Chapter 16 - Global industry profiles. This chapter examines some major sectoral trends and prospects for three global industries: the grain industry, the automotive industry, and; the telecommunications industry.
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Chapter 16 Global industry
profiles
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• Grain trade and investment
• Prospects for the grain market
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The world grain production
• Wheat & feed grain production dominated by about
8 major suppliers, mostly developed countries
(around 75% of world’s grain production).
• Rice production is dominated by Asian countries (China, India, Indonesia, Philippines, and
Bangladesh).
• Long periods of oversupply interrupted by brief
periods of shortage.
• Accumulation of stocks by protectionist policies
(e.g EU, US)
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World grain consumption
• Strong population growth (+2 m over
1971–97)
• Changing diets in developing countries favour grain-intensive foods.
• Income growth (income elasticities in
low-income countries tend to be > than in income countries)
high-• Overall, world demand for grain has slowed down over last 2 decades, mainly due to slow down in population
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Grain importers
• Chronically food deficient countries:
Singapore, Japan, Middle East
• Import requirements reasonably stable and predictable
• Countries whose import requirements are small and confined to specialist needs (UK)
• Countries relying on imports to close gap between production and consumption
(China, ex-USSR, Saudi Arabia)
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World grain exports* in 2003 by main grains (%) Total value: US$37.2b
* SITC 041–045
Source: ITC UNCTAD/WTO
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Grain prices
• Prices are volatile; reasons:
– weather – oil prices (influencing costs for farmers) – value of US dollar
– government policies (EU, US) – political events (wars, nuclear accidents)
• Not necessarily volatile incomes for farmers, or large price fluctuations for consumers
• Long-term decline in real grain prices
(Engel’s law)
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Trade policies
• Trade dominated by private firms, but
governments have major role
• Protectionist policies in exporting and
importing countries
• Uruguay Round committed major exporting countries to liberalisation
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Major grain trade players
• Private traders
– Cargill (Tradax), (Continental), Louis Dreyfus, Andre (Garnac in US), Bunge & Born
• State/farmers trading organisations
– Canadian Wheat Board, Australian
Wheat Board (privatised), Middle East
Trade Boards
• State importing organisations
– Iran, Egypt, Iraq
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Futures contracts
• Standard quantity and quality
• Future month for delivery
• Traded at central exchanges (Chicago, Kansas)
• ‘Sell’ contract can be settled by a ‘buy’ transaction, and by delivering the commodity against the
contract.
• Enables users of futures to protect their cash
positions by hedging (e.g taking equal and
opposite positions in cash and futures markets)
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Futures traders
• Business men who produce, market and
process various commodities
• Speculators who voluntarily risk their capital with the expectation of making profits
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Marketing policies
• Traders cannot significantly influence
international prices, but they ‘make money’
at any level of price.
• Price is the most important factor in the
marketing mix programs.
• Futures and options used—does not
eliminate risks
• Promotion: seminars, investment in
processing facilities or storage capacities
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Prospects of the grain market
• More stable prices
Rounds)
• Biotechnology? (may increase supply)
• China prospects?
• Food security? (good prospects)
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The automotive industry
Tar iffs
27%
Quo tas Stan dard
s
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Brief automotive history
• Early 1900s: Henry Ford’s company brought standardised parts, mass production and use of a continuous assembly line into operation
• Through strategies of foreign direct investment, Ford and
GM obtained strong market positions in Europe and North America.
• Assembly of passenger motor vehicles (PMVs)
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Brief automotive history cont
• Japanese automotive expansion
• South Korean automotive expansion
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More motor vehicles on the roads
• Manufacturing in the world’s GDP declined from 27% in 1970 to only 20% in 2001.
• In 1950 only 70 million cars, trucks, and buses on the world's roads
• By 1994, about nine times that number (630
million)
• Since about 1970, global fleet growing at rate of about 16 million vehicles per year
• By 2025 there will be well over 1 billion vehicles
on the world's roads.
