Chapter 14 Doing business in advanced economies

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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Chapter 14Doing business in advanced

economies


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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


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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


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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


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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


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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


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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


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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


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Australia and New Zealand’s merchandise imports by source (%), 1990 and 2003

Supplier 1990 2003

North America 23.4 17.0

Latin America 1.0 0.9

Western Europe 27.2 24.4

Africa 0.4 1.1

Central & Eastern Europe 0.4 0.2

Middle East 3.4 2.3

Japan 17.9 12.2

Australia & New Zealand 8.5 9.3

Other Asia 17.9 32.6Source: adapted from WTO International Trade Statistics 2001, 2004, Table A2


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Merchandise imports of NIEAs by source, 2003, US$ billion and %

Singapore Taiwan Hong Kong

Rep. of Korea

Total US$ b.out of which %

127.9 127.2 232.5 178.8

Asia 80.7 50.7 58.2 57.7

W.Europe 9.7 12.0 12.8 14.3

N&C America 6.2 16.1 14.4 15.0

Middle East 1.2 12.8 8.2 8.7

L.America 0.5 2.1 1.5 0.4

Africa 0.4 1.3 2.1 0.5

Oceania 0.8 3.6 2.5 1.9

Rest of the world

0.5 1.5 0.2 1.5

Source: adapted from Asian Development Bank statistics, http://www.adb.org


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Trade policy issues

• Free trade agreements• Protection policy issues• Export marketing issues• Cultural differences

– US vs Europe– US vs Australia/New Zealand


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Export marketing aspects

• Very competitive markets (local/regional and foreign competition)

• Intra-MNE trade

• Sophisticated marketing techniques– market segmentation


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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


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Advertising expenditure per head ($US) and by medium (%) , 2003

USA Japan UK Aust-ralia

NZ Hong Kong

Sing-apore

$US/

Head

522 286 283 264 249 274 293

% of total expenditure

TV 36.4 46.1 31.4 36.0 33.1 34.2 42.8

Radio 13.0 4.3 4.2 9.3 13.6 6.3 7.9

Print 42.7 34.5 54.8 49.7 50.2 51.3 42.9

Cinema 0.2 12.6 1.8 0.8 0.5 0.2 0.7

Outdoor 3.0 2.4 6.1 3.4 2.6 7.3 5.6

Online 4.7 0 1.8 0.8 0.7 0Source: adapted from Euromonitor, Global Market Information Database, January 2005


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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


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FDI inflows into Oceania, 1993–2003, $US billion

02468

10121416

US

$ B

illio

n

0.0

1.0

2.0

3.0

4.0

5.0

% o

f wor

ld Australia

New Zealand

CER share

Source: adapted from UNCTAD, World Investment Report, 2004


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Investment considerations

• Political stability

• Nationalisation; government controls– prices, pollution

• Economic outlook(e.g. synchronised cycles)

• Attitude to foreign investment


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Investment considerations cont.

• Taxes

• Incentives

• Personnel, labour and social considerations

• Exchange rates

• Ease of doing business

Documents

Chapter 14 Doing business in advanced economies