1. 1-1 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved.

2. 1-2 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Part One: Environmental Foundation International Management, 5th ed.

3. 1-3 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Management, 5th ed. Chapter One Hodgetts and Luthans Worldwide Developments

4. 1-4 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved.  REVIEW current trends in international investment and trade  EXAMINE the present economic status in the major regions of the global community  ANALYZE some of the major developments and issues in various regions of the world Objectives of the Chapter

5. 1-5 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Introduction  International Management  The process of applying management concepts and techniques in a multinational environment  Multinational Corporation (MNC)  Operates in more than one country  Sells its products in international markets  Managers and owners are of different nationalities  Must learn to work effectively with people from different countries  Small and medium-sized businesses are being affected by the trend toward internationalization

6. 1-6 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Increasing Internationalization  Regional Developments  North American Free Trade Agreement (NAFTA)  A free trade agreement between the U.S., Canada, and Mexico which has in essence removed all barriers to trade  May expand to include Latin American countries  European Union (EU)  Consists of 15 countries  Most trade barriers have been removed  Euro is the common currency  Pacific Rim  Japan and China are the dominant economies  Association of Southeast Asian Nations (ASEAN)

7. 1-7 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Increasing Internationalization (cont.)  International Investment and Trade  Foreign direct investment (FDI)  The amount invested in another country  Approximately 80% of all international investments come from developed countries  International trade has increased substantially over the last two decades  Percentage of world trade accounted for by the three major trading blocs has remained fairly consistent  Groups’ share of imports and exports remains in the range of 55 - 59 percent  MNCs buy domestic companies rather than trying to export products to that country

8. 1-8 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Table 1-1 FDI in the U.S., 1998-1999* 1998 1999 All Countries 793,748 986,668 Canada 74,143 79,716 Europe 528,601 685,845 United Kingdom 143,165 183,145 Germany 94,404 111,138 France 58,051 77,622 South and Central America 9,819 10,606 Other Western Hemisphere 18,034 33,984 Africa 882 1,545 Middle East 6,346 7,087 Asia and Pacific 155,943 167,884 Japan 134,590 148,947 * in millions of dollars

9. 1-9 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Table 1-2 FDI by the U.S., 1998-1999* 1998 1999 All Countries1,104,012 1,132,622 Canada 101,871 111,707 Europe 528,113 581,791 United Kingdom 192,663 213,070 Germany 46,405 49,617 France 42,064 39,984 South and Central America 74,254 74,839 Other Western Hemisphere 68,459 77,569 Africa 14,241 15,062 Middle East 10,632 11,137 Asia and Pacific 155,364 185,912 Japan 35,633 47,786 * in millions of dollars

10. 1-10 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Table 1-4 Top 10 trading Partners of the U.S.: 1999 * in millions of dollars Importing U.S. Exporting U.S. Rank Country Exports*Rank Country Imports* 1Canada166,600.0 1Canada198,711.1 2Mexico 86,908.9 2Japan130,863.9 3Japan 57,465.7 3Mexico109,720.5 4U.K. 38,407.1 4China 81,788.2 5Germany 26,800.2 5Germany 55,228.4 6South Korea 22,958.4 6U.K. 39,237.2 7Netherlands 19,436.6 7Taiwan 35,204.4 8Taiwan 19,131.4 8South Korea 31,178.6 9France 18,877.4 9France 26,708.6 10Singapore 16,247.3 10Italy 22,356.5

11. 1-11 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions  North America  NAFTA has resulted in:  Elimination of tariffs as well as import and export quotas  Opening of government procurement markets to companies in partner countries  Increased opportunity to make investments in partner countries  Increased ease of travel between partner countries  Removal of restrictions on agricultural products, auto parts, and energy goods  United States  U.S. MNCs have holdings throughout the world  Foreign MNCs find U.S. to be a lucrative market

12. 1-12 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  North America (cont.)  Canada  U.S.’s largest trading partner  Legal and business environments similar to those of the U.S.  Target of increased international investment  Mexico  Economic fortunes have varied in the recent past  Maquiladora industry  Arrangement created by the government that permits the flow of materials and products in and out of Mexico with only the value added being taxed  Different views about effect on American jobs  Mexican firms expanding worldwide operations

13. 1-13 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  South America  Countries have experienced difficult economic problems  Brazil  Attracted substantial foreign investment  Economic future still uncertain  Chile  Economic success story in South America  Future still uncertain  Mercosur and Andean Common Market  promote economic and social integration and cooperation  Countries increasingly looking to trade with the U.S.

14. 1-14 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  Europe  Privatization of traditionally nationalized industries  EU  intended eliminate all trade barriers among member countries  EU-based firms “plan globally, act locally”  To gain a foothold in the EU, foreign MNCs have:  created acquisitions and alliances  begun co-operative research and development programs  European Research Cooperation Agency (Eureka)  EU agency that funds projects in a number of fields to make Europe more productive and competitive in the world market  Future challenge is the absorption of formerly communist Eastern neighbors

15. 1-15 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  Europe (cont.)  Central and Eastern Europe  Collapse of the Soviet Union in 1991  Glasnost (openness)  Perestroika (economic and political restructuring)  Russia  Undergone economic reform  Many attempts to stimulate the economy  Greater privatization required  Criminal activity increasing  Czech Republic, Hungary, and Poland  Former communist countries that have become most visible in international arena  Some former communist countries are struggling

16. 1-16 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  Asia  Japan  Economic success in the 1970s and 1980s attributed to:  Cultural values  Ministry of International Trade and Industry (MITI)  Government agency that identifies and ranks national commercial pursuits  Guides the distribution of national resources to meet these goals  Keiretsus  Organizational arrangement in which a large group of vertically integrated companies are bound together by cross- ownership, interlocking directorates, and social ties provide goods and services  Severe recession during the past ten years  Target for foreign investment

17. 1-17 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  Asia (cont.)  China  Large reported annual growth in GDP  Attracts substantial foreign investment  Remains a political risk for investors  MNCs find it difficult to do business in China  The Four Tigers  South Korea  Chaebols  Large,family-held conglomerates that have considerable political and economic power  Hit hardest by Southeast Asia economic crisis

18. 1-18 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  Asia (cont.)  The Four Tigers (cont)  Hong Kong  Headquarters for successful multinational operations in Asia  Uncertainty regarding governance issues due to subservience to China  Singapore  Leader and financial center of Southeast Asia  One of the most competitive nations  Taiwan  Economy dominated by technologically sophisticated industries  Uncertainty due to designs on the country by China  Southeast Asian Countries  ‘Baby Tigers’ lack the economic prowess of the Four Tigers

19. 1-19 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Table 1-6 World’s Most Competitive Nations: 2000 Rank United States1 Singapore2 Finland3 Netherlands4 Switzerland5 Luxembourg6 Ireland7 Germany8 Sweden 9 Iceland 10 Canada 11 Denmark 12 Australia 13 Hong Kong 14 United Kingdom 15

20. 1-20 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Characteristics of Less Developed Countries Less Developed Countries Low GDP High international debt Slow (or negative) GDP growth per capita Large population High unemployment Inexpensive unskilled or semi-skilled labor

21. 1-21 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Economic Status and Issues of the Major Regions (cont.)  Less Developed Countries (LDCs)  India  Steady economic growth in the past few years  Attractive to investment by MNCs  Middle East and Central Asia  Oil reserves are an attractive economic asset  Balance geopolitical, religious forces with economic viability  Organization of Petroleum Exporting Countries (OPEC)  Africa  International trade not a major source of income  Sub-Saharan nations troubled by tribal warfare, disease, poverty, and starvation