PowerPoint by: Mohamad Sepehri, Ph.D.

Jacksonville University

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Chapter 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.

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Opening Profile: Economic Crisis Spreads

Through Financial Globalization

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

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?

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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?

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 Globalism

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 Globalism

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 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

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The European Union

EU

A unified market over 400 million people living

in 27 nations

EU poses two challenges for global managers:

1. “Fortress” Europe

2. Dealing with multiple cultures within this unified

market

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Asia

China

India

ASEAN

South Asia Association of Regional Cooperation

(SAARC)

Japan

Asian Tigers: Hong Kong

Singapore

South Korea

Taiwan

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The Americas

North American Free Trade Agreement (NAFTA)

Central America Free Trade Agreement (CAFTA)

MERCOSUR

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Other 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 workforce

High international debt

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Comparative Management in Focus: China Keeps on Chugging

• The fastest growing GDP rate (over 9 percent/year) for 30 years

• Economy has doubled every eight years for 30 years

• Surpassed Germany in 2009 as the world’s largest exporter

• Investing heavily in energy and other natural resources in 2009 that could give it an economic advantage it has never had before

However:

• Weakening demand for Chinese exports—due to global recession

• Chinese government may not be able to prevent the financial crisis from derailing the country’s economic miracle

• The political, legal, and social environments create unpredictability for businesses

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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.

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The Impact of the Information Technology

Making Geographic barriers less relevant

Lowering cultural barriers

Encouraging convergence of consumers’ tastes

and preferences

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Globalization 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

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The Global Manager’s Role

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The Political and 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…

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Political Risk

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.

Typical Political Risks Political Risk Assessment

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Expropriation and confiscation

Nationalization

Terrorism

Macro-political risk event

Micro-political risk event

Discriminatory treatment Barriers to repatriation of funds

Interference in managerial decision making

Dishonesty by government officials

Helps companies manage

exposure to risk and minimize

financial loss

Two forms:

Consultation with experts

Development of internal staff

capabilities

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Managing Political Risk

Avoidance and Adaptation Dependency and Hedging

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Equity sharing

Participating management

Localization of the operation

Development assistance

Input control

Market control

Position control

Staged contribution

Political risk insurance (OPIC

and FCIA)

Local debt financing

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Managing 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

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Economic Risk

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 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

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Managing the Economic Risk

Quantitative Approach

Qualitative Approach

Checklist Approach

Combination of these Methods

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The 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

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The Legal Environment

Types of Legal Systems Approaches to Contract

Law

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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

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Other 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

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The Technological Environment

The appropriability of technology

The 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-Business

E-Business—the integration of systems, processes, organizations, value chains, and entire markets using Internet-based and related technologies and concepts

E-Commerce—marketing and sales process via the internet

B2B—Business to Business

B2C—Business to Customer

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