1. International Management Mgmt 446 Day 3 Fall, 2011 Sully Taylor

2. Agenda Library – research sources for project. Choose countries, and day of International News Report Topics: Political and Economic Risk International News Report The Interdependence of Countries and MNCs International Social Responsibility Nokia Case Ethics in International Management

3. The Global Manager’s Role 1-3 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

4. http://www.ted.com/talks/lang/eng/parag_khanna_maps_th e_future_of_countries.html

5. What is International Management? 1-5 The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

6. Political Risk Examples: 1-6 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

7. The Political Risk Cont. Typical Political Risks Political Risk Assessment 1-7 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 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

8. Managing Political Risk Avoidance and Adaptation Dependency and Hedging 1-8 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 (OPIC and FCIA) Local debt financing Input control Market control Position control Staged contribution Political risk insurance (OPIC and FCIA) Local debt financing Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

9. 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 1-9 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

10. 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 1-10 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

11. Managing the Economic Risk Quantitative Approach Qualitative Approach Checklist Approach Combination of these Methods 1-11 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

12. International News Article (10 minutes) “ Protests on Wall Street” Work with your team. Decide what the article illustrates about the international management topics in Chapters 1 and 2. Be specific about how the article illustrates a topic. Describe what you learned from analyzing the article. This could be specific information, and/or an insight into doing business internationally that you did not have before. What discussion question would you create from reading this article that could provoke an fruitful, interesting class discussion?

13. International news article For non-US firms, particularly in the financial industry: Ties into political and economic risk. Pressure of protesters may lead to changes in tax regime, regulation of banks, and even a slow down of the economy. Ties into terrorism risk – will they get violent, and direct wrath at physical buildings of financial institutions? Ties into Chapter 2, sustainability ….particularly social. If a country in which a company is operating is becoming subjected to the negative results of economic inequity, that can have serious repercussions for the company’s ability to operate there.

14. 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 1-14 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

15. The Legal Environment Types of Legal Systems Approaches to Contract Law 1-15 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 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

16. 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 1-16 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

17. 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 1-17 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

18. 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 1-18 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

19. Issues discussed in the Chapter 1 and 2 are important to your project…. What are the legal and other aspects of doing business in this country that may be a challenge for a foreign company (see Chapter 1 and 2)? Are there issues such as currency exchange controls, tariffs, intellectual property protection laws, ownership rules that would affect investment by this company in this country? Is the host government friendly to foreign companies? Are there any sustainability issues or ethics issues that are salient in this country (Chapter 2)?

20. 2-20 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

21. The Social Responsibility of MNC’s Profit is MNC’s only goal MNCs should anticipate and solve social needs 2-21 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall CSR Dilemma

22. International Social Responsibility Is the expectation that MNCs concern themselves with the social and economic effects of their decisions. ….For MNCs, is complex because of the additional stakeholders in the firm’s activities through operating overseas.

23. What are some of the companies with the best corporate social responsibility? Worst? By Corporate Responsibility Magazine, based on transparency: Best: Intel, General Mills, IBM, Kimberly-Clark: Only three companies have made the list all 10 years: Intel, Cisco and Starbucks. Worst: Abercrombie & Fitch; Weight Watchers, Scripps Networks Interactive. No relevant data provided, no transparency.

24. Criteria for transparency Environment Climate Change Human Rights Employee Relations Philanthropy Financial Governance Lobbying

25. MNC Stakeholders Home CountryHost Society in General MNC Stakeholders Home CountryHost Society in General 2-25 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall Owners Customers Employees Unions Suppliers Distributors Strategic Allies Community Economy Government MNC Economy Employees Community Host Government Consumers Strategic Allies Suppliers Distributors Global interdependence/standard of living Global environment and ecology Sustainable resources Population’s standard of living

26. Beijing Skyline

27. Global Consensus or Regional Variation? Global Corporate Culture: An integration of the business environments in which firms currently operate The United States and Europe adopt strikingly different positions that can be traced largely to history and culture. 2-27 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

