Transcript Managing the Multinational Enterprise

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
Organization
Production
Marketing
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
The European Union environment
Sources:
[1] Rugman and Collison
(2012) International Business
(6 ed.). London, UK: FT.
[2] EU official website,
accessed on October 31,
2013. http://europa.eu/.
The EU15 and the EU28
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As of November 1, 2013
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28 member nations.
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5 candidate states
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Iceland, Montenegro, Serbia, The former Yugoslav Republic of
Macedonia, and Turkey
3 potential candidates
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Croatia joined EU in 2013 and is expected to join Schengen
Area by 2015.
Albania, Bosnia and Herzegovina, and Kosovo
The EU15 are the pre-2004 members of the European Union
and are highly integrated economically and politically.
The EU28 includes 13 other European countries that joined in
and after 2004.
Not Harlem Globetrotters
The EU15
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Austria (1995)
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Belgium (1952)
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Denmark (1973)
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Finland (1995)
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France (1952)
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Germany (1952) *
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Greece (1981)
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Ireland (1973)
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Italy (1952)
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Luxembourg (1952)
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Netherlands (1952)
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Portugal (1986)
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Spain (1986)
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Sweden (1995)
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United Kingdom (1973)
The other 13 members
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10 in 2004:
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Cyprus
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Czech Republic
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Estonia
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Hungary
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Latvia
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Lithuania
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Malta
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Poland
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Slovakia
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Slovenia
2 in 2007:
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Bulgaria and Romania
1 in 2013:
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Croatia
Download the full map
Emergence of a single
European market
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The origins of the EU go back to the
formation of the European Economic
Community (EEC) in the 1950s, at which
time there were six founding members:
Belgium, France, Italy, Luxembourg, the
Netherlands and West Germany.
By 2013, the EU had grown to 28
countries, including a number of East
European countries that liberalized their
economies after the fall of the Soviet
Union (the fall of the Iron Curtain or Berlin
Wall) in 1989.
Other key facts
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Under the motto “United in diversity”, the EU has it
own Anthem “Ode to Joy”.
It is based primarily in Brussels (de facto capital)
and Luxembourg.
A brief history of structural evolution
Key treaties:
1951-2002 “Paris Treaty” or “Treaty establishing the European Coal and Steel Community” – to create interdependence in coal and steel so that one country could no
longer mobilize its armed forces without others knowing. This is primarily a defense trust against the communist threat. This eased distrust and tensions after WWII.
1957-1958 “Rome Treaties” or “EEC and EURATOM treaties” – to set up the European Economic Community (EEC) and the European Atomic Energy Community
(Euratom). This extended European integration to include general economic cooperation.
1965 – 1967 “Merger Treaty” or “Brussels Treaty” –to streamline the European institutions. It created a single Commission and a single Council to serve the then three
European Communities (EEC, Euratom, ECSC). It was repealed by the Treaty of Amsterdam in 1997-99.
1986-87 “Single European Act” – to reform the institutions in preparation for Portugal and Spain’s membership and speed up decision-making in preparation for the
single market. It extended qualified majority voting in the Council, making it harder for a single country to veto proposed legislation. It also created cooperation and
assent procedures, giving Parliament more influence.
1992-93 “Maastricht Treaty” or “Treaty on European Union” – to prepare for European Monetary Union and introduce elements of a political union (citizenship,
common foreign and internal affairs policy). It established European Union and introduced the co-decision procedure, giving Parliament more say in decision-making.
1997-99 “Amsterdam Treaty” – to reform the EU institutions in preparation for the arrival of future member countries. It built new methods for changing the
composition of the Commission and redefined the voting system in the Council.
2007-09: “Lisbon Treaty” – to make the EU more democratic, more efficient and better able to address global problems, such as climate change, with one voice. It
gave more power for the European Parliament, changed the voting procedures in the Council, initiated citizens’ initiative, a permanent president of the European
Council (Herman van Rompuy, 2.5 years and renewable once), a new High Representative for Foreign Affairs, a new EU diplomatic service.
EU powers; EU member countries’ powers, and shared powers.
How are decisions made in EU?
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The European Council, led by its President
Herman van Rompuy, sets the EU’s overall
political direction, but has no powers to pass
laws.
