Industrial Location and Globalization of Enterprise

1. Industrial Location and Globalization of Enterprise • Review • Questions • Term paper topics and prospectus • due one month from today! • The State is Dead…Long Live the State • Definitions • Emergence of the State – a new idea • States as containers • States as regulators

2. Defining some terms I • State: portion of geographical space within which, the resident population is organized by an authority structure • Externally recognized sovereignty over their territory • Ambiguity! ‘State’ is commonly used to refer to subnational regions e.g. • Montana, Durango, New South Wales

3. Defining some terms II • Nation: large group of people with a common culture, sharing traits such as language, values, institutions, historical experience and shared sense of identity. • A nation does not necessarily have a territory. • E.g. Kurds, Roma, Palestinians, Blackfoot Confederacy • Ambiguity! ‘Nation’ is often used to refer to a sovereign state that contains many national groups

4. Defining some terms III • Nation-state: a nation with a state wrapped around it. • A nation with its own state. • A state in which there is no significant group that is not part of the nation. • E.g. Japan, Denmark • Ambiguity! ‘Nation-state’ may be used to refer to a sovereign state to distinguish it from a sub-national state

5. Defining some terms IV • Multinational state: • There is no accepted definition! • Any state that contains more than one nation • E.g.?

6. When there were no states… • Class identity • Religious identity • Reciprocal obligations • Loyalty to superiors in rank • “L’État, c’est moi!” Louis XIV

7. Industrial Location and Globalization of Enterprise • Review • Questions • Term paper: How to have an idea! • The State is Dead…Long Live the State • Emergence of the State – a new idea • States as containers • States as regulators

8. Westphalia Model • Peace of Westphalia, 1648 • End of Thirty Year’s War • Recognition of sovereign states • with clear geographical boundaries • recognized governments • and exclusive jurisdiction • Territoriality and autonomy • States emerge in the enlightenment • Mercantilism: protectionism, imperialism, evangelism

9. How to Conceive of the State? • As containers of distinctive business practices • national - cultural contrasts • As a regulator of economic activities within its boundaries and beyond • Extraterritoriality issue e.g. treaty ports • As competitors by developing the skills and technology that underpin competitive advantage • Michael Porter

10. States as ‘Containers’ • ‘Around 190 states’ according to text • 191 members of the UN, • Vatican City is not a member (Population 771) • Most recent members are Switzerland and East Timor • Thorny problems: • Greenland (Self-governing Overseas Administrative Division of Denmark: Kalaallit Nunaat • Puerto Rico (Territory of the US) • Taiwan (founding UN member, expelled in 1971) • Pitcairn Island with population of 50, overseas territory of UK

11. States as ‘Containers’ • Containers of distinctive cultures, practices, and institutions. • Supposed behavioural traits: • Individualism vs. collectivism • Power • Risk aversion • Masculinity • Varieties of capitalism • Stereotyping

12. Industrial Location and Globalization of Enterprise • Review • Questions • The State is Dead…Long Live the State • States as regulators

13. States as regulators • Trade Policy • Exports and imports • FDI Policy • Inward and outward • Industry Policy

14. Trade: Import Policies • Tariffs • Ad valorem duties (percent of FMV) • Could be CIF, FOB, or FAS • Specific duties (fixed amount per unit) • Weight, number, length, volume e.g. 10¢ per kg • Compound tariff: ad valorem and specified duties - combo • Tariff schedules • Harmonized Commodity Coding and Classification System • Non-tariff barriers (NTBs) • Quotas • Imposition of VERs • Import licenses • Rules of origin • Anti-dumping measures • Labelling & packaging • Customs procedures & documentation

15. Trade: Import Policies II • Non-tariff barriers (NTBs) • Subsidies to domestic producers of import-competing goods • Countervailing duties on subsidized imports • Local content requirements • Preferential procurement policies • Exchange rate manipulation

16. Trade: Export Policies • Financial incentives to export producers • Export credits • Export promotion agencies • Free trade zones • Export processing zones • VER • Export embargo on strategic products • Exchange rate manipulation

17. FDI Policy: Inward • Screening of investment proposals • Exclusion of foreign firms from strategic sectors • Banking • Culture industries • Local employment provisions • Local content • Minimum level of exports • Technology transfer

18. FDI Policy: Inward II • Locational restrictions on FDI • Restricted repatriation of profits • Differential corporate tax rates • Encouragement of inward FDI • Turnkey services • Investment incentives

