PowerPoint by:Mohamad Sepehri

Jacksonville University

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

Chapter Learning GoalsChapter Learning Goals

1. Understand the global business environment and how it affects the strategic and operational decisions which managers must make.

2. Critically assess the developments, advantages, and disadvantages of globalization.

3. Review the role of technology in international 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 manager’s job.

1. Understand the global business environment and how it affects the strategic and operational decisions which managers must make.

2. Critically assess the developments, advantages, and disadvantages of globalization.

3. Review the role of technology in international 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 manager’s job.

1-2Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Opening Profile: Economic Crisis Spreads Through Financial

Globalization

Opening Profile: Economic Crisis Spreads Through Financial

GlobalizationWhat 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: Fannie Mae & Freddie Mac Lehman Brothers AIG And many more…

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: Fannie Mae & Freddie Mac Lehman Brothers AIG And many more…

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Opening Profile: Typical Challenges that Managers Face

in the 21st Century

Opening Profile: Typical Challenges that Managers Face

in the 21st Century Political and cultural

differences Global competition Terrorism Technology Finding ways to balance their

social responsibilities, their images, and their competitive strategies

Political and cultural differences

Global competition Terrorism Technology Finding ways to balance their

social responsibilities, their images, and their competitive strategies

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What is International Management?

What is International Management?

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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?What is Globalization?

Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global

economy

Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global

economy

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Challenges to GlobalismChallenges to Globalism

Backlash against capitalism and rekindling of nationalism

Increased protectionism of high-demand resources

Need to develop top managers with international understanding and experience

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 GlobalismBenefits of Globalism

Access to more markets

Growth of developing economies

Opportunities for flexibility and efficiency

Opportunities for small and medium-sized enterprises (SMEs)

Access to more markets

Growth of developing economies

Opportunities for flexibility and efficiency

Opportunities for small and medium-sized enterprises (SMEs)

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Regional Trading BlocksRegional 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

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

The European Union EU

A unified market over 400 million people living in 27 nations

EU poses two challenges for global managers:

1. “Fortress” Europe2. Dealing with multiple cultures within

this unified market

A unified market over 400 million people living in 27 nations

EU poses two challenges for global managers:

1. “Fortress” Europe2. Dealing with multiple cultures within

this unified market

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AsiaAsia

China India ASEAN South Asia Association of Regional

Cooperation (SAARC) Japan Asian Tigers:

Hong Kong Singapore South Korea Taiwan

China India ASEAN South Asia Association of Regional

Cooperation (SAARC) Japan Asian Tigers:

Hong Kong Singapore South Korea Taiwan

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The AmericasThe Americas

North American Free Trade Agreement (NAFTA)

Central America Free Trade Agreement (CAFTA)

MERCOSUR

North American Free Trade Agreement (NAFTA)

Central America Free Trade Agreement (CAFTA)

MERCOSUR

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Other Regions in the WorldOther Regions in the World

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 workforceHigh international debt

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 workforceHigh international debt

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Comparative Management in Focus:

China Keeps on Chugging

Comparative Management in Focus:

China Keeps on Chugging

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Management Focus: Intel Brings Changes to Vietnam’s

Economy and Culture

Management Focus: Intel Brings Changes to Vietnam’s

Economy and Culture

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.

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

The Impact of the Information Technology

Making Geographic barriers less relevant

Lowering cultural barriers

Encouraging convergence of consumers’ tastes and preferences

Making Geographic barriers less relevant

Lowering cultural barriers

Encouraging convergence of consumers’ tastes and preferences

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Globalization of Human CapitalGlobalization of Human Capital

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

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 RoleThe Global Manager’s Role

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The Political & Economic Environment

The Political & Economic Environment

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…

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 RiskPolitical Risk

Examples:Examples:

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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.

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The Political Risk Cont.The Political Risk Cont.

Typical Political RisksTypical Political Risks Political Risk Assessment

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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

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Managing Political RiskManaging Political Risk

Avoidance and Adaptation

Avoidance and Adaptation

Dependency and Hedging

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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

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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 consultants1-23

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

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

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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

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Managing the Economic RiskManaging the Economic Risk

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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

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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

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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

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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

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Global E-BusinessGlobal E-Business

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