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1、CHAPTER 1Globalization and Regional Economic IntegrationINTRODUCTION Transnational Corporationan enterprise such as one“which controls assets,factories,mines,sales offices,and the like in two or more countries.”In 1973How has the United Nations defined the TNC?How has the United Nations defined the
2、TNC?an enterprise(a)comprising entities in two or more countries,regardless of the legal form and fields of activity of those entities,(b)which operates under a system of decision-making permitting coherent policies and a common strategy through one or more decision-making centers,(c)in which the en
3、tities are so linked,by ownership or otherwise,that one or more of them may be able to exercise a significant influence over the activities of the others,and,in particular,to share knowledge,resources,and responsibilities with others.In 1984How has the United Nations defined the TNC?How has the Unit
4、ed Nations defined the TNC?Our definition of TNCsAn enterprise has substantial direct investment in foreign countries and actively manages those operations and regards those operations as integral parts of the company both strategically and organizationally.TNCs ManagementFormulation of strategies a
5、nd management systems to take advantage of international opportunities and respond to international threatsTNCs in the global economy 1.The universe of TNCs is large,diverse and expanding.2.Some TNCs are bigger than countries.3.The largest TNCs remain geographically concentrated in a few home countr
6、ies.The degree of transnationality a measure of the relative economic importance of foreign affiliates in total economic activityThe Transnationality Index is calculated as the average of the following three ratios:foreign assets to total assets,foreign sales to total sales and foreign employment to
7、 total employment.Transnationality IndexTNIOther measures of transnationalitynThe Internationalization Index(II)is the ratio of a TNCs foreign affiliates to total affiliatesnThe Geographical Spread Index(GSI),is calculated as the square root of the Internationalization Index multiplied by the number
8、 of host countries.What is globalization?nThe shift towards a more integrated and interdependent world economy nTwo components:nThe globalization of marketsnThe globalization of productionGlobalization of Markets“Merging of historically distinct and separate national markets into one huge global mar
9、ketplace.”The needs of customers for many products and services are growing more similar.And customers search the world for their supplies regardless of national boundaries.Many firms offer a standardized product worldwide.The Largest Global MarketsnNot Consumer GoodsnBut Industrial Goods and Materi
10、alsCommodities such as aluminum,oil and wheat.Industrial products such as microprocessors,aircraft.Financial assets such as U.S.Treasury bills and Eurobonds.Globalization of Productionn“The sourcing of goods and services from locations around the globe to take advantage of national differences in th
11、e cost and quality of factors of production(labor,energy,land and capital).”nMany much smaller firms are also getting into the global dispersal of production and design as well as giants such as Boeing.nTo lower their overall cost structure and/or improve the quality or functionality of their produc
12、t.“Global Products”Global driversnTwo macro factors that underlie trend towards greater globalizationnDecline in trade and investment barriersnGlobalization of markets and production has been facilitated by reduction in trade barriers and removal of restrictions to foreign direct investment.nTechnol
13、ogical changesnMicroprocessors and telecommunicationsnThe internet and world wide webnTransportation technologyImplications for Production and Market GlobalizationGlobalization debate-PronLower prices for goods and servicesnEconomic growth stimulationnIncrease in consumer incomenCreates jobsnCountri
14、es specialize in production of goods and services that are produced most efficientlyGlobalization debate-ConnDestroys manufacturing jobs in wealthy,advanced countriesnWage rates of unskilled workers in advanced countries declinesnCompanies move to countries with fewer labor and environment regulatio
15、nsnLoss of sovereigntyEffects on Managers Globalization:Pros&Cons Great opportunities for managers.Increased revenue opportunity through global sales.Reduced costs by producing in low cost countries.Managers now face a more dynamic and exciting job due to global competition.Should vary its practices
