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Part One: Environmental

Foundation

International Management,5th ed.

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International Management,

5th ed.

Chapter One

Hodgetts and Luthans

Worldwide Developments

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REVIEW current trends in international investment and trade

EXAMINE the present economic status in the major regions of the global community

ANALYZE some of the major developments and issues in various regions of the world

Objectives of the Chapter

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Introduction

International Management The process of applying management concepts and

techniques in a multinational environment

Multinational Corporation (MNC) Operates in more than one country Sells its products in international markets Managers and owners are of different nationalities

Must learn to work effectively with people from different countries

Small and medium-sized businesses are being affected by the trend toward internationalization

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Increasing Internationalization

Regional Developments North American Free Trade Agreement (NAFTA)

A free trade agreement between the U.S., Canada, and Mexico which has in essence removed all barriers to trade

May expand to include Latin American countries European Union (EU)

Consists of 15 countries Most trade barriers have been removed Euro is the common currency

Pacific Rim Japan and China are the dominant economies Association of Southeast Asian Nations (ASEAN)

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Increasing Internationalization (cont.)

International Investment and Trade Foreign direct investment (FDI)

The amount invested in another country Approximately 80% of all international investments come

from developed countries International trade has increased substantially over the

last two decades Percentage of world trade accounted for by the three major

trading blocs has remained fairly consistent Groups’ share of imports and exports remains in the range of 55

- 59 percent

MNCs buy domestic companies rather than trying to export products to that country

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Table 1-1FDI in the U.S., 1998-1999*

1998 1999All Countries 793,748 986,668

Canada 74,143 79,716

Europe 528,601 685,845 United Kingdom 143,165 183,145

Germany 94,404 111,138 France 58,051 77,622

South and Central America 9,819 10,606

Other Western Hemisphere 18,034 33,984

Africa 882 1,545

Middle East 6,346 7,087

Asia and Pacific 155,943 167,884 Japan 134,590 148,947

* in millions of dollars

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Table 1-2FDI by the U.S., 1998-1999*

1998 1999All Countries 1,104,012 1,132,622

Canada 101,871 111,707

Europe 528,113 581,791 United Kingdom 192,663 213,070

Germany 46,405 49,617

France 42,064 39,984

South and Central America 74,254 74,839

Other Western Hemisphere 68,459 77,569

Africa 14,241 15,062

Middle East 10,632 11,137

Asia and Pacific 155,364 185,912 Japan 35,633 47,786

* in millions of dollars

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Table 1-4Top 10 trading Partners of the U.S.: 1999

* in millions of dollars

Importing U.S. Exporting U.S.Rank Country Exports* Rank Country Imports* 1 Canada 166,600.0 1 Canada 198,711.1 2 Mexico 86,908.9 2 Japan 130,863.9 3 Japan 57,465.7 3 Mexico 109,720.5 4 U.K. 38,407.1 4 China 81,788.2 5 Germany 26,800.2 5 Germany 55,228.4 6 South Korea 22,958.4 6 U.K. 39,237.2 7 Netherlands 19,436.6 7 Taiwan 35,204.4 8 Taiwan 19,131.4 8 South Korea 31,178.6 9 France 18,877.4 9 France 26,708.6 10 Singapore 16,247.3 10 Italy 22,356.5

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Economic Status and Issues of the Major Regions

North America NAFTA has resulted in:

Elimination of tariffs as well as import and export quotas Opening of government procurement markets to companies in

partner countries Increased opportunity to make investments in partner countries Increased ease of travel between partner countries Removal of restrictions on agricultural products, auto parts,

and energy goods

United States U.S. MNCs have holdings throughout the world Foreign MNCs find U.S. to be a lucrative market

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Economic Status and Issues of the Major Regions (cont.)

North America (cont.) Canada

U.S.’s largest trading partner Legal and business environments similar to those of the U.S. Target of increased international investment

Mexico Economic fortunes have varied in the recent past Maquiladora industry

Arrangement created by the government that permits the flow of materials and products in and out of Mexico with only the value added being taxed

Different views about effect on American jobs Mexican firms expanding worldwide operations

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Economic Status and Issues of the Major Regions (cont.)

South America Countries have experienced difficult economic

problems Brazil

Attracted substantial foreign investment Economic future still uncertain

Chile Economic success story in South America Future still uncertain

Mercosur and Andean Common Market promote economic and social integration and cooperation

Countries increasingly looking to trade with the U.S.

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Economic Status and Issues of the Major Regions (cont.)

Europe Privatization of traditionally nationalized industries EU

intended eliminate all trade barriers among member countries EU-based firms “plan globally, act locally” To gain a foothold in the EU, foreign MNCs have:

created acquisitions and alliances begun co-operative research and development programs

European Research Cooperation Agency (Eureka) EU agency that funds projects in a number of fields to make

Europe more productive and competitive in the world market Future challenge is the absorption of formerly communist

Eastern neighbors

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Economic Status and Issues of the Major Regions (cont.)

Europe (cont.) Central and Eastern Europe

Collapse of the Soviet Union in 1991 Glasnost (openness) Perestroika (economic and political restructuring)

Russia Undergone economic reform Many attempts to stimulate the economy Greater privatization required Criminal activity increasing

Czech Republic, Hungary, and Poland Former communist countries that have become most visible in

international arena Some former communist countries are struggling

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Economic Status and Issues of the Major Regions (cont.)

Asia Japan

Economic success in the 1970s and 1980s attributed to: Cultural values Ministry of International Trade and Industry (MITI)

Government agency that identifies and ranks national commercial pursuits

Guides the distribution of national resources to meet these goals

Keiretsus Organizational arrangement in which a large group of

vertically integrated companies are bound together by cross-ownership, interlocking directorates, and social ties provide goods and services

Severe recession during the past ten years Target for foreign investment

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Economic Status and Issues of the Major Regions (cont.)

Asia (cont.) China

Large reported annual growth in GDP Attracts substantial foreign investment Remains a political risk for investors MNCs find it difficult to do business in China

The Four Tigers South Korea

Chaebols Large,family-held conglomerates that have considerable

political and economic power Hit hardest by Southeast Asia economic crisis

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Economic Status and Issues of the Major Regions (cont.)

Asia (cont.) The Four Tigers (cont)

Hong Kong Headquarters for successful multinational operations in Asia Uncertainty regarding governance issues due to subservience to

China Singapore

Leader and financial center of Southeast Asia One of the most competitive nations

Taiwan Economy dominated by technologically sophisticated industries Uncertainty due to designs on the country by China

Southeast Asian Countries ‘Baby Tigers’ lack the economic prowess of the Four Tigers

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Table 1-6World’s Most Competitive Nations: 2000 Rank

United States 1Singapore 2Finland 3

Netherlands 4Switzerland 5Luxembourg 6Ireland 7

Germany 8Sweden 9

Iceland 10Canada 11

Denmark 12Australia 13

Hong Kong 14United Kingdom 15

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Characteristics of Less Developed Countries

LessDevelopedCountries

LowGDP

Highinternational

debt

Slow (ornegative) GDP

growth percapita

Largepopulation

Highunemployment

Inexpensiveunskilled orsemi-skilled

labor

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Economic Status and Issues of the Major Regions (cont.)

Less Developed Countries (LDCs) India

Steady economic growth in the past few years Attractive to investment by MNCs

Middle East and Central Asia Oil reserves are an attractive economic asset Balance geopolitical, religious forces with economic viability Organization of Petroleum Exporting Countries (OPEC)

Africa International trade not a major source of income Sub-Saharan nations troubled by tribal warfare, disease, poverty,

and starvation