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PowerPoint by:
Mohamad Sepehri
Jacksonville University
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Copyright ©2011 Pearson Education, Inc. publishing as
Prentice Hall
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.
Review the role of technology in international
business.
Develop an appreciation for the ways in which
political, economic, legal, and technological factors
and changes impact the opportunities that
companies face.
Discuss the complexities of the international
manager’s job.
Copyright ©2011 Pearson Education, Inc. publishing as
Prentice Hall
Opening Profile: Economic Crisis Spreads
Through Financial Globalization
What caused the global economy to collapse?
 Toxic Assets:
Highly leveraged securities
Subprime mortgage mess
Finance has become one of the most international
of industries
Failure of banks and other financial institutes:
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Fannie Mae & Freddie Mac
Lehman Brothers
AIG
And many more…
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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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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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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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Benefits of Globalism
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
Access to more markets
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Growth of developing economies
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Opportunities for flexibility and efficiency
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Opportunities for small and medium-sized
enterprises (SMEs)
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Regional Trading Blocks
The dominance of the United States is already
over.
 What is emerging is a world economy of blocs
represented by: NAFTA, EU, and ASEAN.
 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 are grouped around
three dominant currencies:
euro, yen, and the dollar
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The European Union
EU
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A unified market over 400 million people living
in 27 nations
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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)
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Central America Free Trade Agreement (CAFTA)
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MERCOSUR
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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 Keeps on Chugging
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The fastest growing GDP rate (over 9 percent/year) for 30 years
Economy has doubled every eight years for 30 years
Surpassed Germany in 2009 as the world’s largest exporter
Investing heavily in energy and other natural resources in 2009
that could give it an economic advantage it has never had
before
However:
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Weakening demand for Chinese exports—due to global
recession
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Chinese government may not be able to prevent the financial
crisis from derailing the country’s economic miracle
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The political, legal, and social environments create
unpredictability for businesses
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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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The Impact of the Information Technology
 Making Geographic barriers less
relevant
 Lowering cultural barriers
 Encouraging convergence of consumers’
tastes and preferences
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Globalization of Human Capital
 Increasing trend in the offshoring of
manufacturing jobs and outsourcing of
white-color jobs
 Prediction that 3.3 million U.S. jobs in
service sector may be lost/outsourced by
2015
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The Global Manager’s Role
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The Political & 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: 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-run profitability or value of a firm
Examples:
Venezuela took control of cement
plants and offices belonging to
Mexico, after failing to reach an
agreement in nationalization talks.
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Bolivian president’s move to
nationalize the national gas
industry followed that in
Venezuela.
The Political Risk Cont.
Typical Political Risks
 Expropriation and confiscation
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Nationalization
Terrorism
Macro-political risk event
Micro-political risk event
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
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
 Is closely related to political risk
 Is determined by a country’s ability or intention
to meet its financial obligations
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Categories of Economic Risk
1. 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
 Example: devaluation of peso in 1990s
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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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The Technological Environment
 The appropriability of technology
 The International Convention for the Protection
of Industrial Property (the Paris Union)
 Inappropriate use of technology by others
 Appropriateness of technology for the local
environment
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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
B2C—Business to Customer
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