Slide international business ch01

Assessing the Environment – Political, Economic, Legal, Technological Chapter 1... What is Global Management? Global management is the process of developing strategies, designing and o

Assessing the Environment – Political,

Economic, Legal, Technological

Chapter 1

Chapter 1 Overview

 Globalism

 The Political and Economic Environment

 The Legal Environment

 The Technological Environment

What is Global Management?

 Global management is the process of

developing strategies, designing and operating

systems, and working with people around the

world to ensure sustained competitive advantage

What is Globalism?

 The term globalism refers to global competition

characterized by networks that bind countries,

institutions, and people in an interdependent

global economy

Regional Trading Blocs

The European Union (EU)

 12 of the 15 member states of the European Community have adopted a common currency and monetary policy.

 The Euro is now a legally tradable currency.

 The EU is the largest and most integrated common

market in the world with 376 million consumers.

 The creation of EU has not eliminated national pride

Most people in W Europe still think of themselves first

as British, French, Danish or Italian, and are wary of

giving up too much power to centralized institutions, or

Global Managers and the E.U.

 Global managers face two major tasks with

respect to the E.U

– How firms outside of Europe can deal with a market giving preference to insiders

– How to deal effectively with multiple sets of national cultures, traditions, and customs within Europe.

North America

 The North American Free Trade Agreement

(NAFTA) between the United States, Canada and Mexico has created a single market of 360

North America (contd.)

 Maquiladoras are U.S manufacturing facilities

that have operated just south of the

Mexican-American border since the 1960s under special

tax concessions

 Joint ventures between Mexican and American

companies are common Examples include the

one between Wal-Mart and Cifra, which in 2001 was Mexico’s biggest chain

 Japan and the Four Tigers – Singapore, Hong

Kong, Taiwan, and South Korea – provide most

of the capital and expertise for Asia’s developing countries

 In the 1980s and early 1990s, much of Asia’s

economic power and competitive edge was

attributed to Japan’s keiretsu and S.Korea’s

chaebol.

 Recent economic woes have slowed growth in the

Other Regions

 The Central and Eastern European bloc, where

communism proved unworkable and crumbled, has

created a new market of 430 million people.

 Impediments to business growth here are the lack of

capitalist structure and systems to reproduce Western

management practices easily.

 China has enjoyed recent success as an export

powerhouse.

 Its GDP growth rate, though slowing, was the fastest in

Other Regions (contd.)

 The economic situation and the often

unacceptable level of government intervention

discourage foreign investment in less developed countries (LDCs)

 Assessing the risk-return tradeoffs and keeping

up with political developments in the LDCs are two of the many demands on international

managers

Workforce Diversity

The world labor force is undergoing

considerable change as a result of

• the increasing movement across borders of

workers at all skill levels;

• the rising average age of employees; and

• the addition of great numbers of women to the

workforce (particularly in developing countries),

An Open Systems Model: The Contingency

Role of the Global Manager

(Exhibit 1-1)

Functions And People

OPERATING ENVIRONMENT

Regulations Culture

Skills Soc Responsibility Ethics

MEGA ENVIRONMENT

HOST-COUNTRY ENVIRONMENT

Lo ca

l C om pe titi on

Eco nom ic

Po litical

Tec hn olo gic al Subsidiary-Host

Interdependence

MNC-Host-Country

Glo bal

Co mp etition

Global

Tren

ds an

d For

ces

What is Political Risk?

 Political risks are any governmental action or politically motivated event that could adversely affect the long-run profitability or value of

a firm

Terrorism Risk

 Terrorism is “the use, or threat of use, of inducing … violence for ideological or political purposes” (Micklous)

anxiety- The increasing incidence of terrorism around the world concerns MNCs

Typical Political Risk Events

 Expropriation of corporate assets without prompt and adequate compensation

 Forced sale of equity to host-country nationals,

usually at or below depreciated book value

 Discriminatory treatment against foreign firms in the application of regulations or laws

 Barriers to repatriation of funds (profits or

Typical Political Risk Events (Contd.)

 Loss of technology or other intellectual property (such as patents, trademarks, or trade names)

 Interference in managerial decision making

 Dishonesty by government officials, including

canceling or altering contractual agreements,

extortion demands, and so forth

Managing Political Risk

(Taoka and Beeman’s suggestions)

 Equity sharing

 Participative management

 Localization of the operation

 Development assistance

Economic Risk

The economic risk incurred by a foreign

corporation usually falls into one of two main categories: its subsidiary (or other investment)

in a specific country may become unprofitable

 if the government abruptly changes its domestic

monetary or fiscal policies or

 if the government decides to modify its

foreign-investment policies

Some Means that Managers Might Use to

The Legal Environment

 A host country’s legal system may be derived

from common law, civil law, or Muslim law, and

is a reflection of the country’s culture, religion,

and traditions

 Under common law, past court decisions act as

precedents to the interpretation of the law and to common custom

The Legal Environment (contd.)

 Civil law is based on a comprehensive set of

laws organized into a code Interpretation of

these laws is based on reference to codes and

statutes

 Islamic law combines, in varying degrees, civil,

common, and indigenous law It is followed in

approximately 27 countries

The Technological Environment

developments in information and communication

technologies (ICTs) are propelling globalization and versa.

vice- An MNC’s major concern is the appropriability of

technology – that is, the ability of the innovating firm to

profit from its own technology by protecting it from

competitors.

Global E-Business

 E-business is “the integration of systems,

processes, organizations, value chains and entire markets using Internet-based and related

technologies and concepts.”

 E-commerce refers directly to the marketing and

sales process

 The Internet and e-business provide a number of uses and advantages in global business

The Environment of the Global Manager

• Foreign investment

The Environment of the Global Manager

• Technical requirements of country

• Appropriability

• Transfer of technology

• Infrastructure