BU. 438

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BU. 438 SESSION 2
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Chapter 1 Assessing the Environment Political,
Economic, Legal, Technological
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CHAPTER 1 ASSESSING THE ENVIRONMENT POLITICAL,
ECONOMIC, LEGAL, TECHNOLOGICAL
World Trade Organization Financial Times
CEO Express EU CIA World Factbook
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The Global Business Environment

• The Global Marketplace is
• Complex
• Interdependent
• Dynamic
• Challenges include
• Politics
• Culture
• Technology
• Managers must find a balance between
• social responsibility
• company image
• competitive strategies

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The Global Business Environment

• Globalism trends
• A borderless world
• Increase in exports
• Increase in direct foreign investment
• Dominance of trading blocs

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Regional Trading Blocs
ASEAN In 2006, the bloc had a combined GDP of
about USD 884 billion, growing at an average
rate of around 4 per annum.
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NAFTA
In January 1994, Canada, the United States and
Mexico launched the North American Free Trade
Agreement (NAFTA) and formed the world's largest
free trade area.
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Regional Trading Blocs

• TRIAD Market
• North America United States, Canada, and Mexico
  
• Pacific Rim Japan, South Korea, Taiwan, Hong
  Kong, Malayans, Singapore, Thailand, Indonesia,
  Brunei, Philippines, Australia, and New Zealand
• European Community Belgium, Denmark, France,
  West Germany, Greece, Ireland, Italy, Luxembourg,
  Netherlands, Portugal, Spain and the United
  Kingdom.
• These three areas account for 80 percent of the
  World's Gross Domestic Products (GDP) and 75
  percent of the world's exports and imports. They
  are known as the " Triad".

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Asian Market

• China
• Japan
• South Asia

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CAFTA

• Resistance to CAFTA is still growing. CAFTA was
  supposed to be implemented by January 1, 2006,
• Around midnight on July 27th of 2005, the House
• of Representatives approved the Central America-
• Dominican Republic-United States Free Trade
• Agreement, CAFTA
• FTAA Free Trade Agreement of the Americas

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Four Tigers
Singapore Hong Kong Taiwan South Korea
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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

• 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

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Information Technology

• Information Technology is transforming the
  international managers 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

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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

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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

The Rwandan Genocide was the 1994 mass
extermination of hundreds of thousands of ethnic
Tutsis and moderate Hutu sympathizers in Rwanda
and was the largest atrocity during the Rwandan
Civil War. estimates put the death toll between
800,000 and 1,000,000.
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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)

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Political Risk 7 Typical risk events

• 5.Loss of technology or other intellectual
  property (such as patents, trademarks, or trade
  names)
• 6.Interference in managerial decision making
• 7. Dishonesty by government officials, including
  canceling or altering contractual agreements,
  extortion demands, and so forth

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Least Corrupt Countries
Rank Country 1. Finland 2. Iceland 3. New
Zealand 4. Denmark 5. Singapore 6. Sweden
7. Switzerland 8. Norway 9. Australia
10. Netherlands www.transparency.org.
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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

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Economic Risk

• A countrys 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

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The Legal Environment

• Managers will comply with the host countrys
  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

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The Technological Environment

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

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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