Prentice Hall 2003 Chapter 1 1

Assessing the Environment Political,

Economic, Legal, Technological
Chapter 1
Prentice Hall 2003 Chapter 1 2
Chapter 1 Overview
Globalism
The Political and Economic Environment
The Legal Environment
The Technological Environment
Prentice Hall 2003 Chapter 1 3
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.
Prentice Hall 2003 Chapter 1 4
What is Globalism?
The term globalism refers to global competition
characterized by networks that bind countries,
institutions, and people in an interdependent
global economy.
Prentice Hall 2003 Chapter 1 5
Regional Trading Blocs
The Triad
Western Europe
Asia
North America
Other Regions
Central and Eastern Europe
China
Less Developed Countries (LDCs)

Prentice Hall 2003 Chapter 1 6
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.
Prentice Hall 2003 Chapter 1 7
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.
Prentice Hall 2003 Chapter 1 8
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.
Prentice Hall 2003 Chapter 1 9
North America (contd.)
Maquiladoras are U.S. manufacturing facilities
that have operated just south of the Mexican-
American 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 Mexicos biggest chain.
Prentice Hall 2003 Chapter 1 10
Asia
Japan and the Four Tigers Singapore, Hong
Kong, Taiwan, and South Korea provide most
of the capital and expertise for Asias developing
countries.
In the 1980s and early 1990s, much of Asias
economic power and competitive edge was
attributed to Japans keiretsu and S.Koreas
chaebol.
Recent economic woes have slowed growth in
the region.
Prentice Hall 2003 Chapter 1 11
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.
Prentice Hall 2003 Chapter 1 12
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.
Prentice Hall 2003 Chapter 1 13
Workforce Diversity
The world labor force is undergoing
considerable change as a result of

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.

Prentice Hall 2003 Chapter 1 14
An Open Systems Model: The Contingency
Role of the Global Manager
(Exhibit 1-1)
Functions
And People
OPERATING
ENVIRONMENT
Regulations Culture
Skills
Soc. Responsibility
Ethics
MEGA
ENVIRONMENT
HOST-COUNTRY
ENVIRONMENT
Subsidiary-Host
Interdependence
MNC-Host-Country
Interdependence
Prentice Hall 2003 Chapter 1 15
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.
Prentice Hall 2003 Chapter 1 16
Terrorism Risk
Terrorism is the use, or threat of use, of anxiety-
inducing violence for ideological or political
purposes (Micklous).
The increasing incidence of terrorism around the
world concerns MNCs.
Prentice Hall 2003 Chapter 1 17
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).

Prentice Hall 2003 Chapter 1 18
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.
Prentice Hall 2003 Chapter 1 19
Managing Political Risk
(Taoka and Beemans suggestions)
Equity sharing
Participative management
Localization of the operation
Development assistance

Prentice Hall 2003 Chapter 1 20
Economic Risk
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 foreign-
investment policies.
Prentice Hall 2003 Chapter 1 21
Some Means that Managers Might Use to
Maintain Dependency
Input control
Market control
Position control
Staged contribution strategies
Prentice Hall 2003 Chapter 1 22
The Legal Environment
A host countrys legal system may be derived
from common law, civil law, or Muslim law, and
is a reflection of the countrys culture, religion,
and traditions.
Under common law, past court decisions act as
precedents to the interpretation of the law and to
common custom.
Prentice Hall 2003 Chapter 1 23
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.
Prentice Hall 2003 Chapter 1 24
The Technological Environment
Technoglobalism is the phenomenon in which rapid
developments in information and communication
technologies (ICTs) are propelling globalization and vice-
versa.
An MNCs 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.
Prentice Hall 2003 Chapter 1 25
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.
Prentice Hall 2003 Chapter 1 26
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
Economic Environment
Economic system
Stage of development
Economic stability
GNP
Intl financial standing
Monetary/fiscal
policies
Foreign investment
Prentice Hall 2003 Chapter 1 27
The Environment of the Global Manager
(contd.)
Regulatory Environment
Legal system
Prevailing intl laws
Protectionist laws
Tax laws
Role of contracts
Protection for
proprietary property
Technological Environment
Level of technology
Availability of local
technical skills
Technical requirements of
country
Appropriability
Transfer of technology
Infrastructure
Environmental protection