29. General Guidelines for Code of Morality and Ethics in Individual Countries Moral Universalism Addressing the need for a moral standard that is accepted by all cultures Ethnocentric Approach Applying the morality used in home country—regardless of the host country’s system of ethics Ethical Relativism Adopting the local moral code of whatever country in which a firm is operating 2-29 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

30. International Codes of Conduct The Sweatshop Code of Conduct The Electronic Industry Code of Conduct (EICC) Social Accountability 8000 (SA 8000) GRI (not in text but very important) The Sweatshop Code of Conduct The Electronic Industry Code of Conduct (EICC) Social Accountability 8000 (SA 8000) GRI (not in text but very important) 2-30 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

31. Dealing with Confusion About Cross-Cultural Dilemmas Engaging stakeholders (and sometimes NGOs) in a dialogue Establishing principles and procedures for addressing difficult issues such as labor standards for suppliers, environmental reporting, and human rights Adjusting reward systems to reflect the company’s commitment to CSR Engaging stakeholders (and sometimes NGOs) in a dialogue Establishing principles and procedures for addressing difficult issues such as labor standards for suppliers, environmental reporting, and human rights Adjusting reward systems to reflect the company’s commitment to CSR 2-31 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

32. Managing Subsidiary—Host-Country Interdependence 2-32 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall Require managers to go beyond issues of CSR to deal with specific concerns of MNC and host-country relationship. MNCs must learn to accommodate the needs of other organizations and countries.

33. Managing Subsidiary—Host-Country Interdependence 1. MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries. 2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host- country people do not have much control over the operations of corporations within their borders. 3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel. 1. MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries. 2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host- country people do not have much control over the operations of corporations within their borders. 3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel. 2-33 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall Common Criticism of MNC Subsidiary Activities

34. Common Criticism of MNC Subsidiary Activities Cont. 4. MNCs do not adapt their technology to the conditions that exist in host countries. 5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries. 6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods. 7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries. 8. MNCs dominate major industrial sectors, thus contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees. 9. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development. 4. MNCs do not adapt their technology to the conditions that exist in host countries. 5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries. 6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods. 7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries. 8. MNCs dominate major industrial sectors, thus contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees. 9. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development. 2-34 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

35. MNCs Benefits and Costs to Host Countries BenefitsCosts Access to outside capitalCompetition for capital Foreign-exchange earningsIncreased interest rates Access to technologyInappropriate technology Infrastructure developmentDevelopment investment exceeds benefits Creation of new jobsLimited skills development Local management development Few managerial jobs for locals 2-35 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

36. Managing the Interdependence The Risks of Interdependence Issues in Managing Environmental Interdependence 2-36 Nationalism Protectionism Governmentalism Nationalism Protectionism Governmentalism Dumping of 8000 drums of toxic waste in Koko, Nigeria The export of U.S. pesticides Industrial ecology Dumping of 8000 drums of toxic waste in Koko, Nigeria The export of U.S. pesticides Industrial ecology Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall

37. Recommendations for MNCs Operating in and Doing Business with Developing Countries 1. Do no intentional harm. This includes respect for the integrity of the ecosystem and consumer safety. 2. Produce more good than harm for the host country. 3. Contribute by their activity to the host country’s development. 4. Respect the human rights of their employees. 5. To the extent that local culture does not violate ethical norms, respect the local culture and work with and not against it. 6. Pay their fare share of taxes. 7. Cooperate with the local government in developing and enforcing just background institutions. 1. Do no intentional harm. This includes respect for the integrity of the ecosystem and consumer safety. 2. Produce more good than harm for the host country. 3. Contribute by their activity to the host country’s development. 4. Respect the human rights of their employees. 5. To the extent that local culture does not violate ethical norms, respect the local culture and work with and not against it. 6. Pay their fare share of taxes. 7. Cooperate with the local government in developing and enforcing just background institutions. 2-37 Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall