1 PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

Chapter 1 Environmental Foundation The specific objectives of this chapter are: 1. ASSESS the implications of globalization for countries, industries, firms, and communities. 2. REVIEW current trends in international investment and trade. 3. EXAMINE the present economic status in the major regions of the global community. 4. ANALYZE some of the major developments and issues in the various regions of the world.

3 International Management International management The process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments Multinational corporations (MNC) Operations in more than one country International sales, Nationality mix of managers and owners McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

4 Market Value Billions of U.S. Dollars Sales Billions of U.S. Dollars Top Ten Global MNCs McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.General Electric$ Microsoft ExxonMobil Pfizer Wal-Mart Stores Citigroup BP Aig Intel Royal Dutch’ Shell The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, Wal-Mart Stores BP ExxonMobil Royal Dutch/Shell General Motors DaimlerChrysler Ford Motor Toyotal Motor Mitsubishi General Electric134.19

5 Top Ten Global MNCs McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Profits Billions of U.S. Dollars 1.ExxonMobil Citigroup General Electric HSBC Holdings Royal Dutch/Shell Bodafone Group Bank of America Toyota Motor Microsoft BP9.54 The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, 2003 Share-Price Gain 1.Mizuho Financial636% 2.Research in Motion550 3.UFJ Holdings420 4.SK383 5.Rakuten381 6.Sumitomo Mitsui Fin Elan311 8.Bharti Tele-Ventures276 9.Yahoo! Japan Mitsui Trust Hldgs.229 Data: Morgan Stanley Capital International Standard & Poor’s Compustat Source:

6 Globalization Process of integration among countries around the world Social Political Economic Cultural Technological Benefits of growing global trade and investment Wealth Jobs Technology Lower prices

7 Globalization Criticisms of globalization Offshoring of business services jobs to lower-wage countries Growing trade deficits Slow wage growth Environmental and social impacts

8 Global and Regional Integration 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) Free Trade Agreement of the Americas (FTAA) European Union (EU) Association of Southeast Asian Nations (ASEAN)

9 Trends in International Investment and Trade International investments 80 percent from developed countries Foreign direct investment (FDI) Economic growth potential (esp. Japan, China and Asia in general) Increase in international trade Over one-half of world trade is accounted for by United States European Union Japan

10 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved All Countries1,340,0111,268,001 Canada96,437105,255 Europe 982,062 1,000,532 (select countries) United Kingdom 218, ,374 Germany 139, ,774 France 141, ,341 South and Central America 19,198 20,636 (select countries) Mexico 7,483 6,680 Brazil (in millions of dollars) 2003

11 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Other Western Hemisphere 50,167 48,921 (select countries) Bermuda 8,088 5,914 Netherland Antilles 4,014 4,048 UK islands, Caribbean 28,260 28,949 Africa 2,298 2,187 Middle East 7,456 7,931 (select countries) Israel 3,699 3,834 Kuwait9861,155 (in millions of dollars) 2003

12 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Asia and Pacific 183, ,539 (select countries) Japan 150, ,258 Australia 23,136 24,652 Taiwan 2,569 2,708 Singapore Hong Kong 1,879 1,981 (in millions of dollars) 2003 Adapted from: Table 1-2: Foreign Direct Investment in the United States, (in millions of dollars)

13 Foreign Direct Investment by the United States Abroad McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved All countries 1,601,414 1,788,911 Canada 170, ,409 Europe 848, ,087 (select countries) United Kingdom 239, ,640 Germany 67,404 80,163 France 42,999 47,914 South and Central America 131, ,449 (select countries) Mexico 55,724 61,526 Brazil 27,615 29,915 (in millions of dollars) 2003

14 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Other Western Hemisphere 152, ,574 (select countries) Bermuda 80,048 84,609 UK islands, Caribbean 49,806 54,507 Africa 16,290 18,960 Middle East 14,671 16,942 (select countries) Israel 5,632 6,208 Saudi Arabia 3,823 4,217 (in millions of dollars) 2003

15 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Asia and Pacific 267, ,490 (selected countries) Japan 65,939 73,435 Australia 34,409 40,985 Taiwan 7,608 10,961 Singapore 52,449 57,589 Hong Kong 41,571 44,323 China 10,499 11,877 (in millions of dollars) 2003 Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, (in millions of dollars)

16 Top 10 Trading Partners of the United States, McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Importing U.S. Exporting U. S. Rank CountryExports Rank CountryImports 1Canada169,924 2Mexico97,412 3Japan52,004 4United Kingdom33,828 5Germany28,832 6China28,368 7South Korea24,073 8Netherlands20,695 9Taiwan17,448 10France17,053 (in millions of dollars) 1Canada221,595 2China152,436 3Mexico138,060 4Japan118,037 5Germany68,113 6United Kingdom42,795 7South Korea37,229 8Taiwan31,599 9France29,219 10Ireland26,747 Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).

