International Business Relations Spring 2014. Course Objectives 1.Analyze how global and regional...
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International Business Relations Spring 2014. Course Objectives 1.Analyze how global and regional changes are influencing the way business is conducted
Course Objectives 1.Analyze how global and regional changes are
influencing the way business is conducted. 2.Understanding the
institutions and policies of the EU and how they affect the
business environment. 3.Critique the level of completeness of the
four freedoms (goods, services, persons and capital) which make up
the single European market. 4.Determine the optimal business and
functional area strategies which can be adopted given the varied
cultural, political, and economic environment. 5.Understand the
opportunities and modes by which European businesses globalize and
foreign businesses enter the European market. 2
Slide 3
Whats the difference? GlobalizationInternationalization Growing
world systems Transnational, Subnational and Supranational actors
Driven by free markets and technology Relations between nations
Nation state is central actor Driven by national interests 3
Slide 4
Comparing the Growth Rates of World GDP and World Exports
Slide 5
Slide 6
Globalization History Eras of Globalization 1.1492-1800 Size L
to MColonization (country - size) 2.1800-2000 Size M to SIndustrial
(company - amount) 3.2000- Size S to Tinye-Era (individual -
speed)
Slide 7
The World is Flat Thomas Friedman Triple Convergence: 1.10
Flattening Forces Internet and IT integration Outsourcing,
Offshoring, Insourcing, Supply Chain Uploading, Informing at
individual level Technological speed and cost 2.Productivity Lag /
Learning Curve 3.Opening of Countries (3 billion people) USSR,
Central Europe, China, India, South America Market economies and
integrated financial system
Slide 8
World 3.0? How Globalized is the World?
Slide 9
Slide 10
Only semiglobalized? The World in 2050 5 Scenarios --
http://www.youtube.com/watch?feature=play
er_detailpage&v=VE0lPTfsBoI
http://www.youtube.com/watch?feature=play
er_detailpage&v=VE0lPTfsBoI DHL Connectedness Index 10
Take-aways --
http://youtu.be/QvHiZ7Jidi0http://youtu.be/QvHiZ7Jidi0
Slide 11
What do others think?
Slide 12
What is the EU? Why does the EU exist? What sort of thing is
it? What are the shared social, cultural, political, and economic
elements? 12
Slide 13
The European Union 28 Member States Supranational and
Intergovernmental Governance structures Split and shared
competencies A single market with 4 freedoms The Euro zone Ongoing
debates over integration and expansion
Slide 14
Slide 15
Integration Theory Can Europe preserve peace and autonomy and
promote competitiveness and quality of life in the face of a
changing global power environment if its political and economic
policies are divided? How can European integration best be done?
(normative) How can integration be explained? (empirical)
Slide 16
16 Model of International Integration Source: SUDER
Slide 17
Development of the EU 17 Political Union Economic Union Common
Market Customs Union Free Trade Area Lisbon EMS EURO Single Europe
Coal and Steel European Economic Community
Slide 18
Federalism a form of government in which power is divided
between a central and regional authorities e.g. US federal
government and states. Focus on the form How: create common
institutions in a federal arrangement Seek optimal balance of unity
and diversity Supranational institutions
Slide 19
Intergovernmentalism Comes from classic realism in IR theory
Primacy of the nation state Aim: balance of power (not
institutions) Supranational institutions are controlled by the
states EU preserves the nation state
Slide 20
Why Nations Pursue Economic Integration? 1.Expand market size
Regional integration greatly increases the scale of the marketplace
for firms inside the economic bloc. Example- Belgium has a
population of just 10 million; the EU gives Belgian firms easier
access to a total market of roughly 490 million. Consumers also
gain access to a greater selection of products and services.
2.Achieve scale economies and enhanced productivity Expansion of
market size within an economic bloc gives member country firms the
opportunity to gain economies of scale in production and marketing.
Internationalization inside the bloc helps firms learn to compete
more effectively outside the bloc as well. Labor and other inputs
are allocated more efficiently among the member countries- leading
to lower prices for consumers. International Business: Strategy,
Management, and the New Realities 20
Slide 21
Why Nations Pursue Economic Integration? 3.Attract direct
investment from outside the bloc Compared to investing in
stand-alone countries, foreign firms prefer to invest in countries
that are part of an economic bloc as they receive preferential
treatment for exports to other member countries. Examples- General
Mills, Samsung, and Tata- have invested heavily in the EU to take
advantage of Europe's economic integration. By establishing
operations in a single EU country, these firms gain free trade
access to the entire EU market. 4.Acquire stronger defensive and
political posture Provide member countries with a stronger
defensive posture relative to other nations and world regions- this
was one of the motives for the initial creation of the European
Community (precursor to the EU). International Business: Strategy,
Management, and the New Realities 21
Slide 22
International Trade Groups
Slide 23
Trade Group Comparison
Slide 24
Slide 25
Slide 26
Slide 27
Slide 28
Small vs. Large Firms North / South divide What are the small
businesses? Do they promote growth? Do they promote efficiency and
productivity? Pros and cons 28
Slide 29
29
Slide 30
Income discrepancies The distribution of marketable wealth is
more unequal than the distribution of income between Member States
and inside countries boundaries Five levels of household income:
Original income Gross income (deducted direct tax, i.e. income
tax). Disposable income (deducted indirect tax, i.e. VAT) Post- tax
income (add benefits-in-kind, i.e. free education) income. Final
