Apuntes cni

sábado, 9 de septiembre de 2023 16:49

Internalization business→ done by companies

↓ ↓
For trade For investment

Investment → done in many ways → Foreign Direct Investment (FDI), different from the portfolio investment.

Portfolio → strategy where an individual or entity invests in a collection or “portfolio” of financial assets, such as stocks,
bonds, mutual funds, exchange-traded funds (ETFs), or other securities. You buy a piece of the owner’s company → not
trying to control the companies they invest in, they just want to grow thei r money→ It can be done very easily.

FDI → Putting money into businesses or assets in another country with the goal of achieving economic benefits and often
influencing the operation of those businesses.
Bank, industry or company that comes to Argentina and expects to find minerals, oil, gas, etc. → They have the machines
leased and pay every month → There´s no need to invest too much money.

FDI is important because it can stimulate economic growth in the host country by creating jobs, boosting productivity, and
facilitating the transfer of technology and knowledge. It can also be beneficial for the investing company or individual as
they can access new markets and business opportunities.

FDI → 2 options in which a company gets into a country:

- Greenfield investment → Buy a piece of land and build an office. Start from cero. → The company wants to make
wine in Uruguay and a businessman from Argentina wants to expand his brand in Uruguay, so he starts from nothing,
from a greenfield.

- Merge or Acquisition (M&A) → business transaction in which one company buys another company or two
companies combine to form a single entity. → This strategy is commonly used in the business world to achieve various
goals, such as growth, market expansion, product or service diversification, and operational efficiency improvement. →
Law firms dedicate themselves in this matter. → They do what it´s called the due diligence → If they buy a company that
has been treating their employees badly, they must face the economic consequences. → Due diligence → Doing the
research. → M&A may take some time.

Due diligence → legal assessment to make sure what are you buying → research about reputation within their
community → prevent risk associated with that operation.

2 types of FDI, target of the FDI, the purpose:

○ Asset seeking (búsqueda de activos) → a company actively seeks resources or assets elsewhere, either through
investments, acquisitions, or partnerships, with the aim of enhancing its operational or competitive capabilities. →
Investments of asset seeking in Argentina → Lithium, oil, and gas → They can use that asset/ resource to their
advantage → They will export it and get dollars. → substitute EXPORTS.

○ Market seeking (busqueda de mercado) → a company seeks to expand its presence in foreign markets with the
goal of capturing new customers and increasing sales. → They invest in the country as a strategy to get more
market share in the country that they invested. → substitute IMPORTS.

MODELS OF INTERNALIZATION

UPPSALA Model → How a company becomes international.

One of the theories that describes the internationalization process of firms.
Goods delivered to a buyer internationally without having contract with the buyer.
Different stages of complexity → Goes from exporting to investments, it connects the two ways of internalization.

1st level – Non direct: Exports

Exports → Through an intermediary who´s a broker, trader, cooperative or consultor. → Non- direct exports/
Intermediates → Known as commodities and primary goods.

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 Intermediates → Known as commodities and primary goods.

Commodities → Public international price → Most commodities are primary goods; others are considered as
manufactured. → It has suffered some kind of transformation. → Generally, commodities are raw materials.
As long as you comply the standards of exportation it doesn’t matter where it comes from. → Suppliers will compete, and
prices will fall. → Competition works fine when the products are homogeneous (it doesn't matter who produces it). →
Differentiated goods → Goods that have an identity, they have added value, it has a brand. It´s not the same price if you
buy it from a particular brand. → Coca-Cola for example. Differentiation is the opposite of commodities.
Commodities → The exportation can be done through intermediators. Products that are not very differentiated.
- Primary goods → Manufactured.

2nd level - Exports to near markets

➢ Exporting directly to close countries.
3rd level - Distant countries
4th level - Sales office → Deliver the products through a supermarket network or department store.
5th level - Producing abroad

- There is an increasing complexity → Learning by doing the process.

- Very few companies go through these five steps.
- Sometimes they go directly to the 5th step, or sometimes they get a license to export abroad so that they can
manufacture that product there.

BORNGLOBAL Model → the products/services aim intentionally global characteristics larger scale of production. →
Starts setting in many different countries from the beginning.

- A company can be started by people who already have global experience.

- A company who from the start goes to the global market. → So, they go to the countries where there´s bigger
demand. It´s not that important to sell locally, because they know their products are global. → Example: digital
services, manufactured businesses.
- Very common to find it in digital businesses.
- Happens because of globalization.
- You should find the perfect place where the product would be needed. Thinking where do we have good conditions
in order to produce.
- The way to satisfy the need VS. The need already exists. → Marketing.
- Aims for the global market → Global marketing.
Global marketing → Different parts of the world share common values → Common habits, tastes which have to do a lot
with traveling, communication and the entertainment industry.

