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Objectives of Session 2 Discussion Topics Chapter 1 Chapter 2

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1 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

2 Globalization and International Linkage
Hodgetts and Luthans Chapter One Globalization and International Linkage

3 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

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

5 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.

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

7 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 Sales Billions of U.S. Dollars General Electric $328.11 Microsoft ExxonMobil Pfizer Wal-Mart Stores Citigroup BP Aig Intel Royal Dutch’ Shell Wal-Mart Stores BP ExxonMobil Royal Dutch/Shell General Motors DaimlerChrysler Ford Motor Toyotal Motor Mitsubishi General Electric McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8 Top Ten Global MNCs The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, 2003 Data: Morgan Stanley Capital International Standard & Poor’s Compustat Source: Profits Billions of U.S. Dollars Share-Price Gain ExxonMobil 20.96 Citigroup 17.85 General Electric 15.00 HSBC Holdings 11.65 Royal Dutch/Shell 11.41 Bodafone Group 11.36 Bank of America 10.81 Toyota Motor 10.51 Microsoft 9.99 BP 9.54 Mizuho Financial 636% Research in Motion 550 UFJ Holdings 420 SK 383 Rakuten 381 Sumitomo Mitsui Fin. 331 Elan 311 Bharti Tele-Ventures 276 Yahoo! Japan 241 Mitsui Trust Hldgs. 229 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9 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

10 Globalization Criticisms of globalization
Offshoring of business services jobs to lower-wage countries Growing trade deficits Slow wage growth Environmental and social impacts

11 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

12 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

13 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

14 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, Mexico 86, Japan 130, Japan 57, Mexico 109, U.K. 38, China 81, Germany 26, Germany 55, South Korea 22, U.K. 39, Netherlands 19, Taiwan 35, Taiwan 19, South Korea 31, France 18, France 26, Singapore 16, Italy 22,356.5 * in millions of dollars

15 Foreign Direct Investment in the United States
(in millions of dollars) 2002 2003 All Countries 1,340,011 1,268,001 Canada 96, ,255 Europe 982,062 1,000,532 (select countries) United Kingdom 218, ,374 Germany 139, ,774 France 141, ,341 South and Central America 19, ,636 Mexico 7,483 6,680 Brazil McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

16 Foreign Direct Investment in the United States
(in millions of dollars) 2002 2003 Other Western Hemisphere 50, ,921 (select countries) Bermuda 8,088 5,914 Netherland Antilles 4,014 4,048 UK islands, Caribbean 28, ,949 Africa 2,298 2,187 Middle East 7,456 7,931 Israel 3,699 3,834 Kuwait 986 1,155 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

17 Foreign Direct Investment in the United States
(in millions of dollars) 2002 2003 Asia and Pacific 183, ,539 (select countries) Japan 150, ,258 Australia 23, ,652 Taiwan 2,569 2,708 Singapore Hong Kong 1,879 1,981 Adapted from: Table 1-2: Foreign Direct Investment in the United States, (in millions of dollars) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

18 Foreign Direct Investment by the United States Abroad
(in millions of dollars) 2002 2003 All countries 1,601,414 1,788,911 Canada 170, ,409 Europe 848, ,087 (select countries) United Kingdom 239, ,640 Germany 67, ,163 France 42, ,914 South and Central America 131, ,449 Mexico 55, ,526 Brazil 27, ,915 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

19 Foreign Direct Investment in the United States
(in millions of dollars) 2002 2003 Other Western Hemisphere 152, ,574 (select countries) Bermuda 80, ,609 UK islands, Caribbean 49, ,507 Africa 16, ,960 Middle East 14, ,942 Israel 5,632 6,208 Saudi Arabia 3,823 4,217 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

20 Foreign Direct Investment in the United States
(in millions of dollars) 2002 2003 Asia and Pacific 267, ,490 (selected countries) Japan 65, ,435 Australia 34, ,985 Taiwan 7, ,961 Singapore 52, ,589 Hong Kong 41, ,323 China 10, ,877 Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, (in millions of dollars) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

21 Top 10 Trading Partners of the United States, 2003
(in millions of dollars) Importing U.S. Exporting U. S. Rank Country Exports Rank Country Imports Canada 169,924 Mexico 97,412 Japan 52,004 United Kingdom 33,828 Germany 28,832 China 28,368 South Korea 24,073 Netherlands 20,695 Taiwan 17,448 France 17,053 Canada 221,595 China 152,436 Mexico 138,060 Japan 118,037 Germany 68,113 United Kingdom 42,795 South Korea 37,229 Taiwan 31,599 France 29,219 Ireland 26,747 Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars). McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

22 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

23 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

24 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

25 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

26 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

27 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

28 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

29 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

30 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

31 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 People’s Republic of China Uncertainty about role the Chinese government intends to play in local governance

32 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)

33 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.

34 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?

35 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?

36 The World’s Most Competitive Nations, 2003 Ranking
Country Rank United States 1 Australia 2 Canada 3 Malaysia 4 Germany 5 Taiwan 6 United Kingdom 7 France 8 Spain 9 Thailand 10 Adapted from Table 1-6: The World’s Most Competitive nations, 2003 Ranking Source: World Competitive Scoreboard, 2004. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

37 Southeast Asia 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

38 Characteristics of Less Developed Countries
High unemployment Low GDP High international debt Less Developed Countries Slow (or negative) GDP growth per capita Large population Inexpensive unskilled or semi-skilled labor

39 Developing and Emerging Countries
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)

40 Developing and Emerging Countries
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

41 Developing and Emerging Countries
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

42 Chapter 1 Question Review
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)?

43 Chapter 1 Question Review
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.

44 Chapter 1 Question Review
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.

45 Hodgetts, Luthans and Doh
Chapter Two The Political, Legal, and Technological Environment

46 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

47 Political Environment
Components include: Government policies that affect MNCs Stability of the government of the host country

48 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

49 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

50 Political Environment
China 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 Speed up conversion of state enterprises into corporations Expand capital markets by authorizing new stock listings Sell off most of the 305,000 state enterprises (or let go bankrupt) Worker retraining, low-cost housing and other programs Reduce tariffs to 10 percent

51 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

52 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

53 Key Elements of Russia’s 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. 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. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

54 Key Elements of Russia’s 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 Russia’s WTO Accession Deal with the EU McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

55 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

56 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

57 Political Environment
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.

58 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

59 Foundations of the World’s Law
Islamic Law - based on the Qur’an and teachings of the Prophet Mohammed - found in most countries Socialist - derived from Marxism - continues to influence regulations in countries from the former Soviet Union Common English law - foundation for legal systems in Western democracies Civil or Code Law Roman law - found in non- Islamic and nonsocialist Laws of the World

60 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

61 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

62 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.

63 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

64 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

65 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

66 Technologies That Will Influence International Business
Internet Biotechnology Artificial Intelligence International Business Silicon Chips Automatic Translation Telephones Supercomputers Satellites Nanotechnology

67 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

68 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

69 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

70 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 Personal and home care aids 62 Medical assistants 52 -80 -60 -40 -20 20 40 60 80 100 Percentage change for Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for

71 Expected Losers in Selected Occupations
Railroad brake, signal, and switch operators -61 Telephone operators -35 -28 Loan interviewers and clerks -26 Meter readers, utilities -25 Farmers and ranchers -20 Order clerks Insurance claims and policy processing clerks -20 -80 -60 -40 -20 20 40 60 80 100 Percentage change for Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for

72 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?

73 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?

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


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