chapter 3 market integration the contemporary world.pptx

global economy

1. Global Economy CHAPTER 3 MARKET INTEGRATION :.

2. Learning Outcomes: Explain the role of international financial institutions in the creation of a global economy; Narrate a short story of global market integrations in the twentieth century; Identify the attributes of global corporations.

3. Quiz In a half sheet of paper: 1. Based from the film “ The Global Corporation” directed by Mark Achbar and Jennifer Abbott. Narrate a short history of global market integration in the 20 th century.

4. Question: “ When the American economy sneezes, the rest of the world catches a cold? “

5. GLOBALIZATION IN THE WORLD ECONOMY Globalization is the opening up of domestic economies to international trade and commerce. Globalization has been expanding since the emergence of trans-national trade because of the liberalization of domestic markets. Specifically, it has accelerated over the last 20–30 years under the framework of General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO)

6. Globalization is the increasing economic integration and interdependence of national, regional and local economies across the world through an intensification of cross-border movement of: goods, services, technologies and capital. GLOBALIZATION IN THE WORLD ECONOMY

7. Global Economy Resources, markets and competition are worldwide in scope. Globalization The process of growing interdependence among elements of the global economy. Global Sourcing Firms purchase products and services from around the world for local use. GLOBALIZATION IN THE WORLD ECONOMY

8.  Multinational corporations ( MNC ) are organizations that own or control overseas companies or production or service facilities in one or more countries other than the home country. MULTINATIONAL COMPANIES (MNC)

9. MULTINATIONAL COMPANIES (MNC)

10. For example, when a corporation is registered and has operations in more than one country or in more than one country, it may be attributed as MNC. Usually, it is a large corporation which both produces and sells goods or services in various countries. It can also be referred to as an international corporation , or a "transnational corporation“ which usually connotes headquarter operations in more than one country. MULTINATIONAL COMPANIES (MNC)

11. Adapting Dicken’s ( 2007:106 ) definition of a TNC, an MNC is a firm that has the power to coordinate and control operations” in more than two countries, even if it does not own them. “

12. Foreign Direct Investment Involves investments by one firm in another firm that exists abroad in a different nation state, with the intention of gaining control over the latter’s operations. It can also involved setting up branch ( subsidiary ) operation in another country. This is a major indication of the growth of MNC’s

13. FOREIGN I NVEST M ENTS

14. FOREIGN INVESTMENTS Foreign Investment (also called foreign direct investment or FDI) is the entry of capital and/or companies into a business enterprise in one country by an entity based in another country. FDI makes possible the movement and inflow of international factors of production around the world. These factors basically include capital, manpower and technology.

15. FOREIGN INVESTMENTS    FDI is distinguished from Portfolio Investment, a passive investment in securities in a host country (as stocks and bonds). The country of origin or form of the investment does not impact the conceptual definition of FDI. The investment may be either "inorganic" by buying a company or "organic" by expanding operations in the host country.

16. MNC AND FOREIGN INVESTMENTS The economist John Dunning has identified four primary reasons for corporate foreign investments (Global Capitalism, FDI and Competitiveness, 2002):  Market seeking : Firms go overseas to expand markets and find new buyers. A company may take advantage of a unique or superior product in foreign markets. Another motivation is when producers have a saturated home market, or when they believe investments overseas will bring higher returns.

17. MNC AND FOREIGN INVESTMENTS  Resource seeking: Put simply, a company may find it cheaper to produce its product in a foreign subsidiary- for the purpose of selling it either at home or in foreign markets. The foreign facility may be able to obtain superior or less costly access to production (land, labor, capital, and natural resources) than at home.

18.  Strategic asset seeking : MNCs may seek to invest in other companies abroad to help build strategic assets, such as a global brand, distribution networks or new technology (e.g. Lenovo, Heinz). This may involve the establishment of joint venture or partnerships with other local or foreign firms that specialize in certain aspects of production or distribution. MNC AND FOREIGN INVESTMENTS

19.  Efficiency seeking : Multinational companies may also seek to enter new overseas markets in response to broad developments. For example, a new free trade agreement among a group of countries (such as AFTA) may suddenly make entry into one country to make access to other countries more available, or where there is lower tariff rates within the group. (Bayad Center) Fluctuations in exchange rates may also change the profit calculations of a firm, leading the firm to shift the allocation of its resources. MNC AND FOREIGN INVESTMENTS

20. POSITIVE IMPACT OF FOREIGN INVESTMENTS    International investment can be vital for developing countries. MNCs produce jobs and provide downstream opportunities for ancillary businesses (such as construction, food, housing for expats, etc.). MNC factories can produce economic multiplier effects due to “backward linkages” with suppliers that provide local content and materials to the production facility.

21. FOREIGN INVESTMENT FORMS     Exporting. Local products are sold abroad Importing. The process of acquiring products abroad and selling them in domestic markets. Licensing. one firm pays a fee for rights to make or sell another company’s products. Franchising. a firm pays a fee for rights to use another company’s name and operating methods.

