11.Foreign Direct Investments

• Greenfield (totally new plant)

• Brownfield (foreign company acquiring an existing production facility)

• Having controlling influence:• Having controlling influence:

when at least 10% of voting rights (affiliated company)

• Subsidiary: as from 50%

• Branches: no legal personality

2010 1

11.Locational factors

• Technological development

• Factors of production, related supporting industries, influence of establishment, attitude of government

• Inherited or natural factors infrastructure) and created factors (human resources)created factors (human resources)

• Domestic demand (quality requirements)

2010 2

11.Geographical analysis

• Economic and political stability, growth rate, inflation, unemployment

• Infrastructure

• Location/ transportation

• Ecology/environmental requirements

2010 3

11.New investments

• Need to gain access to new technology (requirement in China, aircraft industry e.g.) , distribution channels, new markets

• Need to increase productivity

• Skilled labor force, services to attract car assembly • Skilled labor force, services to attract car assembly to southern USA, Central Europe

2010 4

11.FDI in the world economy

• Shifts in the relative importance of regions (Asia, USA, Brazil, Europe)

• Industrialized countries receiving massive FDI while one would expect emerging nations to receive the bulk of itreceive the bulk of it

• Attractiveness of Central Eastern Europe (Poland, Slovakia, Rumania, car assembly e.g.)

2010 5

11. More complex products: cars

• Toyota-PSA in Kolin (60 km from Prague):– 150 suppliers

– Most new companies around the new plant

– 80% of the parts produced in – 80% of the parts produced in Czech Republic

• Valenciennes, France:– Toyota

• Slovakia:– most important car assembler

in function of population

2010 6

12. REAL ESTATE

• More volatile than expected

• Subprime disaster in USA

2010 7

13.Free trade zones (zones franches)

• Example of commercial zone: Colon

• Exterritorial enclave

• Can be commercial and industrial

• Often situated in emerging industrial countries• Often situated in emerging industrial countries

• Administrative solution to bureaucracy

2010 8

14. LOBBIES

• To modify laws

• Impact on public bodies

• Impact on mentality, perception and approach of perception and approach of authorities so that authorities would adapt to world economy realities

2010 9

14.Lobbying

• Some 3000 in Brussels

• big part of it is pointless

• gives some contacts to civil servants to the real world and especially the industry and especially the industry concerned

• skills and methods

2010 10

14.Pro-tariff interest groups

• National firms competing with foreign firms

• trade associations

• to increase industrial output

• to increase employment

• appeal often to national feelings

2010 11

14.Anti-tariff interest groups

• Consumers, for them protectionism means smaller variety of products and higher prices

• multinationals : in favor of free trade

• companies having to import raw materials

• usually less well organized that the group of • usually less well organized that the group of protectionists

2010 12

15. MONEY

• Billions of $ moving from country to country creating speculative opportunities that can lead to financial destabilization

• Hot money

2010 13

15.Money in a global world

• Governments experience a growing loss of monetary control

• Need for governmental policies to avoid massive capital flows

• Greece, problems in Iceland• Greece, problems in Iceland

• International circulation of

a currency also a matter of

influence

• Global hedge funds active

• End to bank secrecy

2010 14

Financial criminality

• Yachts bought by criminal funds

• Real estate

2010 15

15.Effective exchange rate

• for the economy of a country, the exchange rate of one currency is more important than that of another, the level of a country’s international trade with its individual partners is a good indicator of with its individual partners is a good indicator of that economic importance

2010 16

15.Monetary strategies

• Market leadership to maximize use of the national currency (international seigneurage)

• Market alliance: sharing monetary sovereignty in a monetary union

• Market preservation: to maintain market • Market preservation: to maintain market position of the currency

• Market follower-ship: subordinating monetary sovereignty to a stronger currency (quetzal to a certain extent)

2010 17

15.Foreign exchange markets

• Liquid and volatile

• Inter-bank + hedge funds (33% according to BIS)

• Largely electronic

2010 18

15.Forms of exchange rate risks

• Transaction risk

• Economic risk• Economic risk

• Translation risk

• Country risk

2010 19

15.Transaction risk

• The financial outcome of a transaction may differ from the initial expectation : Belgium borrowing 1 Billion $ for period of 5 years…

• both exporter and importer prefer the price in their own currency, the one who can’t get it is saddled own currency, the one who can’t get it is saddled with the transaction risk

• solutions: forward market, options, futures

2010 20

15.Economic risk

• Concerns unknown future transactions

• future exchange rates may have an adverse effect on a company’s future export revenue, on the competitive position (due e.g. to the appreciation of the domestic currency when deals are traditionally the domestic currency when deals are traditionally made in that currency)

2010 21

15.Translation risk

• Values of the assets and liabilities on the balance sheet change on the occasion of the translation of these values in the reporting currency

• especially when a number of foreign subsidiaries

• can have serious impact on results• can have serious impact on results

2010 22

15.Country risk

• Rating agencies (having lost part of prestige)

• Risk assessments based on:

– legal issues

– political stability

– attitude towards business– attitude towards business

– vulnerability (diversification of their

exports by category ))

• Hedge funds based on national markets

2010 23

16. RAW MATERIALS

• Finally (essentially for the developing world) higher prices for raw materials!

