1. Chapter 1: Assessing the Environment
Political, Economic, Legal, Technological
PowerPoint by:
Mohamad Sepehri
Jacksonville University
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© 2010 Pearson Prentice Hall

2. Chapter Learning Goals
Understand the global business environment and how it affects the strategic and operational decisions which managers must make.
Critically assess the developments, advantages, and disadvantages of globalization.
Review the role of technology in international business.
Develop an appreciation for the ways in which political, economic, legal, and technological factors and changes impact the opportunities that companies face.
Discuss the complexities of the international manager’s job.
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3. 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…
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4. Opening Profile: Typical Challenges that Managers Face in the 21st Century
Political and cultural differences
Global competition
Terrorism
Technology
Finding ways to balance their social responsibilities, their images, and their competitive strategies
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5. What is International Management?
The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage
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6. What is Globalization?
Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy
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7. 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
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8. Benefits of Globalism Access to more markets
Growth of developing economies
Opportunities for flexibility and efficiency
Opportunities for small and medium-sized enterprises (SMEs)
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9. 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
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10. The European Union EU
A unified market over 400 million people living in 27 nations
EU poses two challenges for global managers:
“Fortress” Europe
Dealing with multiple cultures within this unified market
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11. Asia
China
India
ASEAN
South Asia Association of Regional Cooperation (SAARC)
Japan
Asian Tigers:
Hong Kong
Singapore
South Korea
Taiwan
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12. The Americas North American Free Trade Agreement (NAFTA)
Central America Free Trade Agreement (CAFTA)
MERCOSUR
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13. 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
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14. Comparative Management in Focus: China Keeps on Chugging
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 that could give it an economic advantage it has never had before
However:
Weakening demand for Chinese exports—due to global recession
Chinese government may not be able to prevent the financial crisis from derailing the country’s economic miracle
The political, legal, and social environments create unpredictability for businesses
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15. Management Focus: Intel Brings Changes to Vietnam’s Economy and Culture
United States opened trade relations with Vietnam in 2000.
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.
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16. The Impact of the Information Technology
Making Geographic barriers less relevant
Lowering cultural barriers
Encouraging convergence of consumers’ tastes and preferences
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17. 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
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18. The Global Manager’s Role
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19. The Political & 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…
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20. Political Risk Examples:
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.
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21. The Political Risk Cont.
Typical Political Risks
Political Risk Assessment
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
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22. Managing Political Risk
Avoidance and Adaptation
Dependency and Hedging
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
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23. 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
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24. Economic Risk Is closely related to political risk
Is determined by a country’s ability or intention to meet its financial obligations
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25. Categories of Economic Risk
Loss of profitability due to abrupt changes in monetary and fiscal policies
Loss of profitability due to changes in foreign investment policies
Risk of currency exchange rate
Example: devaluation of peso in 1990s
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26. Managing the Economic Risk
Quantitative Approach
Qualitative Approach
Checklist Approach
Combination of these Methods
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27. 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
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28. Approaches to Contract Law
The Legal Environment
Types of Legal Systems
Approaches to Contract 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
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29. 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
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30. 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
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31. E-Commerce—marketing and sales process via the Internet
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—marketing and sales process via the Internet
B2B—Business to Business
B2C—Business to Customer
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