Assessing the Environment Political,

Economic, Legal, Technological

Chapter 1

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Chapter 1 Overview

Globalism
The Political and Economic Environment
The Legal Environment
The Technological Environment

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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.

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What is Globalism?
The term globalism refers to global competition
characterized by networks that bind countries,
institutions, and people in an interdependent
global economy.

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Regional Trading Blocs

The Triad
Western Europe
Asia
North America

Other Regions
Central and Eastern Europe
China
Less Developed Countries (LDCs)

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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.
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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.

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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.
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North America (contd.)

Maquiladoras are U.S. manufacturing facilities
that have operated just south of the MexicanAmerican 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.
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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.
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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.
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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.
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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;
(2) the rising average age of employees; and
(3) the addition of great numbers of women to the
workforce (particularly in developing countries),
many with higher levels of education.
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An Open Systems Model: The Contingency

Role of the Global Manager
(Exhibit 1-1)

es

Cu
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ure

Functions
And People
OPERATING
ENVIRONMENT
Regulations
Culture

n
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T
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lo pe
Politica
G m
n
o
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Co
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om
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Ec

al o rc
b
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G a nd
ds
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MEGA
ENVIRONMENT
HOST-COUNTRY
ENVIRONMENT

Skills
Ethics
Soc. Responsibility
Subsidiary-Host
Interdependence

Lo
c
al
C
o
m
p

eti
ti

on

MNC-Host-Country
Interdependence

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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.

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Terrorism Risk
Terrorism is the use, or threat of use, of anxietyinducing violence for ideological or political
purposes (Micklous).
The increasing incidence of terrorism around the
world concerns MNCs.

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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).
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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.

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Managing Political Risk

(Taoka and Beemans suggestions)

Equity sharing
Participative management
Localization of the operation
Development assistance

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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 foreigninvestment policies.
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Some Means that Managers Might Use to

Maintain Dependency

Input control
Market control
Position control
Staged contribution strategies

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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.

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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.

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The Technological Environment

Technoglobalism is the phenomenon in which rapid
developments in information and communication
technologies (ICTs) are propelling globalization and viceversa.
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.

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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.
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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
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Economic Environment
Economic system
Stage of development
Economic stability
GNP
Intl financial standing
Monetary/fiscal
policies
Foreign investment
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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

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Technological Environment
Level of technology
Availability of local
technical skills
Technical requirements of
country
Appropriability
Transfer of technology
Infrastructure
Environmental protection

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