INTERNATIONAL BUSINESS ENVIRONMENT

PRESENTED BY: VAISHALI SHARMA

LECTURER MBA-IB

The fundamental basis for strategy formulation is the environmental analysis.

Environment provides the opportunities to the business to produce & sell a particular product. For Ex: the present scenario the business environment provides the wide opportunity for Internet,touch screen mobile etc

ENVIRONMENT

Environment means surroundings.IBE means the factors/activities those surround / encircle the international business. In other words , business environment means the factors that affect or influence that MNC’s.

INTERNATIONAL BUSINESS ENVIRONMENT

International Management

The focus of IB is on international transactions , whereas IBM deals with managing such transactions within the boundary set by corporate strategy

When a company decides to enter a foreign market that decision incorporates planning to establish the ways by which business functions – Marketing, Accounting, HRM & so on are to be managed in that distinct location.

Managing the various functions & coordinating them with the parent company’s overall strategy is the task of IBM

IB vs International Management

International Business Enviornment

Internal environment factors influence /affect the business from within. They include:

Production management.

Management/leadership style.

Human resource Management

Trade Unions

Organization structure

Financial management

Marketing management

Internal Environment

External Environment

Competitors

Customers

Market intermediaries

Suppliers of raw materials

Bankers & other suppliers of Finance

Shareholders

Stakeholders of the business firm.

Micro External enviornment

Social & Cultural factors

Technological factors

Economic factors

Political factors

Governmental factors

International factors

Natural factors

Macro External Enviornment

Factors that affect IB includes:

Social & Cultural factors (S)

Technological factors (T)

Economical Factors (E)

Political & Governmental factors (P)

International factors & Natural factors (N)

STEPIN

Culture is a thought and behavior patterns that member of a society learns through language and other forms of symbolic interaction.

Acquired knowledge that people use to interpret experience & generate social behavior. This knowledge forms values, creates attitudes & influence behavior.

Social & Culture

Elements of Culture

languageValues & Attitudes

AestheticsSocial

Structure

Customs & Manners

ReligionEducation

Verbal-written

-oral

Non-Verbal-Punctuality

Physical DistanceKinesics

Time Orientation-Relating with others-Attitudes & Posture

-Gifts-Usage of Products

-Attitudes towards entrepreneurship

-Holidays-Gifting

-Role of women-Products & Services-Marketing Practices

Consumption of Alcoholic drinks is acceptable in the society. It alcoholic drinks is acceptable in the West however, it is not socially acceptable in India & it’s socially & legally unacceptable in Saudi Arabia.

Life time employment policy in most of the companies in Japan.

Masala Dosa & Hyderabadi Briyani have become popular in Europe & the USA whereas Pizzas have become popular in India.

Example

Disney with its success in park business & entertaining children in USA entered Japan in 1983 & became successful there too. Disney decided to enter Paris & France market too in 1986 owing to vocational advantage of Paris &availability of subsidies & incentives by French Govt. Disney had problems of negotiations with France Govt & also unwillingness of French people to accept Disney. despite these problems, Disney opened the park in 1992.Soon after the opening , French farmers drove their tractors & blocked the entrance. Later, there were a no. of operational deviations like Disney’s policy of serving

Disney In France

Later, there were a no. of operational deviations like :

Disney’s policy of serving NO Alcohol

Serving less quantity of breakfast

Lunch timings

Non-sutability of teamwork for the employees of Disneyland Paris.

It result in the loss of $2 billion by the end of 1994

It consists of religious aspects

Language

Customs

Traditions

Beliefs

Tastes & Preference

Social institutes

Living habits

Eating habits

Dressing habits etc

Social Environment

One-up-on-a-time’s illusion is getting into reality because of technology.

Technological changes enabled IB to take the shape transnational business through the concept of Global business. IB gained significance due to the amazing advancements of technology.

Technology is the application of knowledge.

Technological Enviornment

Technology makes more technology.

It is self reinforcing.

It brings the globe closer.

