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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

Hodgetts and Luthans

Chapter One
Globalization and
International Linkage

International Management

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
International Management

Introduction
International Management
The process of applying
management concepts and
techniques in a multinational
environment

International Management

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.

International Management

Introduction
Small and medium-sized businesses are
being affected by the trend toward
internationalization

International Management

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
McGraw-Hill/Irwin

Sales
Billions of U.S. Dollars
1. Wal-Mart Stores
258.68
2. BP
232.57
3. ExxonMobil
222.88
4. Royal Dutch/Shell
201.93
5. General Motors
183.24
6. DaimlerChrysler

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,
Data: Morgan Stanley Capital International Standard & Poors Compustat
and Share-Price Gain, 2003 Source: http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif
Profits
Billions of U.S. Dollars
1. ExxonMobil
20.96
2. Citigroup
17.85
3. General Electric
15.00
4. HSBC Holdings
11.65
5. Royal Dutch/Shell
11.41
6. Bodafone Group
McGraw-Hill/Irwin

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

International Management

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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10

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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11

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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12

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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13

Top 10 trading Partners of the U.S.:


1999

Importing
Rank Country
1
Canada
2
Mexico
3
Japan
4
U.K.
5
Germany
6
South Korea
7
Netherlands
8
Taiwan
9
France
10
Singapore

Exports*
166,600
86,908.9
57,465.
38,407.1
26,800.2
22,958.4
19,436.6
19,131.4
18,877.4
16,247.3

U.S.
Rank
1
2
3
4
5
6
7
8
9
10

Exporting
U.S.
Country
Imports*
Canada
198,711.1
Japan 130,863.9
Mexico
109,720.5
China 81,788.2
Germany
55,228.4
U.K.
39,237.2
Taiwan 35,204.4
South Korea
31,178.6
France
26,708.6
Italy
22,356.5

* in millions of dollars

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14

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

1,340,011
96,437
982,062

2003
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

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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

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)
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

International Management
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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

Importing
Country

Canada

169,924
Mexico

97,412
Japan

52,004
United Kingdom

U.S.
Exports

Exporting
Rank Country
1

Canada

221,595
China

152,436
Mexico

138,060
Japan

U. S.
Imports

Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).

33,828
International
McGraw-Hill/Irwin
5
Germany

118,037

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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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25

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 Peoples 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 Worlds 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 Worlds Most Competitive nations, 2003 Ranking
Source: World Competitive Scoreboard, 2004.
McGraw-Hill/Irwin

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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
Low
GDP

High
international
debt

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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Hodgetts, Luthans and Doh

Chapter Two
The Political, Legal, and
Technological Environment

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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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Political Environment
China

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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Political Environment
China

Emerging economic power


Governments desire to balance

National, immediate needs


Challenge of a free market economy and globalization

Government attempting to open up


the economy
1. Speed up conversion of state enterprises into corporations
2. Expand capital markets by authorizing new stock listings
3. Sell off most of the 305,000 state enterprises (or let go
bankrupt)
4. Worker retraining, low-cost housing and other programs
5. Reduce tariffs to 10 percent

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Political Environment
(cont.)

Europe

Privatization and economic liberalization


reinforce EU-wide 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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Key Elements of Russias 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.
Russias 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

International Management
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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Key Elements of Russias 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 Russias WTO Accession Deal with the EU
McGraw-Hill/Irwin

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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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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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Political Environment

The Middle East


Doing business in Middle Eastern
countries is risky and potentially
dangerous

War on terrorism
Afghanistan and Iraq wars
IsraelArab 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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Foundations of the Worlds


Law
Laws of the World
Islamic
Law
- based on the
Quran and
teachings of
the Prophet
Mohammed
- found in most
Islamic
countries

Socialist
Law
- 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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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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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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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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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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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

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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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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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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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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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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
62

Personal and home care aids


52

Medical assistants
-80

-60

-40

-20

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

Expected Losers
in Selected Occupations
Railroad brake, signal,
and switch operators
Telephone
operators

-61
-35
-28

-80

-60

Loan interviewers and clerks

-26

Meter readers,
utilities

-25

Farmers and ranchers

-20

Order clerks

-20

Insurance claims and policy


processing clerks

-40

-20

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

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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