1. © 2008 Pearson Prentice Hall 1-1 Chapter 1: Assessing the Environment: Political, Economic, Legal, Technological PowerPoint by Hettie A. Richardson Louisiana State University

2. © 2008 Pearson Prentice Hall 1-2 Opening Profile: India Becomes Crucial to IBM India is the site of IBM’s second-largest operation IBM’s employees in India grew from 9,000 to 43,000 between 2004 and 2006 IBM’s business in India grew 61% in the first quarter of 2006

3. © 2008 Pearson Prentice Hall 1-3 Opening Profile: India Becomes Crucial to IBM Examples of IBM projects in India: Container tracking system Warranty management system System for tracking the failure of vehicle components Global Business Solutions Center

4. © 2008 Pearson Prentice Hall 1-4 What is Globalism? Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy

5. © 2008 Pearson Prentice Hall 1-5 Challenges Associated with Globalism The backlash against capitalism and a rekindling of nationalism Increased protectionism of high-demand resources The need to develop top managers with international understanding and experience

6. © 2008 Pearson Prentice Hall 1-6 Benefits Associated with Globalism Access to more markets Growth of developing economies Opportunities for flexibility and efficiency Opportunities for small and medium-sized enterprises (SMEs)

7. © 2008 Pearson Prentice Hall 1-7 Management Focus: Small Company, Global Approach Gayle Warwick Fine Linen, maker of high-end linens

8. © 2008 Pearson Prentice Hall 1-8 Regional Trading Blocs Much of today’s world trade takes place within three regional free-trade blocs: Western Europe Asia The Americas

9. © 2008 Pearson Prentice Hall 1-9 The European Union A unified market of over 400 million people in 27 nations Two challenges for global managers: “ Fortress” Europe Dealing with multiple cultures within this unified market

10. © 2008 Pearson Prentice Hall 1-10 Asia Japan The Four Tigers China India South Asia

11. © 2008 Pearson Prentice Hall 1-11 The Americas North American Free Trade Agreement (NAFTA) Central American Free Trade Agreement (DR-CAFTA) Free Trade Area of the Americas (FTAA)

12. © 2008 Pearson Prentice Hall 1-12 Other Regions of the World The Russian Federation Less Developed Countries (LDCs) Low gross national product (GDP) Low per capita income Large, relatively unskilled populations High international debt

13. © 2008 Pearson Prentice Hall 1-13 Comparative Management in Focus: Opening Economy Revitalizes India Recently, foreign investment restrictions were lifted and protectionism was reduced

14. © 2008 Pearson Prentice Hall 1-14 Results of India’s Opening Economy Increased Indian and foreign investment A growing middle-class Increased productivity and profits A growing reputation for service outsourcing and exporting

15. © 2008 Pearson Prentice Hall 1-15 Information Technology: Affecting the Management Agenda Making geographic barriers less relevant Lowering cultural barriers Encouraging convergence of consumers’ tastes and preferences

16. © 2008 Pearson Prentice Hall 1-16 The Globalization of Human Capital The offshoring of manufacturing jobs and outsourcing of white-collar jobs is increasing It has been estimated that 3.3 million US jobs will be lost in service-sector outsourcing by 2015

17. © 2008 Pearson Prentice Hall 1-17 Political Risk Any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm Example: Venezuela recently forced oil companies to accept a minority stake in fields they owned and to pay more in taxes and royalties

18. © 2008 Pearson Prentice Hall 1-18 Common Political Risk Events Expropriation and confiscation Nationalization Terrorism Macropolitical risk vs. micropolitical risk

19. © 2008 Pearson Prentice Hall 1-19 Political Risk Assessment Helps companies manage exposure to risk and minimize financial loss Two forms: Consultation with experts Development of internal staff capabilities

20. © 2008 Pearson Prentice Hall 1-20 Other Techniques for Managing Political Risk Computer Modeling Example: American Can’s PRISM Ranking systems Early warning systems

21. © 2008 Pearson Prentice Hall 1-21 Options for Managing Political Risk Avoidance Adaptation Dependency Hedging

22. © 2008 Pearson Prentice Hall 1-22 Examples of Managing Terrorism Risk IBM and Exxon try to develop benevolent images and maintain low profiles Using teams to monitor terrorist activities Hiring counterterrorism consultants

23. © 2008 Pearson Prentice Hall 1-23 Economic Risk Is closely related to political risk Is determined by a country’s ability or intention to meet its financial obligations

24. © 2008 Pearson Prentice Hall 1-24 Economic Risk in LDCs LDCs tend to pose more risk than developed countries For example, expectations that Argentina’s economy would shrink by 15% in 2002 negatively affected foreign firms doing business there

25. © 2008 Pearson Prentice Hall 1-25 Types 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 Example: Devaluation of Peso in 1990s

26. © 2008 Pearson Prentice Hall 1-26 Four Approaches to Assessing Economic Risk Quantitative Qualitative Checklist A combination of these methods

27. © 2008 Pearson Prentice Hall 1-27 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

28. © 2008 Pearson Prentice Hall 1-28 Three Types of Legal Systems Common law Civil law Islamic law

29. © 2008 Pearson Prentice Hall 1-29 Three Approaches to Contract 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

30. © 2008 Pearson Prentice Hall 1-30 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

31. © 2008 Pearson Prentice Hall 1-31 Risks and Issues in the Technological Environment The appropriability of technology The International Convention for the Protection of Industrial Property (the Paris Union)

32. © 2008 Pearson Prentice Hall 1-32 More Issues and Risks in the Technological Environment Inappropriate use of technology by others Appropriateness of technology for the local environment

33. © 2008 Pearson Prentice Hall 1-33 Issues in Global E-Business E-business E-commerce B2B (business-to-business) B2C (business-to-customer)