International Business Environment Session 2

By:Dr.R.Satish Kumar

International Management and Globalization

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What is international management? ` the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments (HLD, p. 6) Why is globalization important? ` International management is rapidly gaining in importance in tandem with the quickening pace of globalization

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 allembracing form refers to both the compression of the world and the intensification of consciousness of the world as a whole (p. 8)

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

Hodgetts, Luthans, and Doh,

Contemporary globalization is a new branch of a very old tree whose roots were planted in antiquity (p. 8)

The Drivers of Globalization

y

What drives globalization?

Individual and social needs and aspirations Technological innovation Reduced technological and economic barriers to trade

Sustaining forces
Greater policy liberalization Greater efficiency of business Greater market access Increased flows of goods, services, and people

Search for competitive advantage

Development of new technologies

Reduced barriers to trade

Globalization from a Regional Perspective

y

Developed Economies
x

U.S. the European Union and Japan account for one-half of world trade Economies in Latin America and Asia are increasingly important global players
x x

Emerging and Transition Economies

x

BRIC, economic powers with large internal markets Eastward expansion of the EU

Less Developed Countries (LDCs)

x x

Some fast growing and increasingly open to the global system Others, notably in Africa, struggle to compete globally

North America
y

Important global market

x

Combined purchasing power of the U.S., Canada and Mexico is $12 million U.S. outbound FDI $1.8 billion (2003) U.S. inbound FDI $1.4 billion (2003) Largest U.S. trading partner Legal and business environment similar to the U.S. Strong maquiladora industry Competitive with Asia for the U.S. market Emergence of Mexican MNCs

United States
x x

Canada
x x

Mexico
x x x

South America
`

Economic challenges
` ` ` `

High inflation Heavy foreign debt Entrenched interests (crony capitalism) Political instability Important emerging markets
Brazil, Argentina,Venezuela, Columbia, Chile, Peru

Economic opportunities
` ` `

Prevalence of free market policies Expanding regional and international trade

Mercosur and Asia-Pacific Economic Cooperation (APEC)

Europe
y Market
x x x

factors

Operational integration of the EU Privatization of traditionally nationalized industries Expanded ties to Central and Eastern Europe

y Social
x x

factors

Maintaining social cohesion Adjusting to local tastes Plan globally, act locally

y Economic
x x
x

challenges

For foreign MNCs, gaining a foothold in the EU

Strategies include: acquisitions, alliances, and cooperative R&D

Absorbing the former communist-bloc countries

x x

550 million middle-class consumers across 25 countries Largest economic market in the world

Central and Eastern Europe

y

Collapse of the Soviet Union (1991)

x x

Glasnost (openness) and perestroika (economic and political restructuring) The fall of the Berlin Wall and German reunification

Russia
x x x

Dismantling of price controls and privatization Crime, political uncertainty, and inflation Membership in International Monetary Fund (IMF)

y y

Successful transition economies

x

Czech Republic, Hungary, Poland, the Baltic states

Economies caught in transition

x

Albania, Bulgaria, Romania, former Soviet republics

East Asia
y

Japan
x

In the 1970s and 1980s

x x

Strong government role Vertically integrated industries (keiretsus) Economic recession Collapse of the real estate bubble Banks reluctant to write-off uncollectible loans Still the worlds second largest economy

In the 1990s
x x x x

China
x

Economic opportunities
x x

High rates of growth (8-10% per year) Large internal market (> 1.3 billion consumers) Inflation and political instability Regulatory reform and compliance Complex and unpredictable economic environment

Economic challenges
x x x

East Asia The Four Tigers

y

South Korea
x x

Dominated by family-held conglomerates (chaebols) Impacted by the Asian financial crisis (1997) Part of the PRC (one country, two systems) Risk of radical change in business environment Corporatist model From entrepot to global city From cheap producer to technology leader Managing relations with the PRC the 3 Chinas

Hong Kong
x x

Singapore
x x

Taiwan
x x

South and Southeast Asia

y

Southeast Asia
x

The Baby Tigers (TH, MY, IN, VN)

x x x x

Large population base Inexpensive labor Considerable natural resources Attractive to outside investors Philippines, Cambodia, Laos, Myanmar

Other Southeast Asian nations

x

South Asia
x

India
x x x

Large population (300 million middle class consumers) Increasingly open markets, technology leader Attractive to US and British investors Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan

