Business and People Management INTERNATIONAL MANAGEMENT GLOBAL Business and People Management Professor H. Michael Boyd, Ph.D.

Globalization and International Linkages Chapter One Globalization and International Linkages

Globalization and International Linkages The specific objectives of this chapter are to ASSESS the implications of globalization for countries, industries, firms, and communities. REVIEW the major trends in global and regional integration. EXAMINE the changing balance of global economic power and trade and investment flows among countries. ANALYZE the major economic systems and recent developments among countries that reflect those systems.

International Management International management involves Applying management concepts and techniques in a multinational environment Adapting management practices to different economic, political, and cultural contexts Multinational corporation (MNC) Operations in more than one country International sales Nationality mix among managers and owners

The World’s Top Nonfinancial TNCs Ranked by Foreign Assets, 2012

The World’s Top Nonfinancial TNCs from Developing and Transitioning Economies Ranked by Foreign Assets, 2011

Globalization and Internationalization Process of social, political, economic, cultural, and technological integration among countries around the world. Hastened by Offshoring Process by which companies undertake some activities at offshore locations instead of in their countries of origin. Outsourcing Subcontracting or contracting out of activities to external locations instead of in their countries of origin

Globalization: Pros and Cons Benefits of Globalization Wealth Jobs Technology Lower prices Availability of goods Criticisms of Globalization Off-shoring of business service jobs to lower-wage countries Growing trade deficits Slow wage growth Environmental and social impacts

Global and Regional Integration Global Agreements World Trade Organization (WTO) General Agreement on Tariffs and Trade (GATT) Regional Agreements North American Free Trade Agreement (NAFTA) U.S.-Central American Free Trade Agreement (CAFTA, CAFTA-DR) European Union (EU) Association of Southeast Asian Nations (ASEAN) Trans-Pacific Partnership (TPP) Free Trade Agreement of the Americas (FTAA)

International Economic Power in the Global Economy Shifting landscape due to Economic integration and rapid growth of emerging markets Economic potential of emerging markets BRIC countries (Brazil, Russia, India, and China) could be among the four most dominant economies by 2050 N-11 (the next wave of emerging markets): Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam African countries may follow.

The World’s Largest Economies 2009 and 2050 (Projected) Measured by GDP at Market Exchange Rates

The World’s Largest Economies 2009 and 2050 (Projected) Measured by GDP at Purchasing Power Parity

Changing Global Demographics: Developing Countries on the Rise Ranked by Size

Trends in Trade and International Investments International Trade In 2009 merchandise and commercial services exports declined By 2014, FDI is estimated to reach $1.9 trillion, surpassing the all-time high set in 2007 Foreign direct investment (FDI) Investment in property, plant, or equipment in another country Growing at healthy rate Outpacing domestic growth in most countries Declined in 2009 due to the global recession Recent increases in merchandise exports and foreign direct investment

World Merchandise Trade by Region and Selected Country, 2012 (in US$ billions and percentages) continues

World Merchandise Trade by Region and Selected Country, 2012 (in US$ billions and percentages)

Foreign Direct Investment Inflows, by Region (in US$ billions)

Foreign Direct Investment Outflows, by Region (in US$ billions)

Global Economic Systems Market economy Command economy Mixed economy

Economic Performance by Major World Region Established Economies North America European Union Japan Emerging Economies Central and Eastern Europe China Other Emerging Markets of Asia India Developing Economies on the Verge South America Middle East and Central Asia Africa

Economic Performance Established Economies North America One of the four largest trading blocs in the world Combined purchasing power of U.S., Canada and Mexico is more than $12 trillion Free-market-based economy is attractive to private firms United States Foreign MNCs find U.S. a lucrative expansion market Foreign firms welcomed as investors in U.S. market U.S. firms hold global dominance in technology-intensive industries, telecommunications, media, and biotechnology

Economic Performance Established Economies Canada U.S.’s largest trading partner Most of the largest foreign-owned Canadian companies are totally or heavily U.S.-owned Legal and business environment in Canada is similar to that in U.S. Mexico Strongest Latin American economy Free-trade agreements with over 50 countries Very strong maquiladora system Trade with both Europe and Asia has increased Now competitive with Asia for the U.S. market

Economic Performance Established Economies European Union Ultimate objective Eliminate all trade barriers among member countries Emergence of the EU as an operational economic union A unified Europe could become the largest economic market in terms of purchasing power in the world Foreign MNCs trying to gain foothold in EU Acquisitions, alliances, cooperative R&D efforts Economic linkages between the EU and Central and Eastern European countries Challenge is to absorb former communist bloc countries Pressure on the euro due to financial crises in Greece, Portugal, Spain, and Ireland

