Introduction to Business Culture

Opening Profile: Economic Crisis Spreads Through Financial Globalization What caused the global economy to collapse? Toxic Assets: Highly leveraged securities Subprime mortgage mess Finance has become one of the most international of industries Failure of banks and other financial institutes: Fannie Mae & Freddie Mac Lehman Brothers AIG And many more… What caused the global economy to collapse? Toxic Assets: Highly leveraged securities Subprime mortgage mess Finance has become one of the most international of industries Failure of banks and other financial institutes: Fannie Mae & Freddie Mac Lehman Brothers AIG And many more… 1-2

Opening Profile: Typical Challenges that Managers Face in the 21 st Century Political and cultural differences Global competition Terrorism Technology Finding ways to balance their social responsibilities, their images, and their competitive strategies Political and cultural differences Global competition Terrorism Technology Finding ways to balance their social responsibilities, their images, and their competitive strategies 1-3 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

What is International Management? 1-4 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 1-5

Challenges to Globalism Backlash against capitalism and rekindling of nationalism Increased protectionism of high-demand resources Need to develop top managers with international understanding and experience Backlash against capitalism and rekindling of nationalism Increased protectionism of high-demand resources Need to develop top managers with international understanding and experience 1-6

Benefits of Globalism Access to more markets Growth of developing economies Opportunities for flexibility and efficiency Opportunities for small and medium-sized enterprises (SMEs) Access to more markets Growth of developing economies Opportunities for flexibility and efficiency Opportunities for small and medium-sized enterprises (SMEs) 1-7

Regional Trading Blocks The dominance of the United States is already over. What is emerging is a world economy of blocs represented by: NAFTA, EU, and ASEAN. Much of today’s world trade takes place within these three regional free-trade blocs: Western Europe, Asia, and the Americas Much of today’s world trade are grouped around three dominant currencies: euro, yen, and the dollar The dominance of the United States is already over. What is emerging is a world economy of blocs represented by: NAFTA, EU, and ASEAN. Much of today’s world trade takes place within these three regional free-trade blocs: Western Europe, Asia, and the Americas Much of today’s world trade are grouped around three dominant currencies: euro, yen, and the dollar 1-8

The European Union EU A unified market over 400 million people living in 27 nations EU poses two challenges for global managers: 1. “Fortress” Europe 2. Dealing with multiple cultures within this unified market A unified market over 400 million people living in 27 nations EU poses two challenges for global managers: 1. “Fortress” Europe 2. Dealing with multiple cultures within this unified market 1-9 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

ASIA CHINA INDIA ASEAN/SAARC JAPAN ASIAN TIGERS Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 10

The Americas North American Free Trade Agreement (NAFTA) Central America Free Trade Agreement (CAFTA) MERCOSUR North American Free Trade Agreement (NAFTA) Central America Free Trade Agreement (CAFTA) MERCOSUR 1-11 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Other Regions in the World The Russian Federation Middle East The African Union—AU South Africa Less developed countries—LDCs Low Gross National Product (GNP) Low Gross Domestic Product (GDP) Large, relatively unskilled workforce High international debt The Russian Federation Middle East The African Union—AU South Africa Less developed countries—LDCs Low Gross National Product (GNP) Low Gross Domestic Product (GDP) Large, relatively unskilled workforce High international debt 1-12 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Comparative Management in Focus: China Keeps on growing The fastest growing GDP rate (over 9 percent/year) for 30 years Economy has doubled every eight years for 30 years Surpassed Germany in 2009 as the world’s largest exporter Investing heavily in energy and other natural resources in 2009 that could give it an economic advantage it has never had before However: Weakening demand for Chinese exports—due to global recession The political, legal, and social environments are evolving The fastest growing GDP rate (over 9 percent/year) for 30 years Economy has doubled every eight years for 30 years Surpassed Germany in 2009 as the world’s largest exporter Investing heavily in energy and other natural resources in 2009 that could give it an economic advantage it has never had before However: Weakening demand for Chinese exports—due to global recession The political, legal, and social environments are evolving 1-13 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Management Focus: Intel Brings Changes to Vietnam’s Economy and Culture United States opened trade relations with Vietnam in Vietnam’s rapid growth can be contributed to those aspects of globalization that attracts corporations such as Intel. Intel is taking advantage of new markets and lower costs of production. Intel’s success started with awareness of the tight control of the Vietnamese government. United States opened trade relations with Vietnam in Vietnam’s rapid growth can be contributed to those aspects of globalization that attracts corporations such as Intel. Intel is taking advantage of new markets and lower costs of production. Intel’s success started with awareness of the tight control of the Vietnamese government Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

