Discussion Topics
• Chapter 1
• Chapter 2
Next weeks assignments
• Read Chapter 3, Ethics and social responsibility ,
• Discussion Review Questions, #1 -5
International Management
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International Management
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• REVIEW current trends in international investment and trade
• EXAMINE the present economic status in the major regions of the global community
• ANALYZE some of the major developments and issues in various regions of the world
International Management
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International Management
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– Operates in more than one country
– Sells its products in international markets
– Managers and owners are of different nationalities
• Must learn to work effectively with people from different countries and different cultures.
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• Small and medium-sized businesses are being affected by the trend toward internationalization
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The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, 2003
Market Value
Billions of U.S. Dollars
Sales
Billions of U.S. Dollars
1. General Electric
2. Microsoft
3. ExxonMobil
4. Pfizer
$328.11
284.43
283.61
269.66
5. Wal-Mart Stores
6. Citigroup
7. BP
8. Aig
241.19
239.43
193.05
191.18
9. Intel 184.66
10.
Royal Dutch’ Shell 174.83
McGraw-Hill/Irwin
1. Wal-Mart Stores
2. BP
258.68
232.57
3. ExxonMobil 222.88
4. Royal Dutch/Shell 201.93
5. General Motors
6. DaimlerChrysler
7. Ford Motor
8. Toyotal Motor
9. Mitsubishi
10. General Electric
183.24
166.61
164.20
156.48
137.32
134.19
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The Top 10 global MNCs Ranked by Market Value, Sales, Profits,
Data: Morgan Stanley Capital International Standard & Poor’s Compustat and Share-Price Gain, 2003
Source : http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif
Profits
Billions of U.S. Dollars Share-Price Gain
1. ExxonMobil
2. Citigroup
3. General Electric
4. HSBC Holdings
5. Royal Dutch/Shell
6. Bodafone Group
7. Bank of America
8. Toyota Motor
9. Microsoft
10. BP
McGraw-Hill/Irwin
20.96
17.85
15.00
11.65
11.41
11.36
10.81
10.51
9.99
9.54
1. Mizuho Financial 636%
2. Research in Motion 550
3. UFJ Holdings
4. SK
420
383
5. Rakuten 381
6. Sumitomo Mitsui Fin. 331
7. Elan 311
8. Bharti Tele-Ventures 276
9. Yahoo! Japan 241
10. Mitsui Trust Hldgs.
229
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 Process of integration among countries around the world
◦
Social
◦
Political
◦
Economic
◦
Cultural
◦
Technological
 Benefits of growing global trade and investment
◦
Wealth
◦
Jobs
◦
Technology
◦
Lower prices
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• Criticisms of globalization
– Offshoring of business services jobs to lower-wage countries
– Growing trade deficits
– Slow wage growth
– Environmental and social impacts
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• Regional Developments
– North American Free Trade Agreement (NAFTA)
• Free trade agreement between the U.S., Canada, and Mexico which essentially removed all barriers to trade
• May expand to include Latin American countries
– European Union (EU)
• Consists of countries
• Most trade barriers have been removed
• Euro is the common currency
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• Pacific Rim
– Japan and China are the dominant economies
– Association of Southeast Asian Nations
(ASEAN)
• BRIC Economies
– Brazil, Russia, India & China
• WTO – World Trade Organization
• IMF
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• International Investment and Trade
– Foreign direct investment is the amount invested in another country
– International trade has increased substantially over the last two decades
– MNCs buy domestic companies rather than trying to export products to that country
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Top 10 trading Partners of the U.S.: 1999
Importing
Rank Country
1
2
130,863.9
3
4
5
81,788.2
7
8
6
39,237.2
9
31,178.6
10
26,708.6
22,356.5
Exports*
Canada
Mexico
U.S.
Rank
166,600 1
86,908.9
2
Exporting
Country Imports*
Canada
Japan
U.S.
198,711.1
Japan
U.K.
57,465. 3
38,407.1 4
Germany 26,800.2 5
South Korea 22,958.4
6
Mexico
China
109,720.5
Germany 55,228.4
U.K.
