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Transcript of Comparative Management Lesson 1
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Comparative ManagementComparative Management
BBA 7 Spring 2010Prescribed book:
International ManagementA Cross Cultural Approach
Kamal Fatehi
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Learning ObjectivesLearning Objectives
You will learn to understand about GlobalBusiness Management Practices.
You will learn about International Trade
agreements at a regional and global level. The knowledge ofOperations and Structure
of Multi National Companies will help youto adapt to cross cultural working
conditions and business environment. You will learn to compare and adapt Best
Practices in management within the localbusiness environment.
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Evolution of Global Business ArenaEvolution of Global Business ArenaIntroductionIntroduction
1. Why Firms Internationalize?
I. 1950-1990: US focused on fighting spread ofcommunism spending billions on defense. Objectivewas to prevent the occurrence of 3rd. World War
II. During this time other nations such as Japan andWestern Europe spent more time and capitalresources in developing their economies, resulting ina challenge to grab US market shares.
III. World Trade increased to 5.9% in 1950-1972 and4.9% in 1972-1990
IV. With the increase in World Trade interdependenceamongst nations increased
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Obstacles to International Trade inObstacles to International Trade indeveloping countries.developing countries.
Lack of Administrative Capabilities
Low level of Economic Development
Inability to service foreign debts.
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Changing Profiles of Global BusinessChanging Profiles of Global Business
1. Most countries started moving towards free trade policies and theremoval of trade barriers some countries did not reciprocate buttook advantage of liberal policies of other countries resulting inconflicts and friction between Europe, USA and Japan.
2. This led to Regional Trade agreements such as NAFTA( NorthAmerican Free Trade Agreement) between USA, Canada andMexico, European Integration etc.
3. Some regional trade agreements:
4. EC; European Community: 12 Western Europe countriesincluding Belgium, Denmark, France, Germany, Greece,
Luxemberg, Ireland, Italy, Netherlands, Portugal, Spain, and UK.ASEAN: Association South East Asian nations: Brunei, Indonesia,Malaysia, Philipines, Singaore,
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Changing profiles of Global Business( contd)Changing profiles of Global Business( contd)
3. Attitude of developing countries towards MNCsand FDIs( Foreign Direct Investment ) becamemore positive. Competition to attract foreigninvestment increased. Penalties such as
expropriation were reduced. Taxes andperformance criteria are used for control.
4. Many countries adopted Export orientedStrategies following the success of Japan and
Korea.5. Regional Trade agreements;6. Technological advancements led to the rise in
demand for technology transfer from MNCs.
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Changing profiles of Global Business( contd)Changing profiles of Global Business( contd)
6. More countries are looking at Capital Supportfrom MNCs since local capital was scarce andexpensive.
7. Cross Cultural and nationality mix of CEOs andTechnical executives.
8. Operations and Marketing costs forcedcompanies to go for joint ventures acrossborders.
9. Intra firm transactions ( International Linkages).Products and components manufacturedabroad.
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Reasons for going GlobalReasons for going Global
Theories of International Trade and Foreign
Direct Investment.
Change in Geographic Location. Possession of an Ownership specific
advantage.
Exploitation of Firms internal markets Effect of location advantages on host
countries.
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Follow through ReadingsFollow through Readings
Please go through Part One, StrategicAspects Of International Management,pages 3-22.
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GlobalizationGlobalization
Process of integration among countries around the world
Social
Political
Economic Cultural
Technological
Benefits of growing global trade and investment
Wealth Jobs
Technology
Lower prices
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What Is Global BusinessWhat Is Global Business
This is the buying and selling of goods andservices by people from differentcountries?
Multinational
A corporation that owns businesses in two
or more countries.
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Impact of Global BusinessImpact of Global BusinessDirect Foreign InvestmentDirect Foreign Investment
A method of investment in which a companybuilds a new business or buys an existingbusiness in a foreign country.
Has doubled in the past decade makingworld markets much more competitivethan they used to be.
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GATTGATT
A worldwide trade agreement that willreduce and eliminate tariffs, limitgovernment subsidies, and protectintellectual property.
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Trade Rules & AgreementsTrade Rules & AgreementsTrade BarriersTrade Barriers
A government-imposed regulation thatincreases the cost and restricts thenumber of imported goods.
Tariff
Nontariff barriers Quotas
Voluntary export restraints Subsidies
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How to Go GlobalHow to Go Global
Consistency vs. AdaptationConsistency vs. Adaptation Using the same rules, guidelines, policies,and procedures in each foreign locationvs.
adapting standard procedures todifferences in foreign markets.
