International Management Mgmt 446 Day 3 Fall, 2011 Sully Taylor.

International ManagementMgmt 446

Day 3 Fall, 2011

Sully Taylor

Agenda Library – research sources for project. Choose countries, and day of International

News Report Topics:

Political and Economic Risk International News Report

The Interdependence of Countries and MNCs

International Social Responsibility Nokia Case

Ethics in International Management

The Global Manager’s RoleThe Global Manager’s Role

1-3Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

http://www.ted.com/talks/lang/eng/parag_khanna_maps_the_future_of_countries.html

What is International Management?

1-5

The process of developing strategies, designing and operating systems, and

working with people around the world to ensure sustained

competitive advantage

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Political RiskPolitical Risk

Examples:Examples:

1-6

Any governmental action or politically motivated event that could adversely affect the

long-run profitability or value of a firm

Venezuela took control of cement plants and offices belonging to

Mexico, after failing to reach an agreement in nationalization talks.

Bolivian president’s move to nationalize the

national gas industry followed that in

Venezuela.


The Political Risk Cont.The Political Risk Cont.

Typical Political RisksTypical Political Risks Political Risk Assessment

1-7

Expropriation and confiscation

NationalizationTerrorismMacro-political risk event Micro-political risk eventDiscriminatory treatmentBarriers to repatriation of

funds Interference in managerial

decision makingDishonesty by government

officials

Expropriation and confiscation

NationalizationTerrorismMacro-political risk event Micro-political risk eventDiscriminatory treatmentBarriers to repatriation of

funds Interference in managerial

decision makingDishonesty by government

officials

Helps companies manage exposure to risk and minimize financial loss

Two forms:Consultation with

expertsDevelopment of

internal staff capabilities

Helps companies manage exposure to risk and minimize financial loss

Two forms:Consultation with

expertsDevelopment of

internal staff capabilities


Managing Political RiskManaging Political Risk

Avoidance and Adaptation

Avoidance and Adaptation

Dependency and Hedging

1-8

Equity sharing

Participating management

Localization of the operation

Development assistance

Equity sharing

Participating management

Localization of the operation

Development assistance

Input controlMarket controlPosition controlStaged contribution

Political risk insurance (OPIC and FCIA)

Local debt financing

Input controlMarket controlPosition controlStaged contribution

Political risk insurance (OPIC and FCIA)

Local debt financing


Economic RiskEconomic Risk

Is closely related to political risk

Is determined by a country’s ability or intention to meet its financial obligations

Is closely related to political risk

Is determined by a country’s ability or intention to meet its financial obligations


Categories of Economic RiskCategories 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 Example: devaluation of peso in 1990s

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 Example: devaluation of peso in 1990s


Managing the Economic RiskManaging the Economic Risk


International News Article (10 minutes)“ Protests on Wall Street”

Work with your team.

Decide what the article illustrates about the international management topics in Chapters 1 and 2. Be specific about how the article illustrates a topic.

Describe what you learned from analyzing the article. This could be specific information, and/or an insight into doing business internationally that you did not have before.

What discussion question would you create from reading this article that could provoke an fruitful, interesting class discussion?

International news articleFor non-US firms, particularly in the financial industry:Ties into political and economic risk.

Pressure of protesters may lead to changes in tax regime, regulation of banks, and even a slow down of the economy.

Ties into terrorism risk – will they get violent, and direct wrath at physical buildings of financial institutions?

Ties into Chapter 2, sustainability ….particularly social.If a country in which a company is operating is becoming subjected to the negative results of economic inequity, that can have serious repercussions for the company’s ability to operate there.

Managing Terrorism RiskManaging Terrorism Risk

Develop a benevolent image (IBM and Exxon).

Maintain a low profile and minimize publicity.

Using teams to monitor terrorist activities

Hiring counterterrorism consultants

Develop a benevolent image (IBM and Exxon).

Maintain a low profile and minimize publicity.

Using teams to monitor terrorist activities

Hiring counterterrorism consultants


The Legal EnvironmentThe Legal Environment

Types of Legal Systems

Types of Legal Systems

Approaches to Contract Law

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Common law

Civil law

Islamic law

Common law

Civil law

Islamic law

Common law: details must be written in the contract to be enforced

Civil law: assumes promises will be enforced without specifying the details

In Asia the contract may be in the relationship, not on the paper

Common law: details must be written in the contract to be enforced

Civil law: assumes promises will be enforced without specifying the details

In Asia the contract may be in the relationship, not on the paper


The Legal EnvironmentThe Legal Environment

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

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


Other Regulatory IssuesOther Regulatory Issues

Protectionist policies, such as tariffs or quotas

The attractiveness of the tax system

The level of government involvement in the economic and regulatory environment

Protectionist policies, such as tariffs or quotas

The attractiveness of the tax system

The level of government involvement in the economic and regulatory environment


The Technological EnvironmentThe Technological Environment

The appropriability of technologyThe International Convention for the

Protection of Industrial Property (the Paris Union)

Inappropriate use of technology by others

Appropriateness of technology for the local environment

The appropriability of technologyThe International Convention for the

Protection of Industrial Property (the Paris Union)

Inappropriate use of technology by others

Appropriateness of technology for the local environment


Issues discussed in the Chapter 1 and 2 are important to your project…. What are the legal and other aspects of

doing business in this country that may be a challenge for a foreign company (see Chapter 1 and 2)? Are there issues such as currency exchange controls, tariffs, intellectual property protection laws, ownership rules that would affect investment by this company in this country? Is the host government friendly to foreign companies? Are there any sustainability issues or ethics issues that are salient in this country (Chapter 2)?

