Fundamentals of Global Strategy Chapter 1 Competing in a Global World

Chapter Competing in a Global World To most of us , a political , economic , social , and technological all but unstoppable . The of information across the globe has made people aware of the tastes , preferences , and lifestyles of citizens in other countries . Through this information , we are all varying speeds and at least in economic citizens . This convergence is controversial , even offensive , to some who consider globalization a threat to their identity and way of life . It is not surprising , therefore , that globalization has evoked counter forces aimed at preserving differences and deepening a sense of local identity . Yet , at the same time , we increasingly take advantage of what a global economy has to drive and , work with an Apple or IBM notebook , communicate with a phone or BlackBerry , wear Zara clothes or Nike sneakers , drink , eat hamburgers , entertain the kids with a Sony PlayStation , and travel with designer luggage . This is equally true for the buying habits of businesses . The market boundaries for IBM global services , computers , General Electric ( GE ) aircraft engines , or consulting are no longer in political or geographic terms . Rather , it is the intrinsic value of the products and services that their appeal . Like it or not , we are living in a global economy . URL books

How Global Are We ?

In 1983 , Theodore , the late Harvard Business School professor and editor of the Harvard Business Review , wrote a controversial article entitled The Globalization of In it , he famously stated , The globalization of markets is at hand . With that , the multinational commercial world nears its end , and so does the multinational corporation The multinational operates in a number of countries , and adjust its products and processes in each , at high relative cost . The global corporation operates with resolute constancy it sells the same things in the same way everywhere both overestimated and underestimated globalization . He did not anticipate that some markets would react against globalization , especially against Western globalization . He also underestimated the power of globalization to transform entire nations to actually embrace elements of global capitalism , as is happening in the former Soviet Union , China , and other parts of the world . He was right , however , about the importance of branding and its role in forging the convergence of consumer preferences on a global scale . Think of , Starbucks , or Google . More than 20 years later , in 2005 , Thomas , author of The World is Flat A Brief History of the Century , had much the same idea , this time focused on the globalization of production rather than of markets . argues that a number of important events , such as the birth of the Internet , coincided to the competitive landscape worldwide by increasing and reducing the power of states . list of includes the fall of the Berlin Wall the rise of and the boom that led to a investment in cable the emergence of common software platforms and open source code enabling collaboration and the rise of outsourcing , supply chaining , and . According to , these converged around the year 2000 , creating a world a , platform for multiple forms of sharing knowledge and work , irrespective of time , distance , geography and increasingly , And , he observed , at the very moment this emerged , three huge economies of India , China , and the former Soviet , and three billion people who were out of the game , walked onto the playing URL books

Taking a different perspective , Harvard Business School professor disputes the idea of fully globalized , integrated , and homogenized future . Instead , he argues that differences between countries and cultures are larger than is generally acknowledged and that is the real state of the world today and is likely to remain so for the foreseeable future . To support his contention , he observes that the vast majority of all phone calls , web , and investment around the world remains local that more than 90 of the investment around the world is still domestic that while trade are growing , the ratio of domestic to international trade is still substantial and is likely to remain so and , crucially , that borders and distance still matter and that it is important to take a broad view of the differences they demarcate , to identify those that matter the most in a particular industry , and to look at them not just as difficulties to be overcome but also as potential sources of value creation . Moore and also reject the idea of an emerging single world market for free trade and offer a regional perspective . They note that while companies source goods , technology , information , and capital from around the world , business activity tends to be centered in certain cities or regions around the world , and suggest that than global be the focus of strategy analysis and organization . As examples , they cite recent decisions by DuPont and Gamble to roll their three separate country subsidiaries in the United States , Canada , and Mexico into one regional organization . The histories of , and provide support for the diagnosis of a and regionally divided world . globalization has always had a distinct regional , Its starting point was nota grand , vision of a fully integrated world in which autos and auto parts can freely from anywhere to anywhere else . Rather , the company anticipated expanded agreements within the Americas , Europe , and East Asia but not across them . This a vision of a world in which neither the bridges nor the barriers between countries can be ignored . The globalization of illustrates the complex realities of a more nuanced global competitive landscape ( see the ) It has been successful in markets that are culturally , URL books

