Market transitions and development.

1. Market transitions and development. • G.D.P., Per capita income, Industries and Industrial production, Infrastructure, Technological development and applications, Health and Health care. • Stages of development -- Traditional society; Preindustrial; Take-off; Drive to maturity; Age of high mass consumption.

2. Stages of Development • The traditional society - Mainly agricultural production, very little industry; Poor infrastructure, low standard of living; No applications of technology; Low per capita income and G.D.P. (e.g. Ghana, Bangladesh.) • The preindustrial Society - Technological applications in both agriculture and industry increasing; Infrastructure developing; Standard of living rising; Becoming more self-sufficient and heading towards excess. (e.g. Madagascar and Uganda) • The takeoff Society - Infrastructure and technology have been installed that generate rapid expansion in production; Looking for international markets and trade (e.g., Thailand, and Malaysia). • The industrializing Society - Can produce any industrial or consumer product; High level of international involvement; Modern technology (although not new technology) applied to ind. and agri. Production (e.g. Mexico, China, India, and Brazil). • Fully industrialized Society - High standard of living and discretionary income; Rapid product innovation; Mass production and distribution (e.g., U.S., Canada, Germany, Japan). 7 03/09/98

3. Market transitions and development. • Difficult to classify. • Progression of N.I.C. • Unbalanced growth or dual economies. • Political instability and mismanagement.

4. Big Emerging Markets • Asia - ASEAN, CEA, India, South Korea. • Latin America - Mexico, Argentina, Brazil. • Africa - South Africa. • Europe - Poland, Turkey

5. Big Emerging Markets • Physically large with significant populations. • Strong growth rates. • Undertaken significant programs of economic reform. • Big import markets. • Bigger than Japan and the E.C. combined by the year 2010 • Growth potential for U.S. businesses.

6. China

7. China. • Beginning in late 1978, a move towards market driven economy, but still under communist control. • High Growth Rate 10-11% per year (compounded) through most of 1990’s. Currently ~ 9.0%. • Second largest recipient of FDI (U.S. 1st) - Largest potential market in the world • Total ecomony of about $6.5 trillion, versus $11 trillion USA, though its GDP per capita is around $5000, or what the US had 80 years ago or so. Its economy will double in the next 8-10 years. It has generated $400 billion in balance of payments surplus cash. • Highly regulated business environment under political control. • Powerful and corrupt bureaucracy. • Connections and political pay-offs. • State Owned Enterprises (Privatization) • Southern provinces are most developed (15 -20% average growth rates).

8. China (Contd.)

9. China (SEZ’s & FTZ’s) • Special economic zones(SEZ's) - are development zones established by the PRC to encourage foreign investment in China, bringing much need jobs, technical knowledge, and future tax revenues in return for significant tax concessions at start-up of the operations and over a number of years. • Since 1992, the State Council has opened a number of border cities, and in addition, opened all the capital cities of inland provinces and autonomous regions. In addition, 15 free trade zones, 32 state-level economic and technological development zones, and 53 new- and high-tech industrial development zones have been established in large and medium-sized cities.

11. China (Contd.) • Overheated economy – Last year fears reached a peak when China’s banks were lending freely, investment was expanding blindly and prices were rising quickly. This anxiety was shared by the Chinese authorities. In April 2004 in order to cool the economy, the authorities imposed curbs on investment in sectors such as steel, aluminium and cement, refused to release land to developers and threatened to impose price controls if inflation remained out of hand. In October, the central bank raised interest rates (if only by a little) for the first time in nine years. • Infrastructure Problems. • Uncontrolled growth – investment too high. • China’s reckless investment owes a lot to the heedless lending of its banks. Chinese households still save about 45% of their income. They deposit about two-thirds of these savings in China’s four big state-owned banks, which lend about two-thirds of these deposits to state-run firms. The banks pay little attention to risk and do not expect much of a return: perhaps 40-50% of loans are non-performing. In fact, their lending is best seen as a form of state subsidy. If these subsidies were added to the government’s books, China’s budget deficit would balloon to 18% of GDP.

12. China

13. China (Contd.) • Had Normal Trade Relations Status with US. - Similar trading privileges in trading with the U.S. as other G.A.T.T. countries. • Linked to human rights issues. • 2002 became a member of WTO. • Special agreements with U.S. and E.U. – ensuring access to Chinese markets and dealing with specific problems like intellectual property protection.

14. India

15. India. • Among the last of the eco. Imp. developing nations to open its markets. • Had central planning based on socialist inspired policy of a large public sector with extensive controls on the private sector. • Traditionally imposed high tariffs and import bans. • Sold mainly to the former soviet union and eastern Europe. • Textiles and Handicrafts were the main exports to other countries.