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Forms for Global BusinessForms for Global Business
Phase Model of GlobalizationPhase Model of Globalization
Exporting
Cooperative Contract
licensingfranchise
Strategic Alliances
- Joint Ventures
Wholly Owned
Affiliates
Global New
Ventures
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Forms of GlobalizationForms of Globalization
Exporting Selling a domestically produced product to
customers in foreign countries.Franchise By this form of organizing itself globally, in
the last decade McDonalds has doubledits number of overseas stores.
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Forms of GlobalizationForms of Globalization
Joint- venture
A strategic alliance in which two existing
companies collaborate to form a thirdcompany.
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Where to Go Global?Where to Go Global?Growing MarketsGrowing Markets
Purchasing Power
comparison of a standard set of goods andservices in different countries
more means greater growth potential
Degree of Global Competition
the number & quality of companies already in
the market
more means less growth potential
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Where to Go Global?Where to Go Global?Choosing an Office / Manufacturing LocationChoosing an Office / Manufacturing Location
Qualitative factors
work force quality
company strategy
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Where to Go Global?Where to Go Global?Policy UncertaintyPolicy Uncertainty
The risk associated with changes in lawsand government policies that directly affectthe way foreign companies conductbusiness.
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Attractive Global Business ClimateAttractive Global Business Climate
This positions the company for easyaccess to growing markets, is an effectivebut cost-efficient place to build an office ormanufacturing site, and minimizes thepolitical risk to the company?
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National CultureNational Culture
Defined as a set of shared values andbeliefs that affects the perceptions,decisions, and behavior of the people froma particular country.
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Difficulties in AdaptingDifficulties in Adapting
Management PracticesManagement Practices May be adapting the way they run theirbusiness based on outdated and incorrectassumptions about a countrys culture.
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ExpatriateExpatriate
This refers to someone who lives outsideof his or her native country.
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Expatriate TrainingExpatriate Training
Serves the purpose to reduce the uncertaintythat expatriates feel, the misunderstandings thattake place between expatriates and natives, and
the inappropriate behaviors that expatriatesunknowingly commit.
Pre-departure language training
Cross-cultural training
Using a phone Finding a public toilet
Exchanging greetings
Ordering in restaurants
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Field Simulation TrainingField Simulation Training
An opportunity to practice adapting tocultural differences by placing trainees inan ethnic neighborhood for 3-4 hours totalk to residents about cultural differences.
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Adaptability ScreeningAdaptability Screening
This is used to assess how well managersand their families are likely to adjust toforeign cultures.
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Market Value
Billions of U.S. Dollars
Sales
Billions of U.S. Dollars
Top Ten Global MNCsTop Ten Global MNCs
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
1. General Electric $328.112. Microsoft 284.433. ExxonMobil 283.614. Pfizer 269.665. Wal-Mart Stores 241.196. Citigroup 239.437. BP 193.058. Aig 191.189. Intel 184.6610.Royal Dutch Shell 174.83
The Top 10 global MNCs Ranked by Market Value, Sales, Profits,
and Share-Price Gain, 2003
1. Wal-Mart Stores 258.682. BP 232.573. ExxonMobil 222.884. Royal Dutch/Shell 201.935. General Motors 183.246. DaimlerChrysler 166.617. Ford Motor 164.208. Toyotal Motor 156.489. Mitsubishi 137.3210.General Electric 134.19
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Top Ten Global MNCsTop Ten Global MNCs
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Profits
Billions of U.S. Dollars1. ExxonMobil 20.962. Citigroup 17.853. General Electric 15.004. HSBC Holdings 11.655. Royal Dutch/Shell 11.416. Bodafone Group 11.367. Bank of America 10.818. Toyota Motor 10.519. Microsoft 9.9910.BP 9.54
The Top 10 global MNCs Ranked by Market Value, Sales, Profits,
and Share-Price Gain, 2003
Share-Price Gain1. Mizuho Financial 636%2. Research in Motion 5503. UFJ Holdings 4204. SK 3835. Rakuten 3816. Sumitomo Mitsui Fin. 3317. Elan 3118. Bharti Tele-Ventures 2769. Yahoo! Japan 24110.Mitsui Trust Hldgs. 229
Data: Morgan Stanley Capital International Standard & Poors Compustat
Source: http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif
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GlobalizationGlobalization
Criticisms of globalization
Offshoring of business services jobs to lower-wage countries
Growing trade deficits
Slow wage growth
Environmental and social impacts
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Global and Regional IntegrationGlobal and Regional Integration
World Trade Organization (WTO)
General Agreement on Tariffs and Trade (GATT)
Regional Agreements
North American Free Trade Agreement (NAFTA)
U.S.Central American Free Trade Agreement(CAFTA)
Free Trade Agreement of the Americas (FTAA)
European Union (EU)
Association of Southeast Asian Nations (ASEAN)
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Trends in InternationalTrends in InternationalInvestment and TradeInvestment and Trade
International investments
80 percent from developed countries Foreign direct investment (FDI)
Economic growth potential (esp. Japan, China and Asia ingeneral)
Increase in international trade
Over one-half of world trade is accounted for by
United States European Union
Japan
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Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
2002
All Countries 1,340,011 1,268,001
Canada 96,437 105,255Europe 982,062 1,000,532(select countries)
United Kingdom 218,175 230,374Germany 139,620 148,774France 141,400 143,341
South and CentralAmerica 19,198 20,636(select countries)
Mexico 7,483 6,680Brazil 997 663
(in millions of dollars)
2003
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Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
2002
Other Western Hemisphere 50,167 48,921
(select countries)Bermuda 8,088 5,914Netherland Antilles 4,014 4,048UK islands, Caribbean 28,260 28,949
Africa 2,298 2,187Middle East 7,456 7,931(select countries)
Israel 3,699 3,834Kuwait 986 1,155
(in millions of dollars)
2003
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Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
2002
Asia and Pacific 183,392 192,539
(select countries)Japan 150,499 159,258
Australia 23,136 Taiwan 2,569 2,708Singapore 650 162Hong Kong 1,879 1,981
(in millions of dollars)
2003
Adapted from: Table 1-2: Foreign Direct Investment in the United States, 2002-2004 (in millions of
dollars)
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Foreign Direct Investment byForeign Direct Investment bythe United States Abroadthe United States Abroad
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
2002
All countries 1,601,414 1,788,911
Canada 170,169 192,409Europe 848,599 963,087(select countries)
United Kingdom 239,219 272,640Germany 67,404 80,163France 42,999 47,914
South and CentralAmerica 131,973 141,449(select countries)
Mexico 55,724 61,526Brazil 27,615 29,915
(in millions of dollars)
2003
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Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
2002
Other Western Hemisphere 152,597 162,574
(select countries)Bermuda 80,048 84,609UK islands, Caribbean 49,806 54,507
Africa 16,290 18,960Middle East 14,671 16,942(select countries)
Israel 5,632 6,208Saudi Arabia 3,823 4,217
(in millions of dollars)
2003
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Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
2002
Asia and Pacific 267,125 292,490
(selected countries)Japan 65,939 73,435
Australia 34,409 Taiwan 7,608 10,961Singapore 52,449 57,589Hong Kong 41,571 44,323
China 10,499 11,877
(in millions of dollars)
2003
Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, 2002-2004 (inmillions of dollars)
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Top 10 Trading Partners ofTop 10 Trading Partners ofthe United States, 20033the United States, 20033
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Importing U.S. Exporting U. S.Rank Country Exports Rank Country Imports
1 Canada 169,9242 Mexico 97,4123 Japan 52,0044 United Kingdom 33,8285 Germany 28,8326 China 28,368
7 South Korea 24,0738 Netherlands 20,6959 Taiwan 17,44810 France 17,053
(in millions of dollars)
1 Canada 221,5952 China 152,4363 Mexico 138,0604 Japan 118,0375 Germany 68,1136 United Kingdom 42,7957 South Korea 37,2298 Taiwan 31,5999 France 29,21910 Ireland 26,747
Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).
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Economic PerformanceEconomic Performance
U. S., Canada and Mexico combine for$12 trillion in purchasing power
United States
U.S. firms hold market dominance in manyEuropean markets and are gaining market share inAsia
Foreign MNCs find the U. S. to be a lucrative
market in which to expand
Canada
The largest U.S. trading partner.
Legal and business environment similar to the U.S.
North America
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Economic PerformanceEconomic Performance
Mexico
very strong maquiladora industry
foreign manufacturers can send materials to their
Mexican-based plants, process or assemble theproducts, and then ship them back out of Mexicowith only the value added being taxed.
