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The Global Environment


Increasingly open markets, technology leader. Attractive to US and British investors ... Creates winners and losers. Implications of the debate. For academics ... – PowerPoint PPT presentation

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Title: The Global Environment

The Global Environment
  • Globalization and the International Management

Mark McKenna BUS 162 (6), International and
Comparative Management San Jose State University
Chapters 1 and 2, Hodgetts, Luthans and Doh,
International Management Culture, Strategy and
Behavior , 6th edition (New York McGraw-Hill
Irwin, 2006) Adapted from PowerPoint slides by
R. Dennis Middlemist, Professor of Management,
Colorado State University
  • International Management and Globalization
  • What is Globalization?
  • Environmental Forces
  • Class Debate The Pros and Cons of Globalization
  • Implications for Managers

International Management and Globalization
  • What is international management?
  • the process of applying management concepts and
    techniques in a multinational environment and
    adapting management practices to different
    economic, political, and cultural environments
    (HLD, p. 6)
  • Why is globalization important?
  • International management is rapidly gaining in
    importance in tandem with the quickening pace of

  • Definitions
  • Roots of Globalization
  • Drivers of Globalization
  • Globalization from a Regional Perspective
  • Convergence or Divergence

Globalization Definitions
  • Hodgetts, Luthans and Doh,
  • Globalization is the process of social,
    political, economic, cultural, and technological
    integration among countries around the world (p.
  • Robertson (Globalization Social Theory and
    Global Culture, 1992),
  • Globalization in its most all-embracing form
    refers to both the compression of the world and
    the intensification of consciousness of the world
    as a whole (p. 8)

The Roots of Globalization
  • When did globalization begin?
  • Ancient trade routes barter trade
  • Standard weights and measures
  • Mercantilism the highways of the sea
  • Post WWII institutions of global governance
  • Past 1980s ICT, globalization defined
  • Hodgetts, Luthans, and Doh,
  • Contemporary globalization is a new branch of a
    very old tree whose roots were planted in
    antiquity (p. 8)

The Drivers of Globalization
  • What drives globalization?
  • Individual and social needs and aspirations
  • Technological innovation
  • Reduced technological and economic barriers to
  • Sustaining forces
  • Greater policy liberalization
  • Greater efficiency of business
  • Greater market access
  • Increased flows of goods, services, and people

Globalization from a Regional Perspective
  • Developed Economies
  • U.S. the European Union and Japan account for
    one-half of world trade
  • Emerging and Transition Economies
  • Economies in Latin America and Asia are
    increasingly important global players
  • BRIC, economic powers with large internal markets
  • Eastward expansion of the EU
  • Less Developed Countries (LDCs)
  • Some fast growing and increasingly open to the
    global system
  • Others, notably in Africa, struggle to compete

North America
  • Important global market
  • Combined purchasing power of the U.S., Canada and
    Mexico is 12 million
  • United States
  • U.S. outbound FDI 1.8 billion (2003)
  • U.S. inbound FDI 1.4 billion (2003)
  • Canada
  • Largest U.S. trading partner
  • Legal and business environment similar to the
  • Mexico
  • Strong maquiladora industry
  • Competitive with Asia for the U.S. market
  • Emergence of Mexican MNCs

South America
  • Economic challenges
  • High inflation
  • Heavy foreign debt
  • Entrenched interests (crony capitalism)
  • Political instability
  • Economic opportunities
  • Important emerging markets
  • Brazil, Argentina, Venezuela, Columbia, Chile,
  • Prevalence of free market policies
  • Expanding regional and international trade
  • Mercosur and Asia-Pacific Economic Cooperation

  • Market factors
  • Operational integration of the EU
  • Privatization of traditionally nationalized
  • Expanded ties to Central and Eastern Europe
  • Social factors
  • Maintaining social cohesion
  • Adjusting to local tastes Plan globally, act
  • Economic challenges
  • For foreign MNCs, gaining a foothold in the EU
  • Strategies include acquisitions, alliances, and
    cooperative RD
  • Absorbing the former communist-bloc countries
  • 550 million middle-class consumers across 25
  • Largest economic market in the world

