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Copyright ©2014 Pearson Education, Inc.
Chapter Learning Goals
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Understand the global business environment and
how it affects the strategic and operational
decisions which managers must make.
Critically assess the developments, advantages, and
disadvantages of globalization.
Discuss the complexities of the international
manager’s job.
Develop an appreciation for the ways in which
political, economic, legal, and technological factors
and changes impact the opportunities that
companies face.
Review the role of technology in international
business.
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Opening Profile: The Globalization of Risk
Top two risks:
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Severe income disparity
Chronic fiscal imbalances
Other issues: natural disasters such as 2011
earthquake in Japan, flood in Thailand, political
uncertainty in China and Middle East
Globalization has compounded the types and
level of business risks
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Opening Profile: Typical Challenges that
Managers Face in the 21st Century
 Political and cultural differences
 Global competition
 Terrorism
 Technology
 Finding ways to balance their social
responsibilities, their images, and their
competitive strategies
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Chapter Learning Goals
Understand the global business
environment and how it affects
the strategic and operational
decisions which managers must
make.
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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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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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Global Trends
• Five key global trends:
• Changing balance of growth towards emerging
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markets
Need for increased productivity and consumption
in developed countries
Increasing global interconnectivity
Increasing gap between supply and demand of
natural resources
Challenge for governments to develop policies for
economic growth and financial stability
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Chapter Learning Goals
Critically assess the developments,
advantages, and disadvantages of
globalization.
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Challenges to Globalism
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Backlash against capitalism and rekindling of
nationalism
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Increased protectionism of high-demand
resources
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Need to develop top managers with
international understanding and experience
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Increasing pressure and publicity for
companies to consider the social responsibility
of their actions
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Effects of Globalization on Corporations
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Global companies are becoming less tied to
specific locations
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Companies that desire to remain competitive
will have to develop a cadre of experienced
international managers
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Small companies are also affected by and in
turn affect globalism
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Regional Trading Blocs
Much of today’s world trade takes place within
these three regional free-trade blocs:
 Western Europe, Asia, and the Americas
 Much of today’s world trade is grouped around
three dominant currencies:
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euro, yen, and the dollar
These trade blocs are continually expanding their
borders to include neighboring countries
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The European Union
“EU”
A unified market over 500 million people living
in 27 nations
Stability of the euro is in question and the
ability of the “EU” to deal with the debt crisis of
some members
EU poses two challenges for global managers:
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“Fortress” Europe
Dealing with multiple cultures within this unified
market
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Asia
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China
India
ASEAN
South Asia Association of Regional Cooperation
(SAARC)
Japan
Asian Tigers:
 Hong Kong
 Singapore
 South Korea
 Taiwan
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The Americas
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North American Free Trade Agreement (NAFTA)
Brazil
MERCOSUR
Central America Free Trade Agreement (CAFTA)
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Other Regions in the World
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The Russian Federation
Middle East
The African Union—AU
South Africa
Less developed countries—LDCs
 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 helps prop up the Global Economy
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The fastest growing GDP rate (over 9 %
per/year) for 30 years
In March 2012 Chinese Premier Wen Jiabao
announced only 7.5% growth for 2012
China is still a developing country with
considerable differences between rural and
urban areas
State firms play a significant or dominant role
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Comparative Management in Focus:
China helps prop up the Global Economy
 However:
 Weakening demand for Chinese exports—due to
global recession government is targeting only 7.5%
growth in 2012
 Chinese labor costs increasing, energy and shipping
cost rising; appreciating Yuan
 The political, legal, and social environments create
unpredictability for businesses
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Management Focus:
Tips for doing business in China
 Connections are important
 Negotiations will be different from the U.S. and
difficult
 Communication must be clear, honest, and fully
prepared for
 Culture matters!
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Management Focus:
Intel Brings Changes to Vietnam’s Economy and Culture
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United States opened trade relations with Vietnam in
2000.
Vietnam’s 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.
Intel’s success started with awareness of the tight control
of the Vietnamese government.
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Globalization of Information Technology
 The speed and accuracy of information
transmission are changing the nature of
international manager’s jobs
 Cultural barriers are being lowered gradually
 Technology gets dispersed around the world by
MNEs
 Explosive growth of information technology is
both a cause and effect of globalism
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Globalization of Human Capital
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Increasing trend in the offshoring of
manufacturing jobs and outsourcing of whitecollar jobs
The Indian ITES sector has 700,000 jobs
worldwide and comprises 35% of BPO market
For global firms, winning the war for talent is a
pressing issue
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Chapter Learning Goals
Discuss the complexities of the
international manager’s job.
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The Global Manager’s Role
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Chapter Learning Goals
Develop an appreciation for the
ways in which political,
economic, legal, and
technological factors and
changes impact the
opportunities that companies
face.
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The Political and Economic Environment
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Sustainability—economic, political, social, and
environmental—has become a significant
worldwide issue
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Ethnicity—a driving force behind political
instability around the world
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Religion—religious disputes lie at the heart of
regional instabilities, for example, 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-term profitability or value of a firm
Examples:
Argentina announced plans to
nationalize RepsolYPF, the Spanish
oil co., taking 51%.
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In Russia, the Kremlin exploited
the financial crisis to take control
of energy companies.
The Political Risk Cont.
Typical Political Risks
Expropriation and confiscation
Nationalization
Terrorism
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 – increasingly
common
Managing Political Risk
Avoidance and Adaptation
 Equity sharing
 Participating management
 Localization of the operation
 Development assistance
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Dependency and Hedging
 Input control
 Market control
 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
 Closely related to political risk
 Determined by a country’s ability or intention to meet its
financial obligations
 Historically, most industrialized nations have posed little
risk of economic instability, however the level of
economic risk in the EU is of great concern
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Categories of Economic Risk
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
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Managing the Economic Risk
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Quantitative
Approach
Qualitative
Approach
Checklist
Approach
Combination
of these
Methods
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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
Approaches to Contract
Law
 Common law: details must be
written in the contract to be
enforced
 Civil law
 Civil law: assumes promises
 Islamic law
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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Chapter Learning Goals
Review the role of technology in
international business.
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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 JVs, franchisees,
licensees, and employees
 Appropriateness of technology for the local environment
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The Impact of the Information Technology
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Making Geographic barriers less relevant
Both cause and effect of globalization
Lowering cultural barriers
Encouraging convergence of consumers’ tastes
and preferences
However, China still monitors and limits
electronic information
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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—marketing and sales process via the
internet
B2B—Business to Business (Example: Alibaba in China,
large proportion is SMEs)
B2C—Business to Customer (Example: Amazon.com)
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permission of the publisher. Printed in the United States of America.
Copyright © 2014 Pearson Education, Inc.
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