International trade:
It is necessary because there are differences such as culture that affect directly for example “how they trade”

Why is there international trade?

- Price → Salaries are lower in some countries → The salaries are related to the quality of life. Also because of the costs
of the materials → Oil is easier to get in Saudi Arabia → Availability cost of extraction. → Geography → Physical
conditions are the reason why something can be produced in some place and not in other (climate, etc.).

- Quality:
1. Intrinsic quality.
2. Preference.

Geography: climate, soil, minerals, regulations.

Externalities = External Economies → The activity of any organization or individual, produces impact outside the area of

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Externalities = External Economies → The activity of any organization or individual, produces impact outside the area of
control of that individual or organization, positively or negatively. → Example: pollution, waste → It´s not their objective to
produce this. → Good externalities → Creation of jobs, social investments → It´s not the goal of the company, it´s
something they can´t control.
→ Economics activities that have impact outside the scope of the organization and impacts the society. A cost or benefit
caused by a producer that it is not financially incurred or received by that producer.
Growth ≠ development
Growth: quantitative growth doesn’t mean transformation.
Development: transformation.

Gross.Domestic.Product (GDP): (it's a flow variable) → the total monetary or market value of all the finished goods
and services produced within a country’s borders in a specific time period (in a year).
The addition of all the sales of goods and services in their final stage, of a country. Sales of final goods and services.
→ Final good: A marker, there´s nothing else for it to be added. → Intermediate good: The plastic, the ink.
2 different types of variables:

• Flow → The GDP is a flow variable → Measurement of something that can be registered on a certain period, date,
and time. → For example, the number of students per day, how many people come during the day?
• Stock → “We are out of stock on this product” → A stock variable is a measurement that registers the existence of
something, the quantity of something, in a precise moment. → It is a number, like the question “How many people are
here in the classroom?”.
Example:
- Issue an invoice → Emitir una factura.
- Farm oranges → Issue an invoice → To a factory → Supermarket → Consumer.
- The GDP would be the measurement of the economic value of this process. The economic process finishes there, and
we must take into account the last stage of the process, along with the economic situation of the country.
- All the sales of goods and services, over the year, is the GDP.
- Farm oranges → Exported + Bill.

Value - Chain:
The process or activities by which a company adds value to an article, including production, marketing, and the provision
of after-sales service.
For example:
Farm → Factory → Super market
Issue an invoice → → Consumers
The last invoice is the one that is taken into account.
• Flow variable ≠ Stock variable
Flow variable: Measured over a period of time.
Stock variable: Measured at a specific point in time.

World trade and production are increasingly structured around what are known as “global value chains” (GVCs).A value
chain can be defined simply as the “full range of activities that firms and workers do to bring a product from its conception
to its end use and beyond” . Typically, a value chain includes the following activities:
design, production, marketing, distribution and support to the final consumer.
These activities can be performed within the same firm or divided among different firms. The fact that they are
increasingly spread over several countries explains why the value chain is regarded as “global”.

Global Value Chain→ the process of manufactory is done in various continents. A network of production and trade
across countries. For example iPhone the iPhone is not made in China it is assembled.
• Economic pov → Focuses on buying and selling relations.
• Management pov → Relationships that are based in contracts.
• SPOT Transactions.
• Arms´s Length → The two parts of the negotiation stay at the arm’s length of the other, because they don’t trust each
other. → You don’t care who the person is.
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 •
other. → You don’t care who the person is.
• Contract → There is a whole process. → Deep analysis of the potential supplier. → You analyse everything.

Globalization → Collectiveness, connection → Sharing values and cultural things. → Something that takes place in one
place can be reproduced in another.
Internet → Digitalization of societies → It´s easier to spread information. → Teams of people working together in different
countries.

Productivity Competitivity
↓ ↓
the measure of how much output
(products) you get from a certain amount
of resources (raw materials, workers
time, etc.)
≠ the capability of getting the buyers
preference over the other competitors.
Competitiveness can be achieved by
having the lowest price or thanks to
Increasing: same amount of workers-> differentiated products that match better
more production(economic value) with a certain group of customers' taste.

TRADING HISTORY
Before:
- Physiocracy → Land is the main source of economic wealth (through rural activities), therefore monarchs that want to
increase their power and wealth for them and their population are driven to add new territories, thus imperialism.

- Mercantilism → Accumulation of precious metals are the source of power and wealth, that is done by obtaining
superavits in trade balance, that means larger exports than imports. Control over merchant routes through ports and
littoral colonies is more important than adding large territories.

