PowerPoint by:

Mohamad Sepehri, Ph.D.

Jacksonville University

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Copyright 2011 Pearson Education,

Inc. publishing as Prentice Hall

Chapter Learning Goals

1. Understand the global business

2.

3.
4.

5.
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environment and how it affects the

strategic and operational decisions which
managers must make.
Critically assess the developments,
advantages, and disadvantages of
globalization.
Review the role of technology in
international business.
Develop an appreciation for the ways in
which political, economic, legal, and
technological factors and changes impact
the opportunities that companies face.
Discuss the complexities of the
international managers job.

Copyright 2011 Pearson Education, Inc.

publishing as Prentice Hall

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

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publishing as Prentice Hall

Opening Profile: Typical

Challenges that Managers Face
in the 21st Century
Political and cultural

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differences
Global competition
Terrorism
Technology
Finding ways to balance their
social responsibilities, their
images, and their competitive
strategies

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publishing as Prentice Hall

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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Copyright 2011 Pearson Education, Inc.

publishing as Prentice Hall

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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publishing as Prentice Hall

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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publishing as Prentice Hall

The European Union

EU
A unified market over 400 million

people living in 27 nations

EU poses two challenges for global

managers:

1. Fortress Europe
2. Dealing with multiple cultures within

this unified market

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Copyright 2011 Pearson Education, Inc.

publishing as Prentice Hall

Asia
China
India
ASEAN
South Asia Association of Regional

Cooperation (SAARC)
Japan
Asian Tigers:
Hong Kong
Singapore
South Korea
Taiwan
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publishing as Prentice Hall

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

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Management Focus:

Intel Brings Changes to Vietnams

Economy and Culture

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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.

Copyright 2011 Pearson Education, Inc.

publishing as Prentice Hall

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.

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

The Political Risk Cont.

Typical Political Risks
Expropriation and

confiscation

Nationalization
Terrorism
Macro-political risk event
Micro-political risk event
Discriminatory treatment
Barriers to repatriation of

funds
Interference in managerial
decision making
Dishonesty by government
officials
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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

Managing Political Risk

Avoidance and
Adaptation
Equity sharing

Dependency and
Hedging
Input control
Market control

Participating

management

Localization of the

operation

Development

assistance

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Position control
Staged contribution
Political risk insurance

(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

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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
Islamic law

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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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

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Copyright 2011 Pearson Education, Inc.

publishing as Prentice Hall