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International Management

© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

1

Chapter One

Globalization and International Linkages

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2

Learning Objectives

Assess the implications of globalization for countries, industries, firms, and communities

Review the major trends in global and regional integration

Examine the changing balance of global economic power and trade and investment flows among countries

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Learning Objectives (continued)

Analyze the major economic systems and recent developments among countries that reflect those systems

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Social Media

Changed the way in which people connect

Changed global business strategy

Changed the way in which international business is conducted

Impacted international diplomacy

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Communication Platforms

Can be accessed by individuals and groups from any location

Offer myriad opportunities for companies to identify and target discrete groups

Revolutionize nature of management by allowing direct interaction between producers and consumers

Accelerate the already rapid pace of globalization and integration

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Management

Process of completing activities with and through other people

International management is the process of:

Applying management concepts and techniques in a multinational environment

Adapting management practices to different economic, political, and cultural contexts

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Multinational Corporations (MNCs)

Firms that have:

Operations in more than one country

International sales

Mix of nationality among managers and owners

Managers are required to develop international management expertise

Increasingly coming from developing nations like China and India

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Globalization and Internationalization

Globalization

Process of social, political, economic, cultural, and technological integration among countries around the world

Evidence can be seen in increased levels of trade, capital flows, and migration

Internationalization

Process of a business crossing national and cultural borders

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Factors That Facilitate Globalization

Technological advances in transnational communications, transport, and travel

Offshoring

Companies undertake some activities at offshore locations instead of in their home countries

Outsourcing

Subcontracting or contracting out of activities that had previously been performed by the firm to external organizations

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Benefits of Globalization

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11

Wealth

Better jobs

Access to technology

Lower prices

Availability of goods

Criticisms of Globalization

Offshoring of service jobs to lower-wage countries

Companies and countries place downward pressure on wages and working conditions

Growing trade deficits and slow wage growth could lead to economic collapse

Concerns over environmental and social impacts

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Global Agreements

General Agreement on Tariffs and Trade (GATT)

Helped in the dramatic reduction of tariff and nontariff barriers among nations

World Trade Organization (WTO)

Oversees rules and regulations for international trade and investment

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13

Regional Agreements

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14

North American Free Trade Agreement (NAFTA)

U.S.–Central American Free Trade Agreement (CAFTA and CAFTA-DR)

European Union (EU)

Association of Southeast Asian Nations (ASEAN)

Trans-Pacific Partnership (TPP)

U.S.–Singapore Free Trade Agreement

Transatlantic Trade and Investment Partnership (T-TIP)

North American Free Trade Agreement (NAFTA)

Member nations include the United States, Canada, and Mexico

Helped eliminate tariffs and import and export quotas

Opened government procurement markets to companies in the other two nations

Increased opportunity to make investments in each other’s country

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15

North American Free Trade Agreement (NAFTA) (continued)

Increased the ease of travel between countries

Removed restrictions on agricultural products, auto parts, and energy goods

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16

Changing Global Demographics

Factors contributing to the increase in the median global population age

Increase in global life expectancy due to improvements in technology and healthcare

Increase in time spent in retirement due to increase in life expectancy

Decline in global fertility rate

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Shifting Balance of Economic Power in the Global Economy

Result of economic integration and rapid growth of emerging markets

Emerging and developing nations might play a dominant role in the global economic system

BRIC countries – Brazil, Russia, India, and China

E7 – Seven major emerging economies (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey)

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Shifting Balance of Economic Power in the Global Economy (continued)

N-11 – Next wave of emerging markets (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam)

African countries can benefit from the increase in price of commodities

Gas and oil, agricultural products, and mineral and mining products

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Table 1.7 – Changing Global Demographics: Developing Countries on the Rise

Source: United Nations: Department of Economic and Social Affairs, World Population Prospects: The 2015 Revision. –> –> https://esa.un.org/unpd/wpp/

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20

Trends in Trade and International Investments

Since the global recession in 2009 , global trade and investment have continued to grow

Foreign direct investment (FDI)

Amount invested in property, plant, or equipment in another country

Growing at a slow but steady rate in the years since the global recession

May reach $1.7 trillion by 2017

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Global Economic Systems

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22

Market economy

Command economy

Mixed economy

Market Economy

Exists when private enterprises reserve the right to own property and monitor production and distribution of goods and services

Management is effective

Private ownership provides local evaluation and understanding

Least restrictive form of economy

Resource allocation is determined by the law of demand

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Market Economy (continued 1)

General balance between supply and demand sustains prices

Imbalance creates price fluctuation

Competition is encouraged

Helps promote innovation, economic growth, high quality, and efficiency

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Market Economy (continued 2)

Optimal growth is facilitated by focusing on how to best serve the customer

Monopolies or restrictive business practices may be prohibited to maintain the integrity of the economy

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Command Economy

Government holds explicit control over the price and supply of a good or service

Businesses are owned by the state

Ensures that investments and other business practices are done in the best interest of the nation

Management ignores demographic information

Creates an environment where little motivation exists

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Mixed Economy

Combination of market and command economy

Helps raise the standard of living

Aided by regulations concerning minimum wage standards, social security, environmental protection, and the advancement of civil rights

Ownership of organizations that are critical to the nation may be transferred to the state

Subsidizes costs and allows the firms to flourish

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Evaluation of the World’s Economies

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28

Established economies

North America

Emerging economies

Central and Eastern Europe

Developing economies

South America

European Union

Japan

China

Other emerging markets of Asia (South Korea, Hong Kong, Singapore, and Taiwan)

Middle East and Central Asia

Africa

India

North America

One of the four largest trading blocs in the world

Combined purchasing power of the United States, Canada, and Mexico is more than $19 trillion

Free-market-based economy provides considerable freedom in decision-making processes

International firms receive the benefit of greater flexibility and lower barriers

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North America (continued 1)

The United States

Firms maintain dominant global positions in technology-intensive industries

Considered to be a lucrative market for expansion by foreign MNCs

Canada is the largest trading partner

Most of the largest foreign-owned companies in Canada are totally or heavily U.S.-owned

Legal and business environments are similar to that in the U.S.