Liberalism and free trade is the model proposed by ADAM SMITH (Economist) : "WEALTH OF NATIONS" (1776)

Smith is considered the founder of the main economic theories under capitalist system. Among many other questions,
Smith developed the concept of ABSOLUTE ADVANTAGE → Capability of one country to produce more of a product with
the same amount of input than any other country.
A country should produce only goods where it is MOST efficient (e.g. wines), and trade for those goods (e.g. clothes)
where it is NOT efficient. In that way, the overall amount of goods and services produced by the world´s economy will be
larger, as the resources (the factors of production) are used in the most efficient way in every country. Efficiency of
resource utilization leads to more productivity

Invisible hand → The distribution of goods and services should be by trading without interference from governments
(custom duties should be as low as possible, or null), to allow customers in every country to buy as much as they want of
the available goods and services.

DAVID RICARDO: ‘’THEORY OF COMPARATIVE ADVANTAGE (1817), "PRINCIPLES OF POLITICAL ECONOMY"

(1817)

- Evolution of Smiths theory supporting free trade

- Should import even if country is more efficient in the product's production than country from which it is buying. (so it
doesn't matter if it's the most efficient country producing that in the whole planet).
- Look to see how much more efficient.
- Makes better use of resources in the same way as Smith put it: Trade is a positive-sum game because more goods
and services will be available.
- There are still global gains to be made if a country specializes in products it produces more efficiently than other
products regardless of whether other countries can produce those same products even more efficiently

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 - A country has a comparative advantage when it is unable to produce a good more efficiently than all the other nations,
but produces that good more efficiently than it does any other good.
- The industries that are not so efficient in that country may disappear and those resources (capital, land, workers) will
find a new use in those industries where there is comparative advantage
- Shouldn't be unemployment.

David Ricardo and Keohane Nye → 1817 → Book that followed the same line of thought of Adam Smith→ Countries
should specialize on what they produce best → Efficiency → Related to the relation between the 3 basic factors of
production in economy:
- LABOURS → Workers.
- NATURAL RESOURCES → Soil, water, faeces, petrol, etc. → Food.
- CAPITAL → Money → Also understood as the machines since you need money to buy machines.
To increase the production of the country you should receive more money, more capital, by loans or investments. → The
growth of the GDP has to do a lot with foreign investment or financing.

Which factors affect or causes the differences of productivity? → For example, climate. → Its better to have soft
climate rather than extreme climate.
- Others explored the idea of the division. For example, Weber with the protestant ethics. → Weber → In the catholic
societies the rich guy is not considered to be good, since they should share their wealth, and not accumulate,
following Catholicism → In the protestant states if a person has a fortune of money it is understood that they have
done well in life, since that kind of thought makes you successful, since you don’t have to share, because God wanted
it that way. → In social sciences you cannot isolate factors.

Why is there international trade? → GEOGRAPHY and the differences of proportion between the natural resources,
labour, and capital.

Smith speaks about the absolute advantage → Each country should specialize in the most efficient product they can
produce.

Ricardo speaks of comparative advantage→ It´s about being more efficient compared to another country.
Ricardo and Smith explained their theories with intersectoral trade → Examples: If you have more land than people you
should specialize in producing food. If you have more people than land, specialize in manufacture, industry. → Manual
work, handwork → to produce more you need more people. → One country produces food; other countries manufacture
goods, and they trade → Inter-sector trade.

Krugman → 1970/1980 → Intra-sector trade → Exchange between countries in the same sector. → It took place
because there are different types of goods, like commodities, which are against differential goods:
Intra-sector → Exchange of differential goods → There is a differentiation in the products → Differentiation is not
that good for competition, because it creates monopolistic competition → Concept developed in the 1930s → Some
goods are so differentiated, that the producer is seen as the only supplier of that good. → The producer can raise the
price without losing sales. → Example: Coca-Cola, Apple, Branca.
Businessmen avoid competition → To differentiate a product you should have something that the other brands don’t have.
Innovations that can be protected by intellectual property rights. → If a company takes a chance on investing on
medicine, for example, it´s okay to give them a patent protection → Only they can produce that vaccine for a certain
period of time, to recover from the money they invested, from the process, and if they failed during that process. → During
the period of the patent, there is a monopoly, he is the only one able to produce that product. → This affects the economic
system.

