1-1 Copyright ©2014 Pearson Education, Inc.

Chapter Learning Goals

1. 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. Discuss the complexities of the international
manager’s job.
4. Develop an appreciation for the ways in which
political, economic, legal, and technological factors
and changes impact the opportunities that
companies face.
5. Review the role of technology in international
business.

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 Opening Profile: The Globalization of Risk

 Top two risks:

 Severe income disparity
 Chronic fiscal imbalances
 Other issues: natural disasters such as 2011
earthquake in Japan, flood in Thailand,
political uncertainty in China and Middle East
 Globalization has compounded the types and
level of business risks

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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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 Chapter Learning Goals

Understand the global business

environment and how it affects
the strategic and operational
decisions which managers must
make.

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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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 Global Trends
• Five key global trends:
• Changing balance of growth towards emerging
markets
• Need for increased productivity and consumption
in developed countries
• Increasing global interconnectivity
• Increasing gap between supply and demand of
natural resources
• Challenge for governments to develop policies for
economic growth and financial stability

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 Chapter Learning Goals

Critically assess the

developments, advantages, and
disadvantages of globalization.

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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

 Increasing pressure and publicity for

companies to consider the social responsibility
of their actions
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 Effects of Globalization on Corporations

 Global companies are becoming less tied to

specific locations

 Companies that desire to remain competitive

will have to develop a cadre of experienced
international managers

 Small companies are also affected by and in

turn affect globalism

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 Regional Trading Blocs

 Much of today’s world trade takes place within

these three regional free-trade blocs:
 Western Europe, Asia, and the Americas
 Much of today’s world trade is grouped around
three dominant currencies:
 euro, yen, and the dollar
 These trade blocs are continually expanding their
borders to include neighboring countries

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 The European Union
“EU”
 A unified market over 500 million people living
in 27 nations
 Stability of the euro is in question and the
ability of the “EU” to deal with the debt crisis
of some members
 EU poses two challenges for global managers:
1. “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)
 Brazil
 MERCOSUR
 Central America Free Trade Agreement
(CAFTA)

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 Other Regions in the World

 The Russian Federation

 Middle East
 The African Union—AU
 South Africa
 Less developed countries—LDCs
 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 helps prop up the Global Economy

 The fastest growing GDP rate (over 9 %

per/year) for 30 years
 In March 2012 Chinese Premier Wen Jiabao
announced only 7.5% growth for 2012
 China is still a developing country with
considerable differences between rural and
urban areas
 State firms play a significant or dominant role

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 Comparative Management in Focus:
China helps prop up the Global Economy

 However:
Weakening demand for Chinese exports—due to
global recession government is targeting only 7.5%
growth in 2012
Chinese labor costs increasing, energy and
shipping cost rising; appreciating Yuan
The political, legal, and social environments create
unpredictability for businesses

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 Management Focus:
Tips for doing business in China
 Connections are important
 Negotiations will be different from the U.S. and
difficult
 Communication must be clear, honest, and fully
prepared for
 Culture matters!

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 Management Focus:
Intel Brings Changes to Vietnam’s Economy and
Culture
 United States opened trade relations with Vietnam in
2000.
 Vietnam’s 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.
 Intel’s success started with awareness of the tight control
of the Vietnamese government.

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 Globalization of Information Technology

 The speed and accuracy of information

transmission are changing the nature of
international manager’s jobs
 Cultural barriers are being lowered gradually
 Technology gets dispersed around the world by
MNEs
 Explosive growth of information technology is
both a cause and effect of globalism

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 Globalization of Human Capital

 Increasing trend in the offshoring of

manufacturing jobs and outsourcing of white-
collar jobs
 The Indian ITES sector has 700,000 jobs
worldwide and comprises 35% of BPO market
 For global firms, winning the war for talent is a
pressing issue

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 Chapter Learning Goals

Discuss the complexities of the

international manager’s job.

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 The Global Manager’s Role

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 Chapter Learning Goals

Develop an appreciation for the

ways in which political,
economic, legal, and
technological factors and
changes impact the
opportunities that companies
face.

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 The Political and Economic Environment

 Sustainability—economic, political, social, and

environmental—has become a significant
worldwide issue

 Ethnicity—a driving force behind political

instability around the world

 Religion—religious disputes lie at the heart of

regional instabilities, for example, 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-term profitability or
value of a firm

Examples:
In Russia, the Kremlin
Argentina announced plans to
exploited the financial crisis
nationalize Repsol YPF, the
to take control of energy
Spanish oil co., taking 51%.
companies.

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 The Political Risk Cont.

Typical Political Risks Political Risk Assessment

 Expropriation and  Helps companies manage
confiscation exposure to risk and
 Nationalization
minimize financial loss
 Terrorism
 Discriminatory treatment
 Barriers to repatriation of  Two forms:
funds Consultation with experts
 Interference in managerial Development of internal
decision making
staff capabilities –
 Dishonesty by government
officials increasingly common

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 Managing Political Risk

Avoidance and Adaptation Dependency and Hedging

 Equity sharing  Input control
 Market control
 Participating management
 Position control
 Staged contribution
 Localization of the
operation
 Political risk insurance
 Development assistance (OPIC and FCIA)
 Local debt financing

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 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

 Closely related to political risk

 Determined by a country’s ability or intention to
meet its financial obligations
 Historically, most industrialized nations have posed
little risk of economic instability, however the level
of economic risk in the EU is of great concern

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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

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 Managing the Economic Risk

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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 Approaches to Contract Law

 Common law  Common law: details must

be written in the contract
to be enforced
 Civil law
 Civil law: assumes
promises will be enforced
 Islamic law 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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 Chapter Learning Goals

Review the role of technology in

international business.

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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 JVs,
franchisees, licensees, and employees
 Appropriateness of technology for the local
environment

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 The Impact of the Information Technology

 Making Geographic barriers less relevant

 Both cause and effect of globalization
 Lowering cultural barriers
 Encouraging convergence of consumers’ tastes
and preferences
 However, China still monitors and limits
electronic information

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 Global E-Business

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All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

Copyright © 2014 Pearson Education, Inc.  

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