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Global LinkagesGlobal Linkages
CountryA
CountryB
Management Linkages
Policy Linkages
Trade and Investment Linkages
Global LinkagesGlobal Linkages
CountryA
CountryB
Management Linkages
IntegrationIntegration
Trade and Investment Linkages
Regionalization of Economic ActivityRegionalization of Economic Activity Levels of Economic Integration
– Free Trade Area– Customs Union– Common Market– Economic Union
Effects on trade and FDI patterns Evolution toward worldwide integration Impact on management of MNCs
Trade and Investment in IsolationTrade and Investment in Isolation
20%
40%
10%
100%
33%
Prevailing Tariff Levels and Investment Patterns
FDI
Trade
Free Trade AreaFree Trade Area
20%
100%
33%
No tariffs among members
Tariffs with non-members unchanged
Consequences External Tariffs?External Tariffs? Trade Creation?Trade Creation? Trade Diversion?Trade Diversion? Regional content? Regional content? Export jobs?Export jobs?
Trade and Investment in Trade and Investment in IsolationIsolation
40%
33%
CheapestProducer
Imports
Trade Creation from FTA Trade Creation from FTA FormationFormation
33%
CheapestProducer
Impo
rts
Trade and Investment in Trade and Investment in IsolationIsolation
40%
33%
CheapestProducer
Imports
Trade Diversion from FTA Trade Diversion from FTA FormationFormation
33%
CheapestProducer
Impo
rts
Customs UnionCustoms Union
33%
FTA plus... Common tariff
policy for non-members
33%
33%
Common MarketCommon Market
Customs Union plus...
Reduction of non-tariff barriers among members
No Non-Tariff Barriers
Shift in International Strategy
EC Single European ActEC Single European Act Free Movement of Goods
– Abolish border controls– Reduce state subsidies to industries– Mutual recognition of technical standards
Free Movement of Services– Mutual recognition of regulatory standards– Increase competition for public procurement– Harmonize regulation in telecom and transportation
industries
Free Movement of Capital– Abolish exchange controls– Allow cross border securities trading– Cross border banking– Initiation of ECU denominated financial instruments
Free Movement of Labor– Abolish border checks– Mutual recognition of skills, education– Common immigration policy
EC Single European ActEC Single European Act
Common MarketCommon Market
£
DM
FF DkK
ÖS
National Currencies
ConsequencesConsequences• Strain on F/X ratesStrain on F/X rates• … …tax rates?tax rates?• … …growth?growth?• … …trade?trade?
Economic UnionEconomic Union
Common Market plus...
Single currency Harmonization of
Monetary and Fiscal Policies
Multilateralism in Trade and Multilateralism in Trade and Investment Regimes: WTOInvestment Regimes: WTO
Europe
PacificRim
NorthAmerica
Regionalization/Triad: Building Regionalization/Triad: Building Block or Stumbling Block?Block or Stumbling Block?
EuropeanEuropeanUnionUnion
PacificPacificRimRim
NAFTANAFTA
Impact of Integration on MNCsImpact of Integration on MNCs
CountryA
CountryB
Management Linkages ?Management Linkages ?
IntegrationIntegration
Trade and Investment Linkages
Impact of Integration on MNCsImpact of Integration on MNCsShift in Globalization DriversShift in Globalization Drivers
– Market drivers– Cost drivers– Competition drivers
Entry Mode DecisionsEntry Mode Decisions– Regional stand-alone attractiveness– Regional strategic importance
International StrategyInternational Strategy– Location and integration of value-creating
activities