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Chapter 1 6 : Doing Business in Transition Economies

Chapter 1 6 : Doing Business in Transition Economies. C&E Europe. FSU. FSU. PRChina. Vietnam. LECTURE PLAN:. Definition of Transition Economies (TEs) Import markets Trade issues in TEs Export marketing issues FDI in TEs, including China Globalisation and China’s economy

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Chapter 1 6 : Doing Business in Transition Economies

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  1. Chapter 16:Doing Business in Transition Economies C&E Europe FSU FSU PRChina Vietnam

  2. LECTURE PLAN: • Definition of Transition Economies (TEs) • Import markets • Trade issues in TEs • Export marketing issues • FDI in TEs, including China • Globalisation and China’s economy • Benefits and implications

  3. Transition Economies • Current and former Centrally Planned Economies in transition to a market-based economy • Former Soviet Union countries;Central &Eastern Europe;PR China and Vietnam • China-the world's 3-rd largest economy (PPP method) • Government sector-still the leading sector in FSU;However, in 1998 it accounted for less than 50% in most C&E European countries • Privatisation of state enterprises

  4. Former Soviet Union(FSU) • Most developed Commonwealth Independent States(CIS) markets • Russia,Ukraine,Belarus,Kazakhstan • The Baltic states • Estonia,Latvia,Lithuania • CIS Islamic Republics • Azerbaijan,Turkmenistan,Uzbekistan,Tajikistan

  5. The Share of China and Eastern Europe* in world merchandise imports, 1948-2000 * Eastern Europe= Former Soviet Union and C&E Europe

  6. Fig.16.2:China’s share of world merchandise imports, by product, 1990,% %

  7. Merchandise import markets in Transition economies, 2000,US$B and %

  8. Imports of selected Transition Economies by Product, 1999, US$ Billion and %

  9. Trade Issues in Transition Economies • Decentralisation of foreign trade(China since 1985) • From central plan to tariff protection • Members of WTO:Czech Republic, Hungary,Poland, Slovak Rep., Romania, China(November, 2001) • Abolition of import licences/quotas • Over 1992-2001, China has undertaken a number of 8 reductions of non-tariff measures.

  10. Export Marketing Issues in Transition Economies • More marketing efforts required • Lack of information about end-users • Lack of hard currency • Counter trade • Commercial bank lending up again • Advertising expenditure up(See next slide)

  11. Advertising expenditure, total(US$ Million)and % by medium, 1999

  12. Australia’s position in the import markets of Transition Economies • Best position in China:A$ 6.5 Billion in 2000/2001; 2% of China’s imports; 8th rank • Small exports to other markets:the share of Australian exports varies between 0.1% and 0.7%(Romania) • Exports include primary products, but also some Elaborately Transformed Manufactures( e.g. telecom equipment, measuring and controlling • Instruments, medicinal & pharmaceutical goods

  13. FDI in Transition Economies • Emerging FDI markets • Labour cost advantages (Czech Rep. 1/10 of German costs in car manufacturing) • Political stability ? - Finance issues - Hard currency problems • Motor car industry, Food processing in China

  14. FDI Inflows and FDI Inward Stock in transition economies, 2000, US$B. and %

  15. Sectoral Trends in FDI Inward Stock inTransition Economies,1999 • Leading Sector: Tertiary (US$ 49.3 Billion, 50.1% of total) • Finance; Trade; Transport, storage & communications. • Secondary Sector:US$ 43.5 Billion (43.5%) • Food, Beverages; Motor Vehicles & Other Transport Equipment; Machinery and Equipment; • Primary: US$ 2.4 billion (2.5%)

  16. Investment considerations • Political stability: • High grade:Central Europe; Medium grade (E.Europe); Low grade (CIS) • Local content requirements are on the way out • Some degree of foreign exchange controls • Cost of labour:major consideration for FDI in the area

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