administratively , geographically , and economically closest to the United States Canada , Mexico , and the United Kingdom . In other parts of the world , it has yet to meet its profitability targets . The point is not that should not have ventured into more distant markets , but rather that such opportunities require a different competitive approach . For example , in India , which restricts foreign direct investment in retailing , was forced to enter a joint venture with an Indian partner , that operates the stores , while deals with the back end of the business . Finally , consider the history of , which , in the late under chief executive officer Roberto , fully bought into idea that the globalization of markets ( rather than production ) was imminent . embarked on a strategy that involved focusing resources on Coke , an unprecedented amount of standardization , and the dissolution of the boundaries between Coke and international organizations . Fifteen years later and under new leadership , Coke strategy looks very different and is no longer always the same in different parts of the world . In big , emerging markets such as China and India , Coke has lowered price points , reduced costs by localizing inputs and modernizing bottling operations , and upgraded logistics and distribution , especially rurally . The boundaries between the United States and international organizations have been restored , recognizing the fact that Coke faces very different challenges in America than it does in most of the rest of the world . This is because per capita consumption is an order of magnitude that is higher in the United States than elsewhere . The Globalization of 81 In venturing outside the United States , had the option of entering Europe , Asia , or other countries in the western hemisphere . It realized that it did not have the , organizational , and enter all of them simultaneously and instead opted for a carefully considered , approach to market entry . During the first years of its globalization ( 1991 to 1995 ) concentrated heavily on establishing a presence in the Americas Mexico , Brazil , Argentina , and Canada . This choice was motivated by the fact that the European market was less attractive to as a point of entry . The European retail industry was already mature , which meant that a new entrant would have to take market share away from an existing player . There were entrenched competitors such as in France and Metro AG in Germany that would likely retaliate URL books

vigorously . Moreover , European retailers had formats similar to , which would have the effect of reducing competitive advantage . might have overcome these difficulties by entering Europe through an acquisition , but the higher growth rates of the Latin American and Asian markets would have made a delayed entry into those markets extremely costly in terms of lost opportunities . In contrast , the opportunity costs of delaying entries into European markets were relatively small . Asian markets also presented major opportunities , but they were geographically and culturally more distant . For these reasons , as its first global points of entry , chose Mexico ( 1991 ) Brazil ( 1994 ) and Argentina ( 1995 ) the countries with the three largest populations in Latin America . By 1996 , felt ready to take on the Asian challenge . It targeted China , with a population of more than billion inhabitants in 640 cities , as its primary growth vehicle . This choice made sense in that the lower purchasing power of the Chinese consumer offered huge potential to a retailer like Mart . Still , China cultural , linguistic , and geographical distance from the United States presented relatively high entry barriers , so established two as learning vehicles for establishing an Asian presence . From 1992 to 1993 , agreed to sell products to two Japanese retailers , and , that would market these products in Japan , Singapore , Hong Kong , Malaysia , Thailand , Indonesia , and the Philippines . Then , in 1994 , formed a joint venture with the Company , a conglomerate , to open three Value Club membership discount stores in Hong Kong . Once had chosen its target markets , it had to select a mode of entry . It entered Canada through an acquisition . This was rational because Canada was a mature new retail capacity was because the strong economic and cultural similarities between the and Canadian markets minimized the need for much learning . For its entry into Mexico , took a different route . Because there were income and cultural differences between the and Mexican markets about which the company needed to learn , and to which it needed to tailor its operations , a would have been problematic . Instead , the URL books

company chose to form a joint venture with , Mexico largest retailer , counting on to provide operational expertise in the Mexican market . In Latin America , targeted the region next two largest markets Brazil and Argentina . The company entered Brazil through a joint venture , with Americana , a local retailer . was able to leverage its learning from the Mexican experience and chose to establish a joint venture in which it had the controlling stake . The successful entry into Brazil gave even greater experience in Latin America , and it chose to enter Argentina through a wholly owned subsidiary . This decision was reinforced by the presence of only two major markets in Argentina . 1983 , 2007 ) 50 . 2007 ) 205 . Moore and ( see also Moore and ( The , and examples are taken from ( chap . This mini case study was first published in de and Pearce ( 2009 ) chap . URL books 10