Netherlands 19,436.6
7
Taiwan 19,131.4
8
France
Singapore
18,877.4 9
16,247.3
10
Taiwan 35,204.4
South Korea
France
Italy
* in millions of dollars
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Foreign Direct Investment in the United States
All Countries
Canada
Europe
(select countries)
(select countries)
Mexico
Brazil
(in millions of dollars)
2002 2003
1,340,011 1,268,001
96,437 105,255
982,062 1,000,532
United Kingdom
Germany
France
South and Central America
218,175
139,620
141,400
19,198
7,483
997
230,374
148,774
143,341
20,636
6,680
663
McGraw-Hill/Irwin
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Foreign Direct Investment in the United States
(in millions of dollars)
2002
50,167 Other Western Hemisphere
(select countries)
Bermuda
Netherland Antilles
UK islands, Caribbean
Africa
Middle East
(select countries)
Israel
Kuwait
8,088
4,014
28,260
2,298
7,456
3,699
986
2003
48,921
5,914
4,048
28,949
2,187
7,931
3,834
1,155
McGraw-Hill/Irwin
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Asia and Pacific
(select countries)
Japan
Australia
Taiwan
Singapore
Hong Kong
Foreign Direct Investment in the United States
(in millions of dollars)
2002 2003
183,392 192,539
150,499 159,258
23,136 24,652
2,569
650
1,879
2,708
162
1,981
Adapted from: Table 1-2: Foreign Direct Investment in the United States, 2002-2004 (in millions of dollars)
McGraw-Hill/Irwin
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Foreign Direct Investment by the United States Abroad
All countries
Canada
Europe
(select countries)
(select countries)
Mexico
Brazil
(in millions of dollars)
2002 2003
1,601,414 1,788,911
170,169 192,409
848,599 963,087
United Kingdom
Germany
France
South and Central America
239,219
67,404
42,999
272,640
80,163
47,914
131,973 141,449
55,724
27,615
61,526
29,915
McGraw-Hill/Irwin
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Foreign Direct Investment in the United States
(in millions of dollars)
2002 2003
152,597 162,574 Other Western Hemisphere
(select countries)
Bermuda
UK islands, Caribbean
Africa
Middle East
(select countries)
Israel
Saudi Arabia
80,048
49,806
16,290
14,671
5,632
3,823
84,609
54,507
18,960
16,942
6,208
4,217
McGraw-Hill/Irwin
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Asia and Pacific
(selected countries)
Japan
Australia
Taiwan
Singapore
Hong Kong
China
Foreign Direct Investment in the United States
(in millions of dollars)
2002
267,125 292,490
65,939
34,409
7,608
52,449
41,571
10,499
2003
73,435
40,985
10,961
57,589
44,323
11,877
Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, 2002-2004 (in millions of dollars)
McGraw-Hill/Irwin
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Top 10 Trading Partners of the United States, 2003
Importing
Rank Country
(in millions of dollars)
U.S. Exporting
Exports Rank Country
U. S.
Imports
1 Canada
2 Mexico
169,924
97,412
3 Japan 52,004
4 United Kingdom 33,828
5 Germany
6 China
28,832
28,368
7 South Korea
8 Netherlands
9 Taiwan
10 France
24,073
20,695
17,448
17,053
1 Canada
2 China
3 Mexico
4 Japan
221,595
152,436
138,060
118,037
5 Germany 68,113
6 United Kingdom 42,795
7 South Korea
8 Taiwan
37,229
31,599
9 France
10 Ireland
29,219
26,747
Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).
McGraw-Hill/Irwin
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Economic Status and Issues of the Major Regions
 North America
◦
NAFTA has resulted in:
 Elimination of tariffs as well as import and export quotas
 Opening of government procurement markets to companies in partner countries
 Increased opportunity to make investments in partner countries
 Increased ease of travel between partner countries
 Removal of restrictions select goods
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Economic Status and Issues of the Major Regions
 North America
◦
United States
 U.S. MNCs have holdings throughout the world
 Foreign MNCs find U.S. to be a lucrative market
 Weaken US Dollar compared to foreign currencies
 Increasing National Debt
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Economic Status and Issues of the Major Regions (cont.)
• North America (cont.)
– Canada
• U.S.’s largest trading partner
• Legal and business environments similar to those of the U.S.
• Target of increased international investment
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Economic Status and Issues of the Major Regions (cont.)
• North America (cont.)
– Mexico
• Economic fortunes have varied in the recent past
• Maquiladora industry
– Arrangement created by the government that permits the flow of materials and products in and out of Mexico with only the value added being taxed
– Mexican firms expanding worldwide operations
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Economic Status and Issues of the Major Regions (cont.)