• Gold price

2010 24

16. Subsidized agricultural products

• For some developing nations import of subsidized agricultural products discourages local producers

• For others these products are • For others these products are needed to fight starvation!

2010 25

16. Central Europe

• Open to foreign trade

• Higher competition leading to higher productivity

• Well run institutions (Warsaw Stock Exchange)Stock Exchange)

• Good education levels

• Reasonable labor cost

2010 26

16. China

• Imposing conditions to FDI

• Offer state owned undercapitalized firms

• Need to maintain management, and brand name (e.g. XUGONG) and to give the brand name world class class

• All over Africa

• In search of raw materials

2010 27

China: environmental problems

• Demonstrations

• Provincial leaders appointed centrally but difficult to control

2010 28

16. Where are the petrodollars ?

• Previously mainly in banks of oil importing industrialized countries

• Now some reluctance (controls, money (controls, money laundering…)

• Companies, trusts, hedge funds, offshore financial centers, private equity

• Dubai saved by Abu Dhabi

2010 29

17.Interdependence

• EU- USA –Japan-China-Russia….,

• The new regionalism bridges the traditional division between industrialized and developing countries

2010 30

18.Corporate governance

• Retail and institutional investors

• Equal treatment of shareholders

• Remunerations at top leve

• Market abuse: misleading information and insider • Market abuse: misleading information and insider trading

2010 31

19.Investment banking

• Played an important role in high tech

• The new economy was not everywhere a success and investment banking suffered a real identity crisis

• Mergers and acquisitions business more difficult

• Disappearing• Disappearing

2010 32

19.Credit rating agencies

• Moody’s, Fitch and Standard and Poor’s

• Too slow to spot companies' declining health

• Ratings are intended to look at the likelihood of default for periods longer than a year

• Junk bonds as from just one “B” • Junk bonds as from just one “B”

• Partially responsible for subprime disaster (Colleteralized debt obligations)

2010 33

21. ENVIRONMENT

• Environmental dumping

• Delocalization towards less demanding countries

• Mining

• Maquiladoras sometimes with • Maquiladoras sometimes with dangerous fibers?

• Asbestos in ships to be treated in Bangladesh

• Turkey’s labor conditions (jeans)

2010 34

21.Sustainable development

• Spoiling nature is not unavoidable to economic growth

• Need to phase out environmentally damaging subsidies

• Economic growth creates assets to spread around, • Economic growth creates assets to spread around, to be shared with the poorest

2010 35

21.Renewable energy sources

• Wind (but little wind when very cold and when very hot)

• Sunlight (solar powered • Sunlight (solar powered generation plants) in poor areas : subsidies…

• Waves

• Realism needed

2010 36

CHINESE IN AFRICA

• Sudan (China: biggest foreign

investor), Tchad, Niger,

Mauritania, Angola, Nigeria,

Congo Brazzaville, MaliCongo Brazzaville, Mali

• Chinese in ALGERIA: building

industry (oil and gas…)

• ETHIOPIA: roads and bridges

built by Chinese HUNAN

HUANDA2010 37

AFRICA

• Rising commodity prices

• Strong growth in oil producing countries

• Unfortunately - still high unemployment

• Social and political turmoil

2010 38

AFRICA AND OIL• NIGERIA: exports’ growth, new

refinery built by Texaco Chevron, excellent performance : pipelines, better banks, repatriated funds, oil…

• ANGOLA: Chinese hunting for • ANGOLA: Chinese hunting for new oil reserves; growth factor also diamonds - new diamond polishing factory built by Israelis (Lev Leviev)

• ALGERIA : vast reserves of funds and oil

2010 39

23.THE GLOBAL WORLD

• Economic growth and distribution of wealth

• Social justice and support of people and companies producing real wealth

• Tribute to be paid to those who are courageous enough to fight poverty and those who at the risk of enough to fight poverty and those who at the risk of their lives combat those who create poverty and misery in the world

2010 40

23. Objectives

• Identify problems and causes of crisis

• How to prevent them

• How to reduce the effects of crisescrises

• Where are the opportunities and solutions

• Long and short term tactics and strategies

2010 41

Mergers and acquisitions

• If need to raise funds : cost of say 8,5 % of raised amount !