Three main law-making institutions
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The European Parliament, representing EU citizens
who directly elect its members
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The Council of the European Union, led by a
rotating Presidency, representing the governments
of member countries
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The European Commission, representing the
interests of the Union as a whole
Two others
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The Court of Justice of the EU, upholding the rule
of the European law
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The Court of Auditors, checking the financing of the
EU activities
How are decisions made in EU (cont’d)?
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In general, codecision –
the directly elected
European Parliament
has to approve EU
legislation together
with the Council (the
governments of the 28
EU countries). The
Commission drafts and
implements EU
legislation.
The objectives of the EU
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Elimination of customs duties among member states.
Elimination of obstacles to the free flow of import and/or export of goods
and services among member states.
Establishment of common customs duties and unified industrial/commercial
policies regarding countries outside the community.
Free movement of persons and capital within the bloc.
Acceptance of common agricultural policies, transport policies, technical
standards, health and safety regulations and educational degrees.
Common measures for consumer protection.
Common laws to maintain competition throughout the community and to
fight monopolies or illegal cartels.
Regional funds to encourage the economic development of certain
countries/regions.
Greater monetary and fiscal coordination among member states and
certain common monetary/fiscal policies.
The competitive status of the EU
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Productivity:
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High wages, salaries and fringe benefits put some
EU15 firms at a disadvantage in competing with their
US and Japanese counterparts.
Labour laws in all EU15 countries make it extremely
difficult to fire employees once they have been
employed for a year. [in addition, min wage law]
European firms are working to increase their
productivity and to match that of their major triad
competitors.
The competitive status of the EU (Continued)
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Investment spending:
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Investment spending in EU countries has traditionally lagged
behind that of other triad countries. Part of this can be
explained by rapid increases in wages and benefits during the
1980s, which were not offset by increases in productivity. As a
result, EU firms found themselves without the capital to invest and
had to resort to borrowing.
Demands for loans resulted in higher interest rates, which also
put a strain on investors.
By the late 1980s EU government spending had risen to
approximately 50% of GDP (in contrast to about 30%
for the United States and Japan).
Because of this, taxes were raised, thus limiting funds and
forcing interest rates to go even higher.
More recently EU economies have been doing much better,
stabilizing government spending.
The competitive status of the EU (Continued)
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Education:
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In Europe, most vocational training is provided at the high school
level, whereas in the United States and Japan, it is done later.
The European university curriculum is more theoretical than in
either the United States or Japan.
European educational institutions are also more rigid and less
able to adapt to the changing needs of business.
There is less interaction between European educational
institutions and industry than in the United States and Japan.
Many European students receive training that is inappropriate
for the employment needs of European business and industry.
The major challenge for European countries will be to modify
their education systems and to make them more flexible, more
practical and better able to adapt to the changing demands of
industry.
Table 16.3
The world’s most competitive nations
Source: World Economic Forum, The World Competitiveness Report 2012-13
Evaluating locations
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Typically, regional incentives will be higher when:
the region is economically depressed;
 many jobs are being created;
 the company is making a large investment;
 the investment is likely to attract other investors.
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Before agreeing to any contract it is important that
the deal be “locked in” and that any repayment of
subsidies be made clear up front.
Evaluating locations (Continued)
•
Other evaluation criteria
– Access to customers
– Quality of labour
– Expansion prospects
– Level of wage costs
– Attractive environment
– Access to suppliers
– Non-financial regional assistance
– Absence of restrictions for expansion
– Infrastructure
– Level of rents
– Public transportation.
Group assignment #5:
Gravity model analysis of EU economic integration
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Research question: Is intra-regional trade consistently
increasing?
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First, please find data for the following indicators for each individual
member country
1.
International trade with EU15 members (unit: $ millions)
2.
International trade with all EU members (unit: $ millions)
3.
GDP of each country (unit: $ billions)
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* Please include only the members as of each respective year (e.g., no Croatia until
2013).
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Second, calculate the indicator of openness of trade (Trade/GDP) and
fill the excel table (downloadable here) (5 points).
Third, please briefly analyze if this indicator is (extra 3 points)
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(a) generally increasing over time;
(b) generally higher among EU15 than all EU members;
(c) generally increasing faster among EU15 than all EU members.