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PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

Environmental Foundation
The specific objectives of this chapter are: 1. ASSESS the implications of globalization for countries, industries, firms, and communities. 2. REVIEW current trends in international investment and trade. 3. EXAMINE the present economic status in the major regions of the global community. 4. ANALYZE some of the major developments and issues in the various regions of the world.

Chapter

International Management
 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 Operations in more than one country

 Multinational corporations (MNC)

 

International sales,  Nationality mix of managers and owners

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Top Ten Global MNCs

The Top 10 global MNCs Ranked by Market Value, Sales, Profits, and Share-Price Gain, 2003 Market Value Billions of U.S. Dollars 1. General Electric $328.11 2. Microsoft 284.43 3. ExxonMobil 283.61 4. Pfizer 269.66 5. Wal-Mart Stores 241.19 6. Citigroup 239.43 7. BP 193.05 8. Aig 191.18 9. Intel 184.66 10.Royal Dutch Shell 174.83
McGraw-Hill/Irwin

Sales Billions of U.S. Dollars 1. Wal-Mart Stores 2. BP 3. ExxonMobil 4. Royal Dutch/Shell 5. General Motors 6. DaimlerChrysler 7. Ford Motor 8. Toyotal Motor 9. Mitsubishi 10.General Electric

258.68 232.57 222.88 201.93 183.24 166.61 164.20 156.48 137.32 134.19

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Top Ten Global MNCs

The Top 10 global MNCs Ranked by Market Value, Sales, Profits, Data: Morgan Stanley Capital International Standard & Poors Compustat and Share-Price Gain, 2003 Source: http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif Profits Billions of U.S. Dollars 1. ExxonMobil 2. Citigroup 3. General Electric 4. HSBC Holdings 5. Royal Dutch/Shell 6. Bodafone Group 7. Bank of America 8. Toyota Motor 9. Microsoft 10.BP
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20.96 17.85 15.00 11.65 11.41 11.36 10.81 10.51 9.99 9.54

Share-Price Gain 1. Mizuho Financial 2. Research in Motion 3. UFJ Holdings 4. SK 5. Rakuten 6. Sumitomo Mitsui Fin. 7. Elan 8. Bharti Tele-Ventures 9. Yahoo! Japan 10.Mitsui Trust Hldgs.

636% 550 420 383 381 331 311 276 241 229

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Globalization
 Process of integration among countries around the world
    

Social Political Economic Cultural Technological Wealth Jobs Technology Lower prices

 Benefits of growing global trade and investment

   

Globalization
 Criticisms of globalization
 

Offshoring of business services jobs to lower-wage countries

Growing trade deficits  Slow wage growth



Environmental and social impacts

Global and Regional Integration

 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)


Free Trade Agreement of the Americas (FTAA)  European Union (EU)  Association of Southeast Asian Nations (ASEAN)


Trends in International Investment and Trade

 International investments


80 percent from developed countries

 

Foreign direct investment (FDI) Economic growth potential (esp. Japan, China and Asia in general)

Increase in international trade United States

 Over one-half of world trade is accounted for by

 

European Union  Japan

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Foreign Direct Investment in the United States

(in millions of dollars) 2002 All Countries Canada Europe (select countries) United Kingdom Germany France South and Central America (select countries) Mexico Brazil
McGraw-Hill/Irwin

2003 1,268,001 105,255 1,000,532 230,374 148,774 143,341 20,636 6,680 663

1,340,011 96,437 982,062 218,175 139,620 141,400 19,198 7,483 997

2006 The McGraw-Hill Companies, Inc. All rights reserved.

11

Foreign Direct Investment in the United States

(in millions of dollars) 2002 Other Western Hemisphere (select countries) Bermuda Netherland Antilles UK islands, Caribbean Africa Middle East (select countries) Israel Kuwait 50,167 8,088 4,014 28,260 2,298 7,456 3,699 986 2003 48,921 5,914 4,048 28,949 2,187 7,931 3,834 1,155

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

12

Foreign Direct Investment in the United States

(in millions of dollars) 2002 Asia and Pacific (select countries) Japan Australia Taiwan Singapore Hong Kong 183,392 150,499 23,136 2,569 650 1,879 2003 192,539 159,258 24,652 2,708 162 1,981

Adapted from: Table 1-2: Foreign Direct Investment in the United States, 2002-2004 (in millions of dollars)
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.

