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

© 2008 Pearson Prentice Hall

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

PowerPoint by

Hettie A. Richardson

Louisiana State University


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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


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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


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What is Globalism?

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


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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


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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)


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Management Focus: Small Company, Global Approach

Gayle Warwick Fine Linen, maker of high-end linens


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Regional Trading Blocs

Much of today’s world trade takes place within three regional free-trade blocs: Western Europe Asia The Americas


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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


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Asia Japan

The Four Tigers

China

India

South Asia


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The Americas

North American Free Trade Agreement (NAFTA)

Central American Free Trade Agreement (DR-CAFTA)

Free Trade Area of the Americas (FTAA)


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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


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Comparative Management in Focus: Opening Economy Revitalizes India

Recently, foreign investment restrictions were lifted and protectionism was reduced


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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


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Information Technology: Affecting the Management Agenda

Making geographic barriers less relevant

Lowering cultural barriers

Encouraging convergence of consumers’ tastes and preferences


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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


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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

Example:Venezuela recently forced oil companies to accept a minority stake in fields they owned and to pay more in taxes and royalties


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Common Political Risk Events

Expropriation and confiscation

Nationalization

Terrorism

Macropolitical risk vs. micropolitical risk


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Political Risk Assessment

Helps companies manage exposure to risk and minimize financial loss

Two forms: Consultation with experts Development of internal staff capabilities


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Other Techniques for Managing Political Risk Computer Modeling

Example: American Can’s PRISM

Ranking systems

Early warning systems


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Options for Managing Political Risk Avoidance

Adaptation

Dependency

Hedging


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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


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Economic Risk

Is closely related to political risk

Is determined by a country’s ability or intention to meet its financial obligations


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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


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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


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Four Approaches to Assessing Economic Risk

Quantitative

Qualitative

Checklist

A 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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Three Types of Legal Systems

Common law

Civil law

Islamic law


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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


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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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Risks and Issues in the Technological Environment

The appropriability of technology

The International Convention for the Protection of Industrial Property (the Paris Union)


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More Issues and Risks in the Technological Environment

Inappropriate use of technology by others

Appropriateness of technology for the local environment


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Issues in Global E-Business

E-business

E-commerce

B2B (business-to-business)

B2C (business-to-customer)

Documents

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