Central and Eastern Europe
  • Collapse of the Soviet Union (1991)
  • Glasnost (openness) and perestroika (economic and
    political restructuring)
  • The fall of the Berlin Wall and German
  • Russia
  • Dismantling of price controls and privatization
  • Crime, political uncertainty, and inflation
  • Membership in International Monetary Fund (IMF)
  • Successful transition economies
  • Czech Republic, Hungary, Poland, the Baltic
  • Economies caught in transition
  • Albania, Bulgaria, Romania, former Soviet

East Asia
  • Japan
  • In the 1970s and 1980s
  • Strong government role
  • Vertically integrated industries (keiretsus)
  • In the 1990s
  • Economic recession
  • Collapse of the real estate bubble
  • Banks reluctant to write-off uncollectible loans
  • Still the worlds second largest economy
  • China
  • Economic opportunities
  • High rates of growth (8-10 per year)
  • Large internal market (gt 1.3 billion consumers)
  • Economic challenges
  • Inflation and political instability
  • Regulatory reform and compliance
  • Complex and unpredictable economic environment

East Asia The Four Tigers
  • South Korea
  • Dominated by family-held conglomerates (chaebols)
  • Impacted by the Asian financial crisis (1997)
  • Hong Kong
  • Part of the PRC (one country, two systems)
  • Risk of radical change in business environment
  • Singapore
  • Corporatist model
  • From entrepot to global city
  • Taiwan
  • From cheap producer to technology leader
  • Managing relations with the PRC the 3 Chinas

South and Southeast Asia
  • Southeast Asia
  • The Baby Tigers (TH, MY, IN, VN)
  • Large population base
  • Inexpensive labor
  • Considerable natural resources
  • Attractive to outside investors
  • Other Southeast Asian nations
  • Philippines, Cambodia, Laos, Myanmar
  • South Asia
  • India
  • Large population (300 million middle class
  • Increasingly open markets, technology leader
  • Attractive to US and British investors
  • Other South Asian nations
  • Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan

Developing and Emerging Economies (1)
  • Economic characteristics
  • Low per capita GDP, low (or negative) GDP growth
  • High unemployment - semiskilled or unskilled
  • Considerable government intervention in the
  • Political instability, weak infrastructure,
  • LDCs in Asia and Latin America
  • Include important regional economic powers (e.g.
    China, India, Indonesia, Brazil, Argentina)
  • Generally well integrated into the global economy

Developing and Emerging Economies (2)
  • LDCs in the Middle East and Central Asia
  • Large oil reserves
  • Highly unstable geopolitical and religious forces
  • Plagued by continuing economic problems
  • LDCs in Africa
  • Considerable natural resources
  • Diverse populations
  • Weak and unstable governments
  • Economies negatively impacted by social and
    environmental factors (poverty, starvation,
    illiteracy, corruption, environmental
  • Poorly integrated into the global economy

Convergence or Divergence
Environmental Forces
  • Economic environment
  • Political environmental
  • Legal/regulatory environment
  • Socio-cultural environment
  • Technological environment

Economic Environment
  • Global and regional integration
  • International agreements (GATT, WTO)
  • Regional agreements (EU, ASEAN, NAFTA, CAFTA,
    FTAA, Mercosur)
  • World trade and investment
  • 80 of FDI contributed by developed economies
  • U.S. exports/imports increased by 550 from 1983
    to 2003 (to 1.3 and 1.8 trillion)
  • Trade within the EU increased sharply, to gt 2
    trillion annually

Political Environment
  • Rapid and uncertain change
  • Chinas transition to a market economy
  • European expansion and integration
  • Russias unstable political institutions
  • The emergence of political Islam in the Middle
  • Significant differences across countries
  • Less stable governments increase political risk
  • Uncertain responses to democratization
  • Change in government policies
  • Adjusting to adjust to new perspectives and
    changing requirements
  • Assessing political risks (Chapter 10)

