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Chapter 2

GMS 520 Chapter Notes - Chapter 2: Mexican Peso, Retail, Intranet

Global Management Studies
Course Code
GMS 520
Glenn Asano

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PEST Analysis: Pg 21 - 33
In Class Worksheet: SWOT Analysis: Method of Competitive Analysis
-Evaluated strengths, weaknesses, opportunities and threats of a venture or business idea.
-Evaluates a firms capabilities in relationship to others, identifies sources of comparative advantage and a
firms distinctive competencies.
-After making the decision to enter foreign markets, managers will often draw up a competitive position
matrix for each potential location.
-Best performed by varied stakeholders.
Proactive, global oriented firms agree that Political, Economic, Social and Technological sustainability are
a central issues.
Firms have no control over this ex. environment, but use outside consultants and internal staff to assess
risks. Line managers = most imp.
Strategic PEST profiles are created to assess risks in countries in which they have (or will have)
Political Risks - governmental action or politically motivated event that could negatively affect the firm's long-
run profitability or value
Middle East, China nationalizing in Sept. 2011. Affects transfers and exchanges of global corporations.
Nationalization: Not primary political risk? Forced sale of a MNC’s assets to local buyers. Nationalist
impulses in unstable areas were common after 2008 downturn.
Expropriation: local government seizes a MNC’s assets without adequate compensation. Common in
countries with frequent upheaval and violence. Huge Chavez took state control of Mexican cement plants
in Venezuela.
Confiscation: no compensation given for seized assets.
Terrorism: Macro-political risk event, which affects all foreign firms in the country. Severe and random.
Managed by contributing to local charities, assembling counterterrorism teams, and maintaining low
corporate profiles. Iraq’s invasion of Kuwait in the 90 halted all business.
Creeping expropriation: Micro-political risk event, which effects only one industry or country. Gradual and
subtle action by government against foreign firms, delaying licensing, etc.
Other examples: barriers to repatriation of funds, profits or equity, loss of technology or IP, dishonesty by
local governments, restrictions and unfair regulation.
Strategies to manage risk: Initiating joint-ventures with nationals, participative management with nationals,
labour organizations or government, localization (modifying firms name, etc.) to suit local tasks. Also
dependency (known as “position control”) ensure subsidiary and host nation are dependent on the firm)
and hedging (insurance and debt financing, not a form of adaptation). Equity sharing is not dependency.
Economic Risks - A country’s level of economic development generally determines its economic stability.
But the interdependence of financial institutions has increased risk/threat of recession. Two main risks to
foreign firms are (1) that the government will abruptly change its fiscal policies or (2) its foreign investment
policies, making it difficult for a firm to repatriate its earnings.
Economic environment: current and potential capacity to produce goods and services and to allocate
resources among individuals, firms and governments.
Ex. stage of economic development, population, employment, income, infrastructure, inflation, interest.
High inflation is caused by low value of domestic currency and high IRs
3 groups of economic development
1) Industrialized, advanced or developed. Private enterprises, consumer oriented.
2) Developing. Agri/manufacturing transition, rising per capita income, possesses long-term
potential for growth, markets aren’t saturated. Brazil, Russia, India, China
3) Less developed. Low literacy, high birth rates, low technology, reliant on foreign aid. Africa.
Emerging markets: developing countries that show signs of economic reform or growth. (BRIC).
1) Per capita income is 10-70% of PCI in EU
2) Strong growth over 10 years
3) Undertaken institutional transformation to open economy and integrate internationally
N-11 are the next projected wave of emergent markets: Bangladesh, Egypt, Iran, Nigeria, Pakistan,
Philippines, Vietnam (Indonesia, Mexico, Turkey and SK are most promising “MIST” subset)
Purchasing Power Parody: economic theory that the price of goods should be the same across all
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