• Europe
– Privatization of traditionally nationalized industries
– EU
• intended eliminate all trade barriers among member countries
• To gain a foothold in the EU, foreign MNCs have:
– created acquisitions and alliances
– begun co-operative research and development programs
• Future challenge is the absorption of formerly communist Eastern neighbors
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Economic Status and Issues of the Major Regions (cont.)
• Europe (cont.) Central and Eastern Europe
• Collapse of the Soviet Union in 1991
– Glasnost (openness)
– Perestroika (economic and political restructuring)
• Russia
– Undergone economic reform
– Many attempts to stimulate the economy
– Greater privatization required
– Criminal activity increasing
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Economic Status and Issues of the Major Regions (cont.)
• Europe (cont.) Central and Eastern Europe
– Czech Republic, Hungary, and Poland
• Former communist countries that have become most visible in international arena
• Some former communist countries are struggling
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Economic Status and Issues of the Major Regions (cont.)
• Asia Japan
– Phenomenal economic success in 1970s and 1980s
– Ministry of International Trade and Industry (MITI)
– Keiretsus
• Vertically integrated industries
• Holdings provide assistance needed in providing goods and services to end users
– Decade long recession in 1990s
• Bank loans backed by real estate or projected revenues
• By 2000, most major banks had billions of dollars in uncollectible loans
• International competition has increased
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Economic Status and Issues of the Major Regions (cont.)
• Asia China
– Annual real economic growth of 10 percent during the 1980s and early 1990s
– More recent growth of 8 percent
– Healthy and growing economy
– GDP growth of 91 percent in 2003
– Attractive to foreign investors despite major political risk
– Product pirating is major problem
– Complicated and high-risk venture
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Economic Status and Issues of the Major Regions (cont.)
• Asia The Four Tigers
– South Korea
• Chaebols (large family-held Korean conglomerates)
• Affected by declining economies of South east Asia in 1990s)
– Hong Kong
• Now part of People’s Republic of China
• Uncertainty about role the Chinese government intends to play in local governance
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Economic Status and Issues of the Major Regions (cont.)
• Asia (cont.)
– The Four Tigers (cont)
– Singapore
• Least hurt by economic downturn of 1990s
– Taiwan
• Progression from labor-intensive economy to one dominated by technologically sophisticated industries (banking, electricity generation, petroleum refining and computers)
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• Market Economy
– Private enterprise reserve the right to own property and decide on what and how much to produce.
– Contains the least restriction in the allocation of resources
– A general balance between supply and demand
– Competition is encouraged
– Government may limit monopolies, or unfair practices.
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• Command Economy
– Compared to Monopoly where the government has explicit control over the price and supply.
– The control is based on theoretical need of the population and might be distorted
– Businesses are owned by the state to ensure investment in the best interests of the society.
– Government subsidies provide security to organizations.
– Common in communists countries
–
What are some of the issues with this system?
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• Mixed Economy
– Combination of market and command economy.
– Some sectors are private while others are controlled and owned by the government.
– Allow for competition while enable to provide assistance to individuals or companies
– Nationalization of major resources.
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The World’s Most Competitive Nations,
2003 Ranking
Country
United States
Australia
Canada
Malaysia
Germany
Taiwan
United Kingdom
France
Spain
Thailand
Rank
7
8
5
6
3
4
1
2
9
10
Adapted from Table 1-6: The World’s Most Competitive nations, 2003 Ranking
Source: World Competitive Scoreboard, 2004.
McGraw-Hill/Irwin
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• The Baby Tigers
– Thailand, Malaysia, Indonesia
• Large population base
• Inexpensive labor
• Considerable natural resources
• Attractive to outside investors
– ‘Baby Tigers’ lack the economic prowess of the
Four Tigers
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Characteristics of
Less Developed Countries
High unemployment
Low
GDP
High international debt
Less
Developed
Countries
Slow (or negative) GDP growth per capita
Inexpensive unskilled or semi-skilled labor
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Large population
38

Developing and Emerging Countries
• India
– Low per capita GDP
– Recent trend of locating software and high value-added services to this country
– Attractive to U.S. and British investors (well educated, English speaking, technologically sophisticated workers)
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Developing and Emerging Countries
• Middle East and Central Asia
– Large oil reserves
– Highly unstable geopolitical and religious forces
– Plagued by continuing economic problems
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Developing and Emerging Countries
• Africa
– Considerable natural resources
– African nations remain very poor and undeveloped
– International trade is not a major source of income
– Populace divided into 3,000 tribes that speak 1,000 languages and dialects
– Major political instability
– Poverty, starvation, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector
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• Question #1
How has globalization affected different world regions? What are some of the benefits and costs of globalization for different sectors of society (Companies, workers, communities)?