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North America (continued 2)

Mexico

Strongest Latin American economy

Has free-trade agreements with over 46 countries

Competes with Asia for the U.S. market and has the benefit of proximity and lower-cost labor

Facilitated by the maquiladora system

Increased trade with both Europe and Asia

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31

European Union (EU)

Objectives and goals

Eliminate all trade barriers among member nations

Follow a single currency (euro) and a regional central bank

Firms have the benefit of:

Manufacturing high-quality, low-cost goods

Shipping manufactured goods across the EU without paying duties or being subject to quotas

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European Union (EU) (continued)

Challenges

Absorbing its eastern neighbors that could result in a giant, single European market

Large deficits faced by several European governments

Resulted from structural conditions and shorter-term economic pressures

Placed pressure on the euro

Maintaining a unified EU in the coming decades

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Japan

Unprecedented economic success in the 1970s and 1980s

Huge positive trade balance

Strong yen

Gained recognition as the world leader in manufacturing and consumer goods

Remains a formidable international competitor and is well poised in all major economic regions

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Japan (continued)

Early success can be attributed to:

The Ministry of International Trade and Industry (MITI)

Governmental agency that identifies and ranks national commercial pursuits and guides the distribution of national resources to meet these goals

Keiretsus

Large, vertically integrated corporations whose holdings supply much of the assistance needed in providing goods and services to end users

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Emerging and Developing Economies

Face relatively low GDP per capita

Have an unskilled or semiskilled workforce

Involve considerable government intervention in economic affairs

Can be viewed as developing economies that exhibit sustained economic reform and growth

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Russia

Dismantled price controls

Privatized businesses previously owned by the government

Direct investment and membership in International Monetary Fund (IMF) helped to raise GDP and decrease inflation

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Russian Economy

Early economy was boosted by abundant oil and high global energy prices

Recent decreases in demand have pushed Russia into a recession

Likely to undergo many years of economic instability and recurrent political problems

Challenges – Persistent crime, corruption, and lack of public security

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Central and Eastern Europe

Hungary

Privatization of state-owned businesses

Joint ventures between local and western firms

Receives direct investments from MNCs

Poland

Only economy in the EU to continue to grow during the global recession of 2008–2009

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Central and Eastern Europe (continued)

Key for Albania and other Eastern European countries is to make themselves less risky and more attractive for international business

Maintain social order

Establish rule of law

Rebuild collapsed infrastructure

Get factories and other value-added, job-producing firms up and running

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China

Considerable decline in GDP

Current challenges

Massive savings glut in corporate sector

Globalization of manufacturing networks

Vast developmental needs

Unemployment (15–20 million new jobs required annually)

Social unrest

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China: Major Risk for Investors

Caused due to:

Delicate nature of the one country, two systems balance (communism and capitalism)

Concerns about undervaluation of China’s currency

Unpredictable and fluid nature of policies toward foreign firms

Trade relations with developed nations remain tense

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Economic Performance in Emerging Markets of Asia

South Korea

Chaebols: Large, family-held conglomerates that have considerable economic and political power

Has a solid economy with moderate growth and inflation, low unemployment, an export surplus, and fairly equal distribution of income

Hong Kong

Headquarters for some of the most successful multinational operations in Asia

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Economic Performance in Emerging Markets of Asia (continued 1)

Singapore

Emerged as an urban planner’s model and the leader and financial center for Southeast Asia

Taiwan

Progressed from a labor-intensive economy to one dominated by technologically sophisticated industries

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Economic Performance in Emerging Markets of Asia (continued 2)

Thailand, Malaysia, Indonesia, and Vietnam

Have a large population base with inexpensive labor despite lack of natural resources

Known to have social stability but have suffered from turmoil in the aftermath of recent economic crisis

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India

Recent trend of locating software and higher value-added services has bolstered middle- and upper-class market for goods and services

Attractive to U.S. and British investors

Presence of English-speaking, well-educated, and technologically sophisticated workers

Availability of government funds for economic development

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South America

Faced many economic problems

Accumulated heavy foreign debt obligations

Experienced severe inflation

Implemented economic reforms to reduce debt

Periodic economic instability and the emergence of populist leaders have had an impact on the attractiveness of countries in this region

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South America: Brazil

Attracted considerable foreign investment

Through privatization of power, telecommunications, and other infrastructure sectors

Benefited from one of the most stable governments throughout Latin America

Undisputed economic leader of South America

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South America: Brazil (continued)

Long-term prospects are still potentially positive due to:

Presence of a large and relatively well-educated population

Availability of ample natural resources

Existing industrial base

Strategic geographic position

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Chile

Economic growth has fluctuated between three and six percent since the 2000s

Attracts FDI, mainly dealing with gas, water, electricity, and mining

Continues to participate in globalization

Engages in trade agreements with Mercosur, China, India, the EU, South Korea, and Mexico

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