Chapter 1 Assessing the Environment

– Political, Economic, Legal, Technological

Kristopher Blanchard

North Central University

The Global Business Environment

The Global Marketplace is complex, interdependent, and dynamicChallenges include politics, culture, and technologyManagers must find a balance between social responsibility, company image, and competitive strategiesMore focused on Global Management

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

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

Regional Trading Blocs

TRIAD Market

European Union

Asian Market– China, Japan, South Asia

NAFTA

CAFTA

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

Comparative Management in Focus - India

India has witnessed a change in values, habits and options during the last decadeThe economy, second fastest growing in the world, is expected to grow close to 7% this yearFastest growing telecom market with more than one million new mobile phone subscriptions per month

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

Information Technology

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

The Globalization of Human Capital

Globalization means we share jobs as well as goods.

- FINANCIAL TIMES,

August 27, 2003

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

The Global Manager’s Role

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

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 lawsBarriers to repatriation of funds (profits or equity)

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

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

Economic Risk

A country’s level of economic development generally determines its economic stabilityEconomic risk falls into 2 categories– Government changes its fiscal policies– Government modifies its foreign-investment

policies

Managers are constantly reassessing economic risk

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

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

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

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

Global E-BusinessConvenience 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.

Looking Ahead

Chapter 2 – Social Responsibility and Ethics– The Social Responsibility of MNC’s– Ethics in Global Management– Managing Interdependence