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Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological. Kristopher Blanchard North Central University. The Global Business Environment. The Global Marketplace is complex, interdependent, and dynamic Challenges include politics, culture, and technology

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Chapter 1 assessing the environment political economic legal technological

Chapter 1 Assessing the Environment – Political, Economic, Legal, Technological

Kristopher Blanchard

North Central University


The global business environment

The Global Business Environment

  • The Global Marketplace is complex, interdependent, and dynamic

  • Challenges include politics, culture, and technology

  • Managers must find a balance between social responsibility, company image, and competitive strategies

  • More focused on Global Management


The global business environment1

The Global Business Environment

  • Global competition is characterized by networks that bind countries to one another

  • Globalism trends

    • A borderless world

    • Increase in exports

    • Increase in direct foreign investment

    • Dominance of trading blocs


Regional trading blocs

Regional Trading Blocs

“The dominance of the United States is already over. What is emerging is a world economy of blocs represented by NAFTA, The European Union, and ASEAN. There’s no one center in this world economy.”

- Peter Drucker

Fortune, January 12, 2004


Regional trading blocs1

Regional Trading Blocs

  • TRIAD Market

  • European Union

  • Asian Market

    • China, Japan, South Asia

  • NAFTA

  • CAFTA


The triad

The TRIAD

  • Three regional free-trade blocs

    • Western Europe, Asia, and North America

  • Grouped around three dominant currencies

    • Euro, Yen, and Dollar

  • In 2004, these trade blocs were expanding their boarders to include neighboring countries


Comparative management in focus india

Comparative Management in Focus - India

  • India has witnessed a change in values, habits and options during the last decade

  • The economy, second fastest growing in the world, is expected to grow close to 7% this year

  • Fastest growing telecom market with more than one million new mobile phone subscriptions per month


Comparative management in focus india1

Comparative Management in Focus - India

  • Indians are buying 10,000 motorcycles a day

  • India had 192 million households in 2001

    • Only 31.6% have a television

    • Only 2.5% have a car, jeep or van

  • Foreign investors have invested $5 billion into the Indian stock market


Information technology

Information Technology

  • Information Technology is transforming the international manager’s agenda more than any other item

  • Information is no longer centrally or secretly controlled by governments

  • Information technology is boosting productivity and electronic commerce around the world


The globalization of human capital

The Globalization of Human Capital

Globalization means we share jobs as well as goods.

- FINANCIAL TIMES,

August 27, 2003


The globalization of human capital1

The Globalization of Human Capital

  • Forrester Research predicts that 3.3 Million US jobs will move offshore by 2015

  • 45% of the 500 US companies surveyed state that they use a global sourcing model


The global manager s role

The Global Manager’s Role


The political and economic environment

The Political and Economic Environment

  • One important aspect is the phenomenon of ethnicity

    • Driving force behind political instability

  • Firms must assess political risks

    • Government actions that could adversely affect the long-run profitability or value of a firm


Political risk 7 typical risk events

Political Risk – 7 Typical 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)


Political risk 7 typical risk events1

Political Risk – 7 Typical risk events

  • 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


Managing political risk

Managing Political Risk

  • Avoidance – either the avoidance or withdrawal of investment in a particular country

  • Adaptation – adjust to the political environment

  • Dependency – keeping the host nation dependent on the parent corporation

  • Hedging – minimizing the losses associated with political risk events


Economic risk

Economic Risk

  • A country’s level of economic development generally determines its economic stability

  • Economic risk falls into 2 categories

    • Government changes its fiscal policies

    • Government modifies its foreign-investment policies

  • Managers are constantly reassessing economic risk


The legal environment

The Legal Environment

  • Manager’s will comply with the host country’s legal system

    • Common Law – past court decisions act as precedents to the interpretation of the law

    • Civil Law – comprehensive set of laws organized into codes, interpretation is based on reference to codes and statues

    • Muslim law – based on religious beliefs, it dominates all aspects of life


The legal environment1

The Legal Environment

  • Commenting on Contract Law

    “In China, the old joke goes, a contract is a pause in the negotiation.”

    - VANESSA CHANG, KPMG PEAT MARWICK


The technological environment

The Technological Environment

  • Corporations must consider the accelerating macro-environmental phenomenon of technoglobalism (rapid developments in information and communication technologies)

  • Corporations must consider the appropriability of technology


Global e business

Global E-Business

  • E-business – 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 via the Internet


Global e business1

Global E-Business

  • Convenience in conducting business worldwide; facilitating communication across borders contributes to the shift toward globalization and a global market.

  • An electronic meeting and trading place, which adds efficiency in conducting business sales.

  • A corporate Intranet service, merging internal and external information for enterprises worldwide.

  • Power to consumers as they gain access to limitless options and price differentials.

  • A link and efficiency in distribution.


Looking ahead

Looking Ahead

  • Chapter 2 – Social Responsibility and Ethics

    • The Social Responsibility of MNC’s

    • Ethics in Global Management

    • Managing Interdependence


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