1. 1 Chapter 8 - Physical and Environmental Forces International Business by Ball, McCulloch, Frantz, Geringer, and Minor

2. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-2 Chapter Objectives  Appreciate the relevance of four elements of geography  Understand the importance of a country’s location in political and trade relationships  Comprehend the importance of inland waterways  Recognize that climate exerts a broad influence on business  Understand why managers must monitor changes in the discovery and the use of energy sources.  Understand why managers must be alert to changes in a nation’s infrastructure  Appreciate the impact of industrial disasters

3. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-3 Introduction  Important Geographical Elements –Location –Topography –Climate –Natural Resources

4. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-4 Location  Political Relationships –Austria is taking advantage of its location to Increase trade with the East. Become the principal financial intermediary between Western and Eastern Europe. Strengthen its role as the regional headquarters for international businesses operating in Eastern Europe. –Austria’s location enabled the country to develop close trading links with the European Union members.

5. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-5 Trade Relationships  Geographical proximity –Often the major reason for trade between nations. –The largest and the third-largest trading partners of the United States—Canada and Mexico—lie on its borders.

6. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-6 Trade Relationships  Geographical proximity –Has always been a major factor in the formation of trading groups. EU, EFTA, and the North American Free Trade Agreement. Japan’s sales to the Association of Southeast Asian Nations are over twice of either the U.S. or Europe.

7. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-7 Topography  The surface features of a region.  Differences in topography may require products to be altered. –Cake mixes and internal combustion engines are examples These products may need to be adapted to different environmental elements.

8. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-8 Mountains and Plains  Mountains Divide Markets in –Spain –Switzerland –China –Colombia  Population Concentration Mountains also create concentrations of population

9. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-9 Deserts and Tropical Forests  Deserts and Tropical Forests –Separate markets Increase the cost of transportation, and create concentrations of population.

10. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-10 Deserts and Tropical Forests  Deserts –Australia Continent the size of the U.S. but with only 19 million inhabitants. Population tends to be concentrated –Along the coastal areas in and around the state capitals. –In the southeastern fifth of the nation, where more than one-half of the population lives.

11. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-11 Deserts and Tropical Forests  Tropical Rain Forests –Brazilian Amazon Called one of the world’s greatest deserts because of its low population density.  Canadian Shield A massive area of bedrock covering one-half of Canada’s land mass.

12. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-12 Deserts and Tropical Forests  Caution must be used when drawing conclusions about population density. –Regions may have significantly higher population density due to mountains, tropical rain forests, or bodies of water.

13. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-13 Bodies of Water  Inland waterways –Rhine waterway The world’s most important inland waterway system. The main transportation artery of Europe. Carries a greater volume of goods than do the combined railways that run parallel to it.

14. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-14 Bodies of Water  Other Significant Waterways –The Amazon River in South America –The Parana and Paraguay Rivers in the Mercosur region. –The Yangtze (China), the Ganges (India), and the Indus (India) Rivers is Asia. –The Great Lakes--St. Lawrence and the Mississippi River in the United States.

15. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-15 Climate  Climate (temperature and precipitation) –Perhaps the most important element of physical forces. –Sets the limits on what people can do both physically and economically.

16. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-16 Climate  Nonclimatic factors More important than climate in the development of trade and manufacturing. –Mineral deposits –Accessibility to an area –Economic and political organizations –Cultural tradition –Availability of capital –Growth of technology

17. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-17 Climate and Development  Climatic Differences –It has been suggested that the greatest economic and intellectual development has occurred in the temperate climates of Northern Europe and the United States. Reasons suggested is less temperate climates limit human energy and mental powers.

18. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-18 Natural Resources  Anything supplied by nature on which people depend. –Principal types of natural resources important to businesspeople include Energy Nonfuel minerals

19. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-19 Natural Resources  Energy –Petroleum –Coal and Nuclear Power –Natural Gas –Sources of Renewable Energy

20. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-20 Energy  Petroleum –Conventional sources - Oil Estimates of oil consumption change because –New discoveries continue to be made in proven fields. –Governments open up their countries to exploration and production. –New techniques enable producers to obtain greater output from wells already in operation. –Automated, less expensive equipment lowers drilling costs.

21. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-21 Energy  Petroleum –Unconventional sources Oil sands –Located primarily in Athabasca, Alberta, Canada. Oil-bearing shale –Largest source is in Utah, Colorado, and Wyoming. Coal –Used primarily in South Africa Natural gas –Technology being developed by Chevron, Shell, Exxon, and BP Amoco

22. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-22 Energy  Coal and Nuclear Power –Because of public concern about safety of nuclear power plans and waste disposal, this energy source is losing market share.  Natural Gas –Fastest-growing energy source. –Use expected to more than double between 1997 and 2020.

23. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-23 Energy  Sources of Renewable Energy –Types include Hydroelectric, solar, wind, geothermal, waves, tides, biomass, and ocean thermal energy conversion

24. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-24 Energy  Sources of Renewable Energy –Of the eight types, hydroelectric has had an extensive application. An estimated 7 percent of the total energy consumed in the world comes from hydroelectric installations.

25. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-25 Nonfuel Minerals  Nearly all of the world’s chrome, managanese, platinum, and vanadium are produced by South Africa and the former Soviet Union. –The United States depends on South Africa To supply 79 percent of its platinum, 78 percent of its chromium, 41 percent of it manganese, and 20 percent of its vanadium.

26. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-26 Changes Make Monitoring Necessary  Mineral Resources –One of the most fascinating discoveries is the fuel cell. First used by NASA in space capsules. Chemically converts fuel directly to electricity without having to burn it.

27. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-27 Changes Make Monitoring Necessary  Mineral Resources –The U.S. Council for Automotive Research Formed by Ford, General Motors, and Chrysler to develop automobiles that use advanced fuel cell technology.

28. McGraw-Hill/Irwin ©2002 The McGraw-Hill Companies All Rights Reserved 8-28 Destruction of Natural Resources  The Bhopal Disaster  Chernobyl: The World’s Worst Nuclear Disaster  Alaskan Oil Spill  Eco-Terrorism in the Gulf War  “Biggest Ecological Disaster since Chernobyl”