Govt Attitue towards FDI

8/7/2019 Govt Attitue towards FDI

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International Business

GOVERNMENT ATTITUDETOWARDS FDI


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4-2

Importance of Economic

Environments

Companymanagersstudyeconomicenvironmentstoestimate howtrendsaffecttheirperformance

A countryseconomicpoliciesarealeadingindicatorofgovernmentsgoalsanditsplanneduseofeconomictoolsandmarketreforms.

Economicdevelopmentdirectlyimpactscitizens,managers,policymakers,andinstitutions.


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4-3

Elements of the Economic

Environment

Grossnationalincome (GNI): theincomegenerated both bytotaldomesticproductionaswellastheinternational

productionactivitiesofnationalcompanies Grossdomesticproduct (GDP): thetotal

valueofallgoodsandservicesproduced

withinanations bordersoveroneyear,nomatterwhetherdomesticorforeign-ownedcompaniesmaketheproduct.


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Some Understanding

1-4

Gross national income (GNI)

comprises the value within a country(i.e. Its GDP) together with its incomereceived from other countries (notablyinterest and dividends), less similar

payments made to other countries.

Gross domestic product (GDP)refers to the market value of all finalgoods and services produced within acountry in a given period.

GDP isthevalueproducedwithinacountrys borders,whereastheGNI isthevalueproduced byallthecitizens.

GNI = GDP + income from non-resident

sources abroad


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...contd (Some Understanding)

1-5

World GNI US$72 trillion

World GDP US$59 trillion

High Income Countries -thosewith GNI percapitaofmorethan US$12,196

(around 70 countries) accountedfor80% ofworlds GNP but havelessthan15% oftheworld'spopulation)

GNI per capita isagoodfirststeptowardunderstandingthecountryseconomicstrengthsandneeds,aswellasthegeneralstandardoflivingenjoyed bytheaveragecitizen.

A countrys GNI percapitatendsto becloselylinkedwith otherindicatorsthatmeasurethesocial,economic,andenvironmentwell-beingofthecountryanditspeople


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4-6

Other features of an economy

Inflation

Unemployment

Debt Incomedistribution

Poverty

Laborcosts Productivity

Balanceofpayments


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4-7

Definition of Economic System

A mechanismthatdealswith theproduction,distribution,andconsumption

ofgoods

and

services

Types:

Marketeconomy

Commandeconomy

Mixedeconomy


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12 Pillars of competitiveness World Economic Forum

1-8


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Global Competitive Index 2010-2011

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5-10

Evaluating the Impact of FDI FDI is Foreign Direct Investment

Foreigndirectinvestmentisinvestmentofforeignassetsintodomesticstructures,equipment,andorganizations

Thelargesizeofsome MNEs(Multinational Enterprise) causes

concernforsomecountries

MNEsandcountriesneedto

understandtheimpactofFDI in

homeand hostcountries


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5-11

Considering the Logic of FDI

Needtoconsiderrelationship betweenthosewhomakeforeigninvestments(MNEs) andpossibleeffectsonreceivingcountries

Areastoconsider:

Stakeholdertrade-offs

Cause-and-effectrelationships

Individualandaggregateeffects


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5-1

2

The Economic Impact of the MNE

Balance-of-Paymentseffects:

Netimporteffect

Netcapitalflow Growth and Employmenteffects:

Home-countrylosses

Host-countrygains

Host-countrylosses


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5-1

3

Why Companies Care About Ethical

Behavior

Instrumentalinachievingtwoobjectives:

Todevelopcompetitiveadvantage

Toavoid beingperceivedasirresponsible


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5-1

4

The Cultural Foundations of Ethical

Behavior

Relativismvs. Normativism: dotruthsdependonthevaluesofthegroupsorarethereuniversalstandards

Negotiating betweenevils

Respectingculturalidentity


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5-1

5

The Legal Foundations of Ethical

Behavior

Legaljustificationforethical behaviormaynot besufficient becausenoteverythingthatisunethicalisillegal

Thelawisagood basis becauseitembodieslocalculturalvalues

Lawswill becomesimilarindifferentcountries


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5-16

Ethics and Bribery

Bribesarepaymentsorpromisestopaycash oranythingofvalue

Bribesusedtogetgovernmentcontractsorto

getofficialstodowhattheyshould bedoinganyway

Problemswith bribery: Affectsperformanceofcompany & country

Erodesgovernmentauthority

Damagereputationswhendisclosed

Increasescostofdoing business


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7-17

Possible impacts of import

restrictions designed to create

domestic employment Mayleadtoretaliation byothercountries.

Arelesslikelyretaliatedagainsteffectivelybysmalleconomies.

Arelesslikelyto bemetwith retaliationifimplemented bysmalleconomies.

Maydecreaseexportjobs becauseof

priceincreasesforcomponents. Maydecreaseexportjobs becauseof

lowerincomesabroad.


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7-18

Protecting Infant-Industries

Theinfant-industryargumentforprotectionholdsthatgovernmentalpreventionofimportcompetitionisnecessaryto helpcertainindustriesmovefrom high-costtolow-costproduction


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7-19

Developing an Industrial Base

Countriesseekprotectiontopromoteindustrialization becausethattypeofproduction:

Bringsfastergrowth thanagriculture.

