© 2006 Prentice Hall 1-1 Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological PowerPoint by Kristopher Blanchard North Central University

© 2006 Prentice Hall1-2 The Global Business Environment The Global Marketplace is complex, interdependent, and dynamic Challenges include politics, culture, and technology Managers must find a balance between social responsibility, company image, and competitive strategies More focused on Global ManagementGlobal Management

© 2006 Prentice Hall1-3 The Global Business Environment Global competition is characterized by networks that bind countries to one another Globalism trends –A borderless world –Increase in exports –Increase in direct foreign investment –Dominance of trading blocs

© 2006 Prentice Hall1-4 Regional Trading Blocs “The dominance of the United States is already over. What is emerging is a world economy of blocs represented by NAFTA, The European Union, and ASEAN. There’s no one center in this world economy.” - Peter Drucker Fortune, January 12, 2004

© 2006 Prentice Hall1-5 Regional Trading Blocs TRIAD Market European Union Asian Market –China, Japan, South Asia NAFTA CAFTA

© 2006 Prentice Hall1-6 The TRIAD Three regional free-trade blocs –Western Europe, Asia, and North America Grouped around three dominant currencies –Euro, Yen, and Dollar In 2004, these trade blocs were expanding their boarders to include neighboring countries

© 2006 Prentice Hall1-7 Comparative Management in Focus - India India has witnessed a change in values, habits and options during the last decade The economy, second fastest growing in the world, is expected to grow close to 7% this year Fastest growing telecom market with more than one million new mobile phone subscriptions per month

© 2006 Prentice Hall1-8 Comparative Management in Focus - India Indians are buying 10,000 motorcycles a day India had 192 million households in 2001 –Only 31.6% have a television –Only 2.5% have a car, jeep or van Foreign investors have invested $5 billion into the Indian stock market

© 2006 Prentice Hall1-9 Information Technology Information Technology is transforming the international manager’s agenda more than any other item Information is no longer centrally or secretly controlled by governments Information technology is boosting productivity and electronic commerce around the world

© 2006 Prentice Hall1-10 The Globalization of Human Capital Globalization means we share jobs as well as goods. - FINANCIAL TIMES, August 27, 2003

© 2006 Prentice Hall1-11 The Globalization of Human Capital Forrester Research predicts that 3.3 Million US jobs will move offshore by % of the 500 US companies surveyed state that they use a global sourcing model

© 2006 Prentice Hall1-12 The Global Manager’s Role

© 2006 Prentice Hall1-13 The Political and Economic Environment One important aspect is the phenomenon of ethnicity –Driving force behind political instability Firms must assess political risks –Government actions that could adversely affect the long-run profitability or value of a firm

© 2006 Prentice Hall1-14 Political Risk – 7 Typical risk events Expropriation of corporate assets without prompt and adequate compensation Forced sale of equity to host-country nationals, usually at or below depreciated book value Discriminatory treatment against foreign firms in the application of regulations or laws Barriers to repatriation of funds (profits or equity)

© 2006 Prentice Hall1-15 Political Risk – 7 Typical risk events Loss of technology or other intellectual property (such as patents, trademarks, or trade names) Interference in managerial decision making Dishonesty by government officials, including canceling or altering contractual agreements, extortion demands, and so forth

© 2006 Prentice Hall1-16 Managing Political Risk Avoidance – either the avoidance or withdrawal of investment in a particular country AdaptationAdaptation – adjust to the political environment DependencyDependency – keeping the host nation dependent on the parent corporation HedgingHedging – minimizing the losses associated with political risk events

© 2006 Prentice Hall1-17 Economic Risk A country’s level of economic development generally determines its economic stability Economic risk falls into 2 categories –Government changes its fiscal policies –Government modifies its foreign-investment policies Managers are constantly reassessing economic risk

© 2006 Prentice Hall1-18 The Legal Environment Manager’s will comply with the host country’s legal system –Common Law – past court decisions act as precedents to the interpretation of the law –Civil Law – comprehensive set of laws organized into codes, interpretation is based on reference to codes and statues –Muslim law – based on religious beliefs, it dominates all aspects of life

© 2006 Prentice Hall1-19 The Legal Environment Commenting on Contract Law “In China, the old joke goes, a contract is a pause in the negotiation.” - VANESSA CHANG, KPMG PEAT MARWICK

© 2006 Prentice Hall1-20 The Technological Environment Corporations must consider the accelerating macro-environmental phenomenon of technoglobalism (rapid developments in information and communication technologies) Corporations must consider the appropriability of technology

© 2006 Prentice Hall1-21 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 - refers directly to the marketing and sales process via the Internet

© 2006 Prentice Hall1-22 Global E-Business Convenience in conducting business worldwide; facilitating communication across borders contributes to the shift toward globalization and a global market. An electronic meeting and trading place, which adds efficiency in conducting business sales. A corporate Intranet service, merging internal and external information for enterprises worldwide. Power to consumers as they gain access to limitless options and price differentials. A link and efficiency in distribution.

© 2006 Prentice Hall1-23 Looking Ahead Chapter 2 – Social Responsibility and Ethics –The Social Responsibility of MNC’s –Ethics in Global Management –Managing Interdependence

© 2006 Prentice Hall1-24 Global Management The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage Return

© 2006 Prentice Hall1-25 European Union Comprised of 25 nations 400 million people Elimination of tariffs has not eliminated national pride Global Managers face two major tasks –Strategic – how to deal with the EU as an non- European company –Cultural – How to deal with multiple sets of national cultures, traditions and customs Return

© 2006 Prentice Hall1-26 Asia Japan and the Four Tigers - Singapore, Hong Kong, Taiwan, and South Korea, –Each has an abundance of natural resources and labor China –A new east Asian economy is emerging, focused on greatly increased trade within the region and based on China rather than Japan. Return

© 2006 Prentice Hall1-27 North America The goal of NAFTA was to bring the US, Canada, and Mexico together to create more jobs, better working conditions and a cleaner environment 421 Million Consumers Has been very beneficial to Mexico Return

© 2006 Prentice Hall1-28 Adaptation Equity sharing includes the initiation of joint ventures with nationals (individuals or those in firms, labor unions, or government) to reduce political risks. Participative management requires that the firm actively involve nationals, including those in labor organizations or government, in the management of the subsidiary. Localization of the operation includes the modification of the subsidiary’s name, management style, and so forth, to suit local tastes. Localization seeks to transform the subsidiary from a foreign firm to a national firm. Development assistance includes the firm’s active involvement in infrastructure development (foreign- exchange generation, local sourcing of materials or parts, management training, technology transfer, securing external debt, and so forth) Return

© 2006 Prentice Hall1-29 Dependency Input control means that the firm maintains control over key inputs, such as raw materials, components, technology, and know-how. Market control requires that the firm keep control of the means of distribution Position control involves keeping certain key subsidiary management positions in the hands of expatriate or home-office managers. Staged contribution strategies mean that the firm plans to increase, in each successive year, the subsidiary’s contributions to the host nation Return

© 2006 Prentice Hall1-30 Hedging Political risk insurance is offered by most industrialized countries. Insurance minimizes losses arising from specific risks—such as the inability to repatriate profits, expropriation, nationalization, or confiscation— and from damage as a result of war, terrorism, and so forth. –The Foreign Credit Insurance Association (FCIA) also covers political risks caused by war, revolution, currency inconvertibility, and the cancellation of import or export licenses. Local debt financing (money borrowed in the host country), where available, helps a firm hedge against being forced out of operation without adequate compensation. In such instances, the firm withholds debt repayment in lieu of sufficient compensation for its business losses. Return