Global Business #4 May 23, 2011 › kyouiku › 2011 › GB_0523.pdfGlobal Business #4 May 23, 2011 Dept of Technology Management for Innovation (TMI), Graduate School of Engineering

Global Business #4May 23, 2011

Dept of Technology Management for Innovation (TMI), Graduate School of EngineeringProfessor Kazuyuki Motohashi

工学系研究科 技術経営戦略学専攻教授元橋一之

http://www.mo.t.u-tokyo.ac.jp

Today’s class

• Review of “factory or market” exercise (CAGE and AAA framework)

• Role of local government in global business for emerging economies

• Business planning: practical guide and introduction to global business competition (taking a case of infrastracture business)

Review of the last class

Market or Factory Exercise

FDI for world

products

FDI for local

products

Export of world

products

Export to local market

Local Market(India Market)

Global Market

Local Resource (India Factory)

Home Resource

Adaptation

Arbitrage

Aggregation

DISTANCE

DIS

TAN

CE

Some explanations• Local market or global market: depends on

difference (distance) of market characteristics • FDI or home (HQ)?:

– depends on difference (distance) of business environment

– What kind of parts in your company’s value chain? : Source of value added, profits, unique managerial assets

• On CAGE framework: Distances are two ways, (adaptation vs aggregate, or arbitrage) -> AAA triangle

Typology of business activities

B2B B2C B2G

Goods PartsInd. Robots

Steel

AutomobileTVs,

cosmetics

NuclearReactor

Services HR serviceBPO

Financial Retail

Package IT System integrator

Subway, Water ?

?

Difference in marketing (customers)

Administrative Distances

• Difference in currency• Tariff and non-tariff barriers (such as safety

regulation): but this distance decreases over time (WTO, regional integration by FTA)

• Local government FDI policy (restrictions and incentives)

• Political disputes, conflicts

What is WTO?• World Trade Organization（HQ: Geneve, UN

organization, 151 countries, established in 1995, former GATT)

• WTO principles– MFN（Most Favorable Nation) 最恵国待遇：

Exception for regional integration (FTA, EPA)– NT(National Treatment) 内国民待遇

• WTO rules– Tariffs in goods and services：ITA(Information

Technology Agreement)– Trade Related Investment Measures（TRIMS)– Trade Related Intellectual Property Rights（TRIPS)– Government procurement, safety regulation, anti-

dumping, safe guard rules etc.

Tariffs revision schedule (China’s accession to WTO)

0%

10%

20%

30%

40%

50%

60%

2001 2002 2003 2004 2005 2006 2007 2008

All Product (7,151)

Air Conditioner

Refridgerator

Color TV

Computer

Passenger vehicle

Auto Chassis

Auto Body

Motor Bike

MB Components

Deregulation schedule for retail and wholesalse sector in China

Regional integrations with ASEAN

Supply Chain of Automotive industryin Asia vs industrial policy

© 2010 Kazuyuki Motohashi

FTAs (EPAs) in Asia

Why “role of government”?

• Administrative distances are greater for developing economies. (WTO, FTAs … but…)

• Institutional fragileness in government agencies: limited human resource capacities, fragile legal institutions and discretions of local government officers.

• Risk management perspectives; understanding local government incentives (sometimes government officer individual level) and relationship building is important.

India vs China: public organizationChina India

Political Organization Chinese Communist Party(virtually one party control)

Multiple parties competition

NDA (National Democratic Alliance) such as INC

(Congress) vs UPA (United Progressive Alliance) such

as BJP

National Congress National People’s Congress（全人代）

Two house system (Upper house and Lower house)

Administrative organization Centralized Local (state) independency

Officers Bureaucrats (CCP member) IAS system

Governance mechanism 人治 (ruled by human) 法治 (ruled by law)

Discretion Small in central, but large in local

Small by legal system, but large for executions

Risk associated with policy change

Large and unpredictable(such as Shanghai

industrial park case）

Large but predictable (such changes are based on

democratic process

Why infrastructure business?

• Big market : 80 trillion yen market in 2025 only for water business

• Japanese firm’s advantage in its technology (“infrastructure export” by METI)

• Local government interests (how to meet growing demand for XXX)

• Can expect public support

METI 2010 Industrial Vision

Business Plan Items• Executive Summary• What is your company? (Hitachi group? or others? Start-up

company?)• Management Team and Division of Labor• What kind of infrastructure business in India? And why

– Summary of your new business– Business model of your proposal

• Who’s your customer?• Market and competitor analysis

– Risk analysis• Potential risks and contingency plan

• Business execution planning (HOW)– Partnership with local players (with whom? why?)– Local operation – Marketing plan

• Business Plan Evaluation (such as NPV, IRR analysis)

OUTPUT: 15 min presentation on 7/16

Business execution

• ODA (Overseas development aide) or PPP (Public Private Partnership)

• Consulting services or equity investment into SPC (Special Purpose Company)

• Long-term contract with local government: BOT (Built, operation, transfer), BOOT (Built, own, operation, transfer, concession contract (originated in France)

Type of infrastructure business and potential risks

IPP, Water, Waste Transportation(rail, road)

Political Risk Regulatory frameworkrisk, confiscation risk, contract breach, political violence, feedstock supply risk

+ currency exchangerisk

Commercial Risk Project completion risk,operation risk,

+ off taker risk (demand uncertainty)

Natural force majure

『国際インフラ事業の仕組みと資金調達』（加賀隆一著）を著者加工

Project Evaluation

Cash Flow

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==+

= ∑=

NPVrIRRr

CFNPVT

tt

t

EPC (Engineering, Procurement and Construction)

O&M (Operation and Management)