Global competition Changing Center of Gravity The rapid emergence of a number of developing the called countries ( Brazil , Russia , India , and China ) the latest development shaping the global competitive environment . The impact this development will have on global competition in the next decade is likely to be enormous these economies are experiencing rates of growth in gross domestic product ( trade , and disposable income that are unprecedented in the developed world . The sheer size of the consumer markets now opening up in emerging economies , especially in India and China , and their rapid growth rates will shift the balance of business activity far more than did the earlier rise of less populous economies such as Japan and South Korea and their handful of new champions that seemed to threaten the old order at the time . This shift in the balance of business activity has redefined global opportunity . For the last 50 years , the globalization of business has primarily been interpreted as the expansion of trade from developed to emerging economies . Today rapid rise of emerging economies means this view is no longer now in both directions and increasingly from one developing economy to another . Or , as the authors of , consultants at the Boston Consulting Group ( put it , business these days is all about competing with everyone from everywhere for The evidence that this latest shift in the global competitive landscape will have seismic proportions is already formidable . Consider , for example , the growing number of companies from emerging markets that appear in the Fortune 500 rankings of the worlds biggest . It now stands at 62 , mostly from the economies , up from 31 in 2003 , and is set to rise rapidly . What is more , if current trends persist , companies will account for of the Fortune list within 10 years . Look also at the recent sharp increase in the number of companies acquiring established businesses and brands , proof that globalization is no longer just another word for For instance , the maker of America favorite beer , was URL books 11

bought by a conglomerate . And several of America leading institutions avoided bankruptcy only by being bailed out by the funds ( investment funds ) of various Arab kingdoms and the Chinese government . Another prominent example of this seismic shift in global business is provided by , the Chinese computer maker . It became a global brand in 2005 , when it paid around billion for the business of one of America companies , IBM , including the laptop range . had the right to use the IBM brand for years , but dropped it years ahead of schedule , such was its in its own brand . It just squeezed into place in the Fortune 500 , with worldwide revenues of billion last year and growth prospects many Western companies envy . The conclusion is that this new phase of is creating huge well as multinationals and new champions from developing countries alike . and ( 2008 ) URL books 12

Globalization Pressures on Companies , and Wang identify imperatives that drive companies to become more global to pursue growth , efficiency , and knowledge to better meet customer needs and to preempt or counter competition . In many industries , markets in the developed countries are maturing at a rapid rate , limiting the rate of growth . Consider household appliances in the developed part of the world , most households have , or have access to , appliances such as stoves , ovens , washing machines , dryers , and refrigerators . Industry growth is therefore largely determined by population growth and product replacement . In developing markets , in contrast , household penetration rates for major appliances are still low compared to Western standards , thereby offering growth opportunities for manufacturers . Efficiency A global presence automatically expands a company scale of operations , giving it larger revenues and a larger asset base . A larger scale can help create a competitive advantage if a company undertakes the tough actions needed to convert scale into economies of scale by ( a ) spreading fixed costs , reducing capital and operating costs , pooling purchasing power , and ( creating critical mass in a significant portion of the value chain . Whereas economies of scale primarily refer to efficiencies associated with changes , such as increasing or decreasing the scale of production , economies of scope refer to efficiencies typically associated with changes , such as increasing or decreasing the scope of marketing and distribution by entering new markets or regions or by increasing the range of products and services offered . The economic value of global scope can be substantial when serving global customers through providing coordinated services and the ability to leverage a company expanded market power . Knowledge Foreign operations can be reservoirs of knowledge . Some locally created knowledge is relevant across multiple countries , and , if leveraged effectively , can yield significant strategic to a global URL books 13