16. India (Contd.) • Has had robust growth since 1991 when the government reversed its policies and began to liberalize the economy. Liberalization has proceeded in fits and starts since then, mainly due to political pressures, but the economy has responded well by posting strong growth in many sectors (averaging around 6%). • Open markets and direct foreign inv. • However not with the same degree of vigor found in other developing markets. • Nationalism still very much alive. • Bureaucracy and corruption.

17. India

18. India (Contd.) • 3.3 trillion economy as compared to 6.5 trillion for china and 11 trillion for the US. • Growth rate of 6.2%. • Per capita GDP of $3,100 vs. $5000 for China. • Member of the South Asia Free Trade Agreement (SAFTA 2004) - a framework for the creation of a free trade zone covering India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives. Zero customs duty on the trade of practically all products in the region by 2012.

19. India (Contd.) • High potential. • Low-cost, educated, and english-speaking labor pool. • In the 1990’s emerged as a center for computer soft-ware development (outsourcing). • Largest concentration of engineers and IT professionals outside the US. • I.B.M, Microsoft, Unisys, Intel all have joint ventures. • Now attracting outsourcing of ‘backoffice’ functions, accounting, finance etc. • Also ‘call centers’ like Dell, British Airways, Delta airlines, GE capital etc. – ‘Can I help you’ jobs. • ‘Outsourcing capital of the world’.

20. India (Contd.) • Dual economies – big differences between the rural and urban markets and the “haves’ and “have nots”. • 250 million middle class. • Also a huge market for consumer goods. • General motors, Ford, Coke, pepsi, McDonalds, Pizza hut, Dominos etc. • High competition from Japanese, Asian and local products. • Difficult business environment, Infrastructure problems, Political problems.

21. India (Dual Economies)

22. Asian Pacific Rim. • N.I.C.’s (H.K., Singapore, South Korea, Taiwan). • Four Asian Tigers. • Major Global Competitors in all consumer and industrial Products. • Developing countries of Malaysia, Indonesia, Thailand . • Japan is increasingly dominant.

23. Hong Kong.

24. Eastern Europe. • Countries establishing free market systems. • Transition difficult, lack of skills, knowhow and experience. • Each has its own set of economic and infrastructure problems. • Poland and Hungary have made the most progress. • Poland – Since 1989 has undergone great political, social and economic changes. Market forces allowed to shape the economy, liberalization of trade, zloty become convertible, infrastructure developing rapidly. Currently a strong economy with 6% growth rates, low inflation, rising standard of living, and global competitiveness. IT industry is fastest developing. • Hungary continues to demonstrate strong economic growth of around 3-4%, the private sector has grown substantially and accounts for over 80% of GDP. Foreign direct investment totaled more than $23 billion since 1989. Inflation has declined substantially, from 14% in 1998 to 4.7% in 2003. Germany is their largest economic partner. • Poland, Hungary, Slovakia, Slovenia, Czech Republic, Lithuania, Latvia, Estonia became members of the EU in 2004.

25. Eastern Europe. • Poland, Hungary, Slovakia, Slovenia, Czech Republic, Lithuania, Latvia, Estonia became members of the EU in 2004. • Czech Republic after adopting economic and political reforms in the early 1990’s – went through a Political and financial crises in 1997. It also had economic problems during the early 2000’s but has recovered recently with its entry into the EU. Current growth rates are at 5% but the economy still faces threats in the form of public sector debt and needs financial and monetary policy reform.

26. Latin America. • Economic and trade liberalization. • Privatization and control of inflation. • Economic cooperation between them and with the U.S. • Free Trade Agreement of the Americas (FTAA), a potential market of 800 million. stretching from Alaska to Patagonia. • Free trade Agreement with the E.U.

27. Brazil. • Brazil is Latin Americas biggest economy - 1.3 trillion – per capita GDP $6,500, 20% of US exports. • Lagged behind others in opening its markets. • Economic problems in 1990’s – 1000% inflation in 1994. • From 2001-03 real wages fell and Brazil's economy grew, only 2.2% per year, as the country absorbed a series of domestic and international economic shocks. • Economy has stabilized only recently - In 2004, Brazil enjoyed robust growth (5.1%) that yielded increases in employment and real wages. • Inflation is under control and real income is up. • Privatization of state owned enterprises. • Debt is the main problem ($41 billion in 1998) – and maintaining economic growth.

28. Brazil.

29. Argentina.

30. Argentina. • Went through tremendous economic and political upheaval in the 90’s and upto 2002. • Timeline - http://www.washingtonpost.com/wp-srv/business/articles/argentinatimeline.html • Negative growth, Inflation, debt default, Political turmoil. Economic course prescribed by I.M.F. - $3 billion loan. • The economy contracted 20% during the four-year recession ending in 2002. • Currently economy of $378 billion, per capita GDP $10,300, 25% of population below poverty line. • The government estimates 2005 GDP growth of above 6 percent after the economy expanded 9.0 percent in 2004 and 8.8 percent in 2003. • More open market than Brazil. • Currency pegged to the U.S. dollar – peso dropped 70% to the $ in 2003.