institutional to improve efficiencies in their
own companies Foreign cos a potential source can
transfer info, also stimulate new knowledge
Knowledge transfer raises productivity levelin the host country
Level of Technology
-
7/30/2019 Module7 - Global Perspective
38/58
Level of Technology
FDI importance lies less on transfer of
money than transfer of technology
Tech & best practices transfer improves
productivity and international
competitiveness
Because of above, host country govts
encourage formation of JVs
Above transfer also takes place because
of transfer of labour and manpower
-
7/30/2019 Module7 - Global Perspective
39/58
Utilization of Resources:
For eg: in India, rich mineral resources
were not properly utilised till MNEs cameand helped utilization
Infrastructure:
FDI is more long term than portfolioinvestment
De merits of MNCs
-
7/30/2019 Module7 - Global Perspective
40/58
De-merits of MNCs
MNCs become too powerful by
themselves + as compared togovernments
Put Profits before People
Exploitation of workers
Oligopoly formation because of MNCs
M & As may proliferate
-
7/30/2019 Module7 - Global Perspective
41/58
INTERNATIONAL BUSINESS
-
7/30/2019 Module7 - Global Perspective
42/58
International Business Environment refer
to the conditions which affect exporters &
importers by influencing their export
performance, import behaviour,
competitiveness, cost structure and thus,
profitability
-
7/30/2019 Module7 - Global Perspective
43/58
International business
Has Costs & Benefits that are veryattractive
Also adds new challenges like productlife-cycle management
Intensifies some existing problems such
as protecting Intellectual PropertyRights
EXIM POLICY
-
7/30/2019 Module7 - Global Perspective
44/58
EXIM POLICY
Performance of Exports, and, the
environment of Imports are bothpredominantly set by the Exim
policy
-
7/30/2019 Module7 - Global Perspective
45/58
A no. of global concerns:
Bio-diversity; environmental protection;
poverty; sustainable development;
international security &
cooperation
Cheap Thai
-
7/30/2019 Module7 - Global Perspective
46/58
Appreciation of YenCheap Thai
labour
Rise in labour
cost
Over- building of
Industries
OVER-HEATING
OF THAILAND
ECONOMY
Short-term
funds
Portfolio
Investment
High Return in Thailand
Japanese FDI
Weak financial
system
Indiscriminate lending by
fund-flush banks
Real-estate
bubbleInflation
Imports
Rise
Exports
suffer
Cheap
Chinese
exports
Large current-
a/c deficit
Real estate crash
Bank failures
Run on
Baht
Panic
Depreciation
of Baht
-
7/30/2019 Module7 - Global Perspective
47/58
FOREIGN DIRECTINVESTMENT
-
7/30/2019 Module7 - Global Perspective
48/58
Foreign Direct Investment occurs whena firm directly invests in facilities to
produce and / or market a product in
a foreign country
-
7/30/2019 Module7 - Global Perspective
49/58
FOREIGN DIRECT INVESTMENT Green-field Investment
Mergers / Acquisitions
FOREIGN PORTFOLIO
INVESTMENT
LICENSING
-
7/30/2019 Module7 - Global Perspective
50/58
GREEN-FIELD INVESTMENT
Establishment of a wholly
new operation in a foreigncountry
-
7/30/2019 Module7 - Global Perspective
51/58
M & A
Mergers or Acquisitions involve
acquiring or merging with anexisting firm in a foreign country
-
7/30/2019 Module7 - Global Perspective
52/58
FDI
HORIZONTAL FOREIGN DIRECTINVESTMENT: FDI in the same industry
in which a firm operates at home
VERTICAL FOREIGN DIRECT
INVESTMENT: FDI in an industry that
either provides inputs to the firm at
home, or, sells products of domestic
operations in a foreign country
Benefits of FDI to Host Country
-
7/30/2019 Module7 - Global Perspective
53/58
Benefits of FDI to Host Country
The Resource transfer effect
The Employment effect
The Balance of Payment effect
Effect on Competition & Economic
growth
Benefits of FDI to Home
-
7/30/2019 Module7 - Global Perspective
54/58
Benefits of FDI to Home
Country
3 Sources:
1. Capital A/c of the home country benefits:
I. from inward flow of foreign exchange frominvestments in another country
II. If foreign subsidiary creates demand for
home-countrys exports of Capital equipment,
intermediate goods or complimentary products
Benefits of FDI to Home
-
7/30/2019 Module7 - Global Perspective
55/58
Benefits of FDI to Home
Country
2. Employment in home-country improves
when demand for related products
from host- country is generated
3. Home-country MNC learns valuable
skills from its exposure to foreign
markets, that can be transferred backto home country
FOREIGN EXCHANGE
-
7/30/2019 Module7 - Global Perspective
56/58
FOREIGN EXCHANGE
MARKET
2 MAIN FUNCTIONS:
Currency Conversion
Provide Insurance against foreign
exchange risk
Uses of Foreign Exchange for
-
7/30/2019 Module7 - Global Perspective
57/58
Uses of Foreign Exchange forInternational Businesses
Inward payments for exports
Payments for foreign companys
products
Investments in short-term moneymarkets
For Currency Speculation (George
-
7/30/2019 Module7 - Global Perspective
58/58
Insurance against Forex Risk
Spot Exchange Rates (based on
demand & supply)
Forward Exchange Rates
Currency Swap