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PowerPoint by: Mohamad Sepehri, Ph.D.

Jacksonville University

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Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter Learning Goals


Understand the global business environment and how it affects the strategic and operational decisions which managers must make. 2. Critically assess the developments, advantages, and disadvantages of globalization. 3. Review the role of technology in international business. 4. Develop an appreciation for the ways in which political, economic, legal, and technological factors and changes impact the opportunities that companies face. 5. Discuss the complexities of the international Copyright 2011 Pearson Education, Inc. managers job.
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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:

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Fannie Mae & Freddie Mac Lehman Brothers AIG And many more Copyright 2011 Pearson Education, Inc.
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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

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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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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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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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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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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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The European Union EU

A unified market over 400 million people living in 27 nations EU poses two challenges for global managers:
Fortress Europe 2. Dealing with multiple cultures within this unified market
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Asia

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

Singapore
South Korea Taiwan
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The Americas

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

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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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Comparative Management in Focus:


China Keeps on Chugging
The fastest growing GDP rate (over 9 percent/year) for 30 years Economy has doubled every eight years for 30 years Surpassed Germany in 2009 as the worlds largest exporter Investing heavily in energy and other natural resources in 2009 that could give it an economic advantage it has never had before

However: Weakening demand for Chinese exportsdue to global recession Chinese government may not be able to prevent the financial crisis from derailing the countrys economic miracle The political, legal, and social environments create unpredictability for businesses
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Management Focus:
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.

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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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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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The Global Managers Role

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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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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. Bolivian presidents move to nationalize the national gas industry followed that in Venezuela.

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The Political Risk Cont.


Typical Political Risks
Expropriation and

Political Risk Assessment


Helps companies manage

confiscation
Nationalization Terrorism Macro-political risk

exposure to risk and minimize financial loss


Two forms: Consultation with

event Micro-political risk event Discriminatory treatment


Barriers to repatriation of

experts Development of internal staff capabilities

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funds Interference in managerial Copyright 2011 Pearson Education, Inc. decision making publishing as Prentice Hall Dishonesty by

Managing Political Risk


Avoidance and Adaptation Equity sharing
Participating

Dependency and Hedging


Input control Market control Position control

management
Localization of the

Staged contribution
Political risk insurance

operation
Development

assistance
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(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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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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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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Managing the Economic Risk

Quantitative Approach

Qualitative Approach

Checklist Approach

Combination of these Methods

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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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The Legal Environment


Types of Legal Systems
Common law Civil law

Approaches to Contract Law Common law: details must be written in the contract to be enforced
Civil law: assumes

Islamic law

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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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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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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Global E-Business
E-Businessthe integration of systems,
processes, organizations, value chains, and entire markets using Internet-based and related technologies and concepts

E-Commercemarketing and sales


process via the internet

B2BBusiness to Business

B2CBusiness to Customer
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