international business environment 2

8/4/2019 International Business Environment 2

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International Business Environment

Session 2By:Dr.R.Satish Kumar


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International Management and

Globalization

` What is international management?

` the process of applying management concepts and

techniques in a multinational environment and

adapting management practices to differenteconomic, political, and cultural environments

(HLD, p. 6)

` Why is globalization important?

` International management is rapidly gaining inimportance in tandem with the quickening pace of

globalization


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Globalization: Definitions

` Hodgetts, Luthans and Doh,

` Globalization is the process of social, political, economic,

cultural, and technological integration among countries

around the world (p. 7)

` Robertson (Globalization: Social Theory and

Global Culture, 1992),

Globalization in its most all-

embracing form refers to both the

compression of the world and the

intensification of consciousness of

the world as a whole (p. 8)


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The Roots of Globalization

y When did globalization begin?

Ancient trade routes barter trade

Standard weights and measures

Mercantilism the highways of the sea Post WWII institutions of global governance

Past 1980s ICT, globalization defined

y Hodgetts, Luthans, and Doh,

Contemporary globalization is a new branch of a veryold tree whose roots were planted in antiquity (p. 8)


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The Drivers of Globalization

Developmentof new

technologies

Reducedbarriers to

trade

Search forcompetitiveadvantage

y What drives globalization?

Individual and social needs and aspirations

Technological innovation

Reduced technological and economic barriers to trade

y Sustaining forces Greater policy

liberalization

Greater efficiency ofbusiness

Greater market access

Increased flows of goods,services, and people


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Globalization from a Regional

Perspectivey Developed Economies

x U.S. the European Union and Japan account for one-half of

world trade

y Emerging and Transition Economiesx Economies in Latin America and Asia are increasingly

important global players

x BRIC, economic powers with large internal markets

x Eastward expansion of the EU

y Less Developed Countries (LDCs)x Some fast growing and increasingly open to the global system

x Others, notably in Africa, struggle to compete globally


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North America

y Important global market

x Combined purchasing power of the U.S., Canada and Mexico

is $12 million

y United States

x U.S. outbound FDI $1.8 billion (2003)

x U.S. inbound FDI $1.4 billion (2003)

y Canada

x Largest U.S. trading partner

x Legal and business environment similar to the U.S.

y Mexico

x Strong maquiladora industry

x Competitive with Asia for the U.S. market

x Emergence of Mexican MNCs


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South America

` Economic challenges

` High inflation

` Heavy foreign debt

`

Entrenched interests (crony capitalism)` Political instability

` Economic opportunities

` Important emerging markets Brazil, Argentina, Venezuela, Columbia, Chile, Peru

` Prevalence of free market policies

` Expanding regional and international trade Mercosur and Asia-Pacific Economic Cooperation (APEC)


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Europe

y Market factorsx Operational integration of the EU

x Privatization of traditionally nationalized industries

x Expanded ties to Central and Eastern Europe

y Social factorsx Maintaining social cohesion

x Adjusting to local tastes Plan globally, actlocally

y Economic challengesx For foreign MNCs, gaining a foothold in the EU

x Strategies include: acquisitions, alliances, and cooperative R&D

x Absorbing the former communist-bloc countriesx 550 million middle-class consumers across 25 countries

x Largest economic market in the world


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Central and Eastern Europe

y Collapse of the Soviet Union (1991)x Glasnost(openness) and perestroika (economic and

political restructuring)

x The fall of the Berlin Wall and German reunification

y Russiax Dismantling of price controls and privatization

x Crime, political uncertainty, and inflation

x

Membership in International Monetary Fund (IMF)y Successful transition economies

x Czech Republic, Hungary, Poland, the Baltic states

y Economies caught in transitionx Albania, Bulgaria, Romania, former Soviet republics


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East Asia

y Japanx In the 1970s and 1980s

x Strong government role

x Vertically integrated industries (keiretsus)

x In the 1990sx

Economic recessionx Collapse of the real estate bubble

x Banks reluctant to write-off uncollectible loans

x Still the worlds second largest economy

y Chinax Economic opportunities

x High rates of growth (8-10% per year)

x Large internal market (> 1.3 billion consumers)

x Economic challengesx Inflation and political instability

x Regulatory reform and compliance

x Complex and unpredictable economic environment


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East Asia The Four Tigers

y South Koreax Dominated by family-held conglomerates (chaebols)

x Impacted by the Asian financial crisis (1997)

y Hong Kongx Part of the PRC (one country, two systems)

x Risk of radical change in business environment

y Singaporex Corporatist model

x From entrepotto global city

y Taiwanx From cheap producer to technology leader

x Managing relations with the PRC the 3 Chinas


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South and Southeast Asia

y Southeast Asiax The Baby Tigers (TH, MY, IN, VN)

x Large population base

x Inexpensive labor

x Considerable natural resources

x Attractive to outside investors

x Other Southeast Asian nationsx Philippines, Cambodia, Laos, Myanmar

y South Asiax India

x Large population (300 million middle class consumers)

x Increasingly open markets, technology leader

x Attractive to US and British investors

x Other South Asian nationsx Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan


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Developing and Emerging

Economies (1)y Economic characteristics

x Low per capita GDP, low (or negative) GDP growth

x

High unemployment - semiskilled or unskilled workforcex Considerable government intervention in the economy

x Political instability, weak infrastructure, corruption

y LDCs in Asia and Latin Americax Include important regional economic powers (e.g. China,

India, Indonesia, Brazil, Argentina)

x Generally well integrated into the global economy


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Developing and Emerging

Economies (2)y LDCs in the Middle East and Central Asia

x Large oil reserves

x Highly unstable geopolitical and religious forces

x Plagued by continuing economic problems

y LDCs in Africax Considerable natural resources

x Diverse populations

x

Weak and unstable governmentsx Economies negatively impacted by social and

environmental factors (poverty, starvation, illiteracy,

corruption, environmental degradation)

x Poorly integrated into the global economy


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Convergence or Divergence

PoliticalSystems

Economic

Systems

BeliefSystems

Culture

InformationSystems

Technology


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Economic Environment

y Global and regional integration

International agreements (GATT, WTO)

Regional agreements (EU, ASEAN, NAFTA, CAFTA,FTAA, Mercosur)

y World trade and investment

80% of FDI contributed by developed economies

U.S. exports/imports increased by 550% from 1983 to2003 (to $1.3 and $1.8 trillion)

Trade within the EU increased sharply, to > $2 trillion

annually


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Political Environment

y Rapid and uncertain change

Chinas transition to a market economy

European expansion and integration

Russias unstable political institutions

The emergence of political Islam in the Middle East

y Significant differences across countries

Less stable governments increase political risk

Uncertain responses to democratization

y Change in government policies Adjusting to adjust to new perspectives and

changing requirements

Assessing political risks


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Legal/Regulatory Environment

y Complex and confusing

MNCs must

x Conform to national laws and standards

x Abide by the laws of their own countries

x

Be aware of international treaties and obligations Differences in regulatory regimes

x Increase transaction costs

x Restrict and distort trade

x Can result in retaliatory practices or sanctions

y Four main legal traditionsx Common law

x Civil law

x Islamic law (theocratic law)

x Socialist law


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Socio-Cultural Environment

y Ethics and social responsibility

Business practices

Labor standards and workers rights

Corporate governance Intellectual property rights

y Values and culture (Part II)

Responses to authority

Individual vs. group recognition and responsibility Balance of work and family obligations

Managing and resolving conflict


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Technological Environment

y Changing at lightning speed

y Internet and telecommunications Increasing bandwidth/high-speed access

Reduced costs of entry/leapfroggingy E-business

Customization (the long end of the tail)

E-retailing and financial servicesx Movement of money across borders

x E-cash a currency without a country

y Outsourcing and offshoring Information as a commodity

The 24-hour office increased productivity/lower cost


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Impact on Labor

` Positive effects

` Increased job

opportunities

` Upgraded education

system

` Increased training

` Negative effects

` Job displacement

` Loss of industries or

economic groups

` Lowered labor standards

` Downward wage

pressure

` Decreased union power

` Diminished social

contract


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Impact on Equality

` Positive effects` Increased income /

reduced poverty

` Increased wages for

education or technically

skilled

` Improved economic

conditions

` Rich become richer

` Greater access to goods

` Lower cost of goods

` Increased food supply (in

some countries)

` Negative effects` Greater disparity

between haves and have-

nots within and across

countries

` Some downward

pressure on wages for

the poorly educated or

unskilled

` Worsened economicconditions in

marginalized countries

` Poor become poorer


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Impact on Government

` Positive effects` Increased economic

development

` Expanded infrastructure

` Transfer of modern

management techniques

` Greater interdependence

among business partners

` Negative effects` MNC power increased

` MNCs externalize cost

to countries

` Competition results in

too many concessions

` MNCs influence local

policies

` Companies incorporate

in low tax countries

` Pressure to reduce social

benefits


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Impact on the Environment

y Positive effectsx More efficient use of

resources

x Increased demand for

and transfer of more

efficient technologies

x Increased incomes lead

to greater concern for

environmental

protection

y Negative effectsx Increased consumption

x Advertising creates

artificial needs

x Greater use of fossil

fuels (increased travel)

x Increased surplus and

scarcity

x Increased degradation

from unregulated

businesses

x More factories require

more infrastructure


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Impact on Culture/Community

` Positive effects

` Increased cultural

exposure and

understanding

` Closer cross-border ties

` Negative effects

` More mobility disrupts

social life, particularly in

remote or rural

communities` Disintegration of local

communities

` Cultural homogenization

and monoculture /

reduced cultural diversity


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Globalization: Pros and Cons

y Globalization as moral conflict

y Impacts of Globalization

Increases economic interdependence

Creates winners and losersy Implications of the debate

For academics

x Need for more objective research

x

Need to question assumptions and be open to alternatives For companies

x Be aware of multiple stakeholder interests

x Follow the guidelines of the UN Global Compact

x Consider the triple bottom line


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Conclusion

y Implications for Managers

Lifelong learning

x the most valuable asset is the ability to learn how to learn

(Thomas Friedman, The World is Flat)

Responsivenessx be alert for changes and quick to respond

Adaptability

x knowing how to work with others

x being comfortable with uncertainty and ambiguity

Both a local and global perspective

x see the big picture (global economy/whole organization)

x understand the details of operating at the local level

international business environment 2

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