enterprise , such as ( a ) faster product and process innovation , lower cost of innovation , and ( reduced risk of competitive . For example , Fiat developed global Brazil Texas Instruments uses a collaborative process between Indian and engineers to design its most advanced chips and Gamble liquid Tide was developed as a joint effort by employees ( who had the technology to suspend dirt in water ) the Japanese subsidiary ( who had the cleaning agents ) and the Brussels operations ( who had the agents that mineral salts found in hard water ) Most companies tap only a fraction of the full potential in realizing the economic value inherent in transferring and leveraging knowledge across borders . Significant geographic , cultural , and linguistic distances often separate subsidiaries . The challenge is creating systematic and routine mechanisms that will uncover opportunities for knowledge transfer . Customer Needs and Preferences When customers start to , a firm has little choice but to follow and adapt its business model to accommodate them . Multinationals such as , GE , and DuPont increasingly insist that their raw material suppliers to advertising agencies to personnel recruitment become more global in their approach and be prepared to serve them whenever and wherever required . Individuals are no travelers insist on consistent worldwide service from airlines , hotel chains , credit card companies , television news , and others . Competition Just as the globalization of customers compels companies to consider their business model , so does the globalization of one or more major competitors . A competitor who early may have a advantage in emerging markets , greater opportunity to create economies of scale and scope , and an ability to competitive battles , thereby posing a greater threat in the home market . The global beer market provides a good example of these forces at work . Over the past decade , the beer industry has witnessed significant consolidation , and this trend continued during 2008 . On a pro forma basis , beer sales by the top 10 players now total approximately 65 of total global sales , compared to less than 40 at the start of the century . In recent major developments , the division of Scottish and Newcastle business between and was completed during the first half of 2008 , while URL books 14

acquired in November 2008 . and combined their operations in the United States and Puerto Rico on July , 2008 , to form the new brewing joint venture . Look to Asia for Growth 21 Humans first cultivated a taste for chocolate years ago , but for India and China this is a more recent phenomenon . Compared to the Swiss and Brits , both of whom devour about 24 ( 11 ) of chocolate per capita annually , Indians consume a paltry oz and the Chinese , a mere oz ( 165 and 99 , respectively ) Western chocolate makers hungry for growth markets are banking on this to change . According to market researcher International , in the past years , the value of chocolate confectionery sales in China has nearly doubled , to million , while sales in India have increased 64 , to million . That is a pittance compared to the nearly European chocolate market . But while European chocolate sales are growing a mere to annually , sales in the two Asian nations show no sign of slowing . European are already making their mark in China . The most aggressive is Swiss food giant , which has more than doubled its Chinese sales since 2001 to an estimated a relatively small amount . It is closing in on Mars , the longtime market leader , whose sales rose 40 during the same period to million . Green Tea Kisses Kit Kat bar and other chocolates are a big hit with the Chinese , helping the Swiss company swipe market share from Mars . Italy is another . It has boosted China sales nearly 79 since 2001 , to million , drawing younger consumers with its Kinder chocolate line , while targeting big spenders with the upscale Rocher brand . Indeed , its products are so popular that they have spawned Chinese knockoffs , including a made by a Chinese company that has sued for alleged counterfeiting . Despite those problems , the privately owned URL books 15

has steadily gained market share against , whose China sales have risen a modest 26 since 2001 , to million . Until now , Hershey has been a relatively small player in China . But the company has adopted ambitious expansion plans , including hooking up with a local partner to step up its distribution and introducing Hershey Kisses to appeal to Asian tastes . Attractively Packaged China growing importance , Switzerland Barry , a big chocolate producer that supplies many leading , opened a factory near Shanghai to alleviate pressure at a Singapore facility that had been operating at capacity . The company also inaugurated a nearby Chocolate Academy , just month after opening a similar facility in Mumbai , to train local and pastry chefs in using chocolate . Unlike China chocolate market , India is dominated by only two companies , which entered the country 60 years ago and has nearly 60 market share , and , which has about 32 market share . The two have prospered by luring consumers with attractively packaged chocolate to replace the traditional dried fruits and sugar offered as gifts on Indian holidays , and by offering chocolates , including candies costing less than cents . The confectionary companies have been less successful , though , at developing new products adapted to the Indian sweet tooth . In 2005 , Nestle launched a Munch bar , and introduced a dessert called Creme , based on a popular local sweet made of chopped nuts and cheese . Both sold poorly and were discontinued . and Wang ( 2008 ) 28 ( 2008 , January 17 ) URL books is

What Is a Global Corporation ?

