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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