Analyzing intl environment

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  1. Market Economy
    • Free interplay of demand and supply
    • No restrictions on supply
  2. Central Command
    Government moderates the activities of different economic systems
  3. Economic Environment factors
    • Economic growth; stage of economic development
    • Per capita income
    • Fiscal and monetary policies, interest rates, taxation, inflation
    • Balance of payments; foreign debt
    • “Hard” currency reserves 
    • Exchange rate fluctuations
    • Unemployment level
  4. Impact of policy changes
    • Creates or diminishes market opportunities
    • Redefines rules of competition
    • Increases or decreases the risks of doing business
  5. Forms of protectionism
    • Import tariffs
    • Quotas
    • Voluntary Export Restraints (VER)
    • Domestic content legislation
    • Monetary barriers
    • Stringent standards
    • Subsidies/ “Buy national” programs
    • Boycott/Embarg
  6. Reasons for protectionism
    • Promote domestic production; save jobs
    • Help “strategic” industries
    • Protect infant industry 
    • Old industry argument
    • Level playing field; combating unfair competition National security reasons
    • Political reason
  7. Political risk
    • International markets are more interconnected
    • The world has become a much more volatile place and that has changed risk calculations everywhere
    • Offshoring results in shifting of operations to countries with potential for unrest
    • Increased dependence for energy on states troubled by considerable political risk
  8. Transfer risk
    Change in ease of transfer of capital, goods, technology and people in and out of the countr
  9. Operational risk
    Impact on operations caused by changes in government’s policie
  10. Ownership risk
    Change in the proportion of equity owned by a company in a foreign subsidiar
  11. Causes of political risk Macro
    • Competing political philosophies
    • Civil wars, armed conflicts 
    • Social unrest and disorders
    • New international alliance
  12. Outcome of political risk Macro
    • Confiscation, expropriation or nationalization
    • Damage to property, persons
    • Loss of transfer freedom
  13. Causes of political risk Micro
    • Changing social values
    • Unstable economic conditions
    • Vested interests Quasi-political Local business
    • Latent hostility towards foreigner
  14. Outcome of political risk Micro
    • High inflation, increased taxation, currency instability
    • Breach/revision of contracts
    • Discrimination
    • Mandatory labor benefits, Operating restriction
  15. Political risk-defensive strategies
    • Stay ahead -- technical and managerial capabilities Multiple sourcing of products
    • Raise political costs of intervention JVs with politically connected local companies
    • Maximize debt investment from local sources
    • Significant exports “Good citizen” -- public services Hedging via insurance (e.g., OPIC, MIGA
  16. Common Market
    Customs Union that also allows free movement of factors such as labor and capital
  17. Free Trade Area (FTA)
    Member countries eliminate trade barriers on trade among member countries
  18. Economic Union
    Common Market wherein national economic policies of member countries are also harmonized
  19. Economic case for integration
    • Stimulates economic growth in countries
    • Countries specialize in those goods and services efficiently produce.
    • Additional gains from free trade beyond the international agreements such as GATT and WTO
  20. Political case for integration
    • Economic interdependence creates incentives for political cooperation 
    • Reduces potential for violent confrontation.
    • Together, the countries have more economic clout to enhance trade with other countries or trading bloc
  21. Culture
    “A system of values and norms that are shared among a group of people and that when taken together constitute a design for living."
  22. Impact of cultural differences
    • Policies and procedures
    • Formalization and standardization 
    • Systems and controls
    • Structure
    • Planning systems
    • Reward systems
    • Information and communication
    • Openness and informality
    • Decision making
    • Who makes decision
    • Level of participation
  23. Ethnocentrism
    Concluding that new culture is bad, “stupid” or ineffective simply because it is differen
  24. Cultural Change
    • Culture evolves over time
    • Changes can be painful for society
    • Is not unidirectional
  25. Protecting property rights
    • Enforcement
    • o Likely to be short-lived if demand is high
    • Education
    • o Educating IPR law enforcement officials
    • o General public on the perils of counterfeits
    • External Pressures
    • o Confronting host governments (carefully)
    • o Explaining cost of non-enforcement
    • Economic growth
    • o Growth and home grown brands
  26. Basic factor endowments
    • Natural resources
    • Climate
    • Geographic location
    • Demographics
  27. Advanced factor endowments
    • Communications
    • Skilled labor
    • Research/technology
    • Education
  28. Porters Theory prediction
    • Porter’s theory should predict the pattern of international trade that we observe in the real world
    • Countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorabl
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Analyzing intl environment
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