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International Management 1 Objectives of Session 2 Discussion Topics Chapter 1 Chapter 2 Next weeks assignments Read Chapter 3, Ethics and social responsibility,

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Presentation on theme: "International Management 1 Objectives of Session 2 Discussion Topics Chapter 1 Chapter 2 Next weeks assignments Read Chapter 3, Ethics and social responsibility,"— Presentation transcript:

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

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

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

7 International Management 7 Market Value Billions of U.S. Dollars Sales Billions of U.S. Dollars Top Ten Global MNCs McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.General Electric$ Microsoft ExxonMobil Pfizer Wal-Mart Stores Citigroup BP Aig Intel Royal Dutch’ Shell The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, Wal-Mart Stores BP ExxonMobil Royal Dutch/Shell General Motors DaimlerChrysler Ford Motor Toyotal Motor Mitsubishi General Electric134.19

8 International Management 8 Top Ten Global MNCs McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Profits Billions of U.S. Dollars 1.ExxonMobil Citigroup General Electric HSBC Holdings Royal Dutch/Shell Bodafone Group Bank of America Toyota Motor Microsoft BP9.54 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 Elan311 8.Bharti Tele-Ventures276 9.Yahoo! Japan Mitsui Trust Hldgs.229 Data: Morgan Stanley Capital International Standard & Poor’s Compustat Source:

9 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 14 Top 10 trading Partners of the U.S.: 1999 Importing U.S. Exporting U.S. RankCountry Exports*RankCountry Imports* 1Canada166,6001Canada198, Mexico86,908.92Japan 130, Japan57,465. 3Mexico109, U.K.38, China 81, Germany26, Germany 55, South Korea22,958.46U.K. 39, Netherlands19,436.67Taiwan 35, Taiwan19,131.48South Korea 31, France18, France 26, Singapore16, Italy 22,356.5 * in millions of dollars

15 International Management 15 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved All Countries1,340,0111,268,001 Canada96,437105,255 Europe 982,062 1,000,532 (select countries) United Kingdom 218, ,374 Germany 139, ,774 France 141, ,341 South and Central America 19,198 20,636 (select countries) Mexico 7,483 6,680 Brazil (in millions of dollars) 2003

16 International Management 16 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Other Western Hemisphere 50,167 48,921 (select countries) Bermuda 8,088 5,914 Netherland Antilles 4,014 4,048 UK islands, Caribbean 28,260 28,949 Africa 2,298 2,187 Middle East 7,456 7,931 (select countries) Israel 3,699 3,834 Kuwait9861,155 (in millions of dollars) 2003

17 International Management 17 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Asia and Pacific 183, ,539 (select countries) Japan 150, ,258 Australia 23,136 24,652 Taiwan 2,569 2,708 Singapore Hong Kong 1,879 1,981 (in millions of dollars) 2003 Adapted from: Table 1-2: Foreign Direct Investment in the United States, (in millions of dollars)

18 International Management 18 Foreign Direct Investment by the United States Abroad McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved All countries 1,601,414 1,788,911 Canada 170, ,409 Europe 848, ,087 (select countries) United Kingdom 239, ,640 Germany 67,404 80,163 France 42,999 47,914 South and Central America 131, ,449 (select countries) Mexico 55,724 61,526 Brazil 27,615 29,915 (in millions of dollars) 2003

19 International Management 19 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Other Western Hemisphere 152, ,574 (select countries) Bermuda 80,048 84,609 UK islands, Caribbean 49,806 54,507 Africa 16,290 18,960 Middle East 14,671 16,942 (select countries) Israel 5,632 6,208 Saudi Arabia 3,823 4,217 (in millions of dollars) 2003

20 International Management 20 Foreign Direct Investment in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Asia and Pacific 267, ,490 (selected countries) Japan 65,939 73,435 Australia 34,409 40,985 Taiwan 7,608 10,961 Singapore 52,449 57,589 Hong Kong 41,571 44,323 China 10,499 11,877 (in millions of dollars) 2003 Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, (in millions of dollars)

21 International Management 21 Top 10 Trading Partners of the United States, 2003 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Importing U.S. Exporting U. S. Rank CountryExports Rank CountryImports 1Canada169,924 2Mexico97,412 3Japan52,004 4United Kingdom33,828 5Germany28,832 6China28,368 7South Korea24,073 8Netherlands20,695 9Taiwan17,448 10France17,053 (in millions of dollars) 1Canada221,595 2China152,436 3Mexico138,060 4Japan118,037 5Germany68,113 6United Kingdom42,795 7South Korea37,229 8Taiwan31,599 9France29,219 10Ireland26,747 Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).

22 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 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 International Management 36 The World’s Most Competitive Nations, 2003 Ranking McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. United States1 Australia2 Canada3 Malaysia4 Germany5 Taiwan6 United Kingdom7 France8 Spain9 Thailand10 CountryRank Source: World Competitive Scoreboard, Adapted from Table 1-6: The World’s Most Competitive nations, 2003 Ranking

37 International Management 37 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

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

39 International Management 39 Economic Performance 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

40 International Management 40 Economic Performance Middle East and Central Asia –Large oil reserves –Highly unstable geopolitical and religious forces –Plagued by continuing economic problems Developing and Emerging Countries

41 International Management 41 Economic Performance 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 Developing and Emerging Countries

42 International Management 42 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)?

43 International Management 43 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.

44 International Management 44 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.

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

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

48 International Management 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 International Management 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 International Management 50 Political Environment 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 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 China

51 International Management 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 International Management 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 International Management 53 Tariffs Key Elements of Russia’s WTO Accession Deal with the EU McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 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.

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

55 International Management 55 Political Environment 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

56 International Management 56 Political Environment 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

57 International Management 57 Political Environment 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

58 International Management 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 International Management 59 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 or Code Law - derived from Roman law - found in non- Islamic and nonsocialist countries Laws of the World

60 International Management 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 International Management 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 International Management 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 International Management 63 – 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.)

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

67 International Management 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 International Management 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 International Management 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 International Management 70 Expected Winners in Selected Occupations Computer software engineers, applications Computer support specialists Computer software engineers, systems software Network and computer systems administrators Personal and home care aids Medical assistants Percentage change for Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for

71 International Management 71 Expected Losers in Selected Occupations Percentage change for 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

72 International Management 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 International Management 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 International Management 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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