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

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Chapter 1 Assessing the Environment Political,
Economic, Legal, Technological
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CHAPTER 1 ASSESSING THE ENVIRONMENT POLITICAL,
ECONOMIC, LEGAL, TECHNOLOGICAL
World Trade Organization www.WTO.org Financia
l Times www.ft.com CEO Express
www.ceoexpress.com EU - http//www.eurunion.org
/ CIA World Factbook - http//www.cia.gov/cia/pub
lications/factbook/
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The Global Business Environment

• The Global Marketplace is complex,
  interdependent, and dynamic
• Challenges include politics, culture, and
  technology
• Managers must find a balance between social
  responsibility, company image, and competitive
  strategies

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The Global Business Environment

• Globalism trends
• A borderless world
• Increase in exports
• Increase in direct foreign investment
• Dominance of trading blocs

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Regional Trading Blocs
ASEAN In 2006, the bloc had a combined GDP of
about USD 884 billion, growing at an average
rate of around 4 per annum.
  Brunei Darussalam   Cambodia   Indonesia  
Laos   Malaysia   Myanmar   Philippines  
Singapore   Thailand   Vietnam
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NAFTA
In January 1994, Canada, the United States and
Mexico launched the North American Free Trade
Agreement (NAFTA) and formed the world's largest
free trade area.
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EU
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Regional Trading Blocs

• TRIAD Market
• North America
• Pacific Rim
• European Community.
• These three areas account for 80 percent of the
  World's Gross Domestic Products (GDP) and 75
  percent of the world's exports and imports. They
  are known as the " Triad".
• The areas that make-up the Triad are North
  America, including the United States, Canada, and
  Mexico the Pacific Rim, include Japan, South
  Korea, Taiwan, Hong Kong, Malayans, Singapore,
  Thailand, Indonesia, Brunei, Philippines,
  Australia, and New Zealand and the European
  Countries, including Belgium, Denmark, France,
  West Germany, Greece, Ireland, Italy, Luxembourg,
  Netherlands, Portugal, Spain and the United
  Kingdom.

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Asian Market

• China
• Japan
• South Asia

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CAFTA

• Resistance to CAFTA is still growing. CAFTA was
  supposed to be implemented by January 1, 2006,
• Around midnight on July 27th of 2005, the House
• of Representatives approved the Central America-
• Dominican Republic-United States Free Trade
• Agreement, CAFTA

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Comparative Management in Focus - India

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

• 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

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Information Technology

• Information Technology is transforming the
  international managers agenda more than any
  other item
• Information is no longer centrally or secretly
  controlled by governments
• Information technology is boosting productivity
  and electronic commerce around the world

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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

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The Global Managers Role
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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

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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 laws
• Barriers to repatriation of funds (profits or
  equity)

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Political Risk 7 Typical risk events

• 5.Loss of technology or other intellectual
  property (such as patents, trademarks, or trade
  names)
• 6.Interference in managerial decision making
• 7. Dishonesty by government officials, including
  canceling or altering contractual agreements,
  extortion demands, and so forth

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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

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Economic Risk

• A countrys level of economic development
  generally determines its economic stability
• Economic risk falls into 2 categories
• Government changes its fiscal policies
• Government modifies its foreign-investment
  policies

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The Legal Environment

• Managers will comply with the host countrys
  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

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The Technological Environment

• Corporations must consider the accelerating
  macro-environmental phenomenon of
  techno-globalism (rapid developments in
  information and communication technologies)
• Corporations must consider the appropriability of
  technology

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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

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• Chapter 1 Assessing the Environment
  Political, Economic, Legal, Technological
• 1.One indicator of globalism is that foreign
  direct investment has grown ____________ the
  world output of goods.
• as fast as
• twice as fast as
• more than three times as fast as
• negatively compared to
• 2.The European Union (EU) has now caught up with
  the United States to share the position of the
  worlds ____________.
• largest debtor
• largest investor
• largest market
• largest tariff-free market
• 3.The TRIAD market consists of which regions?
• Western Europe, Eastern Europe, and North America
• Western Europe, Asia, and the United States
• Western Europe, Asia, and North America

3.more than three times as fast as
2. largest investor
3. Western Europe, Asia, and North America
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• 4. Which of the following countries is not one of
  the Four Tigers?
• South Korea
• Hong Kong
• Taiwan
• Thailand
• 5. Which of the following best describes the
  keiretsu and chaebol?
• control
• globalize
• conglomerate
• culturally diverse
• 6. Which of the following does not characterize
  keiretsu and chaebol?
• financially linked entities
• market the same products play a significant role
  in their nations economies
• function like a trade barrier to U.S. firms
• play a significant role in their nations
  economies

4. Thailand
3. conglomerate
2. market the same products
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• 7. Maquiladoras are____________.
• financing institutions in South America
• Latin American banks
• trade and investment corporations
• manufacturing facilities
• 8. China has enjoyed recent success as an export
  powerhouse built upon its ____________.
• strengths of low costs and flow of capital
• geographic location in the world
• close ties with the rest of Asia
• close ties with Japan
• 9. Privatization involves ____________.
• the purchase of private companies by governments
• joint ventures between governments
• joint ventures between the private and public
  (governmental) sectors
• the sale of government-owned operations to
  private investors.

4. manufacturing facilities

• strengths of low costs and flow of capital

4. the sale of government-owned operations to
private investors.
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• All of the following are examples of factors that
  are changing the world labour force EXCEPT
• increasing movement across borders of workers at
  all skill levels.
• the rising average age of employees.
• rising levels of education for women in the
  workforce.
• slow wage growth in the U.S.

4. slow wage growth in the U.S.
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CHAPTER QUESTIONS

• Discuss examples of recent macropolitical events
  and the effect they have or might have on a
  foreign subsidiary. What are micropolitical risk
  events? Give some examples and explain how they
  affect international business.
• What means can managers use to assess political
  risk? What do you think is the relative
  effectiveness of these different methods?
• Can political risk be managed? If so, what
  methods can be used to
• manage such risk, and how effective are they?
• Explain what is meant by the economic risk of a
  nation. Use a specific
• country as an example. Can this risk be
  anticipated? How?

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CHAPTER QUESTIONS

• Discuss the importance of contracts in
  international management. What steps must a
  manager take to ensure a valid and enforceable
  contract?
• Discuss the effects of various forms of
  technology on international business. What role
  does the Internet play? Where is this all
  leading us? Explain the meaning of
  appropriability of technology and the role that
  this plays in international competitiveness. How
  can managers protect the proprietary technology
  of their firms?
• Discuss the risk of terrorism. What means can
  managers use to reduce the risk or the effects
  of terrorism?
• 8. Consider a recent event of your groups
  choice. Analyze the technological impact of this
  event on Canada.