Global Linkages

1
Global Linkages
Management Linkages
Country A
Country B
Policy Linkages
Trade and Investment Linkages
2
Global Linkages
Management Linkages
Country B
Country A
Integration
Trade and Investment Linkages
3
Regionalization 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

4
Trade and Investment in Isolation
Prevailing Tariff Levels and Investment Patterns
FDI
20
Trade
10
33
40
100
5
Free Trade Area
Consequences External Tariffs? Trade
Creation? Trade Diversion? Regional content?
Export jobs?
20

• No tariffs among members
• Tariffs with non-members unchanged

33
100
6
Trade and Investment in Isolation
Imports
33
40
Cheapest Producer
7
Trade Creation from FTA Formation
33
Imports
Cheapest Producer
8
Trade and Investment in Isolation
Cheapest Producer
Imports
33
40
9
Trade Diversion from FTA Formation
Cheapest Producer
33
Imports
10
Customs Union

• FTA plus...
• Common tariff policy for non-members

33
33
33
11
Common Market
No Non-Tariff Barriers

• Customs Union plus...
• Reduction of non-tariff barriers among members

Shift in International Strategy
12
EC 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

13
EC Single European Act

• 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

14
Common Market
National Currencies

• Consequences
• Strain on F/X rates
• tax rates?
• growth?
• trade?

ÖS

DM
FF
DkK
15
Economic Union

• Common Market plus...
• Single currency
• Harmonization of Monetary and Fiscal Policies

16
Multilateralism in Trade and Investment Regimes
WTO
Pacific Rim
Europe
North America
17
Regionalization/Triad Building Block or
Stumbling Block?
Pacific Rim
European Union
NAFTA
18
Impact of Integration on MNCs
Management Linkages ?
Country B
Country A
Integration
Trade and Investment Linkages
19
Impact of Integration on MNCs

• Shift in Globalization Drivers
• Market drivers
• Cost drivers
• Competition drivers
• Entry Mode Decisions
• Regional stand-alone attractiveness
• Regional strategic importance
• International Strategy
• Location and integration of value-creating
  activities