Irwin/McGraw-Hill [Modified by EvS] Mgt Mgt 485 CHAPTER 2 THE NON ECONOMIC ENVIRONMENT FOR INTERNATIONAL MANAGEMENT

© Irwin/McGraw-Hill, Modified by EvS 2-2 Political Environment  Components include:  Government policies that affect MNCs  Stability of the government of the host country  China  Has a complex political environment in which the government is:  Speeding up program to convert state enterprises into shareholder-owned corporations  Expanding capital markets by authorizing new stock listings  Allowing government bodies to sell of state enterprises  Accelerating worker retraining, building low-cost housing, and providing other social services  reducing tariffs

© Irwin/McGraw-Hill, Modified by EvS 2-3 Political Environment (cont.)  China (cont.)  MNCs face major obstacles when doing business with and in China  Government regulations  Lack of qualified employees  Active involvement of government institutions in business affairs  Europe  Changing political situation  MNCs doing business with individual countries risk action by the EU itself  Businesses must be aware of political happenings in the immediate area as well as throughout the continent

© Irwin/McGraw-Hill, Modified by EvS 2-4 Political Environment (cont)  Russia  Bleak economic outlook  Neglect, corruption, and confusing economic policy  Decaying infrastructure  Reform stalled by a political quagmire  Government must keep the economy on an even keel while attracting more foreign investment  Central and Eastern Europe  Political situation is in a state of flux (R-L-R)  Poland  Government plan to streamline the economy and get the country moving has been fraught with problems  Economy has proven resilient

© Irwin/McGraw-Hill, Modified by EvS 2-5 Political Environment (cont.)  Central and Eastern Europe (cont.)  Hungary  One of strongest economies in Central Europe  More foreign investment in Hungary than any other post-communist European country  Czech Republic  Quick transition to privatization  Economy suffered initially but appears to be on the rebound  Balkan countries and former republics of the Soviet Union  Still face severe economic problems  Reform proceeded more slowly than other countries in the area

© Irwin/McGraw-Hill, Modified by EvS 2-6 Legal and Regulatory Environment  Islamic Law  Derived from interpretation of the Qur’an and the teachings of the Prophet Mohammed  Socialist Law  Marxist socialist system - continues to influence regulations in former communist countries  Common Law  English law - the foundation of legislation in the United States, Canada, England, Australia, New Zealand, and others  Civil or Code Law  Derived from Roman law and is found in the non-Islamic and non- socialist countries

© Irwin/McGraw-Hill, Modified by EvS 2-7 Legal and Regulatory Environment Basic Principles of International Law  Sovereignty and Sovereign Immunity  Sovereignty principle holds that governments have the right to rule themselves as they see fit  International Jurisdiction  Nationality principle holds that every country has jurisdiction over its citizens no matter where they are located  Territoriality principle holds that every nation has the right of jurisdiction within its legal territory  Protective principle holds that every country has jurisdiction over behavior that adversely affects its national security, even if the conduct occurred outside that country

© Irwin/McGraw-Hill, Modified by EvS 2-8  Basic Principles of International Law (cont.)  Doctrine of Comity  There must be mutual respect for the laws, institutions, 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.  Treatment and Rights of Aliens  Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct  Forum for Hearing and Settling Disputes  U.S. courts can dismiss cases brought before them by aliens Legal and Regulatory Environment

© Irwin/McGraw-Hill, Modified by EvS 2-9 Examples of Legal and Regulatory Issues  Foreign Corrupt Practices Act - made it Illegal to influence foreign officials through personal payment or political contributions  Bureaucratization - Competitive regulations to reduce the ability of foreigners to do business locally  Privatization - Government deregulation and “free market”

© Irwin/McGraw-Hill, Modified by EvS 2-10 Technological Environment  Internet Access allows people to obtain information from millions of sources  Satellites will make it possible for everyone to send and receive voice, data, and digitized images through hand-held telephones  Automatic translation telephones will allow people to communicate in their own language to anyone in the world who has access to a telephone

© Irwin/McGraw-Hill, Modified by EvS 2-11 Technological Environment  Technology is changing at lightening speed  E-Business  Terminology  E-tailers - electronic retailers  B2C - electronic business to consumer  B2B - electronic business to business  E-cash - electronic cash  E-tailing and financial services will most affect global customers  Prepaid smart cards will give way to global digital cash  Need a system to resolve conversions of different national currencies

© Irwin/McGraw-Hill, Modified by EvS 2-12 E-Commerce  ADVANTAGES:  Tap into funds from Internet -- no need for ATM Machines  Companies receive immediate payment, reducing bad debts while increasing working capital  DISADVANTAGES:  Some system must be in place for  converting payment into U.S. dollars

© Irwin/McGraw-Hill, Modified by EvS 2-13 Technological Environment (cont.)  Telecommunications  Most obvious dimension of the technological environment facing international management  Economic growth perceived to hinge on efficient communications  Technologic leapfrogging  Moving from the absence of telephones to the availability of wireless communications  Privatization of telecommunications occurring in some countries to acquire capital and technical know-how  MNCs unwilling to invest in telecommunications without the prospect of good financial return ! Case of China

© Irwin/McGraw-Hill, Modified by EvS 2-14 The Employment Fallout from Technology  Technology will affect the nature and number of employees  technology has the potential to largely displace employees in all industries  Emerging information technology also makes work more portable  Changing economic dynamics  Increasing productivity / decreasing costs  Lost jobs, lowering wages

© Irwin/McGraw-Hill, Modified by EvS 2-15 Technologies That Will Influence International Business International Business Artificial Intelligence Biotechnology Satellites Automatic Translation Telephones Silicon Chips Supercomputers Internet Nanotechnology

© Irwin/McGraw-Hill, Modified by EvS 2-16 Winners in Selected Occupations Percentage Change for Home-health workers Computer systems analysts, programmers Travel agents Childcare workers Guards Restaurant cooks Nurses Gardeners/ groundskeepers Lawyers Teachers Janitors and cleaners

© Irwin/McGraw-Hill, Modified by EvS 2-17 Losers in Selected Occupations Percentage Change for Bank tellers Electrical/electronic assemblers Typists/word processors Machine-tool operators Textile workers Switchboard operators Packaging/filling machine operators Phone/cable TV installers and repairers Directory-assistance operators