International Management Ch. 1

International Management
1. Applying management concepts and techniques in a multinational environment
2. Adapting management practices to different economic, political, and cultural contexts
Multinational Corporation (MNC) 3 criteria
-Operations in more than one country
-International sales
-Nationality mix among managers and owners
BRIC
Brazil, Russia, India, and China
-fastest growing developing economies
-MNCs grow out of these countries because there’s more opportunity.
Globalization
-Process of social, political, economic, cultural, and technological integration among countries around the world.
-Hastened by outsourcing and offshoring
Offshoring
Process by which companies undertake some activities at offshore locations instead of in their countries of origin. (send whole thing to different country)
Outsourcing
Subcontracting or contracting out of activities to external locations instead of in their countries of origin (send part of thing to different country)
Benefits of Globalization
-Wealth
-Jobs
-Technology
-Lower prices
-Availability of goods
Criticisms of Globalization
-Off-shoring of business service jobs to lower-wage countries
-Growing trade deficits
-Slow wage growth
-Environmental and social impacts
Global Agreements
-World Trade Organization (WTO)
-General Agreement on Tariffs and Trade (GATT)
Regional Agreements
-North American Free Trade Agreement (NAFTA)
-U.S.-Central American Free Trade Agreement (CAFTA, CAFTA-DR)
-European Union (EU)
-Association of Southeast Asian Nations (ASEAN)
-Trans-Pacific Partnership (TPP)
-Free Trade Agreement of the Americas (FTAA)
Free Trade Agreement
-eliminates tariffs
-FTAA: a proposed free-trade agreement among the 34 democratically governed countries of the Western Hemisphere
NAFTA
-opened up Mexico for free trade
-Canada flooded U.S. lumber market
CAFTA
open free trade among Americas
Shifting International Economic Landscape
-Economic integration and rapid growth of emerging markets
-Economic potential of emerging markets
>BRIC countries (Brazil, Russia, India, and China) could
be among the four most dominant economies by 2050
>N-11 (the next wave of emerging markets): Bangladesh,
Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan,
Philippines, Turkey, South Korea, and Vietnam
> African countries may follow.
Major economies of the world
US, Japan, and China
International Trade
-In 2009 merchandise and commercial services exports declined
-By 2014, FDI is estimated to reach $1.9 trillion, surpassing the all-time high set in 2007
Foreign Direct Investment (FDI)
-Investment in property, plant, or equipment in another country
>Growing at healthy rate
>Outpacing domestic growth in most countries
>Declined in 2009 due to the global recession
>Recent increases in merchandise exports and foreign
direct investment
Global Economic Systems
-Market economy
-Command economy
-Mixed economy
Market Economy
Supply and Demand
Command Economy
Government sets prices for things (North Korea)
Mixed Economy
Ex: China
Starting to develop western techniques and lean towards business control of prices.
Established Economies
North America, The EU, and Japan
Emerging Economies
Central and Eastern Europe, China, Other Emerging Markets of Asia, and India
Developing Emerging Economies on the Verge
South America, Middle East and Central Asia, Africa,
North America
-One of the four largest trading blocs in the world
>Combined purchasing power of U.S., Canada and
Mexico is more than $12 trillion
-Free-market-based economy is attractive to private firms
United States
-Foreign MNCs find U.S. a lucrative expansion market
-Foreign firms welcomed as investors in U.S. market
-U.S. firms hold global dominance in technology-intensive industries, telecommunications, media, and biotechnology
Canada
-U.S.’s largest trading partner
-Most of the largest foreign-owned Canadian companies are totally or heavily U.S.-owned
-Legal and business environment in Canada is similar to that in U.S.
Mexico
-Strongest Latin American economy
-Free-trade agreements with over 50 countries
-Very strong maquiladora system
-Trade with both Europe and Asia has increased
-Now competitive with Asia for the U.S. market
Maquiladora
Factory that is specifically put on the border to make use of US transportation and Mexican trading.
The EU
-Ultimate objective
>Eliminate all trade barriers among member countries
>Emergence of the EU as an operational economic
union
-A unified Europe could become the largest
economic market in terms of purchasing power in
the world
>Foreign MNCs trying to gain foothold in EU
-Acquisitions, alliances, cooperative R&D efforts
>Economic linkages between the EU and Central and
Eastern European countries
-Challenge is to absorb former communist bloc
countries
>Pressure on the euro due to financial crises in Greece,
Portugal, Spain, and Ireland
Japan
-Huge economic success in 1970s and 1980s
-Ministry of International Trade and Industry (MITI)
-Keiretsus
>Large, vertically integrated corporations
>Holdings provide assistance needed in providing
goods and services to end users
-Remains a formidable competitor in the Pacific Rim, North America, and Europe
Central and Eastern Europe
-Russia
>Dismantling of price controls
>Privatization
>Membership in International Monetary Fund (IMF)
helping to control inflation
>Crime and political uncertainty
-Hungary, Poland, Czech Republic
>Privatization
>Political instability
>Struggling to right their economic ships
China
-Real economic growth of 9.1% in 2009, 10.4% in 2010,
9.3% in 2011, and 8% in 2012
>Savings glut in corporate sector
>Globalization of manufacturing networks
>Vast developmental needs
>Unemployment concerns
-Attractive to investors despite political risk
>Product pirating is a major problem
>Undervaluation of currency
>Government policies favor domestic firms
South Korea
-Chaebols: Very large family-held conglomerates
-Solid economy, moderate growth and inflation, low
unemployment
-Export surplus
-Fairly equal distribution of income
Hong Kong
-Part of People’s Republic of China
-Uncertainty about the role the Chinese government intends to play
Singapore
-Major success story
-Urban-plan model, leader, and financial center for region
Taiwan
-Progressed from labor-intensive economy to one dominated by technologically sophisticated industries
>banking, electricity generation, petroleum refining,
and computers
Thailand, Malaysia, Indonesia, Vietnam
-Large population base
-Inexpensive labor
-Considerable natural resources
-Some turmoil in aftermath of recent economic crisis
-Attractive to outside investors
India
-Large population
-Recent trend of locating software and high value-added services to this country boosting middle- and upper-class market for goods and services
-GDP quickly reaching the level of China
-Attractive to U.S. and British investors
>English speaking, well educated, technologically
sophisticated workers
-Government funds for economic development
South America
-Hampered by foreign debt and severe inflation
-Most have tried to implement economic reforms to reduce their debt
-Experienced periodic economic instability and the emergence of populist leaders
-Nevertheless, attractive to business
Brazil
-Economy flourishing, attracting MNCs’ investment
-Privatization and stable government
-Undisputed economic leader of SA
Chile
-A decade of economic growth
-Attracts foreign direct investment
-Trade agreements―Mercosur, China, India, the EU, South Korea, Mexico, among others
Argentina
-Overall strong economy
-Abundant natural resources, highly literate population, export-oriented agriculture, diversified industrial base
-Economic problems persist
Middle East and Central Asia
-Large oil reserves
-Highly unstable geopolitical and religious forces
-Large investments by Arab countries in U.S. property and businesses
-Many people worldwide work for Arab employers
-Arab Spring has impacted the political and economic environment
Africa
-Considerable natural resources
-African nations remain very poor and undeveloped
-International trade is only beginning to serve as a major sources of income
-Populace divided into 3,000 tribes that speak 1,000 languages and dialects
-Major political instability
-Poverty, malnutrition, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector