Download Chapter 1: The Global Manager*s Environment

Instructor: Tran Nam Giang
© 2008 Pearson Prentice Hall
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 Research
the environment in
which a company operates or will
operate in order to assess:
1. the political risks
2. the economic risks
3. the regulatory risks
4. technological risks
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
Any governmental action or politically
motivated event that could adversely affect
the long-run profitability or value of a firm
Example:

Why do governments do that?

“… Bolivia nationalized its natural-gas
industry, ordering foreign companies to give
up control of fields and accept much tougher
operating terms within six months or leave
the country”
Wall Street Journal 2006
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Expropriation of corporate assets
 Forced sale of equity to host-country
nationals
 Legal discrimination
 Barriers to repatriation of funds
 Loss of technology or other IP
 Interference in managerial decision
making
 Dishonesty by government officials
regarding contracts

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

Helps companies manage exposure to
risk and minimize financial loss
Two forms:
◦ Consultation with experts
◦ Development of internal staff capabilities
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Avoidance
 Adaptation: equity sharing,
localization, development assistance
 Dependency: keep subsidiary & host
nation dependent on parent firm
 Hedging: insurance, local debt
financing

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Is closely related to political risk
 Types of economic risks

◦ Loss of profitability due to abrupt
changes in monetary and fiscal policies
◦ Loss of profitability due to changes in
foreign investment policies.

E.g. barriers in profit repatriation,
changes in interest rate, exchange
rate
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


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Quantitative: assess economic variables
(GDP, income, unemployment rate,
inflation, budget, imports, exports,
debts)
Qualitative: assess the competence of
leaders
Checklist: easily measurable and timely
criteria
A combination of these methods
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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 appropriability of technology:
ability to profit from innovating
technology maybe restricted
 Inappropriate use of technology by
others
 Appropriateness of technology for the
local environment

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