Managing the Multinational Enterprise

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Transcript Managing the Multinational Enterprise

Bonus Assignment (3%)
Gravity model analysis of trade integration in ASEAN+3 during 2001-2012
Association of Southeast Asian Nations
1967: Indonesia, Malaysia, the Philippines, Singapore, and Thailand
1984: Brunei Darussalam
1995: Vietnam
1997: Laos and Myanmar (Burma)
1999: Cambodia
Post 1997 Asian financial crisis: ASEAN + 3 (Japan, China, and South Korea)
Bonus Assignment (3%)
Gravity model analysis of trade integration in ASEAN+3 during 2001-2012
Given that this is a relatively large project, I recommend each team to have 8-10 students.
Measure of trade integration = log(trade) – log(GDP1) – log(GDP of partners) + log(weighted distance)
Data sources:
[1] Country-pair trade data: ITC at (pick a country, then go to its profile of “trade and investment
data”, under which there is a database on “trade in good statistics” / “trade in services statistics”)
[2] GDP data: World Bank at
[3] Weighted geographic distance data: CEPII at; for simplicity,
weighted geographic distance between country 1 and a group of countries (country 2, country 3, …, country k) is calculated
as the arithmetic average of distance between country 1 and each of the other countries.
Calculate two integration measures for each country (one with other ASEAN members, one with
+3), and provide a short analysis of the ongoing patterns.
A. is this index generally increasing overtime?
B. is this index generally higher for trade within ASEAN than trade with +3?
C. which country is the most integrated in the region (ASEAN+3)?
Course structure
Classes 1-4
International business environment
Regional vs. global
Triad and IB activities
Politics, culture, trade and finance
Classes 5-9
Firm-specific advantages and firm management
International HRM
Political risk management
International financial management
Class 10
Country-specific advantages
Classes 11-14
Locational choice and regional management
European Union, North America, Japan, and Emerging Markets
Japan (日本国)
An archipelago of 6,852 islands in East Asia
The characters 日本 that make up Japan’s name
mean “sun-origin” – “Land of the Rising Sun”
Japan and the US
Close interactions (both competition and cooperation) since
In 1853, a US fleet pressured Japan to open to the West, which ended the country’s long period of
isolation since early 17th century
American “Black Ships” as a symbol of threatening Western technology and colonialism in Japan.
In WWI, a Victory Allied Power, along with Russia, France, and the British Empire (inc. Canada,
Australia, New Zealand, and South Africa) and the US
In WWII, lost to the Victory Allies including the US, the Soviet Union, China, UK, and France
Surprise military strick – The Attack on Pearl Harbor – in 1941
US’s atomic bombings of Hiroshima and Nagasaki in 1945
Post-WWII occupation by the Allies, led by the US, until 1952, when Japan became once
again independent and an ally of the US
Since then, despite occasional military/political tensions on various issues, Japan has been
the most important strategic ally of the US in the Asia Pacific
Japan’s opinion of the US
Political, social and cultural characteristics
Political and legal system
The branches of the Japanese government are
very similar to those in the United States:
legislative, executive and judicial.
Except that it is a constitutional monarchy where the power of
the Emperor (currently Akihito) is very limited.
Legislative power is vested in the National Diet,
which consists of a popularly elected House of
Representatives and House of Councilors.
Executive power rests with the Cabinet that is
organized and headed by the prime minister
(currently Shinzo Abe), who is elected by the
The judicial power is vested in the Supreme
Court. In addition, there are eight high courts
and a host of district courts throughout the
Ministry of International Trade and Industry (MITI)
MITI served as the coordinating body of the country’s
powerful commercial machinery between the 1950s and
early 2000s.
MITI encouraged Japanese companies to pursue targeted
 Computer technology, high-tech industrial and agricultural
machinery, optical electronics and world-class auto
When MITI identified an area where it would like to expand
business efforts, it was able to gain support for three reasons.
 Financial incentives: these are made available to
companies that were prepared to commit resources.
 Personal relationship: most MITI ministers attended the
major universities, and so they have school ties to the
captains of industry.
 Location: MITI offices and those of most corporate and
financial giants were located in the same area of Tokyo.
Ministry of Economy, Trade and Industry (METI)
In 2001, MITI was replaced by METI (the
Ministry for Economy, Trade and Industry).
