Introduction to Global Business PDF

Introduction to Global Business University of Texas at Arlington Chapter 2 Part 1 The Evolution of International Business 2–1  After studying this chapter, you should be able to: 1. Understand the two majo...

Introduction to Global Business University of Texas at Arlington Chapter 2 Part 1 The Evolution of International Business 2–1  After studying this chapter, you should be able to: 1. Understand the two major types of global business – Trade & Foreign Investment (FDI) 2. Explain arguments for/against trade and foreign investment 3. Describe the major international trade theories 4. Evaluate trade policy, the main instruments of trade policy (i.e. tariffs, etc.),impact on business, consumers, and governments. 5. Understand U.S./China trade disputes © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–2 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  International trade between countries is an important factor in raising living standards, providing employment, and enabling consumers to enjoy a greater variety of goods & services. The world is more globalized than at any point in history. Source: Altman,S. & Bastian, P. (2020) DHL Global Connectedness Index, published by DHL © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–3 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  2 Major forms of Global Business 1. Trade – imports & exports – Goods – Services – insurance, maintenance, finance, travel/transport 2. Foreign Direct Investment (FDI) – Investment made by individual/corporation in one country into business interests located in another county Establish business operations Acquire foreign business assets © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–4 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Important Terms GDP – Gross Domestic Product – value of goods/services produced Exports – value of goods/services sold (“Exit) to another country Imports – value of goods/services bought (brought “In”)from another country FDI (Foreign Direct Investment) – investment made in another country Emerging Economies/Emerging Markets (EM) - Countries moving from pre-industrial to industrial/knowledge economies BRIICS economies – Brazil, Russia, India, Indonesia, China and South Africa – Other countries recently added © 2017 Cengage Learning and University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product o service or otherwise on a password-protected website for classroom use. 1–5  Global Business Example – United States Trade Foreign Direct Investment Goods/Services Exports = ~$1-2T/yr US investment in foreign countries = ~$5.9T GDP = ~$28T Imports = ~$3 - 4T/yr Foreign country investment in US = ~$4.5T © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 1–6 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  GDP – Value of Goods/Services Produced Total global GDP is ~$110T Doubled in last 15 years © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–7  U.S. world’s largest economy since 1871 Top 5 economies Represent ~50% of total world U.S. China Japan Germany UK Big economies tend to be big traders! © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password- protected website for classroom use and with written permission from professor from UTA. 1–8  World Trade Volume – Exports/Imports World trade up ~15% in last 10 years © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–9 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA. Trade (imports/exports) not the same in all regions Why is the NA so low? © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–10  Leading Exporters/Importers (Goods Only) Source:https://uk.worldoptions.com/news/worlds-top-exporters-and-importers © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–11  2019 2022 © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–12  Don’t Mess with Texas – Big Exporter!! Texas has been top exporting state for over 20 years in a row! © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed2–13 with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA.  Importance of Global Trade to Texas Source:https://www.usglc.org/state-facts/texas/ © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–14 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Trade is a window into a country With whom, what , and how much trade is done provides insight into a country – Commodity countries (oil, agriculture, minerals) vs. industrialized/technology countries – Identify friend and foe through trade? Sometimes – Openness of trade – how open is the country – Over-reliance on a particular good or country? Germany/Russian gas India/Chinese pharmaceuticals © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–15 © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–16 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Type of Global Business 1. Trade © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–17 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  What is being Traded? © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved.10 Mayofnotthe World's be copied, Most scanned, or Traded duplicated,Goods in - WorldAtlas 2–18 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  EV’s Impacting World Trade 2–19 © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. Wall Street Journal Europe’s carmakers used to rule the world. Now they are fighting battles on every front. “We really are in a time of great disruption,” said Andrew Bergbaum, co-leader of the automotive practice at consulting firm AlixPartners.  