Davos Man

1
Davos Man

• Davos World Economic Forum, Davos Man is a
  prophet of free trade
• Davos Man is beholden to no values except the
  global market
• This year, corporate chieftains were unsteady,
  not the usual agents of change
• Beating of war drums drowned out the
  antiglobalization voices
• Key speaker was Colin Powell

2
Case for Regional Integration

• Economic
• Allow countries to specialize in products they
  produce efficiently.
• Easier to gain agreement than GATT/WTO.
• Role of FDI is enhanced.
• Exploit gains from free flow of goods and
  services and investment.

• Political
• Creates incentive for political cooperation.
• Reduces potential for violent confrontation.
• Enhanced clout to deal with superpowers.

3
Impediments to Integration

• Although a nation may benefit, groups within a
  nation may be hurt.
• Concerns about national sovereignty.
• Debate
• Trade creation.
• Trade diversion.

4
Impact on Business

• Positive
• Protected markets, now open.
• Lower costs doing business in single market.

• Negative
• Differences in culture and competitive practices
  make realizing economies of scale difficult.
• Threats
• More price competition.
• Firms become more competitive.
• Outside firms shut out of market.
• EU intervention in M and A activity.

5
The Dumping DilemmaEconomist, 9/5/02

• Antidumping investigations are proliferating,
  they threaten the global trading system
• 24 countries initiated 348 antidumping
  investigations, involving 139 products
• America and the European Unions are vigorous
  users, India now rivals them!
• Developed countries are becoming the target of
  antidumping investigations

6
Political Arguments for Intervention
7
WHO WINS?
Government (Tariff Revenue)
Import competing industry
Foreign Producers (Auto Manufacturers)
Employees
8
WHO LOSES?
Users of Imported Goods
Consumers
Economy as a whole
Foreign Producers
Global Economy
9
Impact of Trade Barriers

• Tariffs increase the costs of doing business,
  may lead to FDI
• Quotas, VERs may also set up production
  facilities in the protecting country
• Conforming to local content regulations May
  locate activities in a given market, increases
  costs
• Antidumping investigations limits a firms
  ability to use aggressive pricing

10
Policy Implications

• Businesses are major players on the international
  trade scene
• Exert strong influence on the governments policy
  toward trade
• Government intervention though can protect the
  inefficient rather than the efficient global
  competitors
• Intervention may invite retaliation
• Intervention may be captured by special interest
  groups!

11
Kodaks Integrated Strategy

• Objectives Profits, weaken Fujis profit
  sanctuary, and be able to punish Fuji
• Integrated strategy
• Maintain product leadership through innovation
• Leverage its brand name
• Acquire rest of Nagase, build new distribution
  facilities
• Obtain greater market access, attract a
  primary wholesaler (Asanuma)

12
Kodaks Nonmarket Strategy

• Section 301, forces U.S. action
• Lobbying and enlisting congressional allies
  (Dole)
• Public advocacy, news conferences, interviews
• Grassroots campaign using employees and retirees

13
The WTO Decision

• Kodak and the U.S. lost on the film case
• WTO concluded if there was discrimination, it was
  not because of government actions
• Case is important, may be the end of Section 301
  cases filed private companies
• Countries can ignore the petitions, forcing
  companies to go to the WTO

14
The Kodak Strategy

• Japan in the past had been willing to negotiate
  with respect to Section 301 cases
• Kodak gambled, lost the political battle
• In 1998, profits began to lag as a result of
  Fujifilms price cutting, lagging sales of
  digital photographic equipment, too many
  employees
• Fisher stepped down as CEO in 1999

15
Why This Case Is Important

• Likely the end of unilateralism in international
  trade
• Possibly the end of bilateralism in international
  trade
• Contributes to the pressure in the U.S. to change
  the WTO
• Shifts companies strategies toward the WTO,
  strategy options are narrowed

16
Implications for MNCs

• Illustrates the barriers firms may face in
  foreign markets
• Lack of antitrust enforcement contributed to the
  challenges that Kodak faced
• Illustrates how firms can use trade policy
  mechanisms to pursue their strategic goals
• MNCs needs to understand how to combine market
  and nonmarket approaches

17
Globalization

• Trade and investment barriers are disappearing.
• Perceived distances are shrinking due to advances
  in transportation and telecommunications.
• Material culture is beginning to look similar.
• National economies merging into an interdependent
  global economic system.

18
What is Globalization?
19
Globalization of Markets
Citicorp credit cards Sony Playstation Coca-Cola M
cDonalds
Small Companies Benefit Too! Hytech, solar
panels, 40of its sales are foreign!
Industrial good are most global! Commodities such
as aluminum, oil, wheat microprocessors
20
Globalization of Production

• Sourcing goods and services from locations around
  the globe!
• Boeing sources from 545 different suppliers
• Smaller firms are also getting into the act
• Swan Optical has dispersed its manufacturing and
  design processes!

Global Products
21
Macro Factors
Decline in Trade Barriers
Globalization
Technological Change
22
Average Tariff Rates on Manufactured Products as
Percent of Value
Table 1.1
23
The Role of Technological Change

• Microprocessors and Telecommunications
• The Internet and World Wide Web

24
Internet and the World Wide Web
1990 Fewer than 1 million connected to the
internet 1995 50 million connected
2001 Grew to 490 million connected
2005 Predicted 1.12 billion users, 18 of the
worlds population! 58 of the U.S. population is
connected!!