The Political, Economic, Legal, and Technological Environment

1
The Political, Economic, Legal, and Technological
Environment

• Chapter 2

2
Individual Nations Environment

• Cultural environment.
• Economic environment.
• Industrial development and technological needs.
• Legal and political systems.
• Competition
• Trade barriers
• Tariffs and quotas

3

• Monetary barriers
• Non-tariff protection
• Impact of exchange rate fluctuations
• Industrial relations and labor unions

4
Domestic Environment

• Domestic political climate.
• Domestic competitive climate
• Domestic economic climate.
• Domestic legal system and government
• .

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• International managers must be current with
  domestic issues affecting their line of business.
• Political/legal climate.
• Competitive climate.
• Economic.
• Government policies.

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Domestic - Political/legal Climate

• Issues of quota (a number of limit) /tariff (tax)
  and retaliations.
• Most favored nations status.
• National security interest.
• Other congressional international relations
  issues as it affect domestic agenda.

7
Legal Climate

• A nations legal system affects the international
  management process. However, it does not dictate
  the look or functions of a product and service,
  nor what people in a nation should consume.

8
Domestic - Competitive Climate

• Managers should be aware of domestic competitors
  move on issues such as
• Product design/re-design.
• Technological advancement or modifications.
• Luring of foreign customers with different
  enticements.

9
Domestic -Economic Climate

• Changes in interest rates
• Influence of inflation on domestic market
• Nations state of currency (hard or soft)
• Impact of stock market

10
Government Policies

• Some of government policies that create trade
  barriers are exchange rates, tariffs, quota,
  confiscation, nationalization, etc.
• When a government apply a different exchange
  rate as a barrier to trade, it means that they
  apply different exchange rates for different
  imports.
• Confiscation occurs when a government seizes
  foreign-owned assets and does not make prompt,
  effective, and adequate compensation.

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• Nationalization occurs when a government takes
  over private property and pay reasonable
  compensation.
• Expropriation is the seizure by a government of
  foreign-owned assets.

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International Environment of Business (Part 1)

• Political
• Form of Government
• Political Stability
• Foreign Policy
• State Companies
• Role of Military
• Level of terrorism
• Restrictions on
• imports/ exports

• Economic
• Economic system
• Stage of development
• Economic stability
• GNP
• International financial
• standing
• Monetary/fiscal policies
• Foreign investment

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International Environment of Business (Part 2)

• Regulatory
• Legal System
• Prevailing international
• laws
• Protectionist laws
• Tax laws
• Role of contracts
• Protection of proprietary
• property

• Technological
• Level of technology
• Availability of local
• technical skills
• Appropriability
• Transfer of technology
• Infrastructure
• Environmental protection

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International Environment

• World trade today is moving toward a system of
  three regional free-trade blocs (western Europe,
  Asia, and north America), called TRIAD market.
• This market is grouped around the three dominant
  currencies (the deutsche mark, the yen, and the
  dollar).

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The Political and Economic Environment

• Political Risk
• Political Risk Assessment
• Managing Political Risk
• Managing Terrorism Risk
• Economic Risk

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Political Risk

• Nationalization
• Expropriation
• Political Risk Events
• Political Risk Assessment

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Common Political Risk Events

• Expropriation
• Forced sale
• Discriminatory Treatment
• Repatriation Barriers
• Loss technology or intellectual property
• Interference with decision making
• Government corruption

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Managing Political Risk

• Adaptation
• Avoidance
• Dependency
• Hedging
• Political risk insurance
• Local debt financing

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The Regulatory Environment

• Contract Law
• Other Regulatory Issues
• Common law
• Islamic Law

20
The Technological Environment

• Technoglobalism
• Internet
• Appropriability of technology
• Protecting proprietary technology

21
International Product Life Cycle

• International product life cycle is a theory that
  helps managers assess which products are in
  danger of foreign competition.
• This theory also posits that firms in advanced
  nations innovate, transfer the innovation to
  foreign markets, and firms in foreign markets
  eventually produce the innovation and become
  strong competitors.

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• A company is practicing dumping when it sells a
  product in a foreign market at a price lower than
  it sells it for in the home market or at below
  production costs.

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The International Environment

• Focus on countries and country blocks
• International institutions.
• International agreements.

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GLOBALISM

• As a result of Globalism the trade of goods among
  countries has been increasing faster than the
  actual world production of goods.
• Within the larger context of global trends and
  competition, the rules of the game for the
  international manager are set by each country
• Its political and economic agenda, its
  technological status and level of development,
  its regulatory environment, its comparative and
  competitive advantages, and its cultural norms.

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The International Managers Contingency Role

• In todays business world, you could soon find
  yourself as an international manager in a foreign
  subsidiary of an American firm, facing on a daily
  basis all aspects of international management.
• You could end up at the home office coordinating
  operations with foreign affiliates.
• You could travel to various countries negotiating
  export sales or negotiating deals with suppliers,
  customers or franchise parties.

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• Many different kinds of positions are now
  available in the global arena, as depicted in the
  announcement of a job opening at Motorola shown
  in the wall street journal of June 25, 1991.
• International management requires a contingency
  management approach to complex and dynamic
  environments, each of which has its own unique
  requirements.

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• An astute international manager will analyze the
  new environment, anticipate how it may affect the
  future of the home company, and then develop
  appropriate strategies and operating styles.
• The environments an international manager should
  be concerned with are subdivided into domestic,
  international and foreign.

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Source Of Information

• Through private corporation
• Governments
• United nations and other regional agencies
• Chamber of commerce and trade organizations
• Research universities and business periodicals