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• Question #5
Many MNCs have secured a foothold in Asia, and many more are looking to develop business relations there. why does this region of the world hold such interest for international management? Identify and describe some reasons for such interest.
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• Question #6
Why would MNCs be interested in South
America, India, the Middle East and Central
Asia, Africa, the LDCs of the world? Would
MNCs be better off focusing their efforts on more industrialized regions? Explain.
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 EXAMINE some of the major changes that are currently taking place in the political environments of China, Europe, Russia, and
Central and Eastern Europe
 PRESENT an overview of the legal and regulatory environments in which MNCs operate worldwide
 REVIEW key technological developments and their impact on MNCs now and in the future
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◦
Government policies that affect MNCs
◦
Stability of the government of the host country
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 China
◦
Has a complex political environment
 Convert state enterprises into shareholder-owned corporations
 Expanding capital markets by authorizing new stock listings
 Allowing government bodies to sell off state enterprises
 Providing social services
 reducing tariffs
◦
MNCs face major business obstacles China
 Government regulations
 Lack of qualified employees
 Active involvement of government in business affairs
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• Change in government policies
– MNCs must adjust their strategies and practices to accommodate the new perspectives and actual requirements
• Less stable governments
– Greater risk
• Significant differences among political systems across countries and regions
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• Emerging economic power
• Government’s desire to balance
– National, immediate needs
– Challenge of a free market economy and globalization
• Government attempting to open up the economy
1. Speed up conversion of state enterprises into corporations
2. Expand capital markets by authorizing new stock listings
3. Sell off most of the 305,000 state enterprises (or let go bankrupt)
4. Worker retraining, low-cost housing and other programs
5. Reduce tariffs to 10 percent
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• Europe
– Privatization and economic liberalization reinforce EUwide political and economic integration
– Political power is variable and complex
– Strong opposition to U.S.-led intervention in Iraq sometimes spill over into business relationships and dealings
– Europe is a large interwoven region economically, but contains vast cultural differences
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• Russia
– Bleak economic outlook
– Government must keep the economy on an even keel while attracting more foreign investment
– Corruption interferes with attraction of more foreign investment
• Central and Eastern Europe
– Political situation is in a state of change
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Tariffs
Russia will not exceed an average’ tariff level of 7.6% for industrial goods, 11% for fishery products, and 13 % for agricultural goods.
Tariff rate quotas for fresh and frozen meat and poultry will be around
600 million ($720 million) per year.
Energy
Russian gas prices to domestic industrial users will gradually be increased.
Russia’s state gas corporation, Gazprom, will retain its export monopoly. Export duties on gas will be capped at 30%.
Airlines
Russia will revamp the charges currently applied to EU airlines flying over Siberia to make them cost-based and nondiscriminatory.
McGraw-Hill/Irwin
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Banking
Russia will maintain a ban on foreign banks opening branches.
Under existing rules, foreign banks are allowed to open only wholly or partly owned subsidiaries.
Services
Russia has committed to cross-border provision and commercial establishment of certain services.
Sectors include telecoms, transport, financial services, postal, construction, distribution, environmental, news agency, and tourism.
Adapted from: Table 21: Key Elements of Russia’s WTO Accession Deal with the EU
McGraw-Hill/Irwin
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• Many of these countries have joined the EU
• Movement from centrally planned to market economy plagued with problems in many countries
– High unemployment
– Economic slowdown
– Large trade deficits
• Some countries more successful in economic reforms
– Estonia
– Latvia
– Lithuania
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• Doing business requires knowledge of
– Regulations
– Legal environment
– Tax regimes
– Accounting methods
– Business structures
– Import/export regulations
– Manpower and labor regulations
– Restrictions on foreign capital investment
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• Doing business in Middle Eastern countries is risky and potentially dangerous
– War on terrorism
– Afghanistan and Iraq wars
– Israel—Arab conflicts
– Rising tensions
• Business requires knowledge of Islam
– Religion and way of life
– Framework of life and society
– Islamic fundamentalists have become aggressive toward U.S. and its allies.
