international management 1 objectives of session 2 discussion topics chapter 1 chapter 2 next weeks...

International Management 1

Objectives of Session 2Discussion Topics• Chapter 1• Chapter 2Next weeks assignments

• Read Chapter 3, Ethics and social responsibility , • Discussion Review Questions, #1 -5


Chapter One

Hodgetts and Luthans

Globalization and International Linkage


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


IntroductionInternational Management

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


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.


Introduction• Small and medium-sized businesses are being

affected by the trend toward internationalization


Market ValueBillions of U.S. Dollars

SalesBillions of U.S. Dollars

Top Ten Global MNCs

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

1. General Electric

$328.112. Microsoft

284.433. ExxonMobil

283.614. Pfizer

269.665. Wal-Mart Stores

241.196. Citigroup

239.437. BP

193.058. Aig

191.189. Intel

184.6610.Royal Dutch’ Shell

174.83

The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, 2003

1. Wal-Mart Stores

258.682. BP

232.573. ExxonMobil

222.884. Royal Dutch/Shell

201.935. General Motors

183.246. DaimlerChrysler

166.617. Ford Motor

164.208. Toyotal Motor

156.489. Mitsubishi

137.3210.General Electric

134.19


Top Ten Global MNCs


ProfitsBillions of U.S. Dollars

1. ExxonMobil

20.962. Citigroup

17.853. General Electric

15.004. HSBC Holdings

11.655. Royal Dutch/Shell

11.416. Bodafone Group

11.367. Bank of America

10.818. Toyota Motor

10.519. Microsoft

9.9910.BP

9.54

The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, 2003

Share-Price Gain

1. Mizuho Financial636%

2. Research in Motion550

3. UFJ Holdings420

4. SK383

5. Rakuten381

6. Sumitomo Mitsui Fin.331

7. Elan311

8. Bharti Tele-Ventures276

9. Yahoo! Japan241

10.Mitsui Trust Hldgs.229

Data: Morgan Stanley Capital International Standard & Poor’s Compustat

Source: http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif


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


Globalization

• Criticisms of globalization– Offshoring of business services jobs to lower-wage

countries– Growing trade deficits– Slow wage growth– Environmental and social impacts


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


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


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


Top 10 trading Partners of the U.S.: 1999 Importing U.S. Exporting U.S.Rank Country Exports* Rank Country Imports* 1 Canada 166,600 1 Canada 198,711.1 2 Mexico 86,908.9 2 Japan

130,863.9 3 Japan 57,465. 3 Mexico 109,720.5 4 U.K. 38,407.1 4 China

81,788.2 5 Germany 26,800.2 5 Germany 55,228.4 6 South Korea 22,958.4 6 U.K.

39,237.2 7 Netherlands 19,436.6 7 Taiwan 35,204.4 8 Taiwan 19,131.4 8 South Korea

31,178.6 9 France 18,877.4 9 France

26,708.6 10 Singapore 16,247.3 10 Italy

22,356.5

* in millions of dollars


Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States


2002

All Countries 1,340,0111,268,001

Canada 96,437105,255

Europe 982,062 1,000,532

(select countries)United Kingdom 218,175

230,374Germany 139,620

148,774France 141,400

143,341South and Central America 19,198

20,636(select countries)

Mexico 7,483 6,680

Brazil 997663

(in millions of dollars)

2003




2002

Other Western Hemisphere 50,167 48,921

(select countries)Bermuda 8,088

5,914Netherland Antilles 4,014

4,048UK islands, Caribbean 28,260

28,949Africa 2,298

2,187Middle East 7,456


Israel 3,699 3,834

Kuwait 9861,155


2003




2002

Asia and Pacific 183,392 192,539

(select countries)Japan 150,499

159,258Australia 23,136

24,652Taiwan 2,569

2,708Singapore 650

162Hong Kong 1,879

1,981


2003

Adapted from: Table 1-2: Foreign Direct Investment in the United States, 2002-2004 (in millions of dollars)


Foreign Direct Investment byForeign Direct Investment bythe United States Abroadthe United States Abroad


2002

All countries 1,601,414 1,788,911

Canada 170,169 192,409

Europe 848,599 963,087

(select countries)United Kingdom 239,219

272,640Germany 67,404

80,163France 42,999

47,914South and Central America 131,973


Mexico 55,724 61,526

Brazil 27,615 29,915


2003




2002

Other Western Hemisphere 152,597 162,574

(select countries)Bermuda 80,048

84,609UK islands, Caribbean 49,806

54,507Africa 16,290

18,960Middle East 14,671


Israel 5,632 6,208

Saudi Arabia 3,823 4,217


2003




2002

Asia and Pacific 267,125 292,490(selected countries)Japan 65,939

73,435Australia 34,409

40,985Taiwan 7,608

10,961Singapore 52,449

57,589Hong Kong 41,571

44,323China 10,499

11,877


2003

Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, 2002-2004 (in millions of dollars)


