GLOBAL MANAGEMENT: Strategic and Interpersonal

1. GLOBAL MANAGEMENT: Strategic and Interpersonal By Helen Deresky

2. I. THE GLOBAL BUSINESS ENVIRONMENT • A. GLOBALISM • Nokia Example • Adjust management styles to rest of world • Politics, culture, technology • Risks • Train managers to work in multicultural environment • Global Management: working with people around the world to ensure sustained competitive advantage • Global competition is pushed forward by increasingly borderless world • “The nation-state itself—that artifact of the eighteenth and nineteenth centuries—has begun to crumble, battered by a pent-up storm of political resentment, ethnic prejudice, tribal hatred, and religious animosity.”

3. By 2005 – world trade exports = $1 T or 28% of world GDP • World Trade Organization: output growth rate differences have narrowed; world trade includes developing nations • Managers operate in global environment - almost all firms compete with firms from another country • Need skills and tools to be globally competitive; need global vision • Foreign Direct Investment (FDI) – has grown 3X faster than world output • European Union (EU) and US are investing same amount • Technology and communication enhance more and efficient international transactions • Even small firms are affected by globalism • 98% of firms in developed economies are smallor medium-sized enterprises (SMEs); less than500 employees • In US, more than half of firms with revenueunder $100 M export

4. B. REGIONAL TRADING BLOCS – THE TRIAD • 1. The European Union • Largest common market - 376 M customers • Fortress Europe – preference to insiders • Outsiders must deal with multiple cultures • 2. Asia • Japan and the Four Tigers (Singapore, Hong Kong, Taiwan, South Korea) – increasing integration • Japanese keiretsu and Korean chaebol helped economies grow • Now Japanese slide due to closed nature of keiretsu • Southeast Asia slowly recovering • 3. North America • North American Free Trade Agreement(NAFTA) – 360 M customers • Growth, jobs, environment, trade • WalMex; Detroit South • Infrastructure problems; declining value of peso

5. C. OTHER REGIONS IN THE WORLD • 1. Central and Eastern Europe - 430 M • Low wage rates • Lack capitalistic values and skills • Poland, Hungary and the Czech Republic doing the best • 2. China – fastest GDP growth rate in world for years • Save 1,000 largest as state owned firms, privatize rest • Millions of surplus workers losing jobs, nomore lifelong employment or benefits • Join WTO in 2002; export powerhouse • 3. Less Developed Countries • Low GNP, large populations, unskilled labor, highdebt, high government involvement in economy • Discourages FDI • Central, South America, Africa, Middle East, India, Africa • Assess risk-return trade-off; keep up with political developments

6. D. INFORMATION TECHNOLOGY • Speed and accuracy of IT propelling global business • Info can no longer be controlled by governments or firms • Enhances the management of business • Enhances the marketing of products • E. WORKFORCE DIVERSITY • Increasing movement of laboracross borders • Have to manage across cultural andtraditional borders • F. THE GLOBAL MANAGER’S ROLE • Assess local environment and adjust management style • Follow global trends and competition

7. II. THE POLITICAL AND ECONOMIC ENVIRONMENT • A. POLITICAL RISK • Keep up-to-date political profile • Political unrest could be ethnic or religious based • Nationalization: forced sale of MNC’s assets • Expropriation: local government seizes MNC assets • Macropolitical risk: affect all foreign firms in area • Micropolitical risk: affect onlyspecific firms • Terrorism • Discriminatory treatment by gov’t • Loss of IPR protection • Dishonesty by gov’t officials

8. B. POLITICAL RISK ASSESSMENT • Local managers assess destabilizingissues • Corporate advisers establishguidelines • Experts, advisory services, indexes • Models use past info • Early-warning system – uses predictors of changes • C. MANAGING POLITICAL RISK • Avoidance of investment or withdrawal • Adaptation to political regulatory environment • Equity sharing • Participative management • Localization of operation • Development assistance

9. Dependency • Input control • Market control • Position control • Staged contribution strategies • Hedging • Political risk insurance – OPIC, FCIA • Local debt financing • D. MANAGING TERRORISM RISK • Benevolent image, low profile • Monitor patterns of kidnappers, train executives • Step up your security measures

10. E. ECONOMIC RISK • The more developed, the more stable • Risk: gov’t. could change domestic policies or FDI policies • Exchange rate volatility • Qualitative approach: assess leaders and policies • Quantitative approach: statistics • Checklist approach: few, easily measured criteria • Combination • F. ECONOMIC SLIDE IN INDONESIA • SE Asian financial crisis started in Thailand in 1997 • Indonesia, 4th largest country, rupiah lost 75% value in months • High inflation, President Suharto resigned • FDI had to assess risk, stay or go • Debt in dollars, revenue in rupiah; corporate ties to President • Break ties with failing regime, buy local, monthly price revisions

11. III. THE LEGAL ENVIRONMENT • A. SOME COUNTRIES ARE NOT LAW-BASED • China – no business, legal history • Today, laws and contracts ignored • Courts do not follow laws • Quanxi: connections determines outcome • B. TYPES OF LEGAL SYSTEMS • Common law – US, 26 other English countries, precedent • Civil law – codes or rules of behavior • C. CONTRACT LAW • “In China, the old joke goes, a contract is a pause in the negotiation.” • In common law – details must be written in contract • In civil law – promises will be enforced without specifying details • In west, manage contract, in east, manage relationships • Gov’ts and laws can prevent firm from supporting contract

12. D. OTHER REGULATORY ISSUES • Countries impose protectionist policies • Foreign tax credits • Government involvement –policies, subsidies • IV. THE TECHNOLOGICAL ENVIRONMENT • A. TECHNOGLOBALISM • Rapid developments in info and communication technologies propel globalization and vv. • Investment-led globalization leads to global production networks, global diffusion of technology • Internet • Appropriability of technology: ability of innovating firm to profit from its own technology by protecting it from others • Some countries do not support IPR

13. B. GLOBAL E-BUSINESS • E-business is breaking down barriers of time, space, logistics, and culture • Creating efficiencies by eliminating suppliers, administration and marketing costs • Contributing to global market; B2B – fastest growth • Electronic meetings, trading place, internal and external data bases, almost perfect information • Barriers to growth – lack of readiness, gov’t regulation, culture, lack of common format • V. CONCLUSION • Assess risk and return in foreignenvironment • Local and headquarter managers must continually monitor • Manage political, economic, and legal risk • Culture plays big role