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• Confusion and challenge of international business environment is heightened by
– Differing laws and regulations in MNCs’ global business operations
– Impact of these laws and regulations on ability to capitalize on economies of scale and scope
• MNCs must carefully evaluate legal framework in each market in which they want to do business, before doing so
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Islamic
Law
based on the
Qur’an and teachings of the Prophet
Mohammed
- found in most
Islamic countries
Laws of the World
Socialist
Law
- derived from
Marxism
- continues to influence regulations in countries from the former
Soviet Union
Common
Law
- derived from
English law
- foundation for legal systems in Western democracies
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Civil or
Code Law
- derived from
Roman law
- found in non-
Islamic and nonsocialist countries
59

Basic Principles of International Law
– Principal of Sovereignty - Governments have the right to rule themselves as they see fit
– Nationality principle - country has jurisdiction over its citizens no matter where they are located
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Basic Principles of International Law - Cont
– Territoriality principle - nation has the right of jurisdiction within its legal territory
– Protective principle - every country has jurisdiction over behavior that adversely affects its national security, even if the conduct occurred outside that country
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– Doctrine of Comity - Mutual respect for the laws, and government of other countries in the matter of jurisdiction over their own citizens
– Act of State Doctrine - All acts of other governments are considered to be valid by U.S. courts, even if such acts are inappropriate in the U.S.
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– Bureaucratization
• Restrictive, inefficient
• Problematic
• Red tape increased the cost of doing business
• Bureaucracies make it difficult to open markets
– Privatization
• Selling state-owned properties to private enterprises
• Example: Deregulation of German telecommunications
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• Foreign Corrupt Practices Act
– Illegal to influence foreign officials through
• Personal payment
• Political contributions
– When bribes removed, MNCs more willing to do business in that country
• Restrictive bureaucratization
– Government controls often inefficient and uncorrected
– Local politics often prevail over national concerns
• Privatization
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• Individual countries use legal and regulatory policies to affect the international management environment
• Country is perceived to engage in unfair trade practices (WTO and similar agreements)
– Government support (subsidies)
– Require MNCs to accept local partners
• Response may be
– Retaliatory tariffs
– Restrictive trade regulations
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65

Technologies That Will
Influence International Business
Internet
Artificial
Intelligence
Biotechnology
Silicon
Chips
International
Business
Automatic
Translation
Telephones
Supercomputers
Nanotechnology
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Satellites
66

• Technology is rapidly changing
• E-Business
• Telecommunications
– Technologic leapfrogging - Moving from no telephones to wireless communications
• Economic growth hampered by poor communication services
• Wireless is more affordable than installed phone lines
• Some governments recognize the need to privatize this service
– Privatization of telecommunications
• MNCs unwilling to invest in telecommunications without the prospect of good financial return
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Technology, outsourcing and offshoring
– Technology has reduced and eliminated some work in middle management and white-collar jobs
– Global competition has forces some MNCs to outsource jobs to offshore productions (lower labor and other costs)
– Emerging technology makes work more portable
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• Employment Fallout from Technology
– Changing technology affects the nature and number of employees to conduct operations
– Employee displacement likely
– Work more portable
– Positives of the new technology
• Lowers cost of doing business worldwide
• Productivity likely to increase
• Prices likely to decline
– Negatives of the new technology
• Employees will lose their jobs
• Wages may be reduced
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Computer software engineers, applications
Computer support specialists
Computer software engineers, systems software
Network and computer systems administrators
82
90
100
97
Personal and home care aids 62
Medical assistants 52
-80 -60 -40 -20 0 20 40 60 80 100
Percentage change for 2000-2010
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2010

-61
Railroad brake, signal, and switch operators
-35
Telephone operators
Loan interviewers and clerks -28
-26
Meter readers, utilities
Farmers and ranchers -25
-20
-20
Order clerks
Insurance claims and policy processing clerks
-80 -60 -40 -20 0 20 40 60 80 100
Percentage change for 2000-2010
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2010

• Page 47, #1
In what way does the political environment around the world create challenges for MNCs?
Would these challenges be less for those operating in the EU than for those in Russia or
China? Why or why not?
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• Page 47, #4
Why are developing countries interested in privatizing their telecommunications industries? What opportunities does this privatization have for telecommunication
MNCs?
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Next weeks assignments
• Read Chapter 3, Global Competitiveness , Pages 54 -74
• Discussion Review Questions, Page 73, #1-5
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