The Social Responsibility of MNC’s


CSR Dilemma

International Social ResponsibilityIs the expectation that MNCs concern

themselves with the social and economic effects of their decisions. ….For MNCs, is complex because of the additional stakeholders in the firm’s activities through operating overseas.

What are some of the companies with the best corporate social responsibility? Worst?

By Corporate Responsibility Magazine, based on transparency:

Best: Intel, General Mills, IBM, Kimberly-Clark:

Only three companies have made the list all 10 years: Intel, Cisco and Starbucks.

Worst: Abercrombie & Fitch; Weight Watchers, Scripps Networks Interactive. No relevant data provided, no transparency.

Criteria for transparencyEnvironment Climate Change Human Rights Employee Relations Philanthropy Financial Governance Lobbying

MNC Stakeholders

MNC Stakeholders

Home Country Host

Society in General

MNC Stakeholders

Home Country Host

Society in General


OwnersCustomersEmployeesUnionsSuppliersDistributorsStrategic AlliesCommunityEconomyGovernment

MNC

MNC

EconomyEmployeesCommunityHost GovernmentConsumersStrategic AlliesSuppliersDistributors

Global interdependence/standard of livingGlobal environment and ecologySustainable resourcesPopulation’s standard of living

Beijing Skyline

Global Consensus or Regional Variation?

Global Corporate Culture:An integration of the business environments in which firms currently operate

The United States and Europe adopt strikingly different positions that can be traced largely to

history and culture.


General Guidelines for Code of Morality and Ethics in Individual

Countries

General Guidelines for Code of Morality and Ethics in Individual

Countries


International Codes of ConductInternational Codes of Conduct

The Sweatshop Code of Conduct The Electronic Industry Code of

Conduct (EICC) Social Accountability 8000 (SA

8000) GRI (not in text but very

important)

The Sweatshop Code of Conduct The Electronic Industry Code of

Conduct (EICC) Social Accountability 8000 (SA

8000) GRI (not in text but very

important)


Dealing with Confusion About Cross-Cultural Dilemmas

Dealing with Confusion About Cross-Cultural Dilemmas

Engaging stakeholders (and sometimes NGOs) in a dialogue

Establishing principles and procedures for addressing difficult issues such as labor standards for suppliers, environmental reporting, and human rights

Adjusting reward systems to reflect the company’s commitment to CSR

Engaging stakeholders (and sometimes NGOs) in a dialogue

Establishing principles and procedures for addressing difficult issues such as labor standards for suppliers, environmental reporting, and human rights

Adjusting reward systems to reflect the company’s commitment to CSR


Managing Subsidiary—Host-Country Interdependence





1. MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries.

2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.

3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel.

1. MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries.

2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.

3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel.


Common Criticism of MNC Subsidiary Activities

Common Criticism of MNC Subsidiary Activities Cont.

Common Criticism of MNC Subsidiary Activities Cont.

4. MNCs do not adapt their technology to the conditions that exist in host countries.

5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries.

6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods.

7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries.

8. MNCs dominate major industrial sectors, thus contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees.

9. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.

4. MNCs do not adapt their technology to the conditions that exist in host countries.

5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries.

6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods.

7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries.

8. MNCs dominate major industrial sectors, thus contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees.

9. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.


MNCs Benefits and Costs to Host Countries

MNCs Benefits and Costs to Host Countries

Benefits CostsAccess to outside capital

Competition for capital

Foreign-exchange earnings

Increased interest rates

Access to technology

Inappropriate technology

Infrastructure development

Development investment exceeds benefits

Creation of new jobs

Limited skills development

Local management development

Few managerial jobs for locals


Managing the InterdependenceManaging the Interdependence

The Risks of Interdependence

The Risks of Interdependence

Issues in Managing Environmental Interdependence

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Nationalism

Protectionism

Governmentalism

Nationalism

Protectionism

Governmentalism

Dumping of 8000 drums of toxic waste in Koko, Nigeria

The export of U.S. pesticides

Industrial ecology

Dumping of 8000 drums of toxic waste in Koko, Nigeria

The export of U.S. pesticides

Industrial ecology


Recommendations for MNCs Operating in and Doing Business

with Developing Countries

Recommendations for MNCs Operating in and Doing Business

with Developing Countries1. Do no intentional harm. This includes respect

for the integrity of the ecosystem and consumer safety.

2. Produce more good than harm for the host country.

3. Contribute by their activity to the host country’s development.

4. Respect the human rights of their employees.5. To the extent that local culture does not violate

ethical norms, respect the local culture and work with and not against it.

6. Pay their fare share of taxes.7. Cooperate with the local government in

developing and enforcing just background institutions.

1. Do no intentional harm. This includes respect for the integrity of the ecosystem and consumer safety.

2. Produce more good than harm for the host country.

3. Contribute by their activity to the host country’s development.

4. Respect the human rights of their employees.5. To the extent that local culture does not violate

ethical norms, respect the local culture and work with and not against it.

6. Pay their fare share of taxes.7. Cooperate with the local government in

developing and enforcing just background institutions.


International Management Mgmt 446 Day 3 Fall, 2011 Sully Taylor.

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Transcript of International Management Mgmt 446 Day 3 Fall, 2011 Sully Taylor.