Bringsininvestmentfunds.

Diversifiestheeconomy.

Bringsmoreincomethanprimaryproductsdo.

Reducesimportsandpromotesexports.

Helpsthenation-buildingprocess.


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7-20

Economic Relationships

with Other Countries

Tradecontrolsareusedtoimproveeconomicrelationswith othercountries

Theirobjectivesincludeimprovingthe balance

of: payments

raisingpricestoforeignconsumers

gainingfairaccesstoforeignmarkets

preventingforeignmonopolyprices

assuringthatdomesticconsumersgetlowprices

loweringprofitmarginsforforeignproducers


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7-21

Maintaining essential industries

Inprotectingessentialindustries,countriesmust:

Determinewhich onesareessential.

Considercostsandalternatives.

Considerpoliticalconsequences.


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7-22

Preventing Shipments to

Unfriendly Countries

Considerablegovernmentalinterferenceininternationaltradeismotivated by:

politicalratherthaneconomicconcerns

maintainingdomesticsuppliesofessentialgoods

preventingpotentialenemiesfromgaining

goodsthatwould helpthemachievetheirobjectives


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7-23

Maintaining or extending spheres of

influence

Governmentsgiveaidandcreditsto,andencourageimportsfrom,countriesthatjoinapoliticalallianceorvoteapreferredwaywithininternational bodies.

A countrystraderestrictionsmaycoercegovernmentstofollowcertainpolitical

actionsorpunish companieswhosegovernmentsdonot.


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7-24

Preserving national identity

Tosustainthiscollectiveidentitythatsetstheircitizensapartfromthoseinothernations,countrieslimitforeignproductsandservicesincertainsectors.


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7-25

Instruments ofTrade Control

Tradecontrolsthatdirectlyaffectpriceandindirectlyaffectquantityinclude:

tariffs

subsidies

customs-valuationmethods

specialfees


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7-26

Nontariff Barriers: Quantity Controls

Tradecontrolsthatdirectlyaffectquantityandindirectlyaffectpriceinclude: quotas

voluntaryexportrestraint (VERs) buylocallegislation

standardsandlabels

licensingarrangements

specificpermissionrequirements

administrativedelays

reciprocalrequirements

restrictionsonservices


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7-27

Dealing With Governmental Trade

Influences

Whenfacingimportcompetition,companiescan:

Moveabroad

Seekothermarketniches

Makedomesticoutputcompetitive

Trytogetprotection


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8-28

The General Agreementon TariffsandTrade (GATT), begunin1947,createdacontinuingmeansforcountriestonegotiatethereductionandeliminationoftrade barriersandtoagreeonsimplifiedmechanismsfortheconductof

internationaltrade


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8-29

The World Trade Organization (WTO)replaced GATT in1995asacontinuingmeansoftradenegotiationsthataspirestofostertheprincipleoftradewithoutdiscriminationandtoprovidea bettermeansofmediatingtradedisputesandof

enforcingagreements


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8-30

Regional Economic Integration

EffortsatregionaleconomicintegrationbegantoemergeafterWorld WarII ascountriessaw benefitsofcooperationand

largermarketsizes Themajortypesofeconomicintegration

are:

thefreetradearea thecustomsunion

thecommonmarket


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8-31

The Effects of Integration

Onceprotectioniseliminatedamongmembercountries,tradecreationallowsMNEstospecializeandtrade basedoncomparativeadvantage

Tradediversionoccurswhenthesupplyofproductsshiftsfromcountriesthatarenot

membersofaneconomic bloctothosethatare


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8-32

European Union

Regional,asopposedtoglobal,economicintegrationoccurs becauseofthegreatereaseofpromotingcooperationonasmallerscale

The European Union (EU) isaneffectivecommon

marketthat hasabolishedmostrestrictionsonfactormobilityandis harmonizingnationalpolitical,economic,andsocialpolicies

The EU iscomprisedof27 countries,including12countriesfrommostlyCentraland Eastern Europethat

joinedsince2004

The EU hasabolishedtrade barrierson: intrazonaltrade institutedacommonexternaltariff createdacommoncurrency,theeuro


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8-33

Implications of the EU for

corporate strategy

Companiesneedtodeterminewheretoproduceproducts.

Companiesneedtodeterminewhattheirentrystrategywill be.

Companiesneedto balancethecommonnessofthe EU with nationaldifferences.


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8-34

The North American Free Trade

Agreement (NAFTA)

The North American Free TradeAgreement (NAFTA) isdesignedtoeliminatetariffbarriersandliberalizeinvestmentopportunitiesandtradeinservices

Keyprovisionsin NAFTA arelaborand

environmentalagreements


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8-35

Regional economic integration in the

Americas

CaribbeanCommunity (CARICOM)

Central AmericanCommon Market (CACM)

Central American Free Trade Agreement(CAFTA-DR)

AndeanCommunity (CAN)

The SouthernCommon Market (MERCOSUR)

Theproposed South AmericanCommunityofNations.


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Regional economic integration in

Asia & Africa

AssociationofSoutheast Asian Nations(ASEAN)

Asia Pacific EconomicCooperation(APEC)

The African Union

Govt Attitue towards FDI

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