© 2008 Pearson Prentice Hall 1-1 Chapter 1: Assessing the Environment: Political, Economic, Legal,...

transcript

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

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Hettie A. Richardson

Louisiana State University

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

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

What is Globalism?

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

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

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)

Management Focus: Small Company, Global Approach

Gayle Warwick Fine Linen, maker of high-end linens

Regional Trading Blocs

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

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

Asia Japan

The Four Tigers

South Asia

The Americas

North American Free Trade Agreement (NAFTA)

Central American Free Trade Agreement (DR-CAFTA)

Free Trade Area of the Americas (FTAA)

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

Comparative Management in Focus: Opening Economy Revitalizes India

Recently, foreign investment restrictions were lifted and protectionism was reduced

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

Information Technology: Affecting the Management Agenda

Making geographic barriers less relevant

Lowering cultural barriers

Encouraging convergence of consumers’ tastes and preferences

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

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

Common Political Risk Events

Expropriation and confiscation

Nationalization

Terrorism

Macropolitical risk vs. micropolitical risk

Political Risk Assessment

Helps companies manage exposure to risk and minimize financial loss

Two forms: Consultation with experts Development of internal staff capabilities

Other Techniques for Managing Political Risk Computer Modeling

Example: American Can’s PRISM

Ranking systems

Early warning systems

Options for Managing Political Risk Avoidance

Adaptation

Dependency

Hedging

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

Economic Risk

Is closely related to political risk

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

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

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

Four Approaches to Assessing Economic Risk

Quantitative

Qualitative

Checklist

A combination of these methods

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

Three Types of Legal Systems

Common law

Civil law

Islamic law

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

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

Risks and Issues in the Technological Environment

The appropriability of technology

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

More Issues and Risks in the Technological Environment

Inappropriate use of technology by others

Appropriateness of technology for the local environment

Issues in Global E-Business

E-business

E-commerce

B2B (business-to-business)

B2C (business-to-customer)

© 2008 Pearson Prentice Hall 1-1 Chapter 1: Assessing the Environment: Political, Economic, Legal,...

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