International Management

Chapter 1: Assessing the Environment: Political, Economic, Legal and

Technological
Lesson1: The Global Business Environment, the Political and Economic
Environment

Suman Mazumder
Assistant Professor
Department of Business Administration
Southern University Bangladesh
Lesson Learning Outcomes
1. To understand the global business environment and how it affects
the strategic and operational decisions which managers must make.
2. To critically assess the developments, advantages, and disadvantages
of globalization.
3. To discuss the complexities of the international manager’s job.
4. To develop an appreciation for the ways in which political, and
economic factors and changes impact the opportunities that
companies face.
Lesson Contents:
1.1 The Global Business Environment
- Globalization
- Global Trends
- Globality and Emerging Markets
- Backlash against Globalization
- Effects of Institution on Global Trade
- Effects of Globalization on Corporations
- The Globalization of Human Capital
1.2 The Political Environment
- Political Risk
- Political Risk Assessment
- Managing Political Risk
- Managing Terrorism Risk
1.3 Economic Environment
- Economic Risk
What is International Management?

The process of developing strategies, designing and

operating systems, and working with people around the
world to ensure sustained competitive advantage
What is Globalization?

Global competition characterized by networks of

international linkages that bind countries,
institutions, and people in an interdependent global
economy
Global Trends
• Five key global trends:
1. Changing balance of growth towards emerging markets
2. Need for increased productivity and consumption in developed
countries
3. Increasing global interconnectivity
4. Increasing gap between supply and demand of natural resources
5. Challenge for governments to develop policies for economic
growth and financial stability
 Globality and
Emerging
Markets

“It is the rise of the rest—the

rest of the world.”
Challenges to Globalization
• Backlash against capitalism and rekindling of nationalism

• Increased protectionism of high-demand resources

• Need to develop top managers with international understanding

and experience

• Increasing pressure and publicity for companies to consider the

social responsibility of their actions
Effects of Institutions on Global Trade

• Two major groups of institutions (supranational and national) play a differing

role in globalization. Supranational institutions such as the World Trade
Organization (WTO) and the International Labor Organization (ILO) promote
the convergence of how international activities should be conducted.

• National institutions, in contrast, play a role in creating favorable conditions

for domestic firms and may make it more difficult for foreign firms to
compete in those countries.

• Some supranational institutions represent the interests of a smaller group of

countries.
Effects of Globalization on Corporation
1. Firms from any country now compete with companies at home and abroad,
and domestic competitors are competing on price by outsourcing or offshoring
resources and services anywhere in the world.
2. Clearly, competition has no borders, with most global companies producing
and selling more of their global brands and services abroad than domestically.
3. Investment by global companies around the world means that this aspect of
globalization benefits developing economies—through the transfer of financial,
technological, and managerial resources, as well as through the development
of local allies that later become self-sufficient and have other operations.
4. It is essential, therefore, for managers to look beyond their domestic market.
5. SMEs are also affected by, and in turn affect, globalization.
Globalization of Human Capital
• Increasing trend in the offshoring of manufacturing
jobs and outsourcing of white-collar jobs

• The Indian ITES sector has 700,000 jobs worldwide

and comprises 35% of BPO market

• For global firms, winning the war for talent is a

pressing issue
The Global
Manager’s Role
Political Risk
Any governmental action or politically motivated event that could
adversely affect the long-term profitability or value of a firm

Examples:

Argentina announced plans to In Russia, the Kremlin exploited the

nationalize Repsol YPF, the financial crisis to take control of
Spanish oil co., taking 51%. energy companies.
Political Risk Cont …
Typical Political Risks
• Expropriation and
confiscation
• Nationalization
• Terrorism
• Discriminatory treatment
• Barriers to repatriation of
funds
• Interference in managerial
decision making
• Dishonesty by government
officials
Political Risk
Assessment
• Helps companies manage
exposure to risk and
minimize financial loss
• Two forms:
• Consultation with
experts
• Development of internal
staff capabilities –
increasingly common
Managing Political Risk
• Avoidance and • Dependency and
Adaptation Hedging
• Equity sharing • Input control
• Market control
• Participating management • Position control
• Staged contribution
• Localization of the
operation
• Political risk insurance (OPIC
and FCIA)
• Development assistance • Local debt financing
Managing Terrorism Risk
• Develop a benevolent image (IBM and Exxon).

• Maintain a low profile and minimize publicity.

• Using teams to monitor terrorist activities

• Hiring counterterrorism consultants