Integrated Bachelor’s and Master’s Degree Program
In Accounting and Business Management (IBMP)
Faculty of Commerce and Accountancy, Thammasat University
กธ. 322 กลยุทธ์ และการดาเนินธุรกิจระดับโลก
BI. 322 Global Business and Strategy
13 November 2009
Mr. Gavintorn Atthakor
Email: gavin.boat@gmail.com
Presentation From Last Week’s Readings
1
“Sidestepping Economies of Scale”, 5 Future Strategies You Need to Know Right Now
by George Stalk (Senior partner of The Boston Consulting Group)
2
“Losing its shine” (Japan’s luxury goods market), The Economist (September 20th,
2008)
3
“Minding the Cost Gap”, Globality: Competing with Everyone From Everywhere For
Everything, HL Sirkin, JW Hemerling, AK Bhattacharya
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
1
Homework and Readings
1 Find out information about these international organizations and prepare a short 5-10
minutes presentation on their roles and responsibilities. How do they affect
multinational companies? What are the arguments in favor of international
organizations? What are the arguments against? Which do you think are stronger?
1. WTO
2. IMF
3. World Bank
4. UN
2 “The Rise of State Capitalism”, The Economist (September 20th, 2008)
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
2
Top Sovereign Wealth Funds
Assets
$Billion
Country
United Arab Emirates (Abu
Dhabi Emirate)
Abbreviation
Fund
ADIA
875 Oil
Norway
GPF
Singapore
Kuwait
China
Singapore
United Arab Emirates
(Dubai Emirate)
GIC
KIA
CIC
Abu Dhabi Investment Authority
Government Pension Fund of
Norway
Government of Singapore
Investment Corporation
Kuwait Investment Authority
China Investment Corporation
Temasek Holdings1
Dubai World
Australian Government Future
Australia
Fund
FFMA
Qatar
Qatar Investment Authority
QIA
Libya
Libyan Investment Authority
Alaska ( United States)
Alaska Permanent Fund
APFC
Russia
Russian National Wealth Fund
RNWF
Brunei
Brunei Investment Agency
BIA
South Korea
Korea Investment Corporation
KIC
Kazakhstan
Kazakhstan National Fund
KNF
Malaysia
Khazanah Nasional
KN
Alberta ( Canada)
Alberta Heritage Fund
AHF
Taiwan
National Stabilisation Fund
NSF
Iran
Oil Stabilisation Fund
OSF
Saudi Arabia Sovereign Wealth
Saudi Arabia
Fund
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
100 Oil
DB
Origin
391 Oil
330
264
200
159
81
60
50
40
32
30
30
23
18
16
15
13
Non-commodity
Oil
Non-commodity
Non-commodity
Non-commodity
Oil
Oil
Oil
Oil
Oil
Non-commodity
Oil
Non-commodity
Oil & Gas
Non-commodity
Oil
5 Oil
3
Who Are the Global Institutions?
And What Are Their Roles?
WTO
IMF
• Established in 1995 (out of GATT)
• Objective: Promote free trade
- Deals with international trade issues
- Ensure that member countries adhere to
policies and agreements
• Established at the end of WW2 (Dec, 1945)
• Objective: Provide loans to its members in time
of crisis
WorldBank
UN
• Established in 1944
• Objective: Provide financial support to
developing countries to reduce poverty and
promote sustainable development
• Established in 1945 after WW2
• Objective to maintain international law, protect
human rights and promote world peace
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
4
Recent Loans by IMF
• Sep 2008 - $750 mil. To Georgia (following conflict with Russia)
• Nov 2008 - $7.6 bil. To Pakistan
• Nov 2008 - $ 2.1 bil. To Iceland
Who are the recent recipients of loans from IMF since subprime crisis?