17 Economic Performance U. S., Canada and Mexico combine for $12 trillion in purchasing power United States U.S. firms hold market dominance in many European markets and are gaining market share in Asia Foreign MNC’s find the U. S. to be a lucrative market in which to expand Canada The largest U.S. trading partner. Legal and business environment similar to the U.S. North America

18 Economic Performance Mexico very strong maquiladora industry foreign manufacturers can send materials to their Mexican-based plants, process or assemble the products, and then ship them back out of Mexico with only the value added being taxed. now competitive with Asia for the U.S. market lower-cost labor proximity to the American market (lower transportation costs and faster delivery) Increasingly active in EU and Asian markets North America

19 Economic Performance South American countries have experienced difficult economic problems High inflation Heavy foreign dept Major factor in success is intercountry trade Free market policies among South American countries Survey of business leaders in S.A. countries finds that doing business with U.S. is most important agenda South America

20 Economic Performance Important factors Privatization of traditionally nationalized industries Emergence of the EU as an operational economic union Economic linkages between the EU and newly emerging Central and Eastern European countries Foreign MNCs gain foothold in EU by Acquisitions Alliances Cooperative R&D efforts Challenge is to absorb former communist-bloc countries Europe

21 Economic Performance Important factors (Russia, Czech Republic, Hungary, Poland) Perestroika—economic and political restructuring Dismantling of Russian price controls Privatization Inflation Membership in International Monetary Fund (IMF) Crime Political uncertainty Central and Eastern Europe

22 Three Eras of the Soviet Union McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Traditional RussianRed Executive ManagersMarket-Oriented Society (Pre-1917)( )(1987-present) Centralization of authority and responsibility Collective action Dual ethical standards (honesty in personal relationships, deception in business relationships) Centralized leadership Communist domination Party service Rise of collective enterprises Dual ethical standards (honesty in personal conduct with employees, dishonesty in business dealings) Use of informal influence to obtain favors Sharing of power with numerous stakeholders in state enterprises Responsibility for private enterprise success Effective delegation of responsibility to employees Use of informal influence to obtain favors Bipolar extremes of cynicism in problem solving

23 Three Eras of the Soviet Union McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Traditional RussianRed Executive ManagersMarket-Oriented Society (Pre-1917)( )(1987-present) Feelings ranging from helplessness (only a religious savior will deliver people from their plight) to bravado (belief in one’s ability to outsmart others) Feelings of helplessness due to producing inferior products and bravado in operating some of the world’s largest organizations Use of overpromising to both clients and business partners A high degree of achievement motivation regarding quality service and products but social contempt for success Source: Adapted from Sheila Puffer, “Understanding the Bear: A Portrait of Russian Business Leaders,” Academy of Management Executive, February 1994, pp. 41–61. Used with permission. Adapted from Table 1-5: The Three Eras of the Soviet Union.

24 Economic Performance Japan Phenomenal economic success in 1970s and 1980s Ministry of International Trade and Industry (MITI) Keiretsus Vertically integrated industries Holdings provide assistance needed in providing goods and services to end users Decade long recession in 1990s Bank loans backed by real estate or projected revenues By 2000, most major banks had billions of dollars in uncollectible loans International competition has increased Asia

25 Economic Performance China Annual real economic growth of 10 percent during the 1980s and early 1990s More recent growth of 8 percent Healthy and growing economy GDP growth of 91 percent in 2003 Attractive to foreign investors despite major political risk Product pirating is major problem Complicated and high-risk venture Asia

26 Economic Performance The Four Tigers South Korea Chaebols (large family-held Korean conglomerates) Affected by declining economies of South east Asia in 1990s) Hong Kong Now part of People’s Republic of China Uncertainty about role the Chinese government intends to play in local governance Asia

27 Economic Performance Singapore Least hurt by economic downturn of 1990s Taiwan Progression from labor-intensive economy to one dominated by technologically sophisticated industries (banking, electricity generation, petroleum refining and computers) Asia The Four Tigers

28 The World’s Most Competitive Nations, 2003 Ranking McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. United States1 Australia2 Canada3 Malaysia4 Germany5 Taiwan6 United Kingdom7 France8 Spain9 Thailand10 CountryRank Source: World Competitive Scoreboard, Adapted from Table 1-6: The World’s Most Competitive nations, 2003 Ranking

29 Economic Performance The Baby Tigers Thailand, Malaysia, Indonesia Large population base Inexpensive labor Considerable natural resources Attractive to outside investors Southeast Asia

30 Market Potential Indicators Table 1-7: Market Potential Indicators Ranking for emerging Markets, 2003.

31 Economic Performance India Low per capita GDP Recent trend of locating software and high value- added services to this country Attractive to U.S. and British investors (well educated, English speaking, technologically sophisticated workers) Middle East and Central Asia Large oil reserves Highly unstable geopolitical and religious forces Plagued by continuing economic problems Developing and Emerging Countries

32 Economic Performance Africa Considerable natural resources African nations remain very poor and undeveloped International trade is not a major source of income Populace divided into 3,000 tribes that speak 1,000 languages and dialects Major political instability Poverty, starvation, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector Developing and Emerging Countries