ENVIRONMENT
Priyanka Jayashankar
The general environment
Broad environmental forces impact firms:
- Change in the growth trajectory of counties
- Change in demographics: ageing population
Unexpected events (black swans):
Collapse of financial institutions leading to the Great Recession
- Impact of SARS epidemic on tourism in South-East Asia
- Disruptive forms of technological innovation: music file swapping -
Elements of country risk Political risk:
i) Operating risk: Government’s interference in the firm’s operations/ strikes/wars ii) Transfer risk: Government interferes with a firm’s ability to shift funds into and out of the country
Economic risk:
i) economic cycles: booms and downturns ii ) exchange rate fluctuations iii) Changes in foreign direct investment policies
Legal risk:
i) Enactment of laws with respect to foreign investment/joint ventures ii) Infringement of intellectual property rights and patents
Examples of political risk
Example of political risk - case of Venezuela:
http://www.youtube.com/watch?v=02YfNO1tp
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OECD’s country risk classification: http://www.oecd.org/tad/xcred/cre-crc-currentenglish.pdf Investors’ growing concerns following political instability in Egypt
Examples of economic risk
East Asian Crisis of 1997
The ongoing Euro crisis in the EU: rising
national debt
http://www.youtube.com/watch?v=pOizZ9nH
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Managing risk in a volatile environment: case of Myanmar
Under a military regime for almost half a
century
Political reforms implemented since 2011
Current government reaching out to foreign
investors
Poor infrastructure and corruption
http://www.youtube.com/watch?v=Cpk7xPrA9 vE If your company is planning to invest in
Myanmar, what in your view would be the biggest risks?
What are the advantages of investing in a
country like Myanmar, which is undergoing reforms? Breaking down the general environment into: P – Political/Legal Environment
E – Economic Environment
S – Socio-cultural Environment
T – Technological Environment
I - International Environmental
Political/legal environment
Policies of local, state and federal
governments
Impact of Healthcare Act of 2010 on businesses
Policies impacting trade
Role of judicial system
Case of Delaware
Antitrust legal battles in the software industry
Economic environment
Impact of exchange rates on imports and
exports
Corporate tax regimes
Economic cycles: booms and recessions
Socio-cultural conditions
Companies need to adapt themselves to societal
norms and values
Change in lifestyle trends:
- McDonalds offering healthier menus in the US
Multinationals adapting to cultures of host countries: - Case of Disneyland in Paris and Hong Kong
Technological environment
Methods for converting resources into
products and services
From assembly line manufacturing to 3D printing Impact of e-business
International environment
Lower trade barriers
Surge of emerging markets
Production processes becoming globalised
Global economy becoming more knowledge-
intensive
Example of McDonalds
Group exercise
Form groups consisting of 5-6 members each