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
5
Other Loans and Policies Didn’t Do So Well
Thailand
In August 1997, Thailand received a
$ 14.5 bil. Loan from IMF
Conditions:
• Baht floats
• Increase interest rates
• Balance budget (reduced government
spending)
Argentina
In the 1990’s, Argentina was the “poster child”
of the IMF model
• Tear down trade/investment barriers
• Privatize public services
• Weaken labour laws
• Abolished price controls (Tariff went from
40% to 9%)
Late 1990’s, economy took a downturn, but IMF
kept pumping in $ (with conditions)
By 2001, total debt was $ 141 bil. which it wasn’t
able to pay – Major recession
• Bank froze deposits
• Currency depreciated
• Unemployment was 50%
Businesses went bankrupt, foreign investors swooped in to buy “cheap assets”
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
6
“The Unholy Trinity”
World Bank and IMF
WTO
• Richer countries gets more votes
For example,
• Voting System
- One country, One vote
- But actually done by consensus
USA gets ~16-18% of shares (or quotas)
G-7 controls 47% of IMF’s votes
• Voting System
- “Supermajority” = requires > 85%
USA can veto any issues/policies it does not
agree.
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
• In order to get a consensus…
- Break out into small groups
- Thus, favoring large countries who can
send large delegates and has more
negotiating power
• Stated aim of “Promote Free Trade”
- Abolish tariffs, quotas, regulations and
barriers
- Divergence of income
7
How Does Politics Impact Business?
Political uncertainty leads to poor public (domestic and international) sentiments.
Uncertainty usually leads to lower retail (consumer) spending and business investments.
• Reduced foreign direct investments
• Adverse affects on tourism
• Disrupts trade (imports and exports)
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
8
Examples of Political Uncertainties (1)
Protests in Thailand
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
9
Examples of Political Uncertainties (2)
Unrest in Somalia
Civil war and political unrest led to inflation and
food shortages…
• Drove many Somalian into piracy
In 2008 alone, there have been 95 attacks on
commercial ships and fishing boats of the coast of
Somalia
• 39 successful hijacks
• Estimated $ 150mil. paid on ransom
Largest hijacked ship, MV Sirius Star on 17 Nov
2008
• 330-meter oil tanker
• Carrying crude oil worth $100 mil.
• Ransom = $ 15-25 mil.
Impacts…
• Disrupt shipping and trade routes
• Increased shipping insurance costs
• …not to mention ransom money paid
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
10
How Will The New US President Affect Thailand?
Democrats
Prefers regulations and
protectionism
Believes that government should
play active role in the economy
Government are best allocator of
resources
(Increased corp. taxes)
Republicans
Favours free market and
capitalism
Favours deregulations
Believes the economy will
corrects itself
Companies are best allocator of
resources
(Reduced corp. taxes)
Therefore, Obama is more likely to favour and protect American
industries ?
• How will it affect exports from Thailand?
Protectionism or Free-Market? Which is Better?
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
11
Mozambique’s Economic Miracle
• In June of 2061, Tres Estrelas, the largest African business group, unveiled a
breakthrough technology for mass production of hydrogen fuel cells.
• This new technology is set to replace alcohol as the main source of power for
automobiles. Tres Estrelas is bound to pose a threat to the leading fuel producers, like
Petrobras of Brazil and Alconas of Malaysia
• Tres Estrelas came from humble beginnings. It started out exporting cashew nuts and
then diversified into textiles and sugar refining. It later made bolder moves into
electronics.
• Its move into fuel cells initially generated much skepticism. The division ended up
bleeding money for the first 17 years.
• However, the company persisted and has become the symbol of the economic miracle
of Mozambique.
• Only just 60 years ago, Mozambique had a per capita income of $80 and was one of the
poorest countries in the world. It had deep political divisions and its government had
rampant corruption.
• However, since then, Mozambique’s economic miracle has transformed it into one of
the richest economies in Africa.
Source: “Bad Samaritans”, Ha-Joon Chang
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
12
Tre Estrales = Three Stars = Samsung
•
Sumsung is now one of the world’s leading exporters of mobile phones,
semiconductors and computers
•
In 1938, it started out as an exporter of fish, vegetables and fruits.
•
In early 1970’s it main lines of business were sugar refining and textiles
•
In 1974, it acquired a 50% stake in Korea Semiconductor
•
In 1983, it declared it’s intention to design its own chips….. (Few were convinced)
Source: “Bad Samaritans”, Ha-Joon Chang
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
13
What’s the reason for Korea’s successes? Neo-Liberalism?
