Transcript Objectives of Session 2

Objectives of Session 2
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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Hodgetts and Luthans
Chapter One
Globalization and International
Linkage
International Management
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Chapter Objectives
• 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
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Introduction
International Management
The process of applying management
concepts and techniques in a
multinational environment
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Multinational Corporation
(MNC)
– 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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Introduction
• Small and medium-sized businesses are being
affected by the trend toward internationalization
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Top Ten Global MNCs
The Top 10 global MNCs Ranked by Market Value, Sales, Profits,
and Share-Price Gain, 2003
Market Value
Billions of U.S. Dollars
1. General Electric
$328.11
2. Microsoft
284.43
3. ExxonMobil
283.61
4. Pfizer
269.66
5. Wal-Mart Stores
241.19
6. Citigroup
239.43
7. BP
193.05
8. Aig
191.18
9. Intel
184.66
10. Royal Dutch’ Shell
174.83
McGraw-Hill/Irwin
Sales
Billions of U.S. Dollars
1. Wal-Mart Stores
2. BP
3. ExxonMobil
4. Royal Dutch/Shell
5. General Motors
6. DaimlerChrysler
7. Ford Motor
8. Toyotal Motor
9. Mitsubishi
10. General Electric
258.68
232.57
222.88
201.93
183.24
166.61
164.20
156.48
137.32
134.19
International Management
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Top Ten Global MNCs
The Top 10 global MNCs Ranked by Market Value, Sales, Profits,
Morgan Stanley Capital International Standard & Poor’s Compustat
and Share-Price Gain, 2003 Data:
Source: http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif
Profits
Billions of U.S. Dollars
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
Share-Price Gain
1. Mizuho Financial
2. Research in Motion
3. UFJ Holdings
4. SK
5. Rakuten
6. Sumitomo Mitsui Fin.
7. Elan
8. Bharti Tele-Ventures
9. Yahoo! Japan
10. Mitsui Trust Hldgs.
636%
550
420
383
381
331
311
276
241
229
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Globalization
 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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Globalization
• 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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Increasing Internationalization
• 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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Increasing Internationalization
• 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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Increasing Internationalization (cont.)
• 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
81,788.2
5
6
39,237.2
7
8
31,178.6
9
26,708.6
10
22,356.5
U.S.
Rank
166,600
86,908.9
Exporting
U.S.
Country Imports*
1
Canada 198,711.1
2
Japan
Japan
U.K.
57,465.
38,407.1
3
4
Mexico
China
Germany
South Korea
26,800.2
22,958.4
5
6
Germany 55,228.4
U.K.
Netherlands
Taiwan
19,436.6
19,131.4
7
8
Taiwan
35,204.4
South Korea
France
18,877.4
9
France
Singapore
16,247.3
10
Italy
Exports*
Canada
Mexico
109,720.5
* in millions of dollars
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Foreign Direct Investment in
the United States
(in millions of dollars)
2002
All Countries
Canada
Europe
(select countries)
United Kingdom
Germany
France
South and Central America
(select countries)
Mexico
Brazil
McGraw-Hill/Irwin
2003
1,340,011
96,437
982,062
1,268,001
105,255
1,000,532
218,175
139,620
141,400
19,198
230,374
148,774
143,341
20,636
7,483
997
6,680
663
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Foreign Direct Investment in
the United States
(in millions of dollars)
2002
Other Western Hemisphere
(select countries)
Bermuda
Netherland Antilles
UK islands, Caribbean
Africa
Middle East
(select countries)
Israel
Kuwait
McGraw-Hill/Irwin
2003
50,167
48,921
8,088
4,014
28,260
2,298
7,456
5,914
4,048
28,949
2,187
7,931
3,699
986
3,834
1,155
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Foreign Direct Investment in
the United States
(in millions of dollars)
Asia and Pacific
(select countries)
Japan
Australia
Taiwan
Singapore
Hong Kong
2002
2003
183,392
192,539
150,499
23,136
2,569
650
1,879
159,258
24,652
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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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Foreign Direct Investment by
the United States Abroad
(in millions of dollars)
2002
All countries
Canada
Europe
(select countries)
United Kingdom
Germany
France
South and Central America
(select countries)
Mexico
Brazil
McGraw-Hill/Irwin
2003
1,601,414
170,169
848,599
1,788,911
192,409
963,087
239,219
67,404
42,999
131,973
272,640
80,163
47,914
141,449
55,724
27,615
61,526
29,915
International Management
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Foreign Direct Investment in
the United States
(in millions of dollars)
Other Western Hemisphere
(select countries)
Bermuda
UK islands, Caribbean
Africa
Middle East
(select countries)
Israel
Saudi Arabia
McGraw-Hill/Irwin
2002
2003
152,597
162,574
80,048
49,806
16,290
14,671
84,609
54,507
18,960
16,942
5,632
3,823
6,208
4,217
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Foreign Direct Investment in
the United States
(in millions of dollars)
2002
Asia and Pacific
(selected countries)
Japan
Australia
Taiwan
Singapore
Hong Kong
China
2003
267,125 292,490
65,939
34,409
7,608
52,449
41,571
10,499
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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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Top 10 Trading Partners of
the United States, 2003
(in millions of dollars)
Rank
1
2
3
4
5
6
7
8
9
10
Importing
Country
Canada
Mexico
Japan
United Kingdom
Germany
China
South Korea
Netherlands
Taiwan
France
U.S.