Porter → Competitiveness→ Competitive Advantage → Directly related to differentiation → Through price or

differentiation, competitiveness can be achieved → Different concept from productivity → How much output, production
we can get from the same amount of input, of raw materials. → If you can increase the quantity of inputs, rather than
outputs, you can be more productive. → Countries with different productivity ratios → It´s between competitors → The
product chosen wins.
Competitive Advantage → Keeps on strengthening advantages, because the competitors will copy it and compete
within the preferences of the consumers. → It´s dynamic and it can be obtained, worked.
Comparative Advantage → Things that were given to the country for the business, to stay on the activity in which
you were more efficient.
Example → Argentina is more efficient producing food, so we should specialize in that because that is where we have our
competitive advantage. If we do that we will be threatened by external factors. If we focus on a very few sectors of

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competitive advantage. If we do that we will be threatened by external factors. If we focus on a very few sectors of
products, we have our exports concentrated, and we are more vulnerable if we have a variety of products, since we have
other markets to sell, other sectors to export.
Order: Absolute advantage → Comparative advantage → Competitive advantage.

PAUL KRUGMAN: ‘’NEW TRADE THEORY’’ (1979)

Krugman watched that there was intra-sector trade, not only inter-sector as Smith and Ricardo had suggested (wines vs
clothes). The explanation is related with differentiation of goods and services. Japan and USA exchanged cars because
some American consumers found the japanese cars more convenient for their needs, or nicer, but that doesn t mean that
American automotive industry is not efficient, because US car manufacturers were selling well in their national market as
well as in Japan. So, there are groups of consumers (in marketing we call those groups SEGMENTS), in USA as well as
in Japan, that prefer American cars and other groups of consumers prefer Japanese cars.
Differentiated goods are the opposite of commodities.

Krugman’s Theory of Agglomeration

Agglomeration economies refers to the benefits received by the firms and people when they come together to make use
of the advantages offered by the urban cities that prove helpful to them.
Those advantages are related with externalities or external economies. Externalities are impacts on the external
environment, including the community, caused by the activity of an organization (e.g. a company). They can be positive
(like workers training) or negative (contamination).
Agglomeration economy takes us to specialization advantages and scale economies (reduction of costs by
producing larger quantities). Companies based in districts where certain industries have decades of existence will find it
easier to get supplies and skilled workers. Therefore, the firm's competitiveness is not only dependent on the workers´
skills and the entrepreneur´s managerial capacities, but also on the region where the company is (of course, choosing the
right location is a strategic decision itself).
Also, because of that, countries which are just starting to develop their industries may find it difficult to compete in equa l
conditions to previously industrialized countries.

Why does trade exist?

the differences of proportion between the natural resources, labor, and capital
- Price -> Salaries are lower in some countries -> The salaries are related to the quality of life. Also because of the
costs of the materials - Oil is easier to get in Saudi Arabia - Availability cost of extraction. -
- Geography -> Physical conditions are the reason why something can be produced in some place and not in other
(climate, etc.).
- Quality: Intrinsic quality or Preference.

Barrier of entry→ is the high cost or other type of barrier that prevents a business startup from entering a market and
competing with other companies.

Barriers to trade: taxes that have to be paid when a product is brought to the country. rooted in 2 types:
○ Customs duty → A tax that you must pay to get the goods into the country. → Mercosur, EU → you would be the
exception if you are part of it.
○ Technical → Sanitary and phytosanitary methods → If you are bringing sanitary goods (vaccines, fruits, plants,
vegetables) there is a thorough control.

Both technical barriers and customs duties can influence international trade by affecting the cost, accessibility, and
competitiveness of foreign products in a country's market. Reducing or eliminating these barriers is a common goal in
trade negotiations and agreements to promote free and fair trade.
The barriers to trade affect if someone wants to establish a company in a certain country.

Investing abroad helps a business to become international.

Different factors that help a company invest in a country:

Which factors help a business decide where to invest?

- Infrastructure → Lower cost of logistics.
- GPD → Market → Growth/ recession.
- Corruption.
- Taxes/ Barriers.
- Labour.

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 - Labour.
- Instability/ Volatility.
- Exchange rate.

Why is it wise to invest in a country to produce there?

- More opportunities of profit in other countries with less labour costs, etc. For a big corporation it is a good idea to
diversify the industry.
Change from the offshoring → Make some business processes outside your country far away.
Outsource some business processes.
- Offshoring → Relocating a process to another country that is far away. Some of those processes that had been
offshored, send abroad far away, went back to a close location, not necessarily to its home country, → however,
adding a possible supplier with whom is easier to communicate, for example, due to the time zone.
- Outsourcing (tercializar) → When you buy goods/ services that are part of the value chain. → The process is being
done by a third party. → Hiring a company to supply goods or services that you need in your business (ingredients,
parts, services like advertising, publicity, accounting) → It is being done inside the country, normally in the same city,
with a company that is close in order to make inspections and see how things are being done. With globalization there
are more communication services, so companies decide to outsource things to countries that have low labour costs,
for example India.

Differences between outsourcing and offshoring

- Outsourcing could be in the same company, or country.