Neo-Liberal = Concept by Adam Smith (18th Century)
•
•
•
•
•
•
•
Follow free market
Sound monetary policies (low inflation)
Small government
Private enterprise
Free trade
Friendliness towards foreign investment
Unlimited competition in free market
Source: “Bad Samaritans”, Ha-Joon Chang
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
14
No
What Korea Did Between the 1960’s and 1980’s…
1. Nurture certain new industries
2. Government owns ALL banks – control all credit
3. Government has absolute control over scarce foreign exchange
4. Heavily controlled foreign investments
5. Laxed attitude towards foreign patents
Source: “Bad Samaritans”, Ha-Joon Chang
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
15
Another Non- “Neo-Liberal” Story….
Once upon a time, a leading car maker of a developing country exported its first
passenger cars to the USA.
• A cheap subcompact (“four wheels & an ashtray”)
• A big and proud moment for the country…
• …unfortunately the product failed
Critics said…
• Stick to original business of making simple textile machineries
• You’ve failed at making cars after 25 years, there’s no future for it
• Profits are high at home because you’ve kept tariffs high
• 10 years ago, public money was used to safe the company from bankruptcy
• Time to re-open the market to foreign car makers (which you’ve kicked out 20
years ago)
Source: “Bad Samaritans”, Ha-Joon Chang
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
16
The Year Was 1958, The Country Was Japan,
The Company Was Toyota
•
Car was called Toyopet
•
Toyota started out as a manufacturer of textile machinery (Toyoda Automatic Loom)
•
In 1933, it started to manufacture cars
•
In 1939, The Japan government kicked out General Motors and Ford
•
In 1949, the government bailed out Toyota with money from the central bank
•
The company never made a profit from cars for over 20 years.
•
50 years since it first entered the US market, the Lexus has become an icon of the
automotive industry
Source: “Bad Samaritans”, Ha-Joon Chang
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
17
How Rich Countries Became Rich
UK
USA
• Protectionism to create the Woolen
manufacturing industry in the 15th
century
• Walpole’s legislation in 1721, protected
British industries through subsidies
and tariffs (high on finished products
and low on RM)
• Used to banned export of machinery
• In 1820, Britain’s average tariff rates
where 45-55% (Low Countries 6-8%,
Germany 8-12%)
• Banned exports from its colonies that
competed with its own (e.g. Indian
cotton)
• Free trade implemented (no tariff) only
in 1860
• US tariffs on manufactured imports
remained highest in the world at 4050% until WW1
• Only after WW2 (now that it’s industrial
supremacy is unchallenged) did it
liberalized its trade
• Between 1950’s – mid 1990’s, the US
govt funded 50-70% of total R&D
• Refused to protect foreign copyright
until 1891
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
18
Rules and Regulations That Affect Businesses
…Other factors
Business regulations to consider..
Ease of doing business
• Location
• Simplified business regulations
• Security
• Ease tax burdens
• Government transparency
• Fair labour laws
• Macroeconomic factors
• Increase access to credit
• Underlying strengths
• Reduced cost of importing and
exporting
• Protecting investors
Source: “Doing Business 2008”, World Bank
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
19
Thailand Ranks #15 In Terms of Ease of Doing Business
1. Singapore
2. New Zealand
3. USA
4. Hong Kong
5. Denmark
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
20
Summary of Today’s Lesson
•
Don’t blindly listen to international organization or “rich countries”
•
Don’t do as they say or do (now that they’re rich), but as they did (when they’re
poor)
•
Neo-liberalism is not always good. Protectionism is not always bad. (e.g. Korea,
Japan and India)
•
Politics and business are inter-connected. Each affecting the other
– Need to consider various geo-political issues
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
21
Homework and Readings
1
“The Meltdown Goes Global”, Time Magazine, October 20th 2008
Discussed
on December
2
“The Bigger World”, The Economist, September 20th 2008
Discussed
on December
“The New Champion”, The Economist, September 20th 2008
Note:
Short Quiz On Friday 27th November (on all 3 Articles)
BI 322 Global Business & Strategy – Class 2 – Gavintorn Atthakor
22