Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological :© 2006 Prentice Hall 1-1 Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological
The Global Business Environment :© 2006 Prentice Hall 1-2 The Global Business Environment The Global Marketplace is complex, interdependent, and dynamic
Challenges include politics, culture, and technology
Managers must find a balance between social responsibility, company image, and competitive strategies
More focused on Global Management
The Global Business Environment :© 2006 Prentice Hall 1-3 The Global Business Environment Global competition is characterized by networks that bind countries to one another
Globalism trends
A borderless world
Increase in exports
Increase in direct foreign investment
Dominance of trading blocs
Regional Trading Blocs :© 2006 Prentice Hall 1-4 Regional Trading Blocs “The dominance of the United States is already over. What is emerging is a world economy of blocs represented by NAFTA, The European Union, and ASEAN. There’s no one center in this world economy.”
- Peter Drucker
Fortune, January 12, 2004
Regional Trading Blocs :© 2006 Prentice Hall 1-5 Regional Trading Blocs TRIAD Market
European Union
Asian Market
China, Japan, South Asia
NAFTA
Comparative Management in Focus - India :© 2006 Prentice Hall 1-6 Comparative Management in Focus - India India has witnessed a change in values, habits and options during the last decade
The economy, second fastest growing in the world, is expected to grow close to 7% this year
Fastest growing telecom market with more than one million new mobile phone subscriptions per month
Comparative Management in Focus - India :© 2006 Prentice Hall 1-7 Comparative Management in Focus - India Indians are buying 10,000 motorcycles a day
India had 192 million households in 2001
Only 31.6% have a television
Only 2.5% have a car, jeep or van
Foreign investors have invested $5 billion into the Indian stock market
Information Technology :© 2006 Prentice Hall 1-8 Information Technology Information Technology is transforming the international manager’s agenda more than any other item
Information is no longer centrally or secretly controlled by governments
Information technology is boosting productivity and electronic commerce around the world
The Globalization of Human Capital :© 2006 Prentice Hall 1-9 The Globalization of Human Capital Globalization means we share jobs as well as goods.
- FINANCIAL TIMES,
August 27, 2003
The Globalization of Human Capital :© 2006 Prentice Hall 1-10 The Globalization of Human Capital Forrester Research predicts that 3.3 Million US jobs will move offshore by 2015
45% of the 500 US companies surveyed state that they use a global sourcing model
The Global Manager’s Role :© 2006 Prentice Hall 1-11 The Global Manager’s Role
The Political and Economic Environment :© 2006 Prentice Hall 1-12 The Political and Economic Environment One important aspect is the phenomenon of ethnicity
Driving force behind political instability
Firms must assess political risks
Government actions that could adversely affect the long-run profitability or value of a firm
Political Risk – 7 Typical risk events :© 2006 Prentice Hall 1-13 Political Risk – 7 Typical 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 equity)
Political Risk – 7 Typical risk events :© 2006 Prentice Hall 1-14 Political Risk – 7 Typical risk events 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 :© 2006 Prentice Hall 1-15 Managing Political Risk Avoidance – either the avoidance or withdrawal of investment in a particular country
Adaptation – adjust to the political environment
Dependency – keeping the host nation dependent on the parent corporation
Hedging – minimizing the losses associated with political risk events
Economic Risk :© 2006 Prentice Hall 1-16 Economic Risk A country’s level of economic development generally determines its economic stability
Economic risk falls into 2 categories
Government changes its fiscal policies
Government modifies its foreign-investment policies
Managers are constantly reassessing economic risk
The Legal Environment :© 2006 Prentice Hall 1-17 The Legal Environment Manager’s will comply with the host country’s legal system
Common Law – past court decisions act as precedents to the interpretation of the law
Civil Law – comprehensive set of laws organized into codes, interpretation is based on reference to codes and statues
Muslim law – based on religious beliefs, it dominates all aspects of life
The Legal Environment :© 2006 Prentice Hall 1-18 The Legal Environment Commenting on Contract Law
“In China, the old joke goes, a contract is a pause in the negotiation.”
