Accurate information about the external environment is exceedingly difficult to acquire. 'Whereas in internal information-creation processes data sources can be precisely defined, in external information-acquisition processes data sources have to be taken as they are. The lack of uniformity in definitions and measurements makes the trustworthiness of any data that are collected questionable. In some cases it may be difficult to acquire any data at all, particularly in a timely fashion.
In light of the variability in the reliability of the information coming into the EXGLOBIS, it is crucial that managers have a technique for assessing this information. THE ENVIRONMENT recommended environmental scanning and introduced the ENSCAN computer package. In a nutshell, the purpose of environmental scanning is to allow the manager to identify and evaluate emerging issues in the external environment that might affect the MNC. The environmental scanning process is summarized in section I of Figure 16.5. (See also POTENTIAL IMPACT OF DATA FLOW LEGISLATION) The ultimate result of this process is the creation of a set of scenarios that make potential future events a bit more concrete and thus more manageable.
Environmental scanning provides an initial broad picture of the environment. The next step is to make a more detailed assessment of the major issues identified through environmental scanning. Two traditional approaches used by academicians are shown in section II of Figure 16.5: application of the political economy model and use of external commercial sources.
The political economy approach focuses on the risk that arises out of structural (supply-side) elements, demand-side and monetary elements, and external economic and political developments, as well as on the quality of the national economic management team and the political constraints bearing upon decision makers. Incorporated in the analysis are mathematical equations, such as
Y+M=A+X
representing real flows of goods and services in an economy, where Y is output, M is imports, A is domestic absorption (consumption, investment, and public sector spending), and X is exports, all in real terms.
To bring the money side into the picture explicitly, an equally simple equation can be used to describe international financial flows:
VX -VM -DS + FDI + U -Ko = DR -NBR
where VX and VM are the money value of exports and imports, respectively; DS is debt-service payments to foreigners (usually part of VM in conventional balance-of-payments accounting); FDI is net flows of nonresident foreign direct investments; U is net flows of private and public-sector grants such as foreign aid; Ko is net capital flows undertaken by residents; DR is the change in international reserves; and NBR is the net borrowing requirement. 1 An overall negative balance on the left-hand side of the equation clearly means that the country will have to increase its foreign borrowing or use up some of its international reserves.
The various commercial sources providing risk analysis services each have their own system. Some of the best-known are the following: 2
(1) The Business Environmental Risk Index (BERI)
(2) The Business International (BI) system
(3) Nikkei's Business Index (NBI)
(4) The Political System Stability Index (PSSI)
(5) World Political Risk Forecasts (WPRF) (the Prince model)
(6) The Gladwin-Walter model
(7) The Frost and Sullivan model
- 883 reads
