Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological

1. Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological Kristopher Blanchard North Central University

2. The Global Business Environment • The Global Marketplace is complex, interdependent, and dynamic • Challenges include politics, culture, and technology • Managers must find a balance between social responsibility, company image, and competitive strategies • More focused on Global Management

3. The Global Business Environment • Global competition is characterized by networks that bind countries to one another • Globalism trends • A borderless world • Increase in exports • Increase in direct foreign investment • Dominance of trading blocs

4. Regional Trading Blocs “The dominance of the United States is already over. What is emerging is a world economy of blocs represented by NAFTA, The European Union, and ASEAN. There’s no one center in this world economy.” - Peter Drucker Fortune, January 12, 2004

5. Regional Trading Blocs • TRIAD Market • European Union • Asian Market • China, Japan, South Asia • NAFTA • CAFTA

6. The TRIAD • Three regional free-trade blocs • Western Europe, Asia, and North America • Grouped around three dominant currencies • Euro, Yen, and Dollar • In 2004, these trade blocs were expanding their boarders to include neighboring countries

7. Comparative Management in Focus - India • India has witnessed a change in values, habits and options during the last decade • The economy, second fastest growing in the world, is expected to grow close to 7% this year • Fastest growing telecom market with more than one million new mobile phone subscriptions per month

8. Comparative Management in Focus - India • Indians are buying 10,000 motorcycles a day • India had 192 million households in 2001 • Only 31.6% have a television • Only 2.5% have a car, jeep or van • Foreign investors have invested $5 billion into the Indian stock market

9. Information Technology • Information Technology is transforming the international manager’s agenda more than any other item • Information is no longer centrally or secretly controlled by governments • Information technology is boosting productivity and electronic commerce around the world

10. The Globalization of Human Capital Globalization means we share jobs as well as goods. - FINANCIAL TIMES, August 27, 2003

11. The Globalization of Human Capital • Forrester Research predicts that 3.3 Million US jobs will move offshore by 2015 • 45% of the 500 US companies surveyed state that they use a global sourcing model

12. The Global Manager’s Role

13. The Political and Economic Environment • One important aspect is the phenomenon of ethnicity • Driving force behind political instability • Firms must assess political risks • Government actions that could adversely affect the long-run profitability or value of a firm

14. Political Risk – 7 Typical risk events • Expropriation of corporate assets without prompt and adequate compensation • Forced sale of equity to host-country nationals, usually at or below depreciated book value • Discriminatory treatment against foreign firms in the application of regulations or laws • Barriers to repatriation of funds (profits or equity)

15. Political Risk – 7 Typical risk events • Loss of technology or other intellectual property (such as patents, trademarks, or trade names) • Interference in managerial decision making • Dishonesty by government officials, including canceling or altering contractual agreements, extortion demands, and so forth

16. Managing Political Risk • Avoidance – either the avoidance or withdrawal of investment in a particular country • Adaptation – adjust to the political environment • Dependency – keeping the host nation dependent on the parent corporation • Hedging – minimizing the losses associated with political risk events

17. Economic Risk • A country’s level of economic development generally determines its economic stability • Economic risk falls into 2 categories • Government changes its fiscal policies • Government modifies its foreign-investment policies • Managers are constantly reassessing economic risk

18. The Legal Environment • Manager’s will comply with the host country’s legal system • Common Law – past court decisions act as precedents to the interpretation of the law • Civil Law – comprehensive set of laws organized into codes, interpretation is based on reference to codes and statues • Muslim law – based on religious beliefs, it dominates all aspects of life

19. The Legal Environment • Commenting on Contract Law “In China, the old joke goes, a contract is a pause in the negotiation.” - VANESSA CHANG, KPMG PEAT MARWICK

20. The Technological Environment • Corporations must consider the accelerating macro-environmental phenomenon of technoglobalism (rapid developments in information and communication technologies) • Corporations must consider the appropriability of technology

21. Global E-Business • E-business – the integration of systems, processes, organizations, value chains and entire markets using Internet-based and related technologies and concepts. • E-commerce - refers directly to the marketing and sales process via the Internet

22. Global E-Business • Convenience in conducting business worldwide; facilitating communication across borders contributes to the shift toward globalization and a global market. • An electronic meeting and trading place, which adds efficiency in conducting business sales. • A corporate Intranet service, merging internal and external information for enterprises worldwide. • Power to consumers as they gain access to limitless options and price differentials. • A link and efficiency in distribution.

23. Looking Ahead • Chapter 2 – Social Responsibility and Ethics • The Social Responsibility of MNC’s • Ethics in Global Management • Managing Interdependence