- Offshoring is being done outside the country → Having it inside the corporation or offshoring mixed with outsourcing
→ Choose countries where there is a cultural or political affinity that makes it easier to collaborate in order to have
less risks of having cultural or political problems with the suppliers.

Different factors that help a company invest in a certain country:

Why investing in a country to produce there?
- Risk → Protection against economic or political crisis. → In a developed country, is not that good to be captive from
that system, there shouldn’t be a huge change, but the policies from the company may change so you will have to
wait. If you have a base, an office in another country is easier.

- Profit risk → The outcome of doing a particular activity in a certain location, → you have the profitability of the saves
and incomes. However, another way of seeing it, in the countries where there is more risk, is that generally the profit
rate is higher. → The countries that are more developed generally have a lot of competition, meaning that not
everyone can establish high prices, because they lose customers. In countries where there is no competition the
prices are high. → Less competition means that the profit margins are higher.

- Availability of resources → Example → Human resources (HR), the workforce. → You can get good human
resources without paying them so much, for example in Argentina.

- Availability of any type of supplies → Raw materials, etc

Some of these things can be changed or decided by the government, like taxes, you can change them each day. Some
things take more time to change, like infrastructure. HR is the one thing that takes the longest to develop, due to
education, training. → Example: Argentina in the software development industry is limited in human resources (very few
software developers). The problem with putting your effort in only one thing may bring other problems. → Loss of human
talent for example.

(OTHER WORDS:

WHY DO A COMPANY DECIDE TO INTERNATIONALIZE INTO A COUNTRY AND NOT ANOTHER? Competitiveness
• Physical factors (Where to settle): geography (geographic barriers as mountains affect distribution channels) or
demography (countries population differs and that affects market).
• Selection of markets to exports
• In which country the company wants to settle (to produce and export from)
• Profitability
• Lower risks
• Friendly policies
• Institutional factors: such as culture, politics, law, and economy.

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• Institutional factors: such as culture, politics, law, and economy.
• Competitive factors: such as suppliers, customers, competitors. There are very few companies that have no competition
and are monopolies, and this isn’t that good because a key to effectiveness is competition. The number of suppliers and
customers is really important. Products can compete by a cost: differentiation strategy.

OTHER WORDS).

SCENARIO ANALYSIS → Different factors that analyse the context → Context → Macro environment → useful to
decide if you are going to invest in a country or not. Not about an specific moment of time, but what can happen in the
near future.
Helpful to prevent the risks

Pestel: strategic framework commonly used to evaluate the business environment in which a firm operates.
different dimension→ different variables→ indicators(things you can measure)
Variables can be qualitative or quantitative → A variable could be population or demographic change.
Inside the variables we have indicators → Indicators: something that you can measure and register.

P:olitical
E:conomics
S:ocietyy-culture-demographics
T:echnology-infrastructure
E:nviromental-geography
L:egal

- Focuses on aspects that have some kind of impact on the company you want to open.
- Corporation projects on non-profitable corporations → communication campaign has to analyse with the PESTEL
analysis.
- Take also into account → Which is the long-term trend? / Who are the drivers of this dimensions? / Which are the
problems that some people are always warning us about? / The loss that can affect your business.
- Depending on which business you are in, the analysis you have to do. → Focus on the aspects that are related to the
product.
- Most important thing → You must have a forecast for the future, not only describe the dimensions, but also predict
what will happen in the future.
PESTEL analysis → Each letter represents a dimension.

POLITICAL ASPECT
Political system→ institutions (community well fair purpose), organizations and interest groups (legal entity: persona
juridica con cuit)
Structural dimensions and power dynamic of the government

Institution meanings → Legal entity (Public or private: congress, universities)

→ Community well fair purpose
Interest groups meaning → Stakeholders: individual or group that has an interest in a business or organization.
→ Any group of people that gets their opinion spread

TYPES OF POLITICAL SYSTEMS → Answers to an indicator, especially when it is a qualitative one → Representative,
multiparty, parliamentary, social, authoritarianism, fascism, secular, theocratic. → Argentina is representative, multiparty,
and presidential. → Presidential and parliamentary are contraries. → Having legislative chambers doesn’t mean that the
country is parliamentary.

- Republican system: Coexistence of different ideologies and lets people decide from time to time their
representatives. Not a single group can have absolute power. This is a mechanism to avoid dictatorship.
- Presidential: People vote to choose their representative.
- Parliamentary systems are not that stable, like the presidential ones. → The presidential system has a specific period
of time, and the parliamentary is long-lasting, nevertheless the presidential one is more rigid. Parliamentary systems
are not that stable, nevertheless, they are more flexible. → Parliamentary: the UK. → In the UK they have the surgery
→ The surgery is a practice of the members of parliament in which they have a fixed day and time in which people
from a specific district knows that the member of the parliament will be there, → for them to talk, complain, etc. This is
really direct. → House of Lords and House of Commons. → Peers. Hereditary. Life-peers (any person can be). → The
parliament is the maximum authority.
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 parliament is the maximum authority.
- Representative: Through elections, the people choose a group of representatives. A country could be representative
and parliamentary or presidential, since people choose who represents them. → Each system has advantages or
disadvantages.