Legal/Regulatory Environment
  • Complex and confusing
  • MNCs must
  • Conform to national laws and standards
  • Abide by the laws of their own countries
  • Be aware of international treaties and
  • Differences in regulatory regimes
  • Increase transaction costs
  • Restrict and distort trade
  • Can result in retaliatory practices or sanctions
  • Four main legal traditions
  • Common law
  • Civil law
  • Islamic law (theocratic law)
  • Socialist law

Socio-Cultural Environment
  • Ethics and social responsibility (Chapter 3)
  • Business practices
  • Labor standards and workers rights
  • Corporate governance
  • Intellectual property rights
  • Values and culture (Part II)
  • Responses to authority
  • Individual vs. group recognition and
  • Balance of work and family obligations
  • Managing and resolving conflict

Technological Environment
  • Changing at lightning speed
  • Internet and telecommunications
  • Increasing bandwidth/high-speed access
  • Reduced costs of entry/leapfrogging
  • E-business
  • Customization (the long end of the tail)
  • E-retailing and financial services
  • Movement of money across borders
  • E-cash a currency without a country
  • Outsourcing and offshoring
  • Information as a commodity
  • The 24-hour office increased productivity/lower

The Pros and CONS of Globalization
  • Where do you stand?
  • Key themes to consider
  • Impact on Labor
  • Impact on Equality
  • Impact on Government
  • Impact on the Environment
  • Impact on Culture and Community

Impact on Labor
  • Positive effects
  • Increased job opportunities
  • Upgraded education system
  • Increased training
  • Negative effects
  • Job displacement
  • Loss of industries or economic groups
  • Lowered labor standards
  • Downward wage pressure
  • Decreased union power
  • Diminished social contract

Impact on Equality
  • Positive effects
  • Increased income / reduced poverty
  • Increased wages for education or technically
  • Improved economic conditions
  • Rich become richer
  • Greater access to goods
  • Lower cost of goods
  • Increased food supply (in some countries)
  • Negative effects
  • Greater disparity between haves and have-nots
    within and across countries
  • Some downward pressure on wages for the poorly
    educated or unskilled
  • Worsened economic conditions in marginalized
  • Poor become poorer

Impact on Government
  • Positive effects
  • Increased economic development
  • Expanded infrastructure
  • Transfer of modern management techniques
  • Greater interdependence among business partners
  • Negative effects
  • MNC power increased
  • MNCs externalize cost to countries
  • Competition results in too many concessions
  • MNCs influence local policies
  • Companies incorporate in low tax countries
  • Pressure to reduce social benefits

Impact on the Environment
  • Positive effects
  • More efficient use of resources
  • Increased demand for and transfer of more
    efficient technologies
  • Increased incomes lead to greater concern for
    environmental protection
  • Negative effects
  • Increased consumption
  • Advertising creates artificial needs
  • Greater use of fossil fuels (increased travel)
  • Increased surplus and scarcity
  • Increased degradation from unregulated businesses
  • More factories require more infrastructure

Impact on Culture/Community
  • Positive effects
  • Increased cultural exposure and understanding
  • Closer cross-border ties
  • Negative effects
  • More mobility disrupts social life, particularly
    in remote or rural communities
  • Disintegration of local communities
  • Cultural homogenization and monoculture / reduced
    cultural diversity

Globalization Pros and Cons
  • Globalization as moral conflict
  • Impacts of Globalization
  • Increases economic interdependence
  • Creates winners and losers
  • Implications of the debate
  • For academics
  • Need for more objective research
  • Need to question assumptions and be open to
  • For companies
  • Be aware of multiple stakeholder interests
  • Follow the guidelines of the UN Global Compact
  • Consider the triple bottom line

  • Implications for Managers
  • Lifelong learning
  • the most valuable asset is the ability to learn
    how to learn (Thomas Friedman, The World is
  • Responsiveness
  • be alert for changes and quick to respond
  • Adaptability
  • knowing how to work with others
  • being comfortable with uncertainty and ambiguity
  • Both a local and global perspective
  • see the big picture (global economy/whole
  • understand the details of operating at the local
  • Questions or final comments…