Germany is Struggling to keep up The German economy: from European leader to laggard Its problems are deep-rooted, knotty and show little sign of being fixed The Economist, Germany August 17, to is exposed 2023 a triple whammy: its industry looks vulnerable to foreign competition and geopolitical strife; its journey to net-zero emissions will be difficult; and its workforce is unusually elderly. To make matters worse, the German state appears ill-prepared for these challenges. Older workforce Low GDP growth High energy use © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–21 Hyundai is now the third largest By Sales Volume automaker in the world by volume, 1 Toyota behind only Volkswagen and 2 Volkswagen 3 Hyundai Toyota, which are often at odds for first and second place among the biggest car companies in 4 Renault Nissan the world. In a little over half a century, the South 5 Stellantis Korean carmaker has leapt over American auto giant General Motors, as well as the multinational 6 GM conglomerate Stellantis, according to Bloomberg. What company operates the largest automobile assembly plant in the world? © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–22 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Hyundai Ulsan – Largest Auto Plant in the World Source:https://www.autoexpress.co.uk/94996/biggest-factory-in-the-world-pictures © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed2–23 with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA.  US Export/Imports (2023) Source: United except for States - US in aTradeNumbers © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, use as permitted license distributed with a certain product or service or otherwise on a password-protect 2–24 ed website for classroom use and with written permission from professor from UTA.  US Export/Imports (2023) Texas ports are important for U.S. trade Laredo Source: United except for States - US in aTradeNumbers © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, use as permitted license distributed with a certain product or service or otherwise on a password-protect 2–25 ed website for classroom use and with written permission from professor from UTA.  Trends in Global Trade 1. Most trade – Intermediate Goods 2. Global trade is slowing –Protectionism/Nationalism 3. Trade is aligning via geopolitical factors © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–26 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  1. Type of trade has changed over time Century ago, most int’l trade was ready to be consumed – olives from Italy, wine from Spain, furs from Canada, cars from Germany – sewing machines, printing presses, and cash registers from the United States Now, more global suppliers, sending parts for assembly – Offshoring, outsourcing, and subcontracting, international commerce and connections grew – Trade in intermediate goods rose (car parts, microchips, etc.) – Commercial ties between countries increased Global supply chains Today, 80 percent of trade involves raw materials or intermediate goods O'Neil, Shannon K.. The Globalization Myth : Why Regions Matter, Yale University Press, 2022. 2–27  Global Intermediate Goods – 2020 -2023 Example: EU Intermediate Goods for Autos (WTO data) © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain 2–28 product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA.  2. Global Trade is Slowing Global trade has nearly flatlined. Populism is taking a toll on growth  M. AYHAN KOSE ALEN MULABDICFE BRUARY 22, 2024 World Bank In 2023, trade in goods and services expanded by the slenderest of margins, an estimated 0.2 percent, the slowest pace in 50 years outside of global recessions. Global Trade Growth is Slowing By the end of 2024, global trade will register the slowest half-decade of growth since the 1990s.(Source: World Bank) That is an ill omen for people's living standards everywhere. The rapid expansion of global trade after 1990 enabled one billion people to escape extreme poverty.  Populism/Protectionism/Nationalism Slow down in global trade due to nations “protecting” themselves from being at the mercy of another country – Geo-political issues – Supply chain risks exposed by COVID, weather, labor strikes, etc. – Industry protection EV’s – U.S. tariff on Chinese EV’s raised to 100% Protectionism impacts: 1. Increases costs 2. Hurts consumers – fewer choices 3. Shields unworthy companies from competition 4. Punishes worthier ones. Source:China Has Gotten the Trade War It Deserves - The Atlantic © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a 2–30 certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA.  3. Geopolitical Ideas Impact Trade Global trade rift widening as Ukraine war passes two-year mark By Philip Blenkinsop  World splitting into US-, China-allied blocs, WTO research shows February 22, 2024 Reuters  Warns fragmentation would damage global economy  Geopolitical tensions complicating trade talks "We find early evidence of a trend towards a stronger alignment between trade flows and geopolitical affinities …" "findings point to the first signs of fragmentation in global trade."  