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Chapter Learning Goals

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2.

3.

4.

5.

Critically assess the developments, advantages, and disadvantages of globalization. Discuss the complexities of the international managers job. Understand the global business environment and how it affects the strategic and operational decisions which managers must make. Develop an appreciation for the ways in which political, economic, legal, and technological factors and changes impact the opportunities that companies face. Review the role of technology in international business.

What is International Management?

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Americas Debt
Hong Kong: $121.9 billion (0.9 %) Caribbean banking centers: $148.3 (1 %) Taiwan: $153.4 billion (1.1 %) Brazil: $211.4 billion (1.5 %) Oil exporting countries: $229.8 billion (1.6 %) United Kingdom: $346.5 billion (2.4 %) Japan: $912.4 billion (6.4 %) China: $1.16 trillion (8 %) So America owes foreign countries about $4.5 trillion in debt (22.9 %). But America owes America $9.8 trillion.

It is the rise of the rest the rest of the world. Fareed Zakaria The Post-American World, 2008

International Management Quiz

How many percent of Apple iPhones components are made in USA? a)70% b)80% c)90% d)100%
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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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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

What is Globalization?
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Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy

Regional Trading Blocks

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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 todays world trade takes place within these three regional free-trade blocs: Western Europe, Asia, and the Americas Much of todays world trade are grouped around three dominant currencies:

Challenges to Globalism
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Backlash against capitalism and rekindling of nationalism Increased protectionism of highdemand resources Need to develop top managers with international understanding and experience

Benefits of Globalism
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Access to more markets Growth of developing economies Opportunities for flexibility and efficiency Opportunities for small and mediumsized enterprises (SMEs)

The European Union EU

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A unified market over 400 million people living in 27 nations EU poses two challenges for global managers:
1. 2.

Fortress Europe Dealing with multiple cultures within this unified market

Asia
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China India ASEAN South Asia Association of Regional Cooperation (SAARC) Japan Asian Tigers:
Hong Kong Singapore South Korea Taiwan

The Americas
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North American Free Trade Agreement (NAFTA) Central America Free Trade Agreement (CAFTA) MERCOSUR

Other Regions in the World

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The Russian Federation Middle East The African UnionAU South Africa Less developed countriesLDCs

Low Gross National Product (GNP) Low Gross Domestic Product (GDP) Large, relatively unskilled workforce High international debt

Comparative Management in Focus:

China Keeps on Chugging
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Management Focus:
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Intel Brings Changes to Vietnams Economy and Culture

United States opened trade relations with Vietnam in 2000. Vietnams 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. Intels success started with awareness of the tight control of the Vietnamese government.

The Impact of the Information Technology

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Making Geographic barriers less relevant Lowering cultural barriers Encouraging convergence of consumers tastes and preferences

Globalization of Human Capital

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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 The iPhone Economy

The Global Managers Role

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The Political and Economic Environment

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Sustainabilityeconomic, political, social, and environmentalhas become a significant worldwide issue Ethnicitya driving force behind political instability around the world Religionreligious disputes lie at the heart of regional instabilities: former Yugoslavia, Northern Island, the Middle East

Political Risk
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Any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm Examples:
Venezuela took control of cement plants and offices belonging to Mexico, after failing to reach an agreement in nationalization talks. Bolivian presidents move to nationalize the national gas industry followed that in Venezuela.

The Political Risk Cont.

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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

Managing Political Risk

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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

Managing Terrorism Risk

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Develop a benevolent image (IBM and Exxon). Maintain a low profile and minimize publicity. Using teams to monitor terrorist activities Hiring counterterrorism consultants

Economic Risk
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Is closely related to political risk Is determined by a countrys ability or intention to meet its financial obligations

Categories of Economic Risk

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2.

3.

Loss of profitability due to abrupt changes in domestic 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

Managing the Economic Risk

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The Legal Environment

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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

The Legal Environment

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Types of Legal Systems

Approaches to Contract Law

Common law Civil 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

Islamic law

Other Regulatory Issues

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Protectionist policies, such as tariffs or quotas The attractiveness of the tax system The level of government involvement in the economic and regulatory environment

The Technological Environment

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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

Global E-Business
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