13

Foreign Direct Investment by the United States Abroad

(in millions of dollars) 2002 All countries Canada Europe (select countries) United Kingdom Germany France South and Central America (select countries) Mexico Brazil
McGraw-Hill/Irwin

2003 1,788,911 192,409 963,087 272,640 80,163 47,914 141,449 61,526 29,915

1,601,414 170,169 848,599 239,219 67,404 42,999 131,973 55,724 27,615

2006 The McGraw-Hill Companies, Inc. All rights reserved.

14

Foreign Direct Investment in the United States

(in millions of dollars) 2002 Other Western Hemisphere (select countries) Bermuda UK islands, Caribbean Africa Middle East (select countries) Israel Saudi Arabia 152,597 80,048 49,806 16,290 14,671 5,632 3,823 2003 162,574 84,609 54,507 18,960 16,942 6,208 4,217

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

15

Foreign Direct Investment in the United States

(in millions of dollars) 2002 Asia and Pacific (selected countries) Japan Australia Taiwan Singapore Hong Kong China 267,125 292,490 65,939 34,409 7,608 52,449 41,571 10,499 73,435 40,985 10,961 57,589 44,323 11,877 2003

Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, 2002-2004 (in millions of dollars)
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16

Top 10 Trading Partners of the United States, 20033

Importing Country Canada Mexico Japan United Kingdom Germany China South Korea Netherlands Taiwan France (in millions of dollars) U.S. Exporting Exports Rank Country 169,924 97,412 52,004 33,828 28,832 28,368 24,073 20,695 17,448 17,053 1 2 3 4 5 6 7 8 9 10 Canada China Mexico Japan Germany United Kingdom South Korea Taiwan France Ireland U. S. Imports 221,595 152,436 138,060 118,037 68,113 42,795 37,229 31,599 29,219 26,747

Rank 1 2 3 4 5 6 7 8 9 10

Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.

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Economic Performance

North America
 U. S., Canada and Mexico combine for $12 trillion in

purchasing power


United States


U.S. firms hold market dominance in many European markets and are gaining market share in Asia Foreign MNCs find the U. S. to be a lucrative market in which to expand The largest U.S. trading partner. Legal and business environment similar to the U.S.

Canada
 

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Economic Performance

North America


Mexico
 

very strong maquiladora industry foreign manufacturers can send materials to their Mexican-based plants, process or assemble the products, and then ship them back out of Mexico with only the value added being taxed. now competitive with Asia for the U.S. market
 

lower-cost labor proximity to the American market (lower transportation costs and faster delivery)

Increasingly active in EU and Asian markets

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Economic Performance

South America
 South American countries have experienced difficult

economic problems
 

High inflation

Heavy foreign dept  Major factor in success is intercountry trade

 

Free market policies among South American countries Survey of business leaders in S.A. countries finds that doing business with U.S. is most important agenda

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Economic Performance

Europe
 Important factors

Privatization of traditionally nationalized industries  Emergence of the EU as an operational economic union  Economic linkages between the EU and newly emerging Central and Eastern European countries  Foreign MNCs gain foothold in EU by

  

Acquisitions Alliances Cooperative R&D efforts

Challenge is to absorb former communist-bloc countries

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Economic Performance

Central and Eastern Europe

 Important factors (Russia, Czech Republic, Hungary,

Poland)
Perestroikaeconomic and political restructuring  Dismantling of Russian price controls


Privatization  Inflation


Membership in International Monetary Fund (IMF)  Crime

 