U.S. & China Trade Woes - Shifting U.S. goods imports from China fell 25 percent during the first six months of 2023, the Commerce Department reported Tuesday, as companies looked to other countries to de-risk and diversify their supply chains amid rising friction between Washington and Beijing. Source:https://www.politico.com/news/ 2023/08/08/us-china-imports-drop-00110243? cid=apn 2–32 © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA.  Trade with Major Partners over Time Geopolitics shifting trade away from China Mexico now largest trading partner with US Source:How China is setting up shop in Mexico © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–33 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  US imports from three largest trading partners Mexico – autos/parts Canada – oil & gas China - electronics © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–34 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  EU & Russia Trade – Ukraine Impact Russia invades Ukraine © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–35 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Syrian Civil War – GDP & Trade Drop GDP Exports © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–36  Gaza GDP Plummeted after Oct ‘23 Attacks © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–37  Do politics influence economics and trade? Global business must understand this relationship © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–38  Benefits of International Trade A greater Competition amount of results in lower Increased choice in the prices for quality of life availability of goods and and goods and services higher living services consumed standards Better Access to labor communication and between technology/low According to the World Bank countries/probl cost/shared extreme poverty decreased em resolution R&D by 35% since 1990. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–39 Globalization Benefits whole or in part, except and for use as Challenges, permitted By velocityglobal in a license distributed with a certain product orMarch service or30, 2020, otherwise Globalization Benefits and Challenges (velocityglobal.com) on a password-protect ed website for classroom use and with written permission from professor from UTA.  Trade Summary Two types of global trade – Goods – Services Trade dominated by Asia, Europe, and U.S. Understand trade of intermediate goods Distinguish between net exporter & net importer Trends in Trade – intermediate goods, slowing, geopolitically driven © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–40 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Foreign Direct Investment (FDI) © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–41 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Foreign Direct Investment (FDI) What is it? How does it work? Examples Why do businesses do it? Positives & Negatives of FDI © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–42 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–43 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Also called “Brownfield Investment” High amounts of FDI indicate a healthy & growing country © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–44 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Is this FDI? Japanese company “investing” in United States © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–45 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA. Example of FDI – Texas Style 2–46  Is FDI good for the host country? Why? Brings the following to host country: – Good paying jobs – Technology and know-how – Continuous growth prospects (assuming positive performance) – Long-term stability – Overall, shows confidence in host country Solid legal protections Good market environment Trained labor force Low corruption etc. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–47 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  FDI – Important in U.S. Why Foreign Direct Investment Is An Issue U.S. Voters Need To Understand Courtney Fingar Feb 15, 2024,10:52am EST Forbes Key mechanism of: economic development and growth, job creation, technology transfer tax collection. 8.7 million people were employed in jobs created by FDI into the U.S. as of 2021 American workers at international companies make nearly $87,000 annually, 7% higher than the economy-wide average. U.S. remains the most successful country in attracting FDI Ranked first in 2022 for headline FDI (value of investments) as well as the number of greenfield (new) projects  FDI Inflows (Source: IMF, Statista) U.S. China - Shrinking India Vietnam © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license 2–49 distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA.  