Chapter 14 - Doing business in advanced economies. The main goals of this chapter are to: Outline the main characteristics of advanced economies, establish the relationship between the private sector and government sector in advanced economies, outline the size and structure of the import market in advanced economies,...
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An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea. 14–1
Chapter 14 Doing business in advanced
economies
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An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea. 14–2
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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An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea. 14–8
Merchandise import markets in advanced economies (W Europe, N America,
Japan), U$S billion and %, 2003
• Merchandise imports of the Triad (US$5065)
– primary products (21.5–41.43%)
* food; raw materials; ores and minerals
– manufactures (58–78%)
* iron and steel
* chemicals
* other semi-manufactures
* machinery and transport equipment (28–46.5%)
* textiles
* clothing
* other consumer goods
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Australia and New Zealand’s merchandise imports by source (%), 1990 and 2003
Central & Eastern Europe 0.4 0.2
Australia & New Zealand 8.5 9.3
Source: adapted from WTO International Trade Statistics 2001, 2004, Table A2
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An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea. 14–10
Merchandise imports of NIEAs by source,
2003, US$ billion and %
Singapore Taiwan Hong
Kong Rep of Korea Total US$ b.
out of which % 127.9 127.2 232.5 178.8
Rest of the
world
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
% of total expenditure
Source: 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
• US and EU > inward FDI than Japan
• Sectoral shifts since mid 1970s
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FDI inflows into Oceania, 1993–2003,
$US billion
0
2
4
6
8
10
12
14
16
0.0 1.0 2.0 3.0 4.0 5.0
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