© 2006 Prentice Hall
1-1

The Global Marketplace is complex, interdependent, and dynamic
Challenges include politics, culture, and technology
Managers must find a balance between social responsibility, company image, and competitive strategies
More focused on Global Management
© 2006 Prentice Hall 1-2

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
© 2006 Prentice Hall 1-3

“The dominance of the
United States is already over. What is emerging is a world economy of blocs represented by NAFTA,
The European Union, and
ASEAN. There’s no one center in this world economy.”
- Peter Drucker
Fortune, January 12, 2004
© 2006 Prentice Hall 1-4

TRIAD Market
European Union
Asian Market
– China, Japan, South Asia
– Four Tigers
NAFTA
CAFTA
© 2006 Prentice Hall 1-5

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 neighboring countries
© 2006 Prentice Hall 1-6

India has witnessed a change in values, habits and options during the last decade
The economy, second fastest growing in the world, is expected to grow close to 7% this year
Fastest growing telecom market with more than one million new mobile phone subscriptions per month
© 2006 Prentice Hall 1-7

Indians 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 billion into the Indian stock market
© 2006 Prentice Hall 1-8

Information Technology is transforming the international manager’s agenda more than any other item
Information is no longer centrally or secretly controlled by governments
Information technology is boosting productivity and electronic commerce around the world
© 2006 Prentice Hall 1-9

- FINANCIAL TIMES,
August 27, 2003
© 2006 Prentice Hall 1-10

Forrester Research predicts that 3.3 Million
US jobs will move offshore by 2015
45% of the 500 US companies surveyed state that they use a global sourcing model
© 2006 Prentice Hall 1-11

© 2006 Prentice Hall 1-12

One important aspect is the phenomenon of ethnicity
– Driving force behind political instability
Firms must assess political risks
– Government actions that could adversely affect the long-run profitability or value of a firm
© 2006 Prentice Hall 1-13

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)
© 2006 Prentice Hall 1-14

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
© 2006 Prentice Hall 1-15

Avoidance – either the avoidance or withdrawal of investment in a particular country
Adaptation
– adjust to the political environment
Dependency
– keeping the host nation dependent on the parent corporation
Hedging
– minimizing the losses associated with political risk events
© 2006 Prentice Hall 1-16

A country’s level of economic development generally determines its economic stability
Economic risk falls into 2 categories
– Government changes its fiscal policies
– Government modifies its foreign-investment policies
Managers are constantly reassessing economic risk
© 2006 Prentice Hall 1-17

Manager’s will comply with the host country’s legal system
– Common Law – past court decisions act as precedents to the interpretation of the law
– Civil Law – comprehensive set of laws organized into codes, interpretation is based on reference to codes and statues
– Muslim law – based on religious beliefs, it dominates all aspects of life
© 2006 Prentice Hall 1-18

Commenting on Contract Law
“In China, the old joke goes, a contract is a pause in the negotiation.”
- VANESSA CHANG, KPMG PEAT MARWICK
The contract is in the relationship, not the paper, and the way to ensure the reliability of the agreement is to mature the relationship
© 2006 Prentice Hall 1-19

Tariffs
Quotas
Tax systems
Level of government involvement in the economic and regulatory environment
© 2006 Prentice Hall 1-20

Corporations must consider the accelerating macro-environmental phenomenon of technoglobalism (rapid developments in information and communication technologies)
Corporations must consider the appropriability of technology
© 2006 Prentice Hall 1-21

E-business – 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 via the Internet
B2B and B2C?
© 2006 Prentice Hall 1-22

Convenience in conducting business worldwide; facilitating communication across borders contributes to the shift toward globalization and a global market.
An electronic meeting and trading place, which adds efficiency in conducting business sales.
A corporate Intranet service, merging internal and external information for enterprises worldwide.
Power to consumers as they gain access to limitless options and price differentials.
A link and efficiency in distribution.
© 2006 Prentice Hall 1-23

See exhibit 1-2 on page 25
Review summary of key points
© 2006 Prentice Hall 1-24

Chapter 2 – Social Responsibility and
Ethics
– The Social Responsibility of MNC’s
– Ethics in Global Management
– Managing Interdependence
© 2006 Prentice Hall 1-25

The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage
© 2006 Prentice Hall
Return
1-26

Comprised of 25 nations
400 million people
Elimination of tariffs has not eliminated national pride
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
Return
© 2006 Prentice Hall 1-27

Japan and the Four Tigers - Singapore,
Hong Kong, Taiwan, and South Korea,
– Each has an abundance of natural resources and labor
China
– A new east Asian economy is emerging, focused on greatly increased trade within the region and based on China rather than Japan.
Return
© 2006 Prentice Hall 1-28

The goal of NAFTA was to bring the US,
Canada, and Mexico together to create more jobs, better working conditions and a cleaner environment
421 Million Consumers
Has been very beneficial to Mexico
Return
© 2006 Prentice Hall 1-29

Equity sharing includes the initiation of joint ventures with nationals (individuals or those in firms, labor unions, or government) to reduce political risks.
Participative management requires that the firm actively involve nationals, including those in labor organizations or government, in the management of the subsidiary.
Localization of the operation includes the modification of the subsidiary’s name, management style, and so forth, to suit local tastes. Localization seeks to transform the subsidiary from a foreign firm to a national firm.
Development assistance includes the firm’s active involvement in infrastructure development (foreignexchange generation, local sourcing of materials or parts, management training, technology transfer, securing external debt, and so forth)
Return
© 2006 Prentice Hall 1-30

Input control means that the firm maintains control over key inputs, such as raw materials, components, technology, and know-how.
Market control requires that the firm keep control of the means of distribution
Position control involves keeping certain key subsidiary management positions in the hands of expatriate or home-office managers.
Staged contribution strategies mean that the firm plans to increase, in each successive year, the subsidiary’s contributions to the host nation
Return
© 2006 Prentice Hall 1-31

Political risk insurance is offered by most industrialized countries. Insurance minimizes losses arising from specific risks—such 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 host country), where available, helps a firm hedge against being forced out of operation without adequate compensation. In such instances, the firm withholds debt repayment in lieu of sufficient compensation for its business losses.
Return
© 2006 Prentice Hall 1-32