- Social democracy → It has more to do with the inclusion, generally on the constitution, of social concerns, rights,
values, and principles that have to be respected.
- Totalitarian system → Absolute power that gets into every aspect of the life of the citizens. There is always an
ideology that is being imposed. → Authoritarianism, Fascism, Secular and Theocratic → Example: Communism,
Nazism.
- Authoritarianism → Example: Russia, Venezuela. → There are different levels of authoritarianism.
- Fascism → Before, fascism was related to corporativism. In historical fascism the idea was that the system would be
ruled by representatives from different social groups: the church, the military, etc., equally represented. → It was a
way of collectivism, which is the opposite of individualism, and individualism is related with liberalism. → They focus
on collectivity, rather than the individual progress → The government was composed of representatives of different
segments of society. → Example: Fascist Italy in the past.
- Secular → There is nothing religious in the system. → No religious influences. → A secular system practices freedom
of religions.
- Theocratic → The religious leader is the head of the government → Example: Afghanistan, Iran, Saudi Arabia.

Political ideology: Individualism VS. Collectivism → Should individual rights be subordinated to collective goals?
Should society champion equality or institute hierarchy?
Concentrated power could have advantages: An authoritarian system could be effective since there are no protests, no
syndicates. → In Asia people can´t complain to their superiors. → To have a competitive price for your goods, and to
export, is easier if you have the demands of the workers under control.
Characteristics of an authoritarian system: It’s easier for the leader to have everything under control, and there is more
effectiveness.

Forces that favor Democracy

1) Failure of totalitarian regimes to deliver prosperity.

2) Improving communication technology.
3) Economic dividends of political freedom. → Example: Siria, Sudan, India. → The fall of the totalitarian system almost
led to anarchy.
- The massification of information helped democracy.
- Political freedom and private enterprise (private initiative in business) → China: Very active and successful private
sector, but there is no political freedom.

Forces that favor Totalitarianism

1) Strong states supporting strong performance.
2) Gaps in the principles and practices of democracy.
3) Economic insecurity following slowing growth.
4) Escalating debate on the meaning of democracy. → Situations that can be taken as a sign of alarm.

• Ability of the state to achieve certain goals.

• In certain crises people think that it would be wise to have a strong government.

• Economic insecurity → Poverty → Maybe is better to have a totalitarian system, since there is no type of development
or evolution.

POLITICAL RISK
Changes in political decisions, events, or conditions could affect a country’s business environment.
Systemic – Procedural – Distributive – Catastrophic (risk) → This one is the most extreme.

• Systemic Risk → The political system by design has an orientation, one of their goals is to have private enterprise,
control, have more participation of the state in economic activities → Strong influence of the state in economics →
The whole system is working against companies, that’s why it’s systemic. → Example: Venezuela → The system is
designed towards this operation. → It’s what the law says.

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 designed towards this operation. → It’s what the law says.

• Procedural Risk → It is not based on written laws, it’s not explicit, however when it comes to reality in everyday life,
you face bribes, or worker movements that have some impact on the operations of different organizations. → It’s not
how the system should work, but there are some factors in the country that create a certain risk to carry on any
financial activity. → It has to do with corruption and inefficiency. → The laws are not respected. → Example:
Argentina.

• Distributive Risk → Refers to the distribution of income, of the profits of the company. → The idea is that the
government understands that private companies are necessary → they want to have more private companies,
investments, but they ask for a better distribution of the profit by paying taxes. → The government may have strong
demands for having more taxes being paid, increasing royalties, demanding more participation of local suppliers in the
value chain, etc. → Example: In Argentina, provincial governments let oil companies get all the oil they want but, in
return, they ask that they invest 30% of their profit in products from local suppliers, instead of buying foreign
technology or machinery. → This one is not as harsh as the others, but it can also lead to failure.

• Catastrophic Risk → It’s the worst scenario that could happen.

• The idea is to compare these dimensions in different countries in order to know where to invest.