One could argue that a global company must have a presence in all major world , the Americas , and Asia . Others may in terms of how globally a company sources , that is , how far its supply chain reaches across the world . Still other use company size , the makeup of the senior management team , or where and how it its operations as their primary criterion . and Wang suggest we corporate in terms of four dimensions a company market presence , supply base , capital base , and corporate . The globalization of market to the degree the company has globalized its market presence and customer base . Oil and car companies score high on this dimension . the world largest retailer , on the other hand , generates less than 30 of its revenues outside the United States . The second globalization of the supply at the extent to which a company sources from different locations and has located key parts of the supply chain in optimal locations around the world . Caterpillar , for example , serves customer in approximately 200 countries around the world , manufactures in 24 of them , and maintains research and development facilities in nine . The third of the capital the degree to which a company has globalized its financial structure . This deals with such issues as on what exchanges the company shares are listed , where it attracts operating capital , how it growth and acquisitions , where it pays taxes , and how it . The final of the corporate to a company ability to deal with diverse cultures . GE , and Gamble are examples of companies with an increasingly global businesses are run on a global basis , top management is increasingly international , and new ideas routinely come from all parts of the globe . In the years to come , the list of truly global that are global in all four likely to grow dramatically . Global merger and acquisition activity continues to increase as companies around the world combine forces and restructure themselves to become more globally competitive and to capitalize on opportunities in emerging world markets . We have already URL books 17

seen involving services , leisure , food and drink , media , automobile , and telecommunications companies There are good reasons to believe that the global mergers and acquisitions ( A ) movement is just in its beginning economics of globalization point to further consolidation in many industries . In Europe , for example , more deregulation and the EU move toward a single currency will encourage further A activity and corporate restructuring . and Wang ( 2008 ) URL books 18

The Persistence of Distance Metaphors such as the world is tend to suggest that distance no longer information technologies and , in particular , global communications are shrinking the world , turning it into a small and relatively homogeneous place . But when it comes to business , that assumption is not only incorrect it is dangerous . analyzes distance between countries or regions in terms of four cultural , administrative , geographic , and economic ( CAGE ) of which business in different ways . Cultural Distance A country culture shapes how people interact with each other and with organizations . Differences in religious beliefs , race , social norms , and language can quickly become barriers , that is , create The of some of these attributes is obvious . A common language , for example , makes trade much easier and therefore more likely . The impact of other attributes is much more subtle , however . Social set of unspoken principles that strongly guides everyday mostly invisible . Japanese and European consumers , for example , prefer smaller automobiles and household appliances than Americans , a social norm that highly values space . The food industry must concern itself with religious example , Hindus do not eat beef because it is expressly forbidden by their religion . Thus , cultural distance shapes preference and , ultimately , choice . Administrative or Political Distance Administrative or political distance is created by differences in governmental laws , policies , and institutions , including international relationships between countries , treaties , and membership in international organizations ( see Chapter 11 Appendix A Global Trade Doctrines and Regulation for a brief summary ) The greater the distance , the less likely it is that extensive trade relations develop . This explains the advantage that shared historical colonial ties , membership in the same regional trading bloc , and use of a common currency can confer . The integration of the European Union over the last URL books 19

century is probably the best example of deliberate efforts to reduce administrative distance among trading partners . Bad relationships can increase administrative distance , however . Although India and Pakistan share a colonial past , a land border , and linguistic ties , their mutual hostility has reduced trade to almost nothing . Countries can also create administrative and political distance through unilateral measures . Indeed , policies of individual governments pose the most common barriers to competition . In some cases , the arise in a company home country . For companies from the United States , for instance , domestic prohibitions on bribery and the prescription of health , safety , and environmental policies have a dampening effect on their international businesses . More commonly , though , it is the target country government that raises barriers to foreign competition tariffs , trade quotas , restrictions on foreign direct investment , and preferences for domestic competitors in the form of subsidies and favoritism in regulation and procurement . Geographic Distance Geographic distance is about more than simply how far away a country is in miles . Other geographic attributes include the physical size of the country , average distances to borders , access to waterways and the ocean , topography , and a country transportation and communications infrastructure . Geographic attributes most directly transportation costs and are therefore particularly relevant to businesses with low or bulk ratios , such as steel and cement . Likewise , costs for transporting fragile or perishable products become significant across large distances . Intangible goods and services are affected by geographic distance as well , as equity between two countries fall off significantly as the geographic distance between them rises . This is a direct result of differences in information infrastructure , including telephone , Internet , and banking services . Economic Distance Disposable income is the most important economic attribute that creates distance between countries . Rich countries engage in proportionately higher levels of economic activity than poorer ones . The greater the economic distance between a company home country and the host country , the greater URL books ,

