WORLDWIDE DEVELOPMENTS

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WORLDWIDE DEVELOPMENTS
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COVERAGE FOR TODAY

• Regional Developments
• Video Europe Launches New Currency
• Trends in Foreign Direct Investment
• Case India
• McDonalds Franchise Opportunities
• Here Comes the Competition

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Regional Developments Impacting
Internationalization

• North American Free Trade Agreement (NAFTA)
  U.S., Canada, Mexico --Removed all barriers to
  trade between countries
• created a huge North American market
• Agreement will expand to include Latin American
  countries, Chile, Argentina, and Brazil

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SOME RESEARCH ON IMPACT OF NAFTA ON CANADA

• Bank of Montreal study NAFTA has benefited firms
  in all 3 countries expected to continue
• York University study widening of productivity
  gap between US Canada (95 in 1984 to 80 in
  1996)
• Federal Reserve Bank of Dallas little impact on
  U.S.-Canada trade
• Other articles little impact on Canada (FTA
  more impact)

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Top Five Trading Partners of the United States

• U.S. Exports U.S. Imports
• Importing (US million) (US million)
• Rank Country Country
• 1 Canada 132,584 Canada 159,746
• 2 Japan 67,536 Japan 117,963
• 3 Mexico 56,761 Mexico 74,111
• 4 UK 30,916 China 54,409
• 5 Germany 23,474 Germany 39,989

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• European Union (EU)
• Consists of 15 western European nations
• Trade barriers between EU members have been
  removed
• a unified currency called the euro has been
  adopted
• Video - Friendly Competition Europe Launches
  New Currency

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EXAMPLE OF DENMARK

• Referendum on 28/9/2000 Do Danes wish to
  preserve the krone or adopt the Euro?
• 48 favor euro 46 against 6 undecided
• Danish Peoples Party anti-immigrant
  anti-euro found in 1995
• Trend of formation of nationalist parties in
  Europe Austria, Belgium, growing in Italy,
  situation in Germany now?
• Denmark formation of an immigrants party to
  fight the erosion of immigrants rights

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THE EU 10 YEARS AFTER 1992

• Still a work in progress
• 2002 present shape of economy not good
• Achievements? Yes, in building the internal
  market
• Political problems decision-making slow,
  wrangling by member states
• Not a homogeneous entity
• Forecast important growth differentials will
  persist

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EXAMPLE OF SECTORS

• Services barriers remain
• Crucial engine for economic growth (70 of GNP
  2/3rds of employment)
• No single market in services (member states
  laws, rules practices impede free movement
• Pharmaceuticals fragmentation due to trade
  practices of MNCs
• Financial services slowing down of integration
  due to national interests

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FOREIGN DIRECT INVESTMENTMULTINATIONAL
CORPORATIONS
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Percentage Share of Total FDI Stock 1980-2001
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FDI Inflows1985-2001
B
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TOP 10 WINNERS (left) LOSERS (right) IN FDI
INFLOWS IN 2001

• Mexico (10)
• France (9.7)
• China (6.1)
• South Africa (5.8)
• Singapore (3.2)
• Morocco (2.5)
• Turkey (2.3)
• Saudi Arabia (1.9)
• Chile (1.8)
• Italy (1.5)

• Belgium Luxembourg (-194.6)
• US (-176.5)
• Germany (-163.3)
• UK (-62.8)
• Canada (-39.2)
• Hong Kong (-39.1)
• Denmark (-25.3)
• Spain (-15.7)
• Ireland (-14.3)
• Sweden (-10.6)

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RECENT TRENDS IN WORLD FDI

• Sharp decline in 2001 continuing in 2002
• Developed countries hurt worse than developing
  countries (59 compared to 14 decline)
• Central Eastern European countries were immune
• Long term projections continuation of
  internationalization of production due to
  dominance of multinational companies

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10 TEN FIRMS IN THE WORLD IN 2000 (BY REVENUES)
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National Composition of the Largest Multinationals
Of the Top 260 in 1973 Of the Top 500 in
1997 United States 126 (48.4) 162
(32) Japan 9 (3.5) 126 (25) Britain 49
(18.8) 34 (6.8) France 19 (7.3) 42
(8.4) Germany 21 (8.1) 41 (8.3)
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WORLDS 10 LARGEST MNCS (RANKED BY FOREIGN ASSETS)

• Vodafone (UK) 81.4 TNI
• General Electric (US) 40.3 TNI)
• ExxonMobil (US) 67.7
• Vivendi University (France) 59.7
• General Motors (US) 31.2

• Royal Dutch Shell (UK/Netherlands) 57.5
• BP (UK) 76.7
• Toyota Motor (Japan) 35.1
• Fiat (Italy) 57.4
• IBM (US) 53.5

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TOP MNCS IN TERMS OF TRANSNATIONALITY, 2000

• Rio Tinto (UK)
• Thomson (Canada)
• ABB (Switzerland)
• Nestle (Switzerland)
• British American Tobacco (UK)
• Electrolux (Sweden)
• Interbrew (Belgium)
• Anglo American (UK)
• Astrazeneca (UK)
• Philips Electronics (Netherlands)

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COMPARABLE STATISTICS ON CANADA?