Examples of different indexes, rankings, that different organizations are conducting → Useful to analyze the scenario. →
Political risk map in 2017 → Democracy Index 2018

LEGAL SYSTEM
- Civil Law → Example: Argentina → Laws created by the government, by the representatives. Positivism. → Society
can create laws that they want concerning reason. → Strict application of statutory laws. Judicial officers are not
bound by precedent. Judges apply laws to resolve disputes. → Written laws are above precedents. → Common in
Latin American countries.
- Common Law → Courts interpret laws based on traditions. Judges are obliged to respect the precedent established
by prior courts. → The precedents are above the written laws. → Example: UK, USA → Common in Anglo-Saxon
countries
- Theocratic Law → Based on religion → Based on inspirations and instructions of religious teachings. No separation
of church and state. → Laws have a divine origin; we cannot make the laws that we want. It’s not that common to
make changes.
- Customary Law → Based on norms of behavior that gained legitimacy through long-term practice. →
Individuals recognize the benefits of complying with community standards. Developing countries. → This is for trivial
societies, small communities, where the institution is kinship. → Colonization imposed western institutions to these
countries, based on kinship. There is an underground group of people that have the power, based on kinship.

INTERNATIONAL ECONOMIC ANALYSIS → Assessing the development, performance, and potential of

economies.

Which are the most attractive countries to invest in?

 Greatest return → Reflects the profit → ROI (Return of Investment) → How much money can we get from this
business? How long will it take to recover from the investment we have made?

 Lowest risk → The risk could also be political. → If the profit rate is high, it means that the risk is also high. (Riesgo
país, Country risk → Reflects how much the country needs to pay in order to get loans from the financial market →
Global financial market) → They (countries/ companies) are always going to ask for loans from the Global financial
market, and they will compete for them → The ones that more often put money in the GFM are banks → through
investment funds → They create investment funds in which they put money and decide which investment they will
help.

- Investors banks → Funds → Bonds → They can divide the loan (and offer it to different countries and companies) in
little pieces, which can be sold and purchased many times. →The private corporation asks for money and offers a
certification to obtain it. → They divide a loan of $100.000.000 dollars. → As there are few people that are willing to give a
humongous amount of money at any time, they have certain priority. → If you split this in $1.000.000 → You’ll have public
debt loans → Many people are able to put 100 in a public debt loan (safe investment). → It´s easier to split that money
and pay the interest rate, and it’s safer.

- Risk → The country’s risk reflects how much the country owes.

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- Low risk → They pay less than the countries that have a higher risk.

- Pay attention to why the risk is being calculated a certain way → Forecasts: reports that try to explain what could
happen in the future → They are influenced by the people who write the reports. → Which is why you have to have your
own pov.

Performance → Measured in productivity → How much output you can get with the same resources. → Increasing the
GDP each year.

Potential → It is related to the competitiveness of the country.

- Picture: GDP of 2017 → Australia has a huge stock of minerals and not the biggest population → In other countries the
ratio between people and resources is the opposite.

BRIC → group that is focus for the moment in the coordination of macro-economic policies → Countries that are
developing with a lot of resources → Goal of the association: To support and help their economies improve. → It´s a
cooperation and coordination group, is not a trade agreement like the MERCOSUR, etc.

- Development banks → International bank funded by different states to finance public or private investment projects,
mostly public → they discuss the usage of different coins to finance, and not only dollars. → It isn’t a profitable entity; t hey
help countries to develop.

- Other groups of coordination: G7, G8, G20

Difference between G7 and G8 → Historically during the Cold World it was the G7, after the fall of the Soviet Union they
invited Russia to the G8.

G20 → More representative group. → It’s supposed to be for the biggest/strongest economies → They´ve excluded some
countries, however, they are part of the EU.

Economic freedom
→ Refers to private property, intellectual property, freedom of movement within the different economic factors (land,
work/labour, capital), contracts, respect of the government (that they don’t break the contracts they sign; that they do
not violate intellectual property laws).
→ Absolute right of property ownership, fully realized freedoms of moment for labour…
→ Different levels.

ECONOMIC FREEDOM INDEX:

- Rule of law (property rights, freedom from corruption)
- Government size (government spendings, tax burden) → how much of the economy is under direct control
- Regulatory efficiency (business freedom, labor freedom, monetary freedom) → to protect property you need some
laws
- Open market (trade freedom, investment freedom, financial freedom)

ECONOMIC SYSTEMS → organization of the production, distribution, and consumption of goods and services.

Market economy
○ Based on the principles of Adam smith.
○ Private ownership
○ Capitalism
○ Privatization & deregulation
○ Government: protect property rights, ensure fair competition, provide general safety

Command economy
○ Everything is own and controlled by the State
○ Communism
○ State-owned companies
○ Government decides what products to make, in what quantity, at what price, and in what way

Mixed economy
○ Government and private ownership
○ Socialism
○ Market driven economy with regulations
Government intervention in allocating resources, and planning

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 ○ Government intervention in allocating resources, and planning

ECONOMIC INDICATORS → for assessing economic development, performance & potential.