the likelihood that it must make adaptations to its business model . in India , for instance , would be a very different business from in the United States . But in Canada is virtually a carbon copy of the . An exception to the distance rule is provided by industries in which competitive advantage is derived from economic arbitrage , that is , the exploitation of cost and price differentials between markets . Companies in industries whose major cost components vary widely across countries , like the garment and footwear industries , where labor costs are important , are particularly likely to target countries with different economic for investment or trade . Whether or not they expand abroad for purposes of replication or arbitrage , all companies find that major disparities in supply chains and distribution channels are barriers to business . This suggests that focusing on a limited number of may prove advantageous because of reduced operational complexity . This is evident in the business , for instance , where concentrate on a limited number of produce far better returns for investors than companies like and Whirlpool , whose geographic spread has come at the expense of simplicity and profitability . Computer Keyboards Abroad Versus Anyone who has traveled to Austria or Germany and has used computers , offices , or at the home of instantly recognize this dimension of distance their keyboards are not the same as ours . letters and symbols look like strangers , and new keys are located where they should not be . a German keyboard has a layout , that is , the and keys are reversed in comparison with the layout . Moreover , in addition to the normal letters of the English alphabet , German keyboards have the three vowels and the characters of the German alphabet . The ( key is to the right of the zero ( key . But this letter is missing on a keyboard , since the is not used in the Swiss variation of German . The ( ii ) key is located just to the right of the key . The ( and ( 21 ) keys are to the right of the key . This means , of course , that the symbols or letters that an American is used to finding where the letters are in the German version turn up somewhere else . All this is enough to bring on a major headache . URL books 21

And just where the heck is that key ?

happens to depend on it rather heavily , but on the German keyboard , not only is it NOT at the top of the key but it also seems to have vanished entirely ! This is surprising considering that the at sign even has a name in German der ( monkey ) So how do you type ?

You have to press the Alt key plus to make appear in your document or address . Ready for the ?

On most keyboards , the right Alt key , which is just to the right of the space bar and different from the regular Alt key on the left side , acts as a Compose key , making it possible to enter many characters . This applies to Mac users will need to take an advanced course . Of course , for Europeans using a North American keyboard , the problems are reversed , and they must get used to the weird English . 2001 ) URL books 22

Global Strategy and Risk Even with the best planning , globalization carries substantial risks . Many globalization strategies represent a considerable stretch of the company experience base , resources , and capabilities . The might target new markets , often in the settings . It might seek new technologies , initiate new partnerships , or adopt objectives that require earlier or greater commitments than current returns can justify . In the process , new and different forms of competition can be encountered , and it could turn out that the economics model that got the company to its current position is no longer applicable . Often , a more global posture implies exposure to different cyclical patterns , currency , and political risk . In addition , there are substantial costs associated with coordinating global operations . As a consequence , before deciding to enter a foreign country or continent , companies should carefully analyze the risks involved . In addition , companies should recognize that the management style that proved successful on a domestic scale might turn out to be ineffective in a global setting . Over the last 25 years , Western companies have expanded their activities into parts of the world that carry risks far greater than those to which they are accustomed . According to Control Risks Group , a international business consultancy , multinational corporations are now active in more than 100 countries that are rated medium to extreme in terms of risk , and hundreds of billions are invested in countries rated fairly to very corrupt . To mitigate this risk , companies must understand the specific nature of the relationship between corporate globalization and geopolitics , identify the various types of risk globalization exposes them to , and adopt strategies to enhance their resilience . Such an understanding begins with the recognition that the role of multinational corporations in the evolving landscape continues to change . The prevailing dogma of the held that enterprise and a liberal economic agenda would lead to more stable geopolitical relations . The decline of interstate warfare during this period also provided a geopolitical environment that enabled heavy consolidation across industries , resulting in the emergence of global players , that is , conglomerates with worldwide reach . The economy was paramount URL books 23

