How internationalization affects different firms in a different way ?

FIRM PERFORMANCE

Let’s focus on Europe

25.8% World’s GDP

Free market

739 Millions Hbts

Triad’s member

Agenda

What is Internationalization

Productivity

Competitiveness

Winners and losers

Internationalization...

shares of exports

imports

Foreign Direct Investment(FDI)

...an elusive concept

generate value

international operations

Internationalization

An international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.

Definition of World Trade Organization - WTO:

Productivity=

technological progress

Capital investment

labour volume and quality

labour intensity

social cohesion...

Ratio of volume of output to a volume of input use

Increasing productivity

Good management

Education and training

Infrastructure

Investing in R&D

Innovation

What is competitiveness?M Porter’s diamond

Relatedand supporting

industries

Factorconditions

Firm strategy,structure

and rivalry

Demandconditions

Government

Chance

How to boost competitiveness

Inputs

Wages

Providing subsidies

Tax incentives

Reducing costs:

And

Increasing the productivity

Root causes of competitiveness gap

Exchange rates

Inflation

Taxes

Wages

Relative costs =

Global competitiveness =Labor Costs + Productivity

Unit Labor Cost = Labor compensation/ Output per employee = labor productivity

ULC depends on both labor compensation gap and productivity gap

comparing relative levels of labor compensation per employee with relative levels of labor productivity within Europe and EMCs

The key is:

Relative hourly labour costs

Bangladesh: $0,25

Vietnam: $1

China: $3

Poland: $10

Germany: $36

France: $41 Source: US Bureau of Labor Statistics

Labour productivity

Productivity is the driving force of competitiveness

Both wages and productivity are lower in the emerging economy

If the productivity gap is as large as labor compensation gap= no comparative advantage

But

Winners: Top exporters

Firms which exports more than 10 products to more than 10 markets: 75% of total export

Only firms that are large enough and have a rich enough portfolio can withstand international competition

Happy few

Characteristics

• FDI-markers perform better than exporters and exporters perform better than non-exporters >

• Exporters are generally: - Bigger- More profitable- More capital intensive- Pay higher wages than non-exporter

Bilateral trade

• Trade flows are:

• Trade impediments increase with the distance between countries

• positively affected by countries’ sizes

• negatively affected by trade impediments

Distance affects

number of exporters

average exports per exporter

number of product exported

average export per firm of each product

export price

export quantities

Keys of success

Number of exporter matters the most

Number of exported product matters too

Firm’s average exports per product matter less

Price & quantities defy the distances

What does affect trade?Sharing a language:

GATT / WTO membership & colonial links increase:

reduce fixed costs

increase the number of exporters

does not affect the average amount exported

the number of exporters

reduce the average amount exported

To conclude...

Promote intra-industry competition

Increase the number of exporters

Forget the incumbent superstars

Nurture the superstars of the future

Keep up the fight against small trade costs

access the export and FDI potential of industries

...some proposals