22.    Joint Venture. A firm operates in a foreign country through co-ownership with local parties. Strategic Alliance. Long-term partnership with local entity to develop the local market Foreign Subsidiary. A local operation completely owned by the foreign firm. FOREIGN INVESTMENT FORMS

23. POSITIVE IMPACT OF FOREIGN INVESTMENTS For example, when a firm decides to build a plant that assembles cars, the firm is also likely to encourage the development of new local industries that can supply it with electric motors, fans, and other parts for its production.   Thus, MNCs can significantly increase GNP/GDP in the host countries. Developing countries have both the demand for a good or service, and the labor and natural resources to supply it. But they lack the knowledge or access to capital necessary for local production.

24. POSITIVE IMPACT OF FOREIGN INVESTMENTS   Large enterprises in the developed economies (like the US) have excess capital or may raise funds in their home markets to expand overseas. Technology transfer : When companies build plants, they bring the same production techniques and technologies with them that they use in domestic production. This helps raise the skill level of the workers employed in the new plants.

25. POSITIVE IMPACT OF FOREIGN INVESTMENTS   Proponents of liberalization point out that essentially no developing country has managed to achieve rapid and sustained growth, successfully raising the prosperity levels, without increasing their openness to foreign investment (Blustein, 2001). Productivity spillovers : Productivity spillovers can spur growth and raise productivity in developing economies. For example ”just in time” manufacturing from Japanese MNCs allowed firms in the Philippines to learn the technique. This has reduced the need for warehousing and higher parts and materials inventories. This innovation has helped improve Philippine productivity.

26. POSITIVE IMPACT OF FOREIGN INVESTMENTS   Productivity spillovers : Productivity spillovers can spur growth and raise productivity in developing economies. For example ”just in time” manufacturing from Japanese MNCs allowed firms in the Philippines to learn the technique. This innovation has helped improve Philippine productivity. Increased competitiveness : Competition from foreign corporations often encourages domestic companies to become more efficient and globally competitive.

27. POSITIVE IMPACT OF FOREIGN INVESTMENTS  Increased outward orientation : Multinationals are more outward market oriented and often seek out new foreign markets. In turn, this outward orientation often helps domestic firms become more aware of international opportunities. This was what happened to South Korea, which is now a major producer of consumer electronics and automobiles (the technology came from Japan)

28.    Sweatshops Employ workers at very low wages, for long hours. Poor working conditions. Child labor -- The full-time employment of children. Sustainable Development Environmental issues Operations should meet the needs of the present without hurting future generations. NEGATIVE ISSUES ABOUT FOREIGN INVESTMENTS Foxconn (Apple's main contractors) recentlyr aised wages by up to 25% after a spate of suicides last year and reports of long hours for the hundreds of thousands of staff.

29.   Protectionism. Liberalization have often earned the ire of some quarters like farmers who pressure the government to put up tariff barriers against imported commodities (e.g. sugar) that are also produced locally. Retail trade is also restricted to foreign investors in the Ph. Corruption. There is perception of illegal practices and bribery of local officials to give preferential treatment to investors especially for bidded large-scale projects. NEGATIVE ISSUES ABOUT FOREIGN INVESTMENTS

30. MYTHS AND REALITIES Myth: It is factor endowment (natural resources, low labor wages) that determine the economic growth of a country. Reality: Michael Porter in his book The Competitive Advantage of Nations which was supported by cross- sectional empirical study showed that it is people, the entrepreneurial and management expertise and capital that determine the success of a country in achieving economic performance.

31. FOREIGN INVESTMENT IN THE PHILIPPINES

32. Sumlang Lake, Camalig, Albay Dutertenomics is a cohesive roadmap to acceleration and inclusion. More equal and more prosperous at home. More equal abroad and at peace with our neighbors.

33. DUTERTENOMICS Based on the rule of law Driven by massive infrastructure spending Slogan of “ Build, build, build “

34. Special Focus: 34 TRAIN: Tax Reforms for Acceleration and Inclusion

35. TRAIN - T ax R eform for A cceleration and IN clusion It’s Tax/GDP, stupid. The issue is who pays? Shifting tax burden from income to consumption (encourage savings, investments) Shift consumption to investments : 1% of GDP. 2/3 to Infra, 1/3 to Transfers. Tax the rich, Benefit the poor : P111bn from removal of VAT exemptions should be disaggregated, those estimated by the elderly and PWDs should be paid in advance and based on legislated earmarking of unconditional but targeted cash/vouchers Benefit first, Tax later : Reverse P1trn underspending from 2010- 2016, Aggressive 2017 (K+12 fully funded) solely financed by organic growth and new taxes yet to kick in Shared burden, Shared benefits : Weakness is “benefits to lower 50% dependent on bureaucratic efficiency, benefits to upper 50% is assured via automatic tax (withholding) reductions” Sli d e 35