19. FDI Policy: Outward • Restrictions on export of capital • Government approval requirements for FDI

20. Industrial Policies: Investment Incentives • Investment incentives • Accelerated depreciation allowance • Procurement policies • Technology policies • Small firm policies

21. Industrial Policies: Investment Incentives • Merger and competition policies • Taxation policies • Labour market regulation • Employment standards • Minimum wage legislation • Labour relations legislation • ‘Right to work’ • Environmental regulations • Health and Safety

22. Targeted Industrial Policy • Particular sectors • Sunset industries • Sunrise industries • Strategic sectors • Particular types of firms • New and small firms • Attract foreign firms • Particular regions • Depressed regions • Buoyant regions

25. Industrial Location and Globalization of Enterprise • Review • Questions • Midterm – Thursday • Prospectus - Tuesday • Dumping • The State is Dead…Long Live the State • Supranationalism-Regional Economic Blocs • Examples from Japan, China and Mexico

26. Midterm • A. 10 multiple choice questions, 5 choices no penalty for incorrect responses 10@2=20 B. 5 short answer questions from a choice of 8. 5@10=50 One concise paragraph." C. Essay 1 essay from a choice of three. 1@30=30 three paragraphs • You are responsible for: 1. Field trip 2. All lecture material up to and including March 1 but excluding Mahindra tractor. 3. Textbook Chapters 1-5 and Chapter 6 pp. 164-170 and China pp. 188-191 • AND pp. 171-175, 191-193

27. Dumping • Sale in a foreign country at a price less than charged in the country of origin • May be encouraged by hidden subsidies or surplus production • WTO specifies antidumping duties if the dumping injures or threatens to injure producers in the importing country

28. Regional Economic Integration

29. Impacts of Economic Integration • Trade diversion: • trade with an outsider is replaced by trade with an insider • Trade creation: • trade created in lieu of import substitution • Foreign investment may also be diverted or created • Tariff factories may close, rationalization

30. Free Trade Area • Association of South-East Asian Nations • 1967: ASEAN Declaration, Bangkok

31. APEC (Tangent) • Asia-Pacific Economic Cooperation Forum • “A Perfect Excuse to Chat”

32. Customs Union • Zollverein - Customs Union of all the German states, led by Prussia in 1833 • Andean Community – Ancom • Bolivia, Colombia, Ecuador, Peru, Venezuela • 1969, revived in 1990 • Common Market by 2005

33. Common Market • Mercado Comun del Sur (Mercosur/Mercosul) • 1991: Treaty of Ascunción • Argentina, Brazil, Paraguay, Uruguay • eliminated tariffs on 90% of the goods traded within the bloc, • Established an average common external tariff of 14% on 85% of the goods imported from nonmembers. • Customs Union • Common Market by 2006 • express passport lanes for MERCOSUR citizens • regional passports • liberalize migration • market of 190 million people • Montevideo has become the capital

34. Itaipu Dam Mercosur

35. Economic Union • EU from EEC: Treaty of Rome, 1957 • Removal of Barriers • Physical barriers • Customs • Factors of production • Technical barriers • Product standards • Business law and capital flow • Fiscal barriers e.g. VAT • Public procurement • But natural barriers remain!

37. Japan • Western approach: “market imperfections” corrected by the state • Japan Inc. • Historical roots: • Small resource base • Meiji restoration 1868: Emperor restored to political power • Imperialism • Post World War II: Manufacturing. • State and capital are united in goal to build up a powerful industrial base • Ownership is private • State guides enterprise in a highly competitive domestic economy & • Trade, international focus • Post bubble economy • Restructuring • Financial sector

38. Japan =- MITI • MITI - Ministry of Industry and Trade • The guiding hand. • 1. Planning to achieve long term goals (visioning) based on strengths • 2. Allocates capital to strategic industries (targeting) via commercial banks • 3. Protection against imports • 4. Imports technology for domestic use. • Licensing, not FDI is measure for technology transfer • 5. Intense internal competition keeps costs down. • 6. Targets industries for capacity reduction, rationalization and closure

39. Geography of the Open Policy • Special Economic Zones – 1979 • Shenzhen – Hong Kong • Zhuhai – Macau • Shantou – S-E Asian connections • Xiamen – Taiwan links • Incentives include: • Tax concessions • Freeport – duty-free imports • Infrastructure

41. A New Megalopolis-Pearl River

42. Shanghai

43. China • Dual Economy • Foreign-owned enterprise • State-owned enterprise • WTO membership in 2001 • Massive migration • Rural to urban • Agriculture to manufacturing • West to east • Interior to coast