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Chapter 1Assessing the Environment
Political, Economic, Legal,
Technological
International Human Resources Management
Spring Semester 2006
International College of Beijing
China Agricultural University
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The Global Business Environment
The Global Marketplace is complex,interdependent, and dynamic
Challenges include politics, culture, andtechnology
Managers must find a balance betweensocial responsibility, company image, and
competitive strategiesMore focused on Global Management
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The Global Business Environment
Global competition is characterized by
networks that bind countries to one another
Globalism trends A borderless world
Increase in exports
Increase in direct foreign investment Dominance of trading blocs
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Regional Trading Blocs
The dominance of theUnited States is alreadyover. What is emerging is
a world economy of blocsrepresented by NAFTA,The European Union, andASEAN. Theres no onecenter in this worldeconomy.
- Peter Drucker
Fortune, January 12, 2004
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Regional Trading Blocs
TRIAD Market
European Union
Asian Market
China, Japan, South Asia
NAFTA
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Comparative Management in Focus -
IndiaIndia has witnessed a change in values,habits and options during the last decade
The economy, second fastest growing in theworld, is expected to grow close to 7% thisyear
Fastest growing telecom market with more
than one million new mobile phonesubscriptions per month
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Comparative Management in Focus
- IndiaIndians 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
Foreign investors have invested $5 billioninto the Indian stock market
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Information Technology
Information Technology is transforming theinternational managers agenda more than
any other itemInformation is no longer centrally orsecretly controlled by governments
Information technology is boosting
productivity and electronic commercearound the world
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The Globalization of Human Capital
Globalization means we sharejobs as well as goods.- FINANCIAL TIMES,
August 27, 2003
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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 surveyedstate that they use a global sourcing model
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The Global Managers Role
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The Political and Economic
EnvironmentOne important aspect is the phenomenon of
ethnicity
Driving force behind political instabilityFirms must assess political risks
Government actions that could adversely affect
the long-run profitability or value of a firm
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PoliticalRisk 7 Typical risk events
Expropriation of corporate assets withoutprompt and adequate compensation
Forced sale of equity to host-countrynationals, usually at or below depreciated
book value
Discriminatory treatment against foreignfirms in the application of regulations orlawsBarriers to repatriation of funds (profits orequity)
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PoliticalRisk 7 Typical risk events
Loss of technology or other intellectual
property (such as patents, trademarks, or
trade names)Interference in managerial decision making
Dishonesty by government officials,
including canceling or altering contractualagreements, extortion demands, and so forth
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Managing PoliticalRisk
Avoidance either the avoidance or withdrawal of
investment in a particular country
Adaptation adjust to the political environmentDependency 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 developmentgenerally determines its economic stability
Economic risk falls into 2 categories Government changes its fiscal policies
Government modifies its foreign-investmentpolicies
Managers are constantly reassessingeconomic risk
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The Legal Environment
Managers will comply with the hostcountrys legal system
Common Law past court decisions act asprecedents to the interpretation of the law
Civil Law comprehensive set of lawsorganized into codes, interpretation is based onreference to codes and statues
Muslim law based on religious beliefs, itdominates all aspects of life
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The Legal Environment
Commenting on Contract Law
In China, the old joke goes, a contract is apause in the negotiation.
- VANESSA CHANG, KPMG PEAT MARWICK
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The Technological Environment
Corporations must consider the accelerating
macro-environmental phenomenon of
technoglobalism (rapid developments ininformation and communication
technologies)
Corporations must consider theappropriability 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 andrelated technologies and concepts.
E-commerce - refers directly to the
marketing and sales process via the Internet
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Global E-Business
Convenience in conducting business worldwide;facilitating communication across borderscontributes to the shift toward globalization and aglobal market.
An electronic meeting and trading place, whichadds efficiency in conducting business sales.
A corporate Intranet service, merging internal andexternal information for enterprises worldwide.
Power to consumers as they gain access tolimitless options and price differentials.
A link and efficiency in distribution.
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Chapter 1Assessing the Environment
Political, Economic, Legal,
Technological
International Human Resources Management
Spring Semester 2006
International College of BeijingChina Agricultural University
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Looking Ahead
Chapter 2 Social Responsibility and
Ethics
The Social Responsibility of MNCs Ethics in Global Management
Managing Interdependence
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Global Management
The process of developing strategies,
designing and operating systems, and
working with people around the world toensure sustained competitive advantage
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The TRIAD
Three regional free-trade blocs
Western Europe, Asia, and North America
Grouped around three dominant currencies Euro, Yen, and Dollar
In 2004, these trade blocs were expanding
their boarders to include neighboringcountries
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European Union
Comprised of 25 nations
400 million people
Elimination of tariffs has not eliminated nationalpride
Global Managers face two major tasks
Strategic how to deal with the EU as an non-
European company Cultural How to deal with multiple sets of national
cultures, traditions and customs
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Asia
Japan and the FourTigers - Singapore,
Hong Kong, Taiwan, and South Korea,
Each has an abundance of natural resources andlabor
China
A new east Asian economy is emerging,
focused on greatly increased trade within the
region and based on China rather than Japan.
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North America
The goal of NAFTA was to bring the US,
Canada, and Mexico together to create more
jobs, better working conditions and acleaner environment
421 Million Consumers
Has been very beneficial to Mexico
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AdaptationEquity sharing includes the initiation of joint ventureswith nationals (individuals or those in firms, labor unions,or government) to reduce political risks.
Participative management requires that the firm activelyinvolve nationals, including those in labor organizations or
government, in the management of the subsidiary.Localization of the operation includes the modificationof the subsidiarys name, management style, and so forth,to suit local tastes. Localization seeks to transform thesubsidiary from a foreign firm to a national firm.
Development assistance includes the firms activeinvolvement in infrastructure development (foreign-exchange generation, local sourcing of materials or parts,management training, technology transfer, securingexternal debt, and so forth)
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Dependency
Input control means that the firm maintainscontrol over key inputs, such as raw materials,components, technology, and know-how.
Market control requires that the firm keepcontrol of the means of distribution
Position control involves keeping certain keysubsidiary management positions in the hands ofexpatriate or home-office managers.
Staged contribution strategies mean that thefirm plans to increase, in each successive year, thesubsidiarys contributions to the host nation
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Hedging
Political risk insurance is offered by most industrializedcountries. Insurance minimizes losses arising from specificriskssuch as the inability to repatriate profits,expropriation, nationalization, or confiscation and from
damage as a result of war, terrorism, and so forth. The Foreign Credit Insurance Association (FCIA) also covers
political risks caused by war, revolution, currency inconvertibility,and the cancellation of import or export licenses.
Local debt financing (money borrowed in the hostcountry), where available, helps a firm hedge against being
forced out of operation without adequate compensation. Insuch instances, the firm withholds debt repayment in lieuof sufficient compensation for its business losses.
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