The Impact of the Information Technology Making Geographic barriers less relevant Lowering cultural barriers Encouraging convergence of consumers’ tastes and preferences Making Geographic barriers less relevant Lowering cultural barriers Encouraging convergence of consumers’ tastes and preferences 1-15 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Globalization of Human Capital Increasing trend in the offshoring of manufacturing jobs and outsourcing of white- color jobs Prediction that 3.3 million U.S. jobs in service sector may be lost/outsourced by 2015 Increasing trend in the offshoring of manufacturing jobs and outsourcing of white- color jobs Prediction that 3.3 million U.S. jobs in service sector may be lost/outsourced by Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

The Global Manager’s Role 1-17

The Political and Economic Environment Sustainability—economic, political, social, and environmental—has become a significant worldwide issue Ethnicity—a driving force behind political instability around the world Religion—religious disputes lie at the heart of regional instabilities: former Yugoslavia, Northern Island, the Middle East… Sustainability—economic, political, social, and environmental—has become a significant worldwide issue Ethnicity—a driving force behind political instability around the world Religion—religious disputes lie at the heart of regional instabilities: former Yugoslavia, Northern Island, the Middle East… 1-18

Political Risk Examples: 1-19 Any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm Venezuela took control of cement plants and offices belonging to Mexico, after failing to reach an agreement in nationalization talks. Bolivian president’s move to nationalize the national gas industry followed that in Venezuela. Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

The Political Risk Cont. Typical Political Risks Political Risk Assessment 1-20 Expropriation and confiscation Nationalization Terrorism Macro-political risk event Micro-political risk event Discriminatory treatment Barriers to repatriation of funds Interference in managerial decision making Dishonesty by government officials Expropriation and confiscation Nationalization Terrorism Macro-political risk event Micro-political risk event 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 Helps companies manage exposure to risk and minimize financial loss Two forms: Consultation with experts Development of internal staff capabilities

Managing Political Risk Avoidance and Adaptation Dependency and Hedging 1-21 Equity sharing Participating management Localization of the operation Development assistance Equity sharing Participating management Localization of the operation Development assistance Input control Market control Position control Staged contribution Political risk insurance Local debt financing Input control Market control Position control Staged contribution Political risk insurance Local debt financing Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

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 1-22 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Economic Risk Is closely related to political risk Is determined by a country’s ability or intention to meet its financial obligations Is closely related to political risk Is determined by a country’s ability or intention to meet its financial obligations 1-23 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

Categories of Economic Risk 1. Loss of profitability due to abrupt changes in monetary and fiscal policies 2. Loss of profitability due to changes in foreign investment policies 3. Risk of currency exchange rate Example: devaluation of peso in 1990s 1. Loss of profitability due to abrupt changes in monetary and fiscal policies 2. Loss of profitability due to changes in foreign investment policies 3. Risk of currency exchange rate Example: devaluation of peso in 1990s 1-24

Managing the Economic Risk Quantitative Approach Qualitative Approach Checklist Approach Combination of these Methods 1-25

The Legal Environment Consists of the local laws and legal systems of those countries in which an international company operates and of international law, which governs relationships between sovereign countries 1-26

The Legal Environment Types of Legal Systems Approaches to Contract Law 1-27 Common law Civil law Islamic law Common law Civil law Islamic law Common law: details must be written in the contract to be enforced Civil law: assumes promises will be enforced without specifying the details In Asia the contract may be in the relationship, not on the paper Common law: details must be written in the contract to be enforced Civil law: assumes promises will be enforced without specifying the details In Asia the contract may be in the relationship, not on the paper

Other Regulatory Issues Protectionist policies, such as tariffs or quotas The attractiveness of the tax system The level of government involvement in the economic and regulatory environment Protectionist policies, such as tariffs or quotas The attractiveness of the tax system The level of government involvement in the economic and regulatory environment 1-28 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

The Technological Environment The appropriability of technology The International Convention for the Protection of Industrial Property (the Paris Union) Inappropriate use of technology by others Appropriateness of technology for the local environment The appropriability of technology The International Convention for the Protection of Industrial Property (the Paris Union) Inappropriate use of technology by others Appropriateness of technology for the local environment 1-29

Global E-Business Internet based activity E-Commerce— marketing and sales process via the internet B2B— Business to Business B2C— Business to Customer 1-30 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall