Topic 6 question 1
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ECLIPTER1.pptxOverview of the ECLIPTER Concept
Stephen Guisinger
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Dr. Stephen Guisinger Captain, HMS ECLIPTER
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ECLIPTER
E conography
C ulture
L egal system
I ncome profile
P olitical risk
T ax regime
E xchange rate
R estrictions
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ECLIPTER
Systematic definition of the elements of the international business environment (IBE), assisting managers in the performance of the three essential functions of international business:
1. Selecting appropriate international locations
2. Choosing the best mode of entry into those locations
3. Guiding adaptations of business processes to the local business environment
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Theoretical Underpinnings
See Stephen Guisinger, “ From OLI to OLMA: Incorporating Higher Levels of Environmental and Structural Complexity into the Eclectic Paradigm,”
International Journal of the Economics of Business, Special Issue: “The Eclectic Paradigm in the Global Economy,” Edited by John Cantwell and Rajneesh Narula, 2001
(also available from my web page)
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How Does ECLIPTER Help?
Highlights the uniquely international aspects of any management issue
Serves as checklist for insuring that all environmental aspects get covered.
Useful organizing framework for thinking about international aspects of business
Provides quantitative way of thinking about firm’s international business environment
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International Business Needs its Own Organizing Mnemonic Device
Strategy: SWOT Analysis
strengths, weaknesses, opportunities, threats
Marketing: 4 P’s
price, promotion, product, place
Finance: CAPM
capital asset pricing model
Why not ECLIPTER !?
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Brief Overview of ECLIPTER
Detailed exploration of each ECLIPTER element provided in other audio/slide sets
Purpose of this review is to emphasize relation each element has to the overall concept of the international business environment and to each other
ECLIPTER is just one representation of the international business environment
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Econography
Econography is a neologism (fancy term is “portmanteau” word) that refers to physical and infrastructural characteristics of nations that affect firm performance. Includes:
Climate
Demography: population size; labor skills
Distance from major markets
Natural resources
Infrastructure
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Consequences of Econography
Country A
large population
near major markets
temperate climate
rich in minerals
Country B
small population
land-locked
tropical climate
lacks minerals
Without knowing anything else about these two countries,
which is likely to have the higher per capita income
and faster growth in GNP?
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Culture
Culture describes the complex set of social characteristics that distinguishes one group of people from another.
Values
Attitudes
Beliefs
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Consequences of Culture
People in Country X
oriented toward future
believe in hard work
committed to community
People in Country Y
oriented to present
fatalistic
committed only to self
Without knowing anything else about these two countries,
Which is likely to have the faster pace of economic development?
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Legal System
Legal System describes the laws that govern a society.
Common law
Civil law
Islamic law
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Consequences of Legal System
Country S
Legal system protects
private property
against state controls
Country T
Legal system maintains primacy of state control over private property
Without knowing anything else about these two countries,
which is most likely to have the higher per capita income
and be growing at a faster rate?
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Income Profile
Income Profile describes various indices of production capabilities and consumption possibilities of a society
Per capita income
Growth in GNP
Distribution of income across groups and regions
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Consequences of Income Profiles
Country K
High per capita income
Rapid growth in GDP
Large and rapidly expanding middle class
Country L
Low per capita income
Slow growth in GDP
Small and slowly growing middle class
Which of these two countries is likely to rank higher on the list of prospective destinations for multinational firm investment?
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Political Risk
Political Risk describes the stability of government institutions. It can be measured in a variety of ways, including:
Likelihood of foreign aggression
Likelihood of civil insurrection
Bureaucratic instability
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Consequences of Political Risk
Country P
Democratic change in political regimes
No civil unrest
No wars or ambitious neighbors
Country Q
Violent, unpredictable changes in regime
Authoritarian rule
Has waged war with neighboring countries
Which country is likely to be a preferred destination for large investments by multinational firms?
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Tax Regime
Tax Regime refers to the tax instruments (except border taxes such as import tariffs and export duties) that governments use to raise revenues from multinational firms. Attributes of Tax Regime include: Corporate taxes including tax incentives Withholding taxes on remittances Tax treaties
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Consequences of Tax Regime
Country M
Has corporate tax rate comparable to similar countries
Has low, uniform withholding taxes on income remittances
Country N
Has corporate tax rate much higher than that of similar countries
Withholding tax rates vary substantially for no reason
Which country has the better image with investors?
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Exchange Rate
An exchange rate is the value of the local currency expressed in terms of a foreign currency. Firms with international exposures must adopt policies to avoid or reduce risk arising from movements in exchange rates. Overvaluation/Undervaluation Unpredicted movements
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Consequences of Exchange Rates
Country D
Historically stable exchange rate
domestic price stability
Sound monetary policies
Country E
Historically unstable exchange rate
Domestic inflation
Monetary policy unpredictable
In which country’s currency are multinational firms likely to find it easier and less expensive to protect their foreign exchange positions?
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Restrictions
Restrictions refer to the tariffs, quotas and other limitations that host governments place on products, services and capital as they pass over the border. These include:
Import duties
Export taxes
Quotas
Bans on foreign investment in certain industries
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Consequences of Restrictions
Country G
Has uniform, low tariffs
No quotas or other non-tariff barriers
Country H
Has high import duties, subject to sudden change
Quotas and other direct measures administered randomly, reducing the transparency of the system
Which country appears more attractive to the foreign investor?
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Knowledge Required to Measure ECLIPTER Dimensions
Econography
Culture
Legal system
Income profile
Political risk
Tax regime
Exchange rate
Restrictions
Economics, Geography
Sociology, Anthropology
Law, History
Development Economics
Political Science
Economics, Accounting
Finance
Economics
Discipline
Element
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Example: ECLIPTER Concept Applied to Expatriate Compensation
Adaptation Required
Element
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E conography
premium for unhealthy locations
C ulture
different cultures, different compensation systems?
L egal system
need to alter company policies to comply?
I ncome profile
pay expatriates at home or host levels?
P olitical risk
premium for risky assignments?
T ax regime
requires firms to adjust package or level?
E xchange rate
adjusted for exchange rates?
R estrictions
local laws discriminate against multinationals?
E
conography
premium for unhealthy
locations
C
ulture
different cultures, different
compensation systems?
L
egal system
need to alter company policies
to comply?
I
ncome profile
pay expatriates at home or host
levels?
P
olitical risk
premium for risky assignments?
T
ax regime
requires firms to adjust package
or level?
E
xchange rate
adjusted for exchange rates?
R
estrictions
local laws discriminate against
multinationals?