corporations were almost unconstrained by political and social considerations . The greater international presence of business and increasing geopolitical complexity also heightened the exposure of companies to and violence , however . As they became larger , they became more obvious targets for attack and increasingly vulnerable because their strategies were based on the assumption of fundamentally stable geopolitical relations . In recent years , the term global player has acquired a new meaning , however . Previously a reference exclusively to an economic role , the term now describes a company that has , however unwillingly , become a political actor as well . And , as a consequence , to remain a global player today , a firm must be able to survive not only economic but also geopolitical shocks . This requires understanding that risk has become an endemic reality of the globalization is , no longer simply the result of in one country or another but something inherent in the globalized system itself . Globalization risk can be of a political , legal , or sociocultural nature . Political risk relates to politically induced actions and policies initiated by a foreign government . Crises such as the September 11 , 2001 , terrorist attacks in the United States , the ongoing in Iraq and Pakistan , instability in the Korean peninsula , and the recent global crisis have made geopolitical uncertainty a key component of formulating a global strategy . The effect of these events and the associated political decisions on energy , transportation , tourism , insurance , and other sectors demonstrates the massive consequences that crises , wars , and economic meltdowns , wherever and however they may take place , can have on business . Political risk assessment involves an evaluation of the stability of a country current government and of its relationships with other countries . A high level of risk affects ownership of physical assets and intellectual property and security of personnel , increasing the potential for trouble . Analysts frequently divide political risk into two global and risk . Global risk affects all of a company multinational operations , whereas risk relates to investments in a specific foreign country . We can distinguish between macro and micro political risk . Macro risk is concerned with how foreign investment in general in a particular country is URL books 24

affected . By reviewing the government past use of soft policy instruments , such as , indirect control of prices , or strikes in particular industries , and hard policy tools , such as expropriation , nationalization , or compulsory local , a company can be better prepared for potential future government action . At the micro level , risk analysis is focused on a particular company or group of companies . A weak balance sheet , questionable accounting practices , or a regular breach of contracts should give rise to concerns . Legal risk is risk that multinational companies encounter in the legal arena in a particular country . Legal risk is often closely tied to political country risk . An assessment of legal risk requires analyzing the foundations of a country legal system and determining whether the laws are properly enforced . Legal risk analysis therefore involves becoming familiar with a country enforcement agencies and their scope of operation . As many companies have learned , numerous countries have written laws protecting a multinational rights , but these laws are rarely enforced . Entering such countries can expose a company to a host of risks , including the loss of intellectual property , technology , and trademarks . Financial or economic risk in a foreign country is analogous to operating and risk at home . The volatility of a country performance and the country ability to meet its obligations directly affect performance . A nation currency competitiveness and are important indicators of a country and its willingness to embrace changes and innovations . In addition , financial risk assessment should consider such factors as how well the economy is being managed , the level of the country economic development , working conditions , infrastructure , technological innovation , and the availability of natural and human resources . Societal or cultural risk is associated with operating in a different sociocultural environment . For example , it might be advisable to analyze specific ideologies the relative importance of ethnic , religious , and nationalistic movements and the country ability to cope with changes that will , sooner or later , be induced by foreign investment . Thus , elements such as the standard of living , URL books

patriotism , religious factors , or the presence of charismatic leaders can play a huge role in the evaluation of these risks . This section draws on and ( 2004 ) URL books 26 Points to Remember . Although we often speak of global markets and a world , in reality , the world competitive structure is best described as . Bilateral and regional trade and investment patterns continue to dominate global ones . The center of gravity of global competition is shifting to the East , with China and India taking center stage . Russia and Brazil , the other two countries , are not far behind . Global competition is rapidly becoming a street , with new competitors from developing countries taking on traditional companies from developed nations everywhere in every industry . Companies have several major reasons to consider going global to pursue growth , efficiency , and knowledge to better meet customer needs and to preempt or counter competition . Global companies are those that have a global market presence , infrastructure , capital base , and corporate . Although we live in a global world , distance still very much matters , and companies must explicitly and thoroughly account for it when they make decisions about global expansion . Distance between countries or regions is usefully analyzed in terms of four dimensions cultural , administrative , geographic , and economic , each of which business in different ways . Even with the best planning , globalization carries substantial risks . Globalization risks can be of apolitical , legal , or sociocultural nature . URL books , 27