Top 10 Trading Partners of Top 10 Trading Partners of the United States, 2003the United States, 2003


Importing U.S. Exporting U. S. Rank Country Exports Rank Country Imports

1 Canada

169,9242 Mexico

97,4123 Japan

52,0044 United Kingdom

33,8285 Germany

28,8326 China

28,3687 South Korea

24,0738 Netherlands

20,6959 Taiwan

17,44810 France

17,053


1 Canada

221,5952 China

152,4363 Mexico

138,0604 Japan

118,0375 Germany

68,1136 United Kingdom

42,7957 South Korea

37,2298 Taiwan

31,5999 France

29,21910 Ireland

26,747

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


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


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


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



• 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



• 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



• 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



• 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



• 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



• 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



• 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



• 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)


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.


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?


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?


The World’s Most Competitive Nations, The World’s Most Competitive Nations, 2003 Ranking2003 Ranking


United States 1Australia 2Canada 3Malaysia 4Germany 5Taiwan 6United Kingdom 7France 8Spain 9Thailand 10

Country Rank

Source: World Competitive Scoreboard, 2004.

Adapted from Table 1-6: The World’s Most Competitive nations, 2003 Ranking


Economic Performance

• 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

Southeast Asia


Characteristics of Less Developed Countries

LessDevelopedCountries

LowGDP

Highinternational

debt

Slow (ornegative) GDP

growth percapita

Largepopulation

Highunemployment

Inexpensiveunskilled orsemi-skilled

labor



• 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)

Developing and Emerging Countries



• Middle East and Central Asia– Large oil reserves– Highly unstable geopolitical and religious

forces– Plagued by continuing economic

problems




• 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



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)?



• 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.



• 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.


Chapter Two

Hodgetts, Luthans and Doh

The Political, Legal, andTechnological Environment


Chapter ObjectivesEXAMINE 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


Political EnvironmentComponents include:◦Government policies that affect MNCs◦Stability of the government of the host

country


Political EnvironmentChina

◦ 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


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



• 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. Speed up conversion of state enterprises into corporations2. Expand capital markets by authorizing new stock listings3. Sell off most of the 305,000 state enterprises (or let go bankrupt)4. Worker retraining, low-cost housing and other programs5. Reduce tariffs to 10 percent

China


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


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


Tariffs

Key Elements of Russia’s WTO Accession Deal with the EU


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.

EnergyRussian 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.


Banking

Key Elements of Russia’s WTO Accession Deal with the EU


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



• 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

Central and Eastern Europe



• 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

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.

The Middle East


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


Foundations of the World’s Law

Islamic Law- based on the Qur’an 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

Civil orCode Law- derived from Roman law- found in non- Islamic and nonsocialist countries

Laws of the World


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


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


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.


– 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

Legal and Regulatory Issues (cont.)


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


Regulation of Tradeand 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


Technologies That Will Influence International Business

InternationalBusiness

ArtificialIntelligence

Biotechnology

Satellites

AutomaticTranslationTelephones

Silicon Chips

Supercomputers

Internet

Nanotechnology


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


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


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


Expected Winnersin Selected Occupations

-80 -60 -40 -20 0 20 40 60 80 100

Computer software engineers, applications

Computer support specialists

Computer software engineers, systems software

Network and computer systems administrators

Personal and home care aids

Medical assistants

100

97

90

82

62

52

Percentage change for 2000-2010

Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010


Expected Losersin Selected Occupations

-80 -60 -40 -20 0 20 40 60 80 100

-61

-35

-28

-26

-25

-20

Percentage change for 2000-2010

-20

Railroad brake, signal, and switch operators

Telephone operators

Loan interviewers and clerks

Meter readers, utilities

Farmers and ranchers

Order clerks

Insurance claims and policy processing clerks

Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010



• 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?



• Page 47, #4 Why are developing countries interested in

privatizing their telecommunications industries? What opportunities does this privatization have for telecommunication MNCs?


Assignment for Session 3

Next weeks assignments• Read Chapter 3,Global Competitiveness, Pages 54 -74• Discussion Review Questions, Page 73, #1-5

international management 1 objectives of session 2 discussion topics chapter 1 chapter 2 next weeks...

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