Exports
169,924
97,412
52,004
33,828
28,832
28,368
24,073
20,695
17,448
17,053
Exporting
Rank Country
1
2
3
4
5
6
7
8
9
10
Canada
China
Mexico
Japan
Germany
United Kingdom
South Korea
Taiwan
France
Ireland
U. S.
Imports
221,595
152,436
138,060
118,037
68,113
42,795
37,229
31,599
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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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
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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Economic Systems of the world
• 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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Economic Systems of the world
• 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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Economic Systems of the world
• 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.
–What are some of the issues with this system?
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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
1
2
3
4
5
6
7
8
9
10
Adapted from Table 1-6: The World’s Most Competitive nations, 2003 Ranking
Source: World Competitive Scoreboard, 2004.
McGraw-Hill/Irwin
International Management
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Economic Performance
Southeast Asia
• 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
High
international
debt
Low
GDP
Less
Developed
Countries
Slow (or
negative) GDP
growth per
capita
Inexpensive
unskilled or
semi-skilled
labor
International Management
Large
population
38
Economic Performance
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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Economic Performance
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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Economic Performance
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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Chapter 1 Question Review
• 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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Chapter 1 Question Review
• 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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Chapter 1 Question Review
• 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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44
Hodgetts, Luthans and Doh
Chapter Two
The Political, Legal, and
Technological Environment
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45
Chapter Objectives
 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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Political Environment
Components include:
◦ Government policies that affect MNCs
◦ Stability of the government of the host
country
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47
 China
Political Environment
◦ 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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Political Environment
• 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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49
Political Environment
China
• 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.
2.
3.
4.
5.
Speed up conversion of state enterprises into corporations
Expand capital markets by authorizing new stock listings
Sell off most of the 305,000 state enterprises (or let go bankrupt)
Worker retraining, low-cost housing and other programs
Reduce tariffs to 10 percent
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Political Environment (cont.)
• 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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Political Environment (cont)
• 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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52
Key Elements of Russia’s WTO Accession
Deal with the EU
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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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Key Elements of Russia’s WTO Accession
Deal with the EU
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 2-1: Key Elements of Russia’s WTO Accession Deal with the EU
McGraw-Hill/Irwin
International Management
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Political Environment
Central and Eastern Europe
• 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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55
Political Environment
The Middle East
• 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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56
Political Environment
The Middle East
• 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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Legal and Regulatory Environment
• 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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58
Foundations of the World’s Law
Laws of the World
Islamic
Law
Socialist
Law
- based on the
Qur’an and
teachings of
the Prophet
Mohammed
- found in most
Islamic
countries
- 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
International Management
Civil or
Code Law
- derived from
Roman law
- found in nonIslamic and
nonsocialist
countries
59
Legal and Regulatory Environment
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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60
Legal and Regulatory Environment
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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61
Legal and Regulatory Issues. (cont.)
– 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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62
Legal and Regulatory Issues (cont.)
– 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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63
Legal and Regulatory Issues
• 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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64
Regulation of Trade
and Investment
• 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
International Management
65
Technologies That Will
Influence International Business
Artificial
Intelligence
Silicon
Chips
Supercomputers
Internet
Biotechnology
Automatic
Translation
Telephones
International
Business
Nanotechnology
Satellites
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66
Technological Environment
• 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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67
Technological Environment and Global
Shifts in Production
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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68
Technological Environment (cont.)
• 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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69
Expected Winners
in Selected Occupations
Computer software engineers,
applications
100
Computer support
specialists
97
Computer software engineers,
systems software
90
Network and computer
systems administrators
82
Personal and home care aids
62
Medical assistants
-80
-60
-40
-20
52
0
20
40
60
80
100
Percentage change for 2000-2010
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Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-
Expected Losers
in Selected Occupations
Railroad brake, signal,
and switch operators
Telephone
operators
-61
-35
Loan interviewers and clerks
-28
-80
-60
-26
Meter readers,
utilities
-25
Farmers and ranchers
-20
Order clerks
-20
Insurance claims and policy
processing clerks
-40
-20
0
20
40
60
80
100
Percentage change for 2000-2010
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Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-
Chapter 2 Question Review
• 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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Chapter 2 Question Review
• 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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Assignment for Session 3
Next weeks assignments
• Read Chapter 3,Global Competitiveness, Pages 54 -74
• Discussion Review Questions, Page 73, #1-5
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