• LBO’s (SIDAPLAX case), when management believes in future, synergies, integration, believes in future, synergies, integration, economies of scale

• Raiders (predators) and targets

• FORTIS (RBS- Santander)case – ABN-AMRO

2010 42

Difficulties with M & A

• Too complex conglomerates

• Loss of house style

• Processes difficult to combine

• Trade unions• Trade unions

• Getting approval via proxy fights : case of Société Générale de Belgique : Suez against de Benedetti

2010 43

Impact on market price

• Raiders loosing… The target (victim) gaining

• White knights’ activities

• Corporate governance

2010 44

Crisis managemnet

• New ideas required

• Management style no longer adapted to the world of business

• New markets• New markets

• Choices of diversification or core business

2010 45

Economies of scale

• Common central services

• Reduction of risks and costs

• Getting the right managers (BOVIS - P&O)

• Research• Research

• Marketing

• Engineering

• Ability to borrow from banks

2010 46

Convertible bonds

• When to offer convertible bonds (lower interest, cheaper for the company, dilution when exchanged, expecting conversion)

• Beware of reverse ones !!!2010 47

P/E and Solvency

2010 48

Non performing loans

• Euphemism for bad debts

• Wrong policies (NatWest -Heythrop-in Latin America)Heythrop-in Latin America)

• Bad judgment

• Solidarity between banks (Bank of Brussels case)

• Wait! (patience required)

2010 49

Enterprise bonds

• More in US

• For listed companies generally

• To avoid dilution

• Tax advantages• Tax advantages

2010 50

MONEY LAUNDERING

„Criminal proceeds taking on the outward appearance of legitimacy.”

2010 51

UNLAWFUL ACTIVITIES

• Narcotics

• Terrorism

• Racketeering• Racketeering

• Espionage

• Hostage - taking

• Sexual exploitation

• Illegal immigration

2010 52

Unlawful activities (continued)

• Traffic in body organs

• Illicit arms trafficking

• Sale of nuclear technologies

• Tax evasion (grey economy)• Tax evasion (grey economy)

• Insider trading and market manipulation

• Bribery

2010 53

Unlawful activities (continued)

• Counterfeiting currency and products

• Trafficking in stolen goods

• Car theft

• Piracy• Piracy

• Environmental crime

2010 54

Non-financial businesses and

professions

• Casinos (including internet casinos)

• Real estate agents

• Dealers in precious metals and stones

• Lawyers, notaries• Lawyers, notaries

• Trust and company service providers, providing registered offices, business addresses and accommodation

2010 55

Payment difficulties for criminals

• Cash = difficult to move: street cash = 6 x weight of cocaine!

• Laws prohibiting payment in cash for large amounts

• Risks and costs of transportation• Risks and costs of transportation

• Smurfing

2010 56

Cost of investigation

• Financial detectives charge a commission of 50% plus traveling coststraveling costs

• Six minutes of transfer can cost inquirers six months of investigation

2010 57

Independent directors protecting

investors

• No knowledge without “all ranks”

information

• Not always seen favorably by • Not always seen favorably by

colleagues

• By definition poorly paid

• But fully responsible…

2010 58

Investment funds and companies

• From invisible hand to invisible costs

• Conflicts of interest: “in and out trading”and out trading”

• Institutional investors to take their responsibilities as active shareholders

2010 59

POISON PILLS

• “The company should not employ measures to eliminate a takeover threat. Changes in company share capital should not violate interests of existing shareholders”

2010 60

Hedge funds

• Very difficult to define

• Leverage

• High risks with a view to obtain high returns

• Non orthodox financial instruments • Non orthodox financial instruments

• Other types of investments

• Some listed at stock exchanges

• Profitable business at the management level

• Should gain first to be able to loose afterwards

2010 61

Financial conglomerates at risk

2010 62

Credit and operational risks• Banks needing substantial capital buffers

• Avoiding too risky borrowers

• Basel II favouring large corporations with effective management control systems perhaps not asking for enough protectionnot asking for enough protection

2010 63

Banks in times of crisis

• Basel II should not suggest « good » banks to work with minimal capital

• Their credit portfolio suffered, their shares dropped in their shares dropped in value…

• The more sophisticated the risk control system, the less capital required, but is the time right?

2010 64

Complexity of giant financial

conglomerates

• Interdependence also in reputation

• difficult to predict impact of market movements on banking

2010 65

Safer global investments

• Benefitting countries with good business climate and high level of educatio

• And competitive industrial conglomerates

2010 66

CURRENT FINANSIAL CRISIS

2010 67

Origin

• ending money to everybody -Ninja Loans (No Income, No Job, no Assets)

• high risk shifted from the • high risk shifted from the mortgage creator to investors with mortgage-backed securities (MBS)

• high ratings formerly granted by rating agencies, misleading

2010 68

Results

• “Problems” of

– Lehman Brothers

– AIG

– Fortis

– Many others...

• What have they done to our banks?

2010 69

Financial Frauds

• Nick Leeson

• Jérôme Kerviel

• Bernard Madoff

• Need for independent risk committees (EU • Need for independent risk committees (EU proposal)

2010 70

Careers in international business

• People

• Plant and Product

• Performance

• For managers with international culture + national sensitivity

2010 71

Auld Lang Syne...

201072