Economic performance

GNI (Gross National Income): Total value of all domestic economy production + income from other countries (from
families)

GNP (Gross National Product): Total value of all goods & services produced within a nation + income from citizens
abroad

GDP (Gross Domestic Product): Total value of all output produced within a nation (domestic and foreign -owned
companies)
→ Reflects the productivity of the economy, it doesn’t paint the exact picture, however. → The resources of a country do
not change a lot throughout the years → Population doesn’t change that much, the same with land → If a country has
more of a positive variation on the GDP, means that they’re producing more → One of the reasons might be migration. →
Main economic aspect to check within a country. → The number gives an idea of the size of the economy, remembering
that we are talking about a flow variable. → It’s not about how much money the country has, but how much the country
was able to produce in 1 year. → If the GDP grows is a sign of a healthy economy, since it should be growing → If not,
it´s a bad sing → It should increase because of population since, in the long term, it increases. → If it´s stable, there is
stagnation. → If the GDP decreases there is a recession.
□ Stagnation: If the GDP is stable.
□ Recession: Every year we will have less money if the GDP decreases.

- GNP and GNI talk more about the ability of the people of the country conducting businesses inside or outside the
country.

- GNP → It considers the investment of the people of the country abroad → Example: EEUU → American companies
invest in other countries, rather than foreign companies investing in them → The foreign investment in the country and the
investments they do abroad.

- Developed countries and economies: Higher GNP than GDP → Countries that have more foreign capital: Higher GDP
and lower GNP.

- GNP VS. GNI → Same idea, but one focuses on the pov of the incomes (GNI), and the other one focuses on the pov of
the activities (GNP).

- Relation between GDP and employment → Farming involves people.

- GNI → Rent.

- GNP → Investments → High GNP: people with the economic capacity to invest.

- GDP → Production/ Wages – Workers → Related to workers.

Example: Here in Argentina the wages are less than the 50% of the GDP.

A strong GNP depends on the entrepreneur’s spirit of the country.

Adjusting Analytics
○ Rate of Economic Growth (rate of variation of the GDP) → High and low % → Developed countries generally have
positive growth rates, near zero, low → Less than 3% ideally → Developing countries have higher rates of growth. →
Developed countries have more stable economies, so is safer to invest in them. They will have high quality life
expectancy, and more laws concerning labour. → Developing countries will be more flexible.
○ Population size → Average GNI per capita.
○ Purchasing Power Parity (PPP) → How much money is needed in order to buy the same products. → It´s not the
same to have $100 in Argentina and to have the same amount of money in the US. → Big Mac index → The
ingredients are the same in every country and McDonald´s is present in most of them, that way you can have an idea
of how expensive it is to live in a country, since the BigMac index gives you a reference about the food prices in a
certain country.

There are… (according to the United Nations):

- Developed Economies → Understood as industrialized countries.

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 - Developed Economies → Understood as industrialized countries.
- Emerging Markets.
- Developing Economies → Brazil and China are growing at a higher rate, which is way it´s tentative to invest in
them.
For international qualification would be:
- Developed Countries.
- Developing Countries, and inside of this one we have the:
□ Less Developed Countries.

To consider when investing on a country:

- Inflation
- Income positioning→ inequality
- Employment rate
- Poverty
- Balance of payments

National debt by country – Creditloan → This is an index → Comparing 2 variables → National debt is stock (the debt of
the country in a precise moment) and GDP (the amount of money it has been made in a year) is flow. → The debt of a
person in a precise moment compared to the amount of money they have made in a year. → The amount of debt is not
that important compared to how much the country is paying to cover for that debt, and the periods of payment.
Value chain → Synonym of supply chain → Sequence or series of production and transformation and businesses
processes that are needed in order to obtain and deliver a particular good or service. → There are some where the parts
of the network are more independent → The parts that are being produced are not on demand → With commodities is
easier to change suppliers.
One type of value chain → One of the companies is the organizer of the chain and tells the others what to produce → A
supplier can only work for you and not your competitors.
Global value chain → Refers to the different stages of production, processes that take place in different countries.
Commodities can be primary goods, but they’re not the same. → Some commodities are primary goods; others are just
commodities. → The ones that are not primary goods are manufactured. → Differentiated goods are the ones that are
not commodities.
A good is a commodity or differentiated → Depends on the level of transformation → Primary goods are something that
hadn’t been modified. → If you modify the material → It´s a manufactured good. → Example: Crude oil is a primary good
and refined oil good has suffered a transformation, so it’s a manufactured good.

Example:
- Raw materials → Crude oil.
- Intermediate goods → Plastic fibbers.
- Final goods → Plastic things.

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