- VANESSA CHANG, KPMG PEAT MARWICK
The Technological Environment :© 2006 Prentice Hall 1-19 The Technological Environment Corporations must consider the accelerating macro-environmental phenomenon of technoglobalism (rapid developments in information and communication technologies)
Corporations must consider the appropriability of technology
Global E-Business :© 2006 Prentice Hall 1-20 Global E-Business E-business – 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 via the Internet
Global E-Business :© 2006 Prentice Hall 1-21 Global E-Business Convenience in conducting business worldwide; facilitating communication across borders contributes to the shift toward globalization and a global market.
An electronic meeting and trading place, which adds efficiency in conducting business sales.
A corporate Intranet service, merging internal and external information for enterprises worldwide.
Power to consumers as they gain access to limitless options and price differentials.
A link and efficiency in distribution.
Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological :© 2006 Prentice Hall 1-22 Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological
Looking Ahead :© 2006 Prentice Hall 1-23 Looking Ahead Chapter 2 – Social Responsibility and Ethics
The Social Responsibility of MNC’s
Ethics in Global Management
Managing Interdependence
Global Management :© 2006 Prentice Hall 1-24 Global Management The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage Return
The TRIAD :© 2006 Prentice Hall 1-25 The TRIAD Three regional free-trade blocs
Western Europe, Asia, and North America
Grouped around three dominant currencies
Euro, Yen, and Dollar
In 2004, these trade blocs were expanding their boarders to include neighboring countries Return
European Union :© 2006 Prentice Hall 1-26 European Union Comprised of 25 nations
400 million people
Elimination of tariffs has not eliminated national pride
Global Managers face two major tasks
Strategic – how to deal with the EU as an non-European company
Cultural – How to deal with multiple sets of national cultures, traditions and customs Return
Asia :© 2006 Prentice Hall 1-27 Asia Japan and the Four Tigers - Singapore, Hong Kong, Taiwan, and South Korea,
Each has an abundance of natural resources and labor
China
A new east Asian economy is emerging, focused on greatly increased trade within the region and based on China rather than Japan. Return
North America :© 2006 Prentice Hall 1-28 North America The goal of NAFTA was to bring the US, Canada, and Mexico together to create more jobs, better working conditions and a cleaner environment
421 Million Consumers
Has been very beneficial to Mexico Return
Adaptation :© 2006 Prentice Hall 1-29 Adaptation Equity sharing includes the initiation of joint ventures with nationals (individuals or those in firms, labor unions, or government) to reduce political risks.
Participative management requires that the firm actively involve nationals, including those in labor organizations or government, in the management of the subsidiary.
Localization of the operation includes the modification of the subsidiary’s name, management style, and so forth, to suit local tastes. Localization seeks to transform the subsidiary from a foreign firm to a national firm.
Development assistance includes the firm’s active involvement in infrastructure development (foreign-exchange generation, local sourcing of materials or parts, management training, technology transfer, securing external debt, and so forth) Return
Dependency :© 2006 Prentice Hall 1-30 Dependency Input control means that the firm maintains control over key inputs, such as raw materials, components, technology, and know-how.
Market control requires that the firm keep control of the means of distribution
Position control involves keeping certain key subsidiary management positions in the hands of expatriate or home-office managers.
Staged contribution strategies mean that the firm plans to increase, in each successive year, the subsidiary’s contributions to the host nation Return
Hedging :© 2006 Prentice Hall 1-31 Hedging Political risk insurance is offered by most industrialized countries. Insurance minimizes losses arising from specific risks—such as the inability to repatriate profits, expropriation, nationalization, or confiscation— and from damage as a result of war, terrorism, and so forth.
The Foreign Credit Insurance Association (FCIA) also covers political risks caused by war, revolution, currency inconvertibility, and the cancellation of import or export licenses.
Local debt financing (money borrowed in the host country), where available, helps a firm hedge against being forced out of operation without adequate compensation. In such instances, the firm withholds debt repayment in lieu of sufficient compensation for its business losses. Return