Other South Asian nations

x

Developing and Emerging Economies (1)

y

Economic characteristics
x x x x

Low per capita GDP, low (or negative) GDP growth High unemployment - semiskilled or unskilled workforce Considerable government intervention in the economy Political instability, weak infrastructure, corruption Include important regional economic powers (e.g. China, India, Indonesia, Brazil, Argentina) Generally well integrated into the global economy

LDCs in Asia and Latin America

x

Developing and Emerging Economies (2)

y

LDCs in the Middle East and Central Asia

x x x

Large oil reserves Highly unstable geopolitical and religious forces Plagued by continuing economic problems Considerable natural resources Diverse populations Weak and unstable governments Economies negatively impacted by social and environmental factors (poverty, starvation, illiteracy, corruption, environmental degradation) Poorly integrated into the global economy

LDCs in Africa
x x x x

Convergence or Divergence
Political Systems

Technology

Economic Systems

Information Systems

Belief Systems

Culture

Economic Environment
y

Global and regional integration

International agreements (GATT, WTO) Regional agreements (EU, ASEAN, NAFTA, CAFTA, FTAA, Mercosur)

World trade and investment

80% of FDI contributed by developed economies U.S. exports/imports increased by 550% from 1983 to 2003 (to $1.3 and $1.8 trillion) Trade within the EU increased sharply, to > $2 trillion annually

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

Significant differences across countries

Less stable governments increase political risk Uncertain responses to democratization

Change in government policies

Adjusting to adjust to new perspectives and changing requirements Assessing political risks

Legal/Regulatory Environment
y

Complex and confusing

MNCs must
x x x

Conform to national laws and standards Abide by the laws of their own countries Be aware of international treaties and obligations Increase transaction costs Restrict and distort trade Can result in retaliatory practices or sanctions

Differences in regulatory regimes

x x x

Four main legal traditions

x x x x

Common law Civil law Islamic law (theocratic law) Socialist law

Socio-Cultural Environment
y

Ethics and social responsibility

Business practices Labor standards and workers rights Corporate governance Intellectual property rights

Values and culture (Part II)

Responses to authority Individual vs. group recognition and responsibility Balance of work and family obligations Managing and resolving conflict

Technological Environment
y y

Changing at lightning speed Internet and telecommunications

Increasing bandwidth/high-speed access Reduced costs of entry/leapfrogging

E-business
Customization (the long end of the tail) E-retailing and financial services
x x

Movement of money across borders E-cash a currency without a country

Outsourcing and offshoring

Information as a commodity The 24-hour office increased productivity/lower cost

Impact on Labor
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Positive effects
` ` `

Negative effects
` ` ` ` ` `

Increased job opportunities Upgraded education system Increased training

Job displacement Loss of industries or economic groups Lowered labor standards Downward wage pressure Decreased union power Diminished social contract

Impact on Equality
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Positive effects
` `

Negative 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)

Greater disparity between haves and havenots within and across countries Some downward pressure on wages for the poorly educated or unskilled Worsened economic conditions in marginalized countries Poor become poorer

Impact on Government
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Positive effects
` ` ` `

Negative effects
` ` ` ` ` `

Increased economic development Expanded infrastructure Transfer of modern management techniques Greater interdependence among business partners

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

Impact on the Environment

y

Positive effects
x x

Negative effects
x x

More efficient use of resources Increased demand for and transfer of more efficient technologies Increased incomes lead to greater concern for environmental protection

Increased consumption Advertising creates artificial needs Greater use of fossil fuels (increased travel) Increased surplus and scarcity Increased degradation from unregulated businesses More factories require more infrastructure

Impact on Culture/Community
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Positive effects
`

Negative effects
`

Increased cultural exposure and understanding Closer cross-border ties

` `

More mobility disrupts social life, particularly in remote or rural communities Disintegration of local communities Cultural homogenization and monoculture / reduced cultural diversity

Globalization: Pros and Cons

y y

Globalization as moral conflict Impacts of Globalization

Increases economic interdependence Creates winners and losers

Implications of the debate

For academics
x x

Need for more objective research Need to question assumptions and be open to alternatives Be aware of multiple stakeholder interests Follow the guidelines of the UN Global Compact Consider the triple bottom line

For companies
x x x

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) be alert for changes and quick to respond knowing how to work with others being comfortable with uncertainty and ambiguity see the big picture (global economy/whole organization) understand the details of operating at the local level

Responsiveness
x

Adaptability
x x

Both a local and global perspective

x x