It flows from the advanced countries to the developing countries through the MNC’s , JVs , technological alliances, licensing & franchising.

Technology feed for itself

Major investor on Technology in Asia-Pacific regions in 2003

COUNTRIES % of Spending on Tech. to total investment

Australia 15

China 12

Japan 14

New-Zealand 13

Singapore 6

India 11

Advanced countries spends considerable amount on R&D for further advancement of technology.

Investment I Technology

COUNTRY SPENDING % R&D BUDGET ON PRODUCT INNOVATION

SPENDING % R&D BUDGET ON PROCESSINNOVATION

GERMANY 50% 50%

JAPAN 30% 70%

USA 70% 30%

Technology is one of the significant factors which determines the level of economic development of a country.

The difference between the nations is mostly reflected by the level of technology.

India had vast natural resources , it remained as a major importing country due to its low level technology before 1991.Japan with its high level of tech. could export finished goods to India by importing the raw material from India itself. Thus though Japan is endowed with poor natural resources , the Japanese became reach & advanced due to technology.

Technology and Economic Development

Nations develop economically when they translate science into useful technology & in turn create wealth from innovations. Innovations is the useful adaption of science or knowledge including inventions of new products or processes.

Technology & international Competition

JAPAN Process innovation In automobiles , steel, telecommunications and microelectronics

GERMANY Innovations in chemicals, pharmaceuticals, automotive engineering , medical instruments & machine tools

ITLAY Innovations in textiles & leathers

The economic environment of various countries mostly & directly influences international business.

Totality of economic factors, such as

Employment

Income

Inflation

Interest rates

Productivity

Wealth

That influence the buying behavior of consumers and firms.

Economic Environment

Inflation and deflation: Inflationary and deflationary pressures alter the purchasing power of money. This has a direct impact on consumer spending, business investment, employment rates, government programs and tax policies.

Interest rates: Interest rates determine the cost of borrowing and the flow of money towards businesses.

Exchange rates: This impacts the price of imports, the profits made by exporters and investors and employment levels (also through the impact on the tourism industry).

Monetary and fiscal policy: This helps in attaining full employment, price stability and economic growth.

The economic environment is also influenced by various political, social and technological factors. These include a change in government and the development of new technology and business tools.

Factors Affecting the Economic Environment

Political /Government Environment It influences the way a firm conducts its business,

domestically & internationally. It differs with each country. The IB manager should be aware of the political environment of the Host & Home country.

Political systemInternational

political relations

Relations between the

government and the business

Political stability

Political system

By political system we mean the type of Govt. in the country.

Two ideologically opposing forms of government are

TotalitarianismDemocracy

DemocracyDemocracy Totalitarianism

It is a system of Government in which people , directly or indirectly through elected representatives , take part in decision making.

Right to freedom of expression , opinion & organization ,fair judiciary system

It is a system of government by an individual or a political party with no participation in the decision making by the citizens.

All the constitutional rights to the citizens under democracy i.e freedom of expression & regular elections are denied to them

Types of Totalitarianism

Communism

Theocratic

Tribal Secular

Communism

CHINA , LAOS, NORTH KOREA , CUBA & VIETNAM

Govt. owns all property & makes decisions regarding production & distribution of goods & services. It aims at equal distribution of wealth.

THEOCRATIC

IRAN & SAUDI ARABIA

It is rule of a religious leader , party or group.

TRIBAL

AFRICA

A political party that represents the interest of a particular tribe rules the country. That tribe need not be the majority tribe in the country.

SECULAR

IRAQ

The military controls the government and makes decisions

International political relations

The political relations between two countries also determines the nature & extent of trade between the countries .

Relations between the government and the business

For the Host country government , permitting foreign firm to have business with the country or establishing operations in the country may be a means of achieving its objectives like increasing investments.

The major risk in political environment is political instability.

The policies framed by a Govt may be set aside by a subsequent government.

Political stability

Demographic factors of the market in which a firm operates, and which are used to segment the target population for effective marketing.

Statistical socio