Is this FDI? Toyota invests another nearly $1 billion in Kentucky to prep for its first 3-row electric SUV Peter Johnson | Dec 12 2024 Eletrek With another nearly $1 billion in funding for its Kentucky plant, Toyota is gearing up to build its first three-row electric SUV in the US. However, it will not arrive as soon as planned. Here’s when you can expect to see it. Toyota invests $1 billion in Kentucky ahead of 3-row SUV Toyota is investing another $922 million to build a new paint shop at its Georgetown, Kentucky plant. Thursday’s news follows the $1.3 billion investment the company announced in February. With over $2 billion in funding revealed this year alone, Toyota is gearing up to begin building its first three-row electric SUV.  Is this FDI? Taiwan companies investing in France France rolls out the red carpet for EV battery factories Stock Markets Published Jun 05, 2023 By Elizabeth Pineau, Gilles Guillaume and Michel Rose PARIS - For French President Emmanuel Macron, it was a light-bulb moment Ten months later, Macron and Yang stood side-by-side in Dunkirk to announce that ProLogium had picked the northern French port ahead of sites in Germany and the Netherlands for its first EV battery gigafactory outside Taiwan. It is one of four such gigafactories Macron hopes will transform the poor, former coal mining area near Belgium into a hub for the EV battery industry, creating jobs and helping to put France at the forefront of Europe's energy transition. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–51 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Is this FDI? Hyundai takes aim at BYD with new EV pl South Korean company investing inThailand nt in the 'Detroit of Asia' (electrek.co) Hyundai is upping the ante on China’s leading EV maker with plans to dish out $28 million (1 billion baht) on a new EV assembly and battery plant in Thailand. BYD is leading the “Detroit of Asia’s” surging EV market, but Hyundai looks to grab its share. Hyundai to fend off BYD with EV plant in Thailand With EV sales surging in Thailand, Hyundai wants in on the action. On Wednesday, the Thailand Board of Investment (BOI) approved a $28 million (1 billion baht) investment from Hyundai’s subsidiary. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–52  Is this FDI? U.S. company investing in U.S. invest $500M in Texas plant that makes gasoline-powered big SU e L. LaReau s June 8, 2023 On Thursday, GM said it will invest $500 million in its Arlington Assembly plant in Texas to upgrade the facility to build the next generation of full-size gasoline-powered SUVs. In a statement, the automaker said the investment is "subject to successful discussions with local government officials." GM said the investment in Arlington will help it grow sales of the profitable full-size SUVs. Arlington builds the Chevrolet Tahoe and Suburban, GMC Yukon and Yukon XL, and Cadillac Escalade, Escalade ESV and Escalade-V. GM is not releasing any details or timing related to future full-size SUVs.  Is this FDI? Hyundai Plans $5.5 Billion Factory Complex in Georgia for Electric Vehicles Facility, expected to open in 2025, will be the auto-making group’s first plant dedicated exclusively to Evs WSJ MAY 20, 2022 Source:© Hyundai Plans $5.5 Billion Factory Complex in Georgia for Electric Vehicles - WSJ 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–54 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA. Chinese groups in Mexico occupy twice as much industrial space as they did three years ago, Government FDI data shows the state was the second-largest recipient of Chinese investment in 2023. The USMCA, which underpins trade between the three nations, is up for review in 2026, with China’s present and future role in supply chains likely to be central. Source: Financial Times: How China is setting up shop in M exico  Factors that Impact FDI Source: Factors that affect foreign direct investment (FDI) - Economics Help © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–56 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  US Dept of Commerce view of FDI Source: servlet.FileDownload © 2017 Cengage Learning and The(selectusa.gov) University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–57 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA. International companies often prefer the United States to other foreign investment destinations because it offers many advantages. First, and perhaps most importantly, the United States has one of the most open markets and investment climates in the world. Other benefits include: an unrivaled consumer market; a world-class system of higher education; a skilled and productive workforce; an entrepreneurial culture of innovation and risk-taking; a transparent regulatory environment; and the world’s largest capital market.  Video Assignment © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–59 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  FDI in Uruguay – In Class #3 © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–60 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  How is FDI done? Acquisitions Direct Capital Investment © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–61 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Most FDI is via Acquisitions (Data shown is for the U.S.) © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use and with written permission from professor from UTA. 2–62 Acquisition Example – FDI by Germany in US Growing discount grocer Aldi devouring the Winn- Dixie supermarket chain BY HERALD STAFF REPORT UPDATED AUGUST 17, 2023 