now competitive with Asia for the U.S. market lower-cost labor
proximity to the American market (lower transportationcosts and faster delivery)
Increasingly active in EU and Asian markets
North America
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Economic PerformanceEconomic Performance
South American countries haveexperienced difficult economic problems
High inflation
Heavy foreign dept
Major factor in success is intercountry trade
Free market policies among South American
countries Survey of business leaders in S.A. countries finds
that doing business with U.S. is most importantagenda
South America
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Economic PerformanceEconomic Performance
Important factors
Privatization of traditionally nationalized industries
Emergence of the EU as an operational economic union
Economic linkages between the EU and newly emergingCentral and Eastern European countries
Foreign MNCs gain foothold in EU by Acquisitions
Alliances
Cooperative R&D efforts
Challenge is to absorb former communist-bloc countries
Europe
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Economic PerformanceEconomic Performance
Important factors (Russia, Czech Republic,Hungary, Poland)
Perestroikaeconomic and political restructuring
Dismantling of Russian price controls Privatization
Inflation
Membership in International Monetary Fund (IMF)
Crime
Political uncertainty
Central and Eastern Europe
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Three Eras of the Soviet UnionThree Eras of the Soviet Union
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Traditional Russian Red Executive Managers Market-Oriented
Society (Pre-1917) (1917-1987) (1987-present)
Centralization of authorityand responsibility
Collective action
Dual ethical standards(honesty in personalrelationships, deceptionin business relationships)
Centralized leadershipCommunist dominationParty service
Rise of collectiveenterprises
Dual ethical standards(honesty in personalconduct with employees,dishonesty in businessdealings)Use of informal influence toobtain favors
Sharing of power withnumerous stakeholders instate enterprises
Responsibility for privateenterprise success
Effective delegation ofresponsibility to employeesUse of informal influence toobtain favorsBipolar extremes ofcynicism inproblem solving
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Three Eras of the Soviet UnionThree Eras of the Soviet Union
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Traditional Russian Red Executive Managers Market-Oriented
Society (Pre-1917) (1917-1987) (1987-present)
Feelings ranging fromhelplessness (only areligious savior will deliverpeople from their plight) tobravado (belief in onesability to outsmart others)
Feelings of helplessnessdue to producing inferiorproducts and bravado inoperating some of theworlds largestorganizations
Use of overpromising toboth clients and businesspartnersA high degree ofachievement motivationregarding quality serviceand products but socialcontempt for success
Source: Adapted from Sheila Puffer, Understanding the Bear: A Portrait of Russian Business Leaders,Academy of
ManagementExecutive, February 1994, pp. 4161. Used with permission.
Adapted from Table 1-5: The Three Eras of the Soviet Union.
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Economic PerformanceEconomic Performance
Japan Phenomenal economic success in 1970s and 1980s
Ministry of International Trade and Industry (MITI)
Keiretsus Vertically integrated industries Holdings provide assistance needed in providing goods and
services to end users
Decade long recession in 1990s
Bank loans backed by real estate or projected revenues By 2000, most major banks had billions of dollars inuncollectible loans
International competition has increased
Asia
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Economic PerformanceEconomic Performance
China
Annual real economic growth of 10 percentduring the 1980s and early 1990s
More recent growth of 8 percent
Healthy and growing economy
GDP growth of 91 percent in 2003
Attractive to foreign investors despite majorpolitical risk
Product pirating is major problem
Complicated and high-risk venture
Asia
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Economic PerformanceEconomic Performance
The Four Tigers
South Korea
Chaebols (large family-held Korean conglomerates)
Affected by declining economies of South east Asiain 1990s)
Hong Kong
Now part of Peoples Republic of China
Uncertainty about role the Chinese governmentintends to play in local governance
Asia
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Economic PerformanceEconomic Performance
Singapore
Least hurt by economic downturn of 1990s
Taiwan
Progression from labor-intensive economy to onedominated by technologically sophisticatedindustries (banking, electricity generation, petroleum
refining and computers)
Asia The Four
Tigers
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The Worlds Most CompetitiveThe Worlds Most CompetitiveNations, 2003 RankingNations, 2003 Ranking
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.
United States 1Australia 2Canada 3
Malaysia 4Germany 5Taiwan 6United Kingdom 7France 8
Spain 9Thailand 10
Country Rank
Source: World Competitive Scoreboard, 2004.
Adapted from Table 1-6: The Worlds Most Competitive nations, 2003 Ranking
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Economic PerformanceEconomic Performance
The Baby Tigers
Thailand, Malaysia, Indonesia
Large population base
Inexpensive labor
Considerable natural resources
Attractive to outside investors
Southeast Asia
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Economic PerformanceEconomic Performance
India
Low per capita GDP
Recent trend of locating software and high value-added
services to this country Attractive to U.S. and British investors (well educated,
English speaking, technologically sophisticated workers)
Middle East and Central Asia
Large oil reserves Highly unstable geopolitical and religious forces
Plagued by continuing economic problems
Developing and Emerging Countries
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Economic PerformanceEconomic Performance
Africa
Considerable natural resources
African nations remain very poor and undeveloped
International trade is not a major source of income Populace divided into 3,000 tribes that speak 1,000
languages and dialects
Major political instability
Poverty, starvation, illiteracy, corruption, overcrowdingamong many social problems negatively affectingeconomic sector
Developing and Emerging Countries