PowerPoint by: Mohamad Sepehri, Ph.D. Jacksonville University
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Copyright ©2011 Pearson Education, Inc.
Chapter Learning Chapter Learning Goals Understand the global business environment and how it affects the strategic and operational decisions which managers must make. 2. Critically assess the developments, developments, advantages, and disadvantages of globalization. technology in international 3. Review the role of technology business. 4. Develop an appreciation for the ways in which political, economic, legal, and technological factors and changes impact the opportunities that companies face. 5. Discuss the complexities of the international Copyright ©2011 ©2011 Pearson Education,job. Inc. manager’s 1.
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publishing as Prentice Hall
Chapter Learning Chapter Learning Goals Understand the global business environment and how it affects the strategic and operational decisions which managers must make. 2. Critically assess the developments, developments, advantages, and disadvantages of globalization. technology in international 3. Review the role of technology business. 4. Develop an appreciation for the ways in which political, economic, legal, and technological factors and changes impact the opportunities that companies face. 5. Discuss the complexities of the international Copyright ©2011 ©2011 Pearson Education,job. Inc. manager’s 1.
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publishing as Prentice Hall
Opening Profile: Economic Crisis Spreads Through Financial Globalization What caused the global economy to collapse? Toxic Assets:
Highly leveraged securities Subprime mortgage mess Finance has become one of the most international of industries Failure of banks and other financial institutes:
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Fannie Mae & Freddie Mac
Lehman Brothers
AIG
And manyInc. more… Copyright ©2011 ©2011 Pearson Education, publishing as Prentice Hall
Opening Profile: Typical Challenges that Managers Face in the 21 st Century
Political and cultural differences
Global competition
Terrorism
Technology
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Finding ways to balance their social responsibilities, their images, and their competitive strategies
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What is International Management? The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage
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What is Globalization? Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy 1-6
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Challenges to Globalism
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Backlash against capitalism and rekindling of nationalism Increased protectionism of high-demand resources Need to develop top managers with international understanding and experience
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Benefits of Globalism
Access to more markets
Growth of developing economies
Opportunities for flexibility and efficiency
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Opportunities for small and medium-sized enterprises (SMEs)
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Regional Trading Blocks The dominance of the United States is already over.
What is emerging is a world economy of blocs represented by: NAFTA, EU, and ASEAN.
Much of today’s world trade takes place within these three regional free-trade blocs: Western Europe, Asia, and the Americas Much of today’s world trade are grouped around three dominant currencies: euro, yen, and the dollar
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The European Union EU
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A unified market over 400 million people living in 27 nations EU poses two challenges for global managers: 1.
“ Fortress ” Europe
2.
Dealing with multiple cultures within this unified market
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Asia
China
India
ASEAN
South Asia Association of Regional Cooperation (SAARC) Japan Asian Tigers:
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Hong Kong
Singapore South Korea Taiwan
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The Americas
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North American Free Trade Agreement (NAFTA) Central America Free Trade Agreement (CAFTA) MERCOSUR
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Other Regions in the World
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The Russian Federation
Middle East
The African Union—AU
South Africa
Less developed countries—LDCs
Low Gross National Product (GNP)
Low Gross Domestic Product (GDP)
Large, relatively unskilled workforce
High international debt
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Comparative Management in Focus: China Keeps on Chugging • • • •
The fastest growing GDP rate (over 9 percent/year) for 30 years Economy has doubled every eight years for 30 years Surpassed Germany in 2009 as the world’s largest exporter Investing heavily in energy and other natural resources in 2009 that could give it an economic advantage it has never had before
However: Weakening demand for Chinese exports—due • to global recession • Chinese government may not be able to prevent the financial crisis from derailing the country’s economic miracle The political, legal, and social environments • create unpredictability for businesses 1-14
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Management Focus: Intel Brings Changes to Vietnam’s Economy and Culture
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United States opened trade relations with Vietnam in 2000. Vietnam’s rapid growth can be contributed to those aspects of globalization that attracts corporations such as Intel. Intel is taking advantage of new markets and lower costs of production. Intel’s success started with awareness of the tight control of the Vietnamese government.
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The Impact of the Information Technology
Making Geographic barriers less relevant
Lowering cultural barriers
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Encouraging convergence of consumers’ tastes and preferences
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Globalization of Human Capital
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Increasing trend in the offshoring of manufacturing jobs and outsourcing of white-color jobs Prediction that 3.3 million U.S. jobs in service sector may be lost/outsourced by 2015
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The Global Manager’s Role
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The Political and Economic Environment
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Sustainability—economic, political, social, and environmental—has become a significant worldwide issue Ethnicity—a driving force behind political instability around the world Religion—religious disputes lie at the heart of regional instabilities: former Yugoslavia, Northern Island, the Middle East…
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Political Risk Any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm
Examples: Venezuela took control of cement plants and offices belonging to Mexico, after failing to reach an agreement in nationalization talks.
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Bolivian president’s move to nationalize the national gas industry followed that in Venezuela.
The Political Risk Cont. Political Risk Assessment
Typical Political Risks
Expropriation and confiscation
Nationalization Terrorism Macro-political risk event Micro-political risk event Discriminatory treatment
Barriers to repatriation of funds Interference in managerial Copyright ©2011 Pearson Education, Inc. decision making
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Helps companies manage exposure to risk and minimize financial loss Two forms: Consultation with experts Development of internal staff capabilities
Managing Political Risk
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Avoidance and Adaptation Equity sharing Participating management Localization of the operation Development assistance
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Dependency and Hedging
Input control
Market control
Position control
Staged contribution
Political risk insurance (OPIC and FCIA) Local debt financing
Managing Terrorism Risk
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Develop a benevolent image (IBM and Exxon).
Maintain a low profile and minimize publicity.
Using teams to monitor terrorist activities
Hiring counterterrorism consultants
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Economic Risk
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Is closely related to political risk Is determined by a country’s ability or intention to meet its financial obligations
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Categories of Economic Risk 1. Loss of profitability due to abrupt changes in
monetary and fiscal policies 2. Loss of profitability due to changes in foreign
investment policies 3. Risk of currency exchange rate
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Example: devaluation of peso in 1990s
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Managing the Economic Risk
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Quantitative Approach
Qualitative Approach
Checklist Approach
Combination of these Methods
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The Legal Environment
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Consists of the local laws and legal systems of those countries in which an international company operates and of international law, which governs relationships between sovereign countries
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The Legal Environment Types of Legal Systems
Common law
Civil law
Approaches to Contract Law Common law: details must be written in the contract to be enforced
Islamic law
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Civil law: assumes promises will be enforced without specifying the details In Asia the contract may be in the relationship, not on the paper
Other Regulatory Issues
Protectionist policies, such as tariffs or quotas
The attractiveness of the tax system
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The level of government involvement in the economic and regulatory environment
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The Technological Environment
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The appropriability of technology The International Convention for the Protection of Industrial Property (the Paris Union) Inappropriate use of technology by others Appropriateness of technology for the local environment
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