16、 country by country.Must work within government regulations.Currency conversion presents unique problemsRegional Economic IntegrationRegional economic integration refers to the process whereby countries in a geographic region cooperate to reduce,and ultimately remove,tariff and nontariff barriers to
17、 the free flow of goods,services,and factors of production between each other.Level of Economic IntegrationnFree Trade AreanCustoms UnionnCommon MarketnEconomic UnionnPolitical UnionEconomic IntegrationnFree Trade AreanAll barriers to trade among members removed.nEach country can determine own trade
18、 policies toward nonmembers.nCustoms UnionnEliminates barriers among members and has a common external trade policy.nCommon MarketnAllows factor of the production to move freely between members.nEconomic UnionnNo barriers among members,common external policy,common monetary and fiscal policy,harmoni
19、zed tax rates and common currency.nPolitical UnionnHas a coordinating bureaucracy accountable to all citizens.Case For Regional Integrationnan attempt to achieve economic gains from the free flow of trade and investment.nTheir political weight would be enhanced in the world by grouping their economi
20、c.nIt is easier to gain agreement among a limited number of neighboring countries.Case Against Regional IntegrationnIt is never without costs for the minority.nLoss of jobsnEnvironment degradationnFirms in developing countries have to compete against efficient firms from developed countries.nConcern
21、s over national sovereignty often slow or stop integration attempt.Trade creation and trade diversionTrade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.Trade diversion occurs when low-cost external suppliers are replaced by high-cost
22、 suppliers within the free trade area.Regional integration will not increase economic welfare if the trade creation effects in the free trade area are outweighed by the trade diversion effects.Regional economic integration in EuropeEurope has two trade blocksnEuropean UnionnSeen as the emerging powe
23、r with almost 27 membersnEuropean Free Trade AssociationnHas only four membersEvolution of the European UnionnProduct of two political factors:nDevastation of WWI and WWII and desire for peacenDesire for European nations to hold their own,politically and economically,on the world stagen1951-European
24、 Coal and Steel Community.n1957-Treaty of Rome establishes the European Communityn1994-Treaty of Maastricht changes name to the European UnionRegional economic integration of the AmericasnRegional economic integration is on the rise in the Americasn NAFTAnMERCOSURnPlans for FTAA NAFTAnEnforced in Ja
25、nuary,1994,nOver 10 year period:tariffs reduced(99%of goods traded)nRemoval of most barriers on cross border flow of servicesnProtection of intellectual property rightsnApplies national environmental standardsnEstablishment of commission to police violationsnRemoval of restrictions on FDI except in
26、certain sectorsnMexican railway and energynUS airline and radio communicationsnCanadian cultureANCOM:Andean PactBolivia,Colombia,Ecuador,Peru,VenezuelaCartagana Agreement,1969.Nearly failed.Galpagos Declaration,1990.The establishment of a free trade area by 1992;a customs union by 1994;a common mark
27、et by 1995.Still has many political and economic problems.The Mercosur n1988:Argentina,Brazil.1990:Paraguay,Uruguay n1995:Agreed to move toward a full customs union.nPositive:nTrade quadrupled between 1990-1998.nThe combined GDP grew at a rate of 3.5 between 1990-1996.nRoadblock:nHas significant tra
28、de diversion issues.nEconomic problems,first in Brazil(1999),then in Argentina(2001)has put plans for the customs union on hold.Regional trade blocs in Asia:ASEANnCreated in 1967nObjective to achieve free trade between member countries and achieve cooperation in their industrial nBrunei,Indonesia,La
29、os,Malaysia,the Philippines,Myanmar,Singapore,Thailand and VietnamnProgress limited by Asian financial crisis of the 90sAsia Pacific Economic CooperationnFounded in 1990 to increase multilateral cooperation.nthe seed of potential FTA.n21 members.n50%of worlds GNP.n40%of global trade.nAPEC“is in dang
30、er of shrinking into irrelevance as a serious forum.”Regional trade blocs in Asia:APECRegional Trade Blocs in African9 trade blocs on the continent.nMany countries are members of more than one group.nProgress has been slow.nPolitical turmoil.nDeep suspicion of free trade.nLess developed,less diversi
31、fied economies need“protection”.Impact on businessnOpportunities:Creation of single marketsnProtected markets,now opennLower costs doing business in single marketnThreats:nDifferences in culture and competitive practices make realizing economies of scale difficultnMore price competitionnOutside firms shut out of marketnEU intervention in mergers and acquisitions