MBAD6197 Managing Multinational Enterprises Dr. Victor Z. Chen (WWW.CHENZITIAN.COM) UNC Charlotte Course website: http://www.chenzitian.net/teaching/MBAD6197/

Overall Structure 1/28: MNEs and their governance structures 1 of 2 2/4: MNE competitive advantages 2/11: MNE firm-specific competitive advantages 2/18: MNE location-specific competitive advantages 2/25: Internalization benefits 3/11: Internalization benefits (cont’d) and synthesis 3/18: Synthesis of competitive advantages of MNEs before internationalization 3/25: Comparative environment analysis of foreign contexts 4/1: Financial/economic environments and risks 4/8: Legal/political environments and risks 4/15: Social/cultural environments and risks 4/22: Risk management across environments 4/29: Synthesis of comparative environment analysis

Net Present Value (NPV) analysis Incorporating the political risks into the forecasting:

Political risk Political risk: The probability that political forces will negatively affect a multinational’s profit or impede the attainment of other critical business objectives.

Political risk Globally, for instance: Expropriation (with/without compensation) Indigenization laws Breach of contracts Damage to property and/or personnel from terrorism, riots, etc. Loss of financial freedom Increased taxes and other financial penalties Restriction of operating freedom, e.g., local content. e.g., in Oct 2010, Venezuelan president Hugo Chavez’s forced takeover of Agroislena, a Spanish vendor of agricultural products that has operated in Venezuela for more than 50 years. e.g., on March 9, 2008, Zimbabwe’s President Robert Mugabe signed the Indigenization and Economic Empowerment Bill into Law. The bill gives indigenous Zimbabweans the right to take over and control over many foreign owned companies, where an indigenous Zimbabwean is defined as “any person who before the 18th of April 1980 was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendent of such person”.

Scope of political risk Macro political risk: a risk that affects all foreign enterprises in the same way. Micro political risk: a risk that affects selected sectors of the economy or specific foreign businesses.

Sources of political risk Legal/governmental risks: are potentially harmful to foreign businesses but are the product of, or permissible within, the existing political, economic and legislative system. Non-legal or extra-governmental risks: lie outside the system and are a violation of existing laws.

Sources and scopes of political risk

Geographic boundedness Demographic boundedness Cultural boundedness   Geographic boundedness Demographic boundedness Cultural boundedness Economic boundedness Regulatory and political boundedness CSA Suburban Living Convenient driving Large consumer demand of lower to middle class Large space Good roads Large population Car dependence Cars are affordable Purchasing power Car friendly policies Open trade FSA EDLP Strong negotiation power over suppliers Strong negotiation power over labor Large zoning Efficient distribution and warehousing centers Satellite technology One stop for everything Customer first culture 24-7 Free bags Easy credit Bagging purchases Sundown rule Large airport centers Good roads & security Large population of consumers Large population of unskilled labor (70% without college degrees) Skilled labor in SCM Large population of unskilled labor Price sensitivity Impersonal competition Large load shopping Anti-shareholder Working ethics Service sensitivity Reliance on credit Free competition Unionized labor supply Cheap land No price control No local sourcing regulation No unionization/low employee protection Liberalized land-use No work hour restrictions No plastic regulations Liberalized credit market Low employee protection

Net Present Value (NPV) analysis Incorporating additional political risks into the NPA analysis: “the Red-Green Alliance … tax heavy…” “Liberals’ proposed reductions in spending on research and education, and retreat from a green agenda” “hinges on an expansion of …clean-tech…”

Managing legal/political risks Reactive management: Location selection/avoidance PR insurance (AIG; OPIC) Proactive management: Business-government negotiation (Case study 1) Institutional entrepreneurship (Case study 2)

Group exercise Please read the PRS report of your country, (focusing on “Country Forecast”) and identify (in your opinion) the most significant N factor(s) that would affect your NPV analysis. (N=number of your group members). Discuss briefly (1 page) how this (these) factor(s) would affect your business, and in what way it (they) may affect your NPV. https://librarylink.uncc.edu/login?url=http://librar ylink.uncc.edu/login?url=http://epub.prsgroup.co m/index.php/customer/pry

Belk College of Business UNC Charlotte Contact Victor Z. Chen Belk College of Business UNC Charlotte +1 (704) 687-7645 zchen23@uncc.edu www.ChenZitian.com Course website: http://www.chenzitian.net/teaching/MBAD6197/