Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological

1. Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological PowerPoint by Kristopher Blanchard North Central University

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

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

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

5. Regional Trading Blocs • TRIAD Market • European Union • Asian Market • China, Japan, South Asia • NAFTA • CAFTA

6. 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

7. 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

8. 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

9. 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

10. The Globalization of Human Capital Globalization means we share jobs as well as goods. - FINANCIAL TIMES, August 27, 2003

11. 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

12. The Global Manager’s Role

13. 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

14. 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)

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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.

23. Looking Ahead • Chapter 2 – Social Responsibility and Ethics • The Social Responsibility of MNC’s • Ethics in Global Management • Managing Interdependence

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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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