36. Special Focus: 36 T ARA: Tax Administration Reforms Act

37. TARA – Tax Administration Reforms Act 37 “Tax administration” measures that are necessary in order to achieve genuine tax reform that aims to i) improve the effectiveness of the tax administration especially in detecting and prosecuting non-compliance , and ii) improving the tax paying enviro M n e m asu e re n s t , tha ll t m e a s ke p t e ax cia m ll i y ni f tr o at c i us m e o s r in ef e g c i t v iv i e n : g compliant taxpayer the assurance of protection against abuse. ng environment , that especially focuses in giving compliant taxpayer the a Two basic Goals Measures that will improve the tax environment Measures that will make tax administration more effective:

38. Special Focus: PIVOT TO CHINA and 38 ENDO OF US-PH SPECIAL RELATIONS Rep. Joey Sarte Salceda Presentation to CITEM Manila FAME October 21, 2016

39. THE CHINA PIVOT- STATUS: In a relationship 39 Structural adjustment towards equidistant economic relations (thus, the noise) Officially, China is the country’s largest trading partner officially 3 rd ($17bn) after Japan ($21bn), Asean($18bn) and US ($16bn) but if informal included –China is about $32bn so such massive trade relations do not benefit from protection nor promotion. Rectifying trade imbalance of $5bn officially; not inc informal - $12bn. Total Trade Imbalance: $18bn Move towards a PJEPA. Easily, stronger bilateral relations can yield additional P72bn in import VAT from “smuggled goods” Trade restructuring would require “China investments in Ph” esp. since Ph resident investments of $6bn in China Infrastructure for railways and renewable energy Technology in agriculture and manufacturing Tourism – 500m China touristable market while Ph has 432T in 2015 One Belt, One Road (OBOR) Initiative Asian Infrastructure and Investment Bank Access to rising bloc – BRICS (Brazil, Russia, India, China, South Africa)

40. FOREIGN INVESTMENTS POLICY IN THE PHILIPPINES    It is the policy of the State to attract, promote, and welcome productive investments from foreign individuals, partnerships, corporations, and governments. The activities should contribute to industrialization and socioeconomic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. The law that governs the participation of foreign entities in economic and commercial activities in the Philippines is Republic Act No. 7042, as amended, otherwise known as the Foreign Investments Act of 1991 (“FIA”).

41. FOREIGN INVESTMENTS POLICY IN THE PHILIPPINES

42.  It is supported by the Omnibus Investments Code of 1987, also known as Executive Order No. 226, contains the current investment policies of the Philippines. The government encourages foreign and domestic investments. FOREIGN INVESTMENTS POLICY IN THE PHILIPPINES

43.  Foreign-owned enterprises can register under the Board of Investments (BOI) to avail of fiscal incentives such as:   exemption from income taxes, exemption from custom duties and taxes on importation of equipment, supplies and spare parts. INCENTIVES FOR FOREIGN INVESTORS

44.     Non-fiscal incentives -- permission to employ foreign nationals. Simplification of custom procedures. Capital gains tax exemptions Protection from infringement of patents and trademarks INCENTIVES FOR FOREIGN INVESTORS

45. SPECIAL ECONOMIC ZONES   The Subic and Clark Economic Zones (RA 7227) and Special Economic Zones (RA 7916) provide another vehicle for foreign investors to put up their business with incentives in the Philippines. During the Ramos administration, the government converted the former Clark and Subic bases into economic zones for developmental and export-oriented projects.

46. SPECIAL ECONOMIC ZONES   RA 7227 made Subic a separate customs territory ensuring free flow or movement of goods, equipment and raw materials into and going out the economic zone. Subic and Clark Special Economic Zones provide incentives such as tax and duty-free importations of raw materials, capital and equipment.

47.   Philippine Economic Zone Authority (PEZA) was created to help promote investments in the export- oriented manufacturing and service industries. It actively assists investors in registering and facilitating their business operations in service facilities inside selected areas in the country (called PEZA Special Economic Zones). SPECIAL ECONOMIC ZON E S

48.   SEZ locators such as export oriented enterprises and manufacturers enjoy specific privileges. The locations are equipped with complete infrastructure facilities, security and sometimes strike-free provinces. Other activities also eligible for PEZA registration and incentives include business process and knowledge outsourcing, tourism, medical tourism, logistics and warehousing services, and agro-industry. SPECIAL ECONOMIC ZONES

49. Take Home Quiz: Read page 53 to 59 and answer the PROCESS QUESTIONS : 1,2,& 3

50. Agreement # 3 Answer page 60 number 1 and 2

51. Agreement # 4 Look for and read three newspaper opinion-editorials (op-eds) discussing MULTINATIONAL COMPANIES. You may use local or international op-ed. Write a 50 word summary for each op-ed.

52. References: CHED HANDOUT The Contemporary World by Prince Kennex R. Aldama Rex Bookstore First Edition

53. Mary Jane T. De Vera, LPT.