The Emerging Global Economy

The Emergin g Global

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Barriers to trade are coming dow Allowing free flow of goods, services & capital The volume of cross country trad is increasing Making the economies more interdependent More countries are joining the ranks of developed world

List of developed countries 

 Andorra•   FaroeIslands•   Ireland•   Monaco•    Spain•   Australia•   Finland•   Israel•   Netherlands •   Sweden•   Austria•   France•   Italy•    New Zealand•   Switzerland•   Belgium•   Germany •  Japan•   Norway•   Turkey•   Bermuda  Greece•    Liechtenstein•   Portugal•   United Kingdom•    Canada•   HolySee•   Luxembourg•  SanMarino•    UnitedStates•   Denmark•  Iceland•   Malta•    South Africa

High income       Upper-middle income       Lower-middle income       Low income 

Strengthening of Global Economy 

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Adoption of liberal economic policies State-owned business privatized Deregulation adopted Markets opened to more competition Commitment increased to removing barriers to cross-border trade and investment

Powerful Market-oriented economies      

Czech republic Poland Brazil India China South Africa

INDICATION Favorable world for the practice of International business

Other side of the coin….. 

Countries may pull back from the current liberal economic ideology if their experiences do not match their expectations

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LESSON TO LEARN FROM THE ASIAN CRISIS OF 1997-98

Asian financial Crisis 

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Trigger for the Asian crisis – 2nd July 1997 Started with the Thai govt. announcement Reached to Philippines and Malaysian Govt. Soon other economies become involved – Taiwan, Hong Kong, Singapore

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Oct 1997 – crisis roll all over the world 1998 – Russia and Brazil Also threatened the economies of developed world including US Risks associated with global financial contagion are also greater

Modes of IB  

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Merchandise Exports & Imports Service Exports & Imports  Tourism & Transportation  Performance of services banking, insurance)  Use of assets (trademarks, patents, copyrights, licensing agreements)  Franchising Investments  Direct Investment  Portfolio Investment

Entry Modes   

Which Markets to enter When to enter What scale

 How

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Entry Modes      

Exporting Licensing Franchising Joint-ventures Wholly-owned subsidiary Turnkey Projects

Exporting 

Advantages 

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Ability to realize location and experience curve economies

Disadvantages   

High Transport costs Trade barriers Problems with local marketing agents

Licensing 

Advantages 

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Low development costs and risks

Disadvantages  

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Lack of control over technology Inability to realize location and experience curve economies Inability to engage in global strategic coordination

Franchising 

Advantages 

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Low development costs and risks

Disadvantages  

Lack of control over quality Inability to engage in global strategic coordination

Joint ventures 

Advantages   

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Access to local partner’s knowledge Sharing development costs and risks Politically acceptable

Disadvantages  

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Lack of control over technology Inability to engage in global strategic coordination Inability to realize location and experience economies

Wholly owned subsidiaries 

Advantages  

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Protection of technology Ability to engage in global strategic coordination Ability to realize location and experience economies

Disadvantages 

High costs and risks