International Management Chapter 1: Assessing the Environment: Political, Economic, Legal and Technological Lesson1: The Global Business Environment, the Political and Economic Environment Suman Mazumder Assistant Professor Department of Business Administration Southern University Bangladesh

Lesson Learning Outcomes 1. To understand the global business environment and how it affects the strategic and operational decisions which managers must make. 2. To critically assess the developments, advantages, and disadvantages of globalization. 3. To discuss the complexities of the international manager’s job. 4. To develop an appreciation for the ways in which political, and economic factors and changes impact the opportunities that companies face.

Lesson Contents: 1.1 The Global Business Environment - Globalization - Global Trends - Globality and Emerging Markets - Backlash against Globalization - Effects of Institution on Global Trade - Effects of Globalization on Corporations - The Globalization of Human Capital 1.2 The Political Environment - Political Risk - Political Risk Assessment - Managing Political Risk - Managing Terrorism Risk 1.3 Economic Environment - Economic Risk

What is International Management? The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage

What is Globalization? Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy

Global Trends Five key global trends: 1. Changing balance of growth towards emerging markets 2. Need for increased productivity and consumption in developed countries 3. Increasing global interconnectivity 4. Increasing gap between supply and demand of natural resources 5. Challenge for governments to develop policies for economic growth and financial stability

Globality and Emerging Markets “It is the rise of the rest—the rest of the world.”

Challenges to Globalization Backlash against capitalism and rekindling of nationalism Increased protectionism of high-demand resources Need to develop top managers with international understanding and experience Increasing pressure and publicity for companies to consider the social responsibility of their actions

Effects of Institutions on Global Trade Two major groups of institutions (supranational and national) play a differing role in globalization. Supranational institutions such as the World Trade Organization (WTO) and the International Labor Organization (ILO) promote the convergence of how international activities should be conducted. National institutions, in contrast, play a role in creating favorable conditions for domestic firms and may make it more difficult for foreign firms to compete in those countries. Some supranational institutions represent the interests of a smaller group of countries. Two major groups of institutions (supranational and national) play a differing role in globalization. Supranational institutions such as the World Trade Organization (WTO) and the International Labor Organization (ILO) promote the convergence of how international activities should be conducted. National institutions, in contrast, play a role in creating favorable conditions for domestic firms and may make it more difficult for foreign firms to compete in those countries. Some supranational institutions represent the interests of a smaller group of countries.

Effects of Globalization on Corporation 1. Firms from any country now compete with companies at home and abroad, and domestic competitors are competing on price by outsourcing or offshoring resources and services anywhere in the world. 2. Clearly, competition has no borders, with most global companies producing and selling more of their global brands and services abroad than domestically. 3. Investment by global companies around the world means that this aspect of globalization benefits developing economies—through the transfer of financial, technological, and managerial resources, as well as through the development of local allies that later become self-sufficient and have other operations. 4. It is essential, therefore, for managers to look beyond their domestic market. 5. SMEs are also affected by, and in turn affect, globalization.

Globalization of Human Capital Increasing trend in the offshoring of manufacturing jobs and outsourcing of white-collar jobs The Indian ITES sector has 700,000 jobs worldwide and comprises 35% of BPO market For global firms, winning the war for talent is a pressing issue

The Global Manager’s Role

Political Risk Examples: Any governmental action or politically motivated event that could adversely affect the long-term profitability or value of a firm Argentina announced plans to nationalize Repsol YPF, the Spanish oil co., taking 51%. In Russia, the Kremlin exploited the financial crisis to take control of energy companies.

Political Risk Cont … Typical Political Risks Political Risk Assessment Expropriation and confiscation Nationalization Terrorism 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 – increasingly common

Managing Political Risk Avoidance and Adaptation Dependency and Hedging 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

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 Develop a benevolent image (IBM and Exxon). Maintain a low profile and minimize publicity. Using teams to monitor terrorist activities Hiring counterterrorism consultants