Economic Performance Established Economies Japan Huge economic success in 1970s and 1980s Ministry of International Trade and Industry (MITI) Keiretsus Large, vertically integrated corporations Holdings provide assistance needed in providing goods and services to end users Remains a formidable competitor in the Pacific Rim, North America, and Europe

Economic Performance Emerging Economies Central and Eastern Europe Russia Dismantling of price controls Privatization Membership in International Monetary Fund (IMF) helping to control inflation Crime and political uncertainty Hungary, Poland, Czech Republic Political instability Struggling to right their economic ships

Economic Performance Emerging Economies China Real economic growth of 9.1% in 2009, 10.4% in 2010, 9.3% in 2011, and 8% in 2012 Savings glut in corporate sector Globalization of manufacturing networks Vast developmental needs Unemployment concerns Attractive to investors despite political risk Product pirating is a major problem Undervaluation of currency Government policies favor domestic firms

Economic Performance Emerging Economies South Korea Chaebols: Very large family-held conglomerates Solid economy, moderate growth and inflation, low unemployment Export surplus Fairly equal distribution of income Hong Kong Part of People’s Republic of China Uncertainty about the role the Chinese government intends to play

Economic Performance Emerging Economies Singapore Major success story Urban-plan model, leader, and financial center for region Taiwan Progressed from labor-intensive economy to one dominated by technologically sophisticated industries banking, electricity generation, petroleum refining, and computers

Economic Performance Emerging Economies Thailand, Malaysia, Indonesia, Vietnam Large population base Inexpensive labor Considerable natural resources Some turmoil in aftermath of recent economic crisis Attractive to outside investors

Economic Performance Emerging Economies India Large population Recent trend of locating software and high value-added services to this country boosting middle- and upper-class market for goods and services GDP quickly reaching the level of China Attractive to U.S. and British investors English speaking, well educated, technologically sophisticated workers Government funds for economic development

Economic Performance Developing Economies on the Verge South America Hampered by foreign debt and severe inflation Most have tried to implement economic reforms to reduce their debt Experienced periodic economic instability and the emergence of populist leaders Nevertheless, attractive to business Brazil Economy flourishing, attracting MNCs’ investment Privatization and stable government Undisputed economic leader of SA

Economic Performance Developing Economies on the Verge Chile A decade of economic growth Attracts foreign direct investment Trade agreements―Mercosur, China, India, the EU, South Korea, Mexico, among others Argentina Overall strong economy Abundant natural resources, highly literate population, export-oriented agriculture, diversified industrial base Economic problems persist

Economic Performance Developing Economies on the Verge Middle East and Central Asia Large oil reserves Highly unstable geopolitical and religious forces Large investments by Arab countries in U.S. property and businesses Many people worldwide work for Arab employers Arab Spring has impacted the political and economic environment

Economic Performance Developing Economies on the Verge Africa Considerable natural resources African nations remain very poor and undeveloped International trade is only beginning to serve as a major sources of income Populace divided into 3,000 tribes that speak 1,000 languages and dialects Major political instability Poverty, malnutrition, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector

Overview of the World Economic Outlook: Projections (percentage change, unless otherwise noted) continues

Overview of the World Economic Outlook: Projections (percentage change, unless otherwise noted)

World’s Most Competitive Nations, 2013

Market Potential Indicators Ranking for Emerging Markets, 2013

Review and Discuss How has globalization affected different world regions? What are some of the benefits and costs of globalization for different sectors of society? How has NAFTA affected the economies of North America and the EU affected Europe? What importance do these economic pacts have for international managers in North America, Europe, and Asia? Why are Russia and Eastern Europe of interest to international managers? Identify and describe some reasons for such interest.

Review and Discuss Many MNCs have secured a foothold in Asia, and many more are looking to develop business relations there. Why does this region of the world hold such interest for international management? Identify and describe some reasons for such interest. Why would MNCs be interested in South America, India, the Middle East, Central Asia, and Africa, the less developed and emerging countries of the world? Would MNCs be better off focusing their efforts on more industrialized regions? Explain.

Review and Discuss MMNCs from emerging markets (India, China, Brazil) are beginning to challenge the dominance of developed country MNCs. How might MNCs from North America, Europe, and Japan respond to these challenges?