PowerPoint by:
Mohamad Sepehri, Ph.D.
Jacksonville University
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Copyright 2011 Pearson Education,
Inc. publishing as Prentice Hall
Chapter Learning Goals
1. Understand the global business
2.
3.
4.
5.
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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 managers job.
Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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:
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Fannie Mae & Freddie Mac
Lehman Brothers
AIG
And many more
Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Opening Profile: Typical
Challenges that Managers Face
in the 21st Century
Political and cultural
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differences
Global competition
Terrorism
Technology
Finding ways to balance their
social responsibilities, their
images, and their competitive
strategies
Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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 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:
euro, yen, and the dollar
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
The European Union
EU
A unified market over 400 million
people living in 27 nations
EU poses two challenges for global
managers:
1. Fortress Europe
2. Dealing with multiple cultures within
this unified market
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Asia
China
India
ASEAN
South Asia Association of Regional
Cooperation (SAARC)
Japan
Asian Tigers:
Hong Kong
Singapore
South Korea
Taiwan
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
The Americas
North American Free Trade
Agreement (NAFTA)
Central America Free Trade
Agreement (CAFTA)
MERCOSUR
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Other Regions in the World
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
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publishing as Prentice Hall
Comparative Management in
Focus:
China Keeps on Chugging
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Management Focus:
Intel Brings Changes to Vietnams
Economy and Culture
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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.
Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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publishing as Prentice Hall
The Global Managers Role
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publishing as Prentice Hall
The Political and Economic
Environment
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
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publishing as Prentice Hall
Political Risk
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.
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Bolivian presidents
move to nationalize the
national gas industry
followed that in
Venezuela.
The Political Risk Cont.
Typical Political Risks
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
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Political Risk
Assessment
Helps companies
manage exposure to
risk and minimize
financial loss
Two forms:
Consultation with
experts
Development of
internal staff
capabilities
Managing Political Risk
Avoidance and
Adaptation
Equity sharing
Dependency and
Hedging
Input control
Market control
Participating
management
Localization of the
operation
Development
assistance
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publishing as Prentice Hall
Position control
Staged contribution
Political risk insurance
(OPIC and FCIA)
Local debt financing
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Economic Risk
Is closely related to political risk
Is determined by a countrys ability or
intention to meet its financial obligations
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publishing as Prentice Hall
Categories of Economic Risk
1. Loss of profitability due to abrupt
changes in monetary and fiscal policies
2. Loss of profitability due to changes in
foreign investment policies
3. Risk of currency exchange rate
Example: devaluation of peso in 1990s
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publishing as Prentice Hall
Managing the Economic Risk
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publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
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The Legal Environment
Types of Legal
Systems
Common law
Civil law
Islamic law
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
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
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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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall
Global E-Business
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Copyright 2011 Pearson Education, Inc.
publishing as Prentice Hall