indian business environment chap01pp

8/4/2019 Indian Business Environment Chap01pp

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2006 Prentice Hall1-1

Chapter 1Assessing the Environment

Political, Economic, Legal,

Technological

International Human Resources Management

Spring Semester 2006

International College of Beijing

China Agricultural University


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2006 Prentice Hall 1-2

The Global Business Environment

The Global Marketplace is complex,interdependent, and dynamic

Challenges include politics, culture, andtechnology

Managers must find a balance betweensocial responsibility, company image, and

competitive strategiesMore focused on Global Management


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The Global Business Environment

Global competition is characterized by

networks that bind countries to one another

Globalism trends A borderless world

Increase in exports

Increase in direct foreign investment Dominance of trading blocs


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Regional Trading Blocs

The dominance of theUnited States is alreadyover. What is emerging is

a world economy of blocsrepresented by NAFTA,The European Union, andASEAN. Theres no onecenter in this worldeconomy.

- Peter Drucker

Fortune, January 12, 2004


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Regional Trading Blocs

TRIAD Market

European Union

Asian Market

China, Japan, South Asia

NAFTA


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Comparative Management in Focus -

IndiaIndia has witnessed a change in values,habits and options during the last decade

The economy, second fastest growing in theworld, is expected to grow close to 7% thisyear

Fastest growing telecom market with more

than one million new mobile phonesubscriptions per month


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Comparative Management in Focus

- IndiaIndians are buying 10,000 motorcycles a

day

India had 192 million households in 2001 Only 31.6% have a television

Only 2.5% have a car, jeep or van

Foreign investors have invested $5 billioninto the Indian stock market


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Information Technology

Information Technology is transforming theinternational managers agenda more than

any other itemInformation is no longer centrally orsecretly controlled by governments

Information technology is boosting

productivity and electronic commercearound the world


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The Globalization of Human Capital

Globalization means we sharejobs as well as goods.- FINANCIAL TIMES,

August 27, 2003


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The Globalization of Human Capital

Forrester Research predicts that 3.3 Million

US jobs will move offshore by 2015

45% of the 500 US companies surveyedstate that they use a global sourcing model


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The Global Managers Role


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The Political and Economic

EnvironmentOne important aspect is the phenomenon of

ethnicity

Driving force behind political instabilityFirms must assess political risks

Government actions that could adversely affect

the long-run profitability or value of a firm


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PoliticalRisk 7 Typical risk events

Expropriation of corporate assets withoutprompt and adequate compensation

Forced sale of equity to host-countrynationals, usually at or below depreciated

book value

Discriminatory treatment against foreignfirms in the application of regulations orlawsBarriers to repatriation of funds (profits orequity)


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PoliticalRisk 7 Typical risk events

Loss of technology or other intellectual

property (such as patents, trademarks, or

trade names)Interference in managerial decision making

Dishonesty by government officials,

including canceling or altering contractualagreements, extortion demands, and so forth


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Managing PoliticalRisk

Avoidance either the avoidance or withdrawal of

investment in a particular country

Adaptation adjust to the political environmentDependency keeping the host nation dependent

on the parent corporation

Hedging minimizing the losses associated with

political risk events


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Economic Risk

A countrys level of economic developmentgenerally determines its economic stability

Economic risk falls into 2 categories Government changes its fiscal policies

Government modifies its foreign-investmentpolicies

Managers are constantly reassessingeconomic risk


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The Legal Environment

Managers will comply with the hostcountrys legal system

Common Law past court decisions act asprecedents to the interpretation of the law

Civil Law comprehensive set of lawsorganized into codes, interpretation is based onreference to codes and statues

Muslim law based on religious beliefs, itdominates all aspects of life


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The Legal Environment

Commenting on Contract Law

In China, the old joke goes, a contract is apause in the negotiation.

- VANESSA CHANG, KPMG PEAT MARWICK


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The Technological Environment

Corporations must consider the accelerating

macro-environmental phenomenon of

technoglobalism (rapid developments ininformation and communication

technologies)

Corporations must consider theappropriability of technology


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Global E-Business

E-business the integration of systems,

processes, organizations, value chains and

entire markets using Internet-based andrelated technologies and concepts.

E-commerce - refers directly to the

marketing and sales process via the Internet


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Global E-Business

Convenience in conducting business worldwide;facilitating communication across borderscontributes to the shift toward globalization and aglobal market.

An electronic meeting and trading place, whichadds efficiency in conducting business sales.

A corporate Intranet service, merging internal andexternal information for enterprises worldwide.

Power to consumers as they gain access tolimitless options and price differentials.

A link and efficiency in distribution.


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2006 Prentice Hall1-22

Chapter 1Assessing the Environment

Political, Economic, Legal,

Technological

International Human Resources Management

Spring Semester 2006

International College of BeijingChina Agricultural University


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Looking Ahead

Chapter 2 Social Responsibility and

Ethics

The Social Responsibility of MNCs Ethics in Global Management

Managing Interdependence


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Global Management

The process of developing strategies,

designing and operating systems, and

working with people around the world toensure sustained competitive advantage

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The TRIAD

Three regional free-trade blocs

Western Europe, Asia, and North America

Grouped around three dominant currencies Euro, Yen, and Dollar

In 2004, these trade blocs were expanding

their boarders to include neighboringcountries

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European Union

Comprised of 25 nations

400 million people

Elimination of tariffs has not eliminated nationalpride

Global Managers face two major tasks

Strategic how to deal with the EU as an non-

European company Cultural How to deal with multiple sets of national

cultures, traditions and customs

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Asia

Japan and the FourTigers - Singapore,

Hong Kong, Taiwan, and South Korea,

Each has an abundance of natural resources andlabor

China

A new east Asian economy is emerging,

focused on greatly increased trade within the

region and based on China rather than Japan.

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North America

The goal of NAFTA was to bring the US,

Canada, and Mexico together to create more

jobs, better working conditions and acleaner environment

421 Million Consumers

Has been very beneficial to Mexico

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AdaptationEquity sharing includes the initiation of joint ventureswith nationals (individuals or those in firms, labor unions,or government) to reduce political risks.

Participative management requires that the firm activelyinvolve nationals, including those in labor organizations or

government, in the management of the subsidiary.Localization of the operation includes the modificationof the subsidiarys name, management style, and so forth,to suit local tastes. Localization seeks to transform thesubsidiary from a foreign firm to a national firm.

Development assistance includes the firms activeinvolvement in infrastructure development (foreign-exchange generation, local sourcing of materials or parts,management training, technology transfer, securingexternal debt, and so forth)

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Dependency

Input control means that the firm maintainscontrol over key inputs, such as raw materials,components, technology, and know-how.

Market control requires that the firm keepcontrol of the means of distribution

Position control involves keeping certain keysubsidiary management positions in the hands ofexpatriate or home-office managers.

Staged contribution strategies mean that thefirm plans to increase, in each successive year, thesubsidiarys contributions to the host nation

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Hedging

Political risk insurance is offered by most industrializedcountries. Insurance minimizes losses arising from specificriskssuch as the inability to repatriate profits,expropriation, nationalization, or confiscation and from

damage as a result of war, terrorism, and so forth. The Foreign Credit Insurance Association (FCIA) also covers

political risks caused by war, revolution, currency inconvertibility,and the cancellation of import or export licenses.

Local debt financing (money borrowed in the hostcountry), where available, helps a firm hedge against being

forced out of operation without adequate compensation. Insuch instances, the firm withholds debt repayment in lieuof sufficient compensation for its business losses.

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indian business environment chap01pp

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