The practice of ‘amakudari’ (meaning
“revolving doors”) involved the regular
movement of senior politicians and civil
servants from the public sector into private
sector companies, often as highly paid
The early 1990s saw the start of a series
of restructurings in Japanese politics to
decrease government influence of the
Arguably, Government in Japan continues
to play a more important role in the
economy than in other OECD countries.
Social and cultural characteristics
Collectivism rather than individualism,
dominates many aspects of Japanese life.
Within companies certain characteristics have
strong religious roots, including honor, respect,
sincerity, loyalty (chu), duty, obligation or
responsibility (giri), ritual and hierarchy.
Parent–child relationships characterise the
hierarchical nature of inter-organizational and
interpersonal links, such as government–industry,
large firm–small firm, manager–employee, etc.
Respect for elders, ritualistic (highly-complex)
language forms and behaviour, group activities
and consensus decision making are all
important elements.
Hai ≠ Yes
Hai can mean one of at least four levels of yes:
recognition, but not necessarily understanding;
understanding, but not necessarily acceptance and
responsibility, understanding, but must consult with
others and secure their agreement before acceptance;
agreement, which means understanding, agreement
and acceptance.
The non-verbal signals from the speaker have to be
understood to determine, which yes is being meant.
Rapid growth in the early years
Japan’s rapid growth in the early years stemmed from
factors such as:
the traditional relationship between government and
its unique capital markets (national finance and investment
its traditionally strong ‘keiretsu’ groupings of firms;
Keiretsu: a business group consisting of a host of companies and
banks linked through ownership and/or joint ventures.
the role of the corporation in society, and the role of the
employee in the firm.
Japan’s economy
Meiji Restoration during 1986 – 1912 was a turning point in
Japan’s economy
The country expanded with the embrace of the market economy through
various political and economic reforms
Many of today’s enterprises were founded at the time
The country emerged as the most developed nation in Asia
Japanese post-war economic miracle: averaged 7.5% in the
1960s and 70s, and 3.2% in the 80s and early 90s
Markedly slowed in the 1990s and, since then, remains a
sluggish economy
E.g., 1% decrease in real GDP in 2008, and 5.2% decrease in 2009; exports
shrunk from US$746.5 billion to US$545.3 billion from 2008 to 2009
Trade: Exports
Fourth largest exporter (US$796 billion) in 2012 following
China (US$ 2.1 trillion)
The US (US$1.5 trillion)
Germany (US$ 1.4 trillion)
Trade: Imports
Fourth largest importer (US$886 billion) in 2012 following
The US (US$ 2.3 trillion)
China (US$1.7 trillion)
Germany (US$ 1.2 trillion)
Trade: Net exports
Fifth largest net importer (US$32 billion) in 2012 following
The US, UK, India, and France
Trade: Exports by product
Outward FDI flows in 2012 (unit: millions)
Top 10 Developed Economies
Top 10 Emerging Economics
United States
328,869 1 China
122,551 * China, Hong Kong SAR
United Kingdom
71,415 2 Russian Federation
66,926 3 British Virgin Islands
53,939 4 Korea, Republic of
5 Mexico
6 Singapore
7 Chile
8 Malaysia
* China, Taiwan Province of
9 Thailand
10 Cayman Islands
Source: UNCTAD WIR2013.
Debt-to-GDP ratio
Most indebted government
Source: IMF 2012
The economic policies advocated by Shinzō Abe, the current PM of Japan since 26 Dec 2012.
Monetary policy:
Aggressive quantitative easing from the Bank of Japan
 2% inflation rate target
 Setting negative interest rates
Fiscal policy:
A surge in public infrastructure spending (2% of GDP)
Balancing the national budget by increase the consumption tax rate to 8% in 2014
and 10% in 2015
Export policy:
The devaluation of the Yen
Abenomics (cont’d)
Hiroko Tabuchi (2013) “Slowdown in Japanese Raises the
Pressure on Abe”, New York Times, November 14, 2013.
Both exports and consumer spending displayed signs of weakening after
strong overall growth in H1 of 2013
GDP growth slowed to 1.9% in Q3 (or 0.5% between Q3 and Q2),
down from 3.8% in Q2
Drop in consumption to only 0.1% growth in Q3, down from 0.6% in Q2
Net exports dropped – soaring demand in energy imports (after
Fukushima disaster and close-down; surge in Apple smartphones; etc.)
240% public debt-to-GDP ratio
Figure 17.3
Spending on R&D: Japan compared
Innovation (cont’d)
Figure 17.4
International patenting output: Japan compared
Sources: US Patent and Trademark Office, 2002; M. E. Porter and C. H. M. Ketels, UK Competitiveness: Moving to the Next Stage, DTI Economics Paper No. 3, Department of Trade and
Industry, UK Government and the Economic and Social Research Council (ESCR), 2003, at
Trade: Exports by product
Trade: Imports by product
Losing world competitive edge in electronics
Innovation (cont’d)
The renowned Japanese corporate groupings or
keiretsu, characterised by cross-shareholdings and
regular meetings between executives, represent more
or less closely tied groups of integrated businesses.
There are broadly two types of keiretsu, the
horizontal (kinyu) type and the vertical,
manufacturing keiretsu.
In the early 1980’s the top six keiretsu alone directly
accounted for about 5% of the Japanese labour
force and 16% of total Japanese corporate sales.
Characteristics of Japanese management
We can distil some of the main characteristics of the
generic Japanese management style as:
Effective communications internally and with outside
firms, and the use of cross-disciplinary, cross-business
and cross-functional workshops.
Less separation of R&D, design, manufacturing and
marketing functions.
Life-time employment, low labour mobility and
substantial investments in training. There is also a
strong emphasis on training on-the-job and jobrotation within the firm.
Characteristics of Japanese management (Continued)
Managers as problem definers, not firefighters and as
educators and mentors, not disciplinarians. This is
underpinned by the weak links between performance
and pay and the low wage differentials between
workers and managers in the age-related hierarchy.
Strong group/team ethic, loyalty and motivation
combined with competitiveness between teams.
Characteristics of Japanese management (Continued)
Strict formal hierarchy combined with strong underlying
informal networks and a tendency towards consensusbased decision making (‘horizontal promotion’ for highfliers and a lack of outsiders entering the firm at senior
General “long-termism” with a focus on growth and
employment stability and market share rather than
profits and shareholder dividends.
China, P.R. (中华人民共和国)
The Chinese name of China, 中国, means the Middle Kingdom
Brief background
The world’s most populous country (1.35 billion)
Second largest country by land area after Russia
Second largest economy by GDP (both nominal and PPP) after the U.S.
Largest trading nation with US$3.9 trillion in 2012
By far the largest foreign exchange reserves, owning about $1.6 trillion of US securities
One of the five recognized nuclear weapons state
The world’s largest standing army and the second largest defense budget after the U.S.
22 provinces
Five ethnic autonomous regions
Four direct-controlled (provincial-level) municipalities (Beijing, Tianjin, Shanghai and Chongqing)
Two mostly self-governing special administrative regions (SARs): Hong Kong SAR and Macau SAR
Taiwan, controlled by the Republic of China, is claimed by Beijing as the 23 rd province.
Unprecedented scale, scope and speed of growth
China is the second largest economy in GDP (both
nominal and PPP) and the largest trader.
It has over three trillion dollars in foreign reserves (a little
below half of the world total).
It accounts for over 12% of the world’s luxury goods and
manufactures, 70% of the world’s toys, 60% of the world's
bicycles, 50% of the world’s motorcycles, 40% of the
world’s mobile phones, and 35% of the world’s coal.
A particular boost came in 2001 when China joined the
World Trade Organization (WTO) and began to attract
record levels of FDI.
But, the country is still classed as ‘‘lower-middle income.’’
Brief background (cont’d)
In 2012, for the first time, China
became the third largest outward
investor after the U.S. and Japan
In 2012, Industrial and Commercial
Bank of China (ICBC), a Chinese
state-owned commercial bank,
unseated JPMorgan Chase, GE, and
Exxon Mobile to become the world’s
largest company
Three more Chinese state-owned firms were
among the top10: China Construction Bank
(2nd), Agricultural Bank of China (8th), and
PetroChina (9th)
In addition, 136 members from mainland
China (excluding HK, Macau, and Taiwan)
were among the top 2000 list – the third
largest source country after the US (543)
and Japan (251).
The role of government
Government reforms and the maintenance of the critical balance between
liberalization and continued government control are major factors
responsible for the economic success experienced by China.
 ‘Three-step development strategy’: Regional development initiatives,
controlling growth in the East of the country and subsidizing growth
 ‘Key national projects’: Infrastructure development on a massive scale
and the targeting of strategic industries, assets and technological
 These kinds of government-directed initiatives have become
increasingly international, as part of the ‘Going out’ strategy.
The role of government (Continued)
Another major policy objective in China is to boost
high technology industry sectors.
Information technology, biotechnology, aerospace,
new materials, high-tech services, new energies and
marine science and technology.
The Government is also facilitating both local
technology-based start-up firms and encouraging
high-tech FDI by upgrading the R&D infrastructure to
develop innovative, patentable technologies.
Current topics on China’s economy
Trade profile and Shanghai free trade zone
Outward FDI profile and its unique driver – Beijing’s
“going out” policy (走出去政策) since 2001
President Xi Jinping’s massive 2013 reform plan
Left: Pres. Xi Jinping and Chinese first lady Liyuan Peng greets Pres. Obama in June 2013 in Beijing.
Right: then-Vice Pres. Xi Jinping visits LA in Feb 2012.
China’s trade profile
The world’s largest trading nation
Largest exporter (US$2 trillion or 11% of world total in 2012), followed
by the U.S. (US$1.5 trillion) and Germany (US$1.4 trillion)
Second largest importer (US$1.7 trillion in 2012), following the U.S.
(US$2.3 trillion)
Largest net exporter (US$296 billion in 2012, compared to a total of US$212 billion in the world), followed by Germany (US$243 billion)
and Saudi Arabia (US$234 billion)
China’s trade profile (cont’d)
China’s trade profile (cont’d)
China’s trade profile (cont’d)
China’s trade profile (cont’d)
China-US Trade
Product label
China's Trade Balance with the United States of
America (US$ thousand)
All products
Automatic data processing machines;optical reader, etc
Electric app for line telephony, incl curr line system
Television receivers (incl video monitors & video projectors)
Other furniture and parts thereof
Seat (o/t dentists' & barbers' chairs, etc), &part thereof
China launches its first FTZ
Not involved in the Transatlantic
Partnership (EU and US) and the
Trans-Pacific Partnership (US,
Canada, Mexico, Australia, New
Zealand, Japan, Singapore, etc.),
the largest two trade agreements
under negotiation, China risks of
being the secondary entrance to the
In response, China launches its firstever Free Trade Zone, officially
named China (Shanghai) Pilot Free
Trade Zone, on Sept 29, 2013,
covering 29 km2 (>11 miles2).
China launches its first FTZ (cont’d)
In the zone
Freeing the service sectors from the regulations, particularly
finance (e.g., oil futures; market-determined interest rates;
full convertibility of RMB) and high-tech firms
 No tarrift/tax for imports of immediate products/equipment
and for exports
 Offshore banking settlement
 No restrictions on foreign investment excepted 100 items
listed in a Negative List[1]
China launches its first FTZ (cont’d)
American-invested firms are
among the first 36 firms in the
 E-Home
Development, 49% owned by
 Citibank
China’s grand “Going out” strategy
Dr. Karl P. Sauvant (Columbia University; formerly UNCTAD) gave a keynote speech of our new study
Sauvant and Chen (2013) China’s regulatory framework on outward FDI, forthcoming in China Economic
Journal, at 2012 Harvard Annual Conference on China Goes Global (and later at Australian National Univ).
China’s grand “Going out” strategy (cont’d)
A summary of Karl P. Sauvant and Victor Zitian
Chen (2013) China’s regulatory framework on
outward FDI. China Economic Journal,
forthcoming, previously presented at
Keynote at 2012 Harvard Annual Conference on China Goes
 2012 and 2013 Panels on China’s outward direct investment
at Australian National University
 2013 Academy of International Business Meeting at Istanbul,
China’s grand “Going out” strategy (cont’d)
China’s grand “Going out” strategy (cont’d)
China’s grand “Going out” strategy (cont’d)
China’s grand “Going out” strategy (cont’d)
To be continued …