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Share of world production of motor
vehicles by country group, 1997, 2002
0 5 10 15 20 25 30
% of world
1997 29.4 4.3 28.3 5 19.9 5.2 7.9
2002 28.5 3.4 28.9 5 17.5 5.4 11.4
Nth Ameri
Sth Ameri EU
Other Europ Japan
S
Korea
Other Asia &
Source: adapted from OICA.net and author calculations
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Importance of the automotive
industry
• Significant employer of both capital and labour
• Employs 2.5 million people worldwide
• Three times as many are employed in garages and
by car component suppliers
• ‘Barometer’ of the economy
• Provided 9.9% of the world’s merchandise exports and about 13.3% of exports of manufactures in
2003
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Oversupply and declining
profitability
• 1996: automotive industry working at 73%
capacity Reasons:
– old markets have matured; no net growth
• Rush for overseas investment
– ‘build where you sell’—‘market orientation’
– tariff protection; local content rules
– overcapacity in developing markets of Asia
and Latin America
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World trade in automotive products
• 2003 value: US$723b (9.9% of total world merchandise
exports)
• High concentration: 10 exporting countries/groupings held in
2003 about 94% of world exports (comparative indicator in world imports is about 84%)
• Top import markets are EU (43% of world imports, including intra-EU imports); US (about 25% of world ‘s imports);
China’s share (1.7%)
• 2003 Australian auto imports: US$11.1b (1.5%)
• Regional concentration
• Growing intra-firm (MNEs) trade
World trade in automotive products
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Car market in East Asia, 2003
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Protection in the car sector
• Generally, protection is higher in NICs (e.g
Thailand)
– import duties (42–68.5% for CBU cars and
20% on CKD) – 7% VAT; excise tax (27–45%)
– municipality tax (3.25–4.5%)
– local content requirements for cars are 54%
– ban on imports of buses with 30 seats and
over – import ban on used motor vehicles
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Protection in the car sector cont
• In developed countries tariff protection
generally replaced by non-tariff barriers
(e.g VER)
• Very sensitive sector; powerful lobby
groups and unions
• Australia: decision to freeze tariffs at 15% for 5 years after 2000
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Australian PMVs market (% share of
locally produced vs imports) and tariffs,
PMV tariff
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New Zealand, 25%
Rest of the world, 14%
South Korea, 11%
ASEAN,
10%
2001
NAFTA, 23%
Middle East, 37%
New Zealand, 15%
South Korea, 8%
Japan, 3%
Indonesia, 3%
UK, 2%
Rest of the world, 8%
Australian automotive exports by
destination, %, 1996, 2001
Source: Compiled from Industry Commission Inquiry Report, The Automotive Industry, 1997 and
Commonwealth Department of Industry, Tourism and Resources, Key Automotive Statistics 2002, 2003,
viewed 15 May 2004, <http://www.industry.gov.au/assets/documents/ itrinternet/
automotive_keystats2003.pdf>
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Australia’s automotive trade with
regional groups, A$m, %, 2003
Regional
group Exports A$
million
Imports A$
million
Balance
of trade A$ million
Exports
as % of imports
European
Union (15) 98 4085 –3987 2.4% ASEAN (10) 123 916 –793 13.4%
Source: adapted from DFAT, Composition of Trade
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Future MNEs’ business strategies
• Manufacturing flexibility
• Being profitable at lower volumes
• More production alliances and joint
ventures
• Rationalisation of components supplies
• Emphasis on design and marketing
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Future of independent automotive suppliers
• More opportunities in supply of parts
• Rationalisation and specialisation
• Subcontracting to big companies
• Direct investment in areas of growth
(East Asia and Latin America)
• Impact of new technologies: the electric car; the hydrogen-fuelled car
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Telecommunications industry
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Composition of global telecom trade (total 1996: US$115b)
Equipment 61%
Net Settlement
payments 26%
Other 13%
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Telecom privatisations,1984–1996
% share by region
Asia-Pacific 54%
West Europe 31%
E.Europe 2%
Latin America 12%
Other 1%
Total value: US$158.5b
Source: based on ITU
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Global telecom market revenue (US$ billion),
number of main telephone lines vs mobile cellular subscribers (millions),1991–2002
0 200
Mobile lines
Source: adapted from ITU
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Traditional mode of operation of
telecom monopolies
• Accounting rate = the price agreed upon by two national carriers
• Settlement rate (1/2 the accounting rate)
• Collection rate = what the national carrier charges customers)
• System expected to break down with
deregulation
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Comparative performance of the top 22
telecom and 25 automotive firms (1999)
employee (US$)
233,107 319,228
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Comparative performance of the Fortune
top global telecom and automotive firms (2003)
48,669
Indicators
(1999)
Median for top 24 Telecom firms
Median for top 32 vehicles & parts