• Foreign direct investment in Canada?
• Foreign direct investment by Canada
• Recent Asian acquisitions by Canada
• Top 5 trading partners?

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FDI INFLOWS OUTFLOWS INTO CANADA(in millions
of US)
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GEOGRAPHIC DISTRIBUTION OF CANADIAN DIRECT
INVESTMENT STOCK
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CANADAS ASIAN ACQUISITIONS
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Where Canadian ExportsWent in 2000
Source Statistics Canada and US Census
Bureau, http//strategis.ic.gc.ca, June 4, 2001
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Top 5 Countries Canada Traded with in 2000
Source Statistics Canada and US Census Bureau,
http//strategis.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.ph
p
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MERCHANDISE TRADE OF CANADA (1990 2001) --
EXPORTS
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MERCHANDISE TRADE OF CANADA (1990 2001) --
IMPORTS
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EXPORTS FROM NEWFOUNDLAND
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NEWFOUNDLAND EXPORTS TOP 10 COUNTRIES
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IN THE INTERNATIONAL SPOTLIGHT INDIA
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IN THE INTERNATIONAL SPOTLIGHT INDIA

• What is the climate for doing business in India?
  Is it supportive of foreign investment?
• How important is a highly educated human resource
  pool for MNCs wanting to invest in India/ Is it
  more important for some businesses than for
  others?
• Given the low per-capita income of the country,
  why would you argue for India to be an excellent
  place to do business in the coming years?

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POLITICAL RISK SERVICE ECONOMIC INTERNATIONAL
BUSINESS RISK

• Economic prediction
• 2000 5.5 Real GDP Growth 4.0 inflation -5
  billion current account
• 2001-2005 6.5 Real GDP Growth 6 inflation
  -4 billion current account
• Business risk
• Until May 2001 high turmoil financial transfer
  (B) direct investment (B) export market (B-)
• Until November 2004 moderate turmoil, financial
  transfer (B), direct investment (C), export
  market ( C)

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BUSINESS CLIMATE INDEX IN 1997 1999

• India 1997 (63) 1999 (64)
• Indonesia 1997 (67) 1999 (63)
• Thailand 1997 (72) 1999 (67)
• Hong Kong 1997 (90) 1999 (87)
• Botswana 1997 (82) 1999 (80)
• Poland 1997 (79) 1999 (79)

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FRANCHISE OPPORTUNITIES AT McDONALDS

• What is going on in the company?
• How are they doing domestically internationally
• How much does it cost to set up a franchise in
  Belgium, Brazil, Korea, Mexico, Slovenia Turkey
• Which seems like the most attractive
  international investment?
• Which other countries is the firm seeking
  franchisees? Any attractive ones?

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NUMBER OF MC DONALDS RESTAURANTS WORLDWIDE
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WORLDWIDE REVENUES 2001
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EFFECT OF EURO ON McDONALDS

• Will the fact the euro has become the standard
  currency in the currency in the EU help or hinder
  a new McDonalds franchisee in Europe?
• If there are exciting worldwide opportunities,
  why does McDonalds not exploit these itself
  instead of looking for franchisees?
• What is the logic in McDonalds expansion
  strategy?

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HERE COMES THE COMPETITION
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CASE QUESTIONS

• Is Europe likely to be a good area for direct
  investment during the years ahead?
• Why is so much foreign money being invested in
  U.S. manufacturing? Based on your conclusions,
  what advice would be in order for the
  conglomerate?

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ADVICE FOR THE CONGLOMERATE

• European integration is inevitable.
• Start to assemble an international team with wide
  ranging experience in the world arena.
• Develop an information system that keeps one
  informed about political change around the world
  and the implications for the firm.
• Top management must be involved in getting ready.
  Do not assign these tasks to subordinates.

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ADVICE FOR THE CONGLOMERATE (concluded)

• Prepare for tougher competition from Europeans as
  they get better.
• Opportunities may lie more in cost savings than
  in boosts to sales.
• Bend over backwards to make the alliances work.
• Dont wait too long to jump in merger
  acquisition prices are only going to rise the
  most desirable business partners will already be
  taken.

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IF THE CONGLOMERATE CURRENTLY DOES NOT DO
BUSINESS IN EUROPE, WHAT TYPES OF PROBLEMS IS IT
LIKELY TO FACE?
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ASSIGNMENT FOR 20/1/2003

• TOPIC The Political, Legal, and Technological
  Environment
• Classroom Activities
• Video Differences in Political Economies
• Vietnam A Chinese Venture (exercises)
• Internet exercise (Hitachi Goes Worldwide)