https://www.miamiherald.com/news/business/article278299703.html#storylink=cpy Aldi, the rapidly growing discount grocery chain, plans to acquire Winn-Dixie supermarkets from its Jacksonville owner, the two retail food chains said Wednesday. Germany-based Aldi said it would keep the Winn-Dixie banner on roughly 400 supermarkets it’s buying in Florida — where 75% of Winn-Dixie supermarkets are located — and in Georgia, Louisiana and Mississippi. Aldi CEO Jason Hart said in a prepared statement. “The transaction supports our long- term growth strategy across the United States, including plans to add 120 new stores nationwide this year to reach a total of more than 2,400 stores by year-end.” © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–63 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Acquisition Example – FDI by NV in US Just Eat Takeaway (NV) acquired Grubhub (US) for $7.3B Just Eat Takeaway is largest food delivery firm in EU HQ in Amsterdam, Netherlands (co-HQ in Chicago) Transaction Highlights (source: JustEatTakeaway press release) – Creates the world’s largest food delivery company, outside of China – Creates a company built around four of the world’s largest profit pools in food delivery: the U.S., the U.K., the Netherlands and Germany. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–64 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Capital Investments International Firms that have invested in the U.S. Honda, Japanese multinational, has the longest sustained manufacturing presence in the United States of any international automaker – Invested ~$22B in US https://www.honda.com/operations – 31,000 US jobs Nestle, a Swiss transnational food/drink company, employs more than 51,000 workers in the United States and boasts 87 factories in 47 states. Bridgestone (Japan) has more than 50 production facilities and 55,000 employees in the United States. Bridgestone Americas opened a $970 million OTR pla nt (off-the-road radial tires) in Aiken County, South Ca rolina. © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–65 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Foreign Auto Makers in US - Sample Source:List © 2017 Cengage Learning of andautomobiles The University of manufactured in Rights Texas at Arlington. All the United Reserved.States May not -beWikipedia copied, scanned, or duplicated, in 2–66 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  Capital Investments - Examples Airbus Assembly in Alabama Walmart in China Tesla Assembly in China © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect 2–67 ed website for classroom use and with written permission from professor from UTA. Half of India's $40 billion investments in the US went into just two sectors Mimansa Verma Fri, May 5, 2023 Quartz Indian companies have created 240% more jobs in the US since 2020 with an 81% increase in investments The firms have invested more than $40 billion in the US so far, up from $22 billion in 2020 Higher investments have created employment for 425,000 people, according to the report, from 125,000 three years ago. Even the number of companies investing there is up from 155 to 163. Indian business giants majors such as Tata Consultancy Services, Infosys, Wipro, Reliance Industries, and Essar have substantially expanded their US operations in recent years. Notably, up to 50% of Indian investments were focused on the US’s pharmaceuticals and information technology sectors. Indian companies have invested the most—$9.8 billion—in Texas, which also saw the most number of jobs created by them at 20,906.  FDI - Trends Covid pandemic, geo-political issues causing many countries to re-focus FDI efforts – Micro-chips, EV’s, EV batteries © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–69 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  FDI Benefits/Costs Benefits Costs Proximity to customers/markets Potential job loss in home country Proximity to suppliers/raw matl Fear of foreign control Reduce local tensions Abused as a diplomatic weapon Ability to share resources (labor) – “checkbook diplomacy” Potential to lower costs/taxes/tariffs Risk of political/governmental Geographic diversification change that would imperil business In competitor’s “backyard” Acquisitions: – Immediate customer/market access – Trained, local workforce © 2017 Cengage Learning and The University of Texas at Arlington. All Rights Reserved. May not be copied, scanned, or duplicated, in 2–70 whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protect ed website for classroom use and with written permission from professor from UTA.  FDI – Negative Impact? U.S tech giants are building dozens of data centers in Chile. Locals are fighting back  Over the past 12 years, 16 Multiple groups are working to keep Amazon, data centers have been Google, and Microsoft from doubling the number of centers in the country, fearing approved in Santiago’s environmental devastation. metropolitan area. Most use millions of liters of water By CLAUDIA URQUIETA and DANIELA DIB annually to keep computers 31 MAY 2024 SANTIAGO, CHILE REST OF THE WORLD from overheating.  Chile is in the midst of a drought, expected to last until 2040.  The government has said it will launch a national data center plan to regulate the industry.