income 30
Slide 31
GDP per Capita 31
Slide 32
Hourly Labor Costs
Slide 33
Price Convergence
Slide 34
But still differences Comparative Price Levels
Slide 35
Sapirs model matrix Little Risk of Poverty High Employment
Rate
Slide 36
Doing Business Produced by World Bank Evaluates business
regulations and enforcement 180+ countries 10 categories of data
www.doingbusiness.org
Slide 37
Regulation differences (Doing Business 2011) 37 Ease of Doing
Business Rank Starting a Business Dealing with Construction Permits
Registering Property Getting Credit Protecting Investors Paying
Taxes Trading Across Borders Enforcing Contracts Closing a Business
United Kingdom 41716222101615237 Denmark 62710301528135305 Norway
833658462018944 Ireland 9113878155723379 Finland 133255263259656116
Sweden 1439201572283975218 Germany 2288186715938814635 Lithuania
2387597469344311739 Latvia 24537957659 161480 Belgium
25314117746167044218 France 26211914246745526744 Netherlands
307110546 10927132911 Portugal 315911131894473272421 Austria
3212557331513210425920 Cyprus 372675667293321910422 Slovak Republic
4168569151091221027133 Slovenia 422863971162080566038 Luxembourg
4577421291161201532145 Hungary 4635864132120109732262 Spain
491474954469371545219 Bulgaria 514311962644851088783 Romania
5644849215441514754102 Czech Republic 6313076474693128627832 Poland
70113164861544121497781 Italy 8068929589591285915730 Greece
109149511538915474848849
Slide 38
Institutions of the EU 1. The European Commission 2. The
European Parliament 3. The Council of Ministers (Council of the
European Union) 4. The European Council 5. The European Court of
Justice 38
Slide 39
39
Slide 40
1. The European Commission(EC) The EC's major responsibilities
are: the initiation, formulation and coordination of Community
policy Mainly executive body (but it holds also political,
legislative and administrative powers) Exclusive powers to initiate
legislation and to set up proposals Executing the budget of the EU
Regulator of the European Market Negotiator in relations with
international organizations as well as with non-member states
40
Slide 41
Composition of the EC 41 President Sets the broad policy lines
and directs the allocation and reorganisation of portfolios High
Representative Coordinate and Represent Common Foreign and Security
Policy Governments of the Member States nominate the commissioners,
who are given roles by the president, and subject to approval by EP
Body of the Commissioners = College Commissioners Renewable term of
4 years; 1 commissioner per country Directorate- Generals Cabinet
head Are in charge Appointed by the European Council by qualified
majority & approved by EP European External Action Service
Appointed by the European Council by qualified majority &
approved by EP is in charge of
Slide 42
The Commission's Policy Areas Agriculture and Rural Development
Competition Economic and Financial Affairs Education and Culture
Employment, Social Affairs and Equal Opportunities Enterprise and
Industry Fisheries and Maritime Affairs Environment Health and
Consumer Protection Information Society and Media Internal Market
and Services Joint Research Centre Justice, Freedom and Security
Regional Policy Research Taxation and Customs Union Transport and
Energy The EC also hosts External Relations including Development
Enlargement Europe-aid External Relations ECHO The humanitarian aid
office Trade Its general services comprise European Anti-Fraud
Office Eurostat Press and Communication Publications Office
Secretariat General and nine directorates for internal services.
42
Slide 43
2. The European Parliament The EP's main powers: advisory and
supervisory It is the only directly elected institution of the EU
It consists of more than 750 delegates of Member States elected by
direct universal suffrage, serving a 5 year term The EP's President
is elected from among the Members of the European Parliament (MEPs)
Location: Brussels and Strasbourg 43
Slide 44
The Role of the EP Powers to suggest amendments of EC or
Council proposals Power to delay legislation Supervisory powers The
right to dismiss the entire EC 44
Slide 45
3. The Council of Ministers (Council of the European Union)
Composition 27 ministers of the member states Composition varies by
topic Rotating 6-month presidency Intergovernmental negotiation
tool Main Activities Passes laws, usually legislating jointly with
the European Parliament. Co-ordinates broad economic policies of
the Member States. The Council and the European Parliament together
constitute the budgetary authority that adopts the Communitys
budget. 45
Slide 46
Council voting Weighted Qualified Majority Voting from 1.11.04
until 31.10.2014 when Lisbon changes take effect 345 votes
available Bigger states like France and Germany have 29 votes down
to Malta with 3 Qualified majority requires: Majority of countries
50% (or 76% if acting alone) = 14/18 Minimum of 74% of voting
weights = 255 States must represent 62% or more of EU population =
311mil Unanimity still applies for limited matters e.g.
taxation
Slide 47
4. The European Council Supreme political decision-making body
of the European Union Defines the general political agenda Selects
the President and High Representative Composition Heads of state or
government of the European Union and the president of the
Commission 2 meetings a year Permanent, elected President Set up in
1974, and legally recognized by the SEA in 1986. The TEU provided
it with official status in 1992. 47
Slide 48
The role of the European Council To define the general
political guidelines of the European Union (priorities, political
direction and resolution of certain issues) The European Council
reports to the EP after each meeting and through an annual report
48
Slide 49
DONT CONFUSE! European Council (Heads of State + President of
Commission) Council of the European Union (Ministers) Council of
Europe (Not an EU institution, but an institution founded in 1949
to work towards European Integration in areas of democracy, human
rights, rule of law, development, and culture. Known for the
European Court of Human Rights. Based in Strasbourg with 47 member
countries) 49