Assessing the Environment – Political,
Economic, Legal, Technological
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Chapter 1 Overview
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Globalism
The Political and Economic Environment
The Legal Environment
The Technological Environment
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What is Global Management?
 Global management is 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 Globalism?
 The term globalism refers to global competition
characterized by networks that bind countries,
institutions, and people in an interdependent
global economy.
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Regional Trading Blocs
 The Triad
 Western Europe
 Asia
 North America
 Other Regions
 Central and Eastern Europe
 China
 Less Developed Countries (LDCs)
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The European Union (EU)
 12 of the 15 member states of the European Community
have adopted a common currency and monetary policy.
 The Euro is now a legally tradable currency.
 The EU is the largest and most integrated common
market in the world with 376 million consumers.
 The creation of EU has not eliminated national pride.
Most people in W. Europe still think of themselves first
as British, French, Danish or Italian, and are wary of
giving up too much power to centralized institutions, or
of giving up their national culture.
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Global Managers and the E.U.
 Global managers face two major tasks with
respect to the E.U.
– How firms outside of Europe can deal with a market
giving preference to insiders
– How to deal effectively with multiple sets of national
cultures, traditions, and customs within Europe.
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North America
 The North American Free Trade Agreement
(NAFTA) between the United States, Canada and
Mexico has created a single market of 360
million consumers.
 The “one America” trading bloc has the potential
for expansion in South America as trade
liberalization among the Latin American
countries progresses.
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North America (contd.)
 Maquiladoras are U.S. manufacturing facilities
that have operated just south of the MexicanAmerican border since the 1960s under special
tax concessions.
 Joint ventures between Mexican and American
companies are common. Examples include the
one between Wal-Mart and Cifra, which in 2001
was Mexico’s biggest chain.
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Asia
 Japan and the Four Tigers – Singapore, Hong
Kong, Taiwan, and South Korea – provide most
of the capital and expertise for Asia’s developing
countries.
 In the 1980s and early 1990s, much of Asia’s
economic power and competitive edge was
attributed to Japan’s keiretsu and S.Korea’s
chaebol.
 Recent economic woes have slowed growth in
the region.
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Other Regions
 The Central and Eastern European bloc, where
communism proved unworkable and crumbled, has
created a new market of 430 million people.
 Impediments to business growth here are the lack of
capitalist structure and systems to reproduce Western
management practices easily.
 China has enjoyed recent success as an export
powerhouse.
 Its GDP growth rate, though slowing, was the fastest in
the world for several consecutive years.
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Other Regions (contd.)
 The economic situation and the often
unacceptable level of government intervention
discourage foreign investment in less developed
countries (LDCs).
 Assessing the risk-return tradeoffs and keeping
up with political developments in the LDCs are
two of the many demands on international
managers.
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Workforce Diversity
The world labor force is undergoing
considerable change as a result of
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the increasing movement across borders of
workers at all skill levels;
the rising average age of employees; and
the addition of great numbers of women to the
workforce (particularly in developing countries),
many with higher levels of education.
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An Open Systems Model: The Contingency
Role of the Global Manager
(Exhibit 1-1)
MEGA
ENVIRONMENT
HOST-COUNTRY
ENVIRONMENT
Functions
And People
OPERATING
ENVIRONMENT
Regulations
Culture
Skills
Soc. Responsibility
Ethics
Subsidiary-Host
Interdependence
MNC-Host-Country
Interdependence
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What is Political Risk?
 Political risks are any governmental action
or politically motivated event that could
adversely affect the long-run profitability
or value of a firm.
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Terrorism Risk
 Terrorism is “the use, or threat of use, of anxietyinducing … violence for ideological or political
purposes” (Micklous).
 The increasing incidence of terrorism around the
world concerns MNCs.
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Typical Political Risk Events
 Expropriation of corporate assets without prompt
and adequate compensation.
 Forced sale of equity to host-country nationals,
usually at or below depreciated book value.
 Discriminatory treatment against foreign firms in
the application of regulations or laws.
 Barriers to repatriation of funds (profits or
equity).
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Typical Political Risk Events (Contd.)
 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 contractual agreements,
extortion demands, and so forth.
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Managing Political Risk
(Taoka and Beeman’s suggestions)
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Equity sharing
Participative management
Localization of the operation
Development assistance
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Economic Risk
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The economic risk incurred by a foreign
corporation usually falls into one of two main
categories: its subsidiary (or other investment)
in a specific country may become unprofitable
if the government abruptly changes its domestic
monetary or fiscal policies or
if the government decides to modify its foreigninvestment policies.
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Some Means that Managers Might Use to
Maintain Dependency
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Input control
Market control
Position control
Staged contribution strategies
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The Legal Environment
 A host country’s legal system may be derived
from common law, civil law, or Muslim law, and
is a reflection of the country’s culture, religion,
and traditions.
 Under common law, past court decisions act as
precedents to the interpretation of the law and to
common custom.
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The Legal Environment (contd.)
 Civil law is based on a comprehensive set of
laws organized into a code. Interpretation of
these laws is based on reference to codes and
statutes.
 Islamic law combines, in varying degrees, civil,
common, and indigenous law. It is followed in
approximately 27 countries.
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The Technological Environment
 Technoglobalism is the phenomenon in which rapid
developments in information and communication
technologies (ICTs) are propelling globalization and viceversa.
 An MNC’s major concern is the appropriability of
technology – that is, the ability of the innovating firm to
profit from its own technology by protecting it from
competitors.
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Global E-Business
 E-business is “the integration of systems,
processes, organizations, value chains and entire
markets using Internet-based and related
technologies and concepts.”
 E-commerce refers directly to the marketing and
sales process
 The Internet and e-business provide a number of
uses and advantages in global business.
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The Environment of the Global Manager
 Political Environment
• Form of government
• Political stability
• Foreign policy
• State companies
• Role of military
• Level of terrorism
• Restrictions on
imports/exports
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 Economic Environment
• Economic system
• Stage of development
• Economic stability
• GNP
• Int’l financial standing
• Monetary/fiscal
policies
• Foreign investment
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The Environment of the Global Manager
(contd.)
 Regulatory Environment
• Legal system
• Prevailing int’l laws
• Protectionist laws
• Tax laws
• Role of contracts
• Protection for
proprietary property
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 Technological Environment
• Level of technology
• Availability of local
technical skills
• Technical requirements of
country
• Appropriability
• Transfer of technology
• Infrastructure
• Environmental protection
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