Political uncertainty

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Three Eras of the Soviet Union

Traditional Russian Society (Pre-1917) Centralization of authority and responsibility Red Executive Managers (1917-1987) Centralized leadership Communist domination Party service Rise of collective enterprises Dual ethical standards (honesty in personal conduct with employees, dishonesty in business dealings) Use of informal influence to obtain favors Market-Oriented (1987-present) Sharing of power with numerous stakeholders in state enterprises Responsibility for private enterprise success Effective delegation of responsibility to employees Use of informal influence to obtain favors Bipolar extremes of cynicism in problem solving

Collective action

Dual ethical standards (honesty in personal relationships, deception in business relationships)

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23

Three Eras of the Soviet Union

Traditional Russian Society (Pre-1917) Feelings ranging from helplessness (only a religious savior will deliver people from their plight) to bravado (belief in ones ability to outsmart others) Red Executive Managers (1917-1987) Feelings of helplessness due to producing inferior products and bravado in operating some of the worlds largest organizations Market-Oriented (1987-present) Use of overpromising to both clients and business partners A high degree of achievement motivation regarding quality service and products but social contempt for success

Adapted from Table 1-5: The Three Eras of the Soviet Union. Source: Adapted from Sheila Puffer, Understanding the Bear: A Portrait of Russian Business Leaders, Academy of Management Executive, February 1994, pp. 4161. Used with permission.
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.

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Economic Performance

Asia
 Japan  Phenomenal economic success in 1970s and 1980s  Ministry of International Trade and Industry (MITI)  Keiretsus
 

Vertically integrated industries Holdings provide assistance needed in providing goods and services to end users Bank loans backed by real estate or projected revenues By 2000, most major banks had billions of dollars in uncollectible loans International competition has increased

Decade long recession in 1990s

 

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Economic Performance

Asia
 China


Annual real economic growth of 10 percent during the 1980s and early 1990s

More recent growth of 8 percent  Healthy and growing economy



GDP growth of 91 percent in 2003  Attractive to foreign investors despite major political risk


Product pirating is major problem  Complicated and high-risk venture



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Economic Performance

Asia
 The Four Tigers


South Korea
 

Chaebols (large family-held Korean conglomerates) Affected by declining economies of South east Asia in 1990s) Now part of Peoples Republic of China Uncertainty about role the Chinese government intends to play in local governance

Hong Kong
 

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Economic Performance

Asia
 The Four

Tigers  Singapore


Least hurt by economic downturn of 1990s Progression from labor-intensive economy to one dominated by technologically sophisticated industries (banking, electricity generation, petroleum refining and computers)

Taiwan


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The Worlds Most Competitive Nations, 2003 Ranking

Country United States Australia Canada Malaysia Germany Taiwan United Kingdom France Spain Thailand Rank 1 2 3 4 5 6 7 8 9 10

Adapted from Table 1-6: The Worlds Most Competitive nations, 2003 Ranking Source: World Competitive Scoreboard, 2004.
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.

29

Economic Performance

Southeast Asia
 The Baby Tigers


Thailand, Malaysia, Indonesia

   

Large population base Inexpensive labor Considerable natural resources Attractive to outside investors

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Market Potential Indicators

Table 1-7: Market Potential Indicators Ranking for emerging Markets, 2003.

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Economic Performance

Developing and Emerging Countries

 India

Low per capita GDP  Recent trend of locating software and high valueadded services to this country  Attractive to U.S. and British investors (well educated, English speaking, technologically sophisticated workers)


 Middle East and Central Asia

 

Large oil reserves

Highly unstable geopolitical and religious forces  Plagued by continuing economic problems

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Economic Performance

Developing and Emerging Countries

 Africa

Considerable natural resources  African nations remain very poor and undeveloped


International trade is not a major source of income  Populace divided into 3,000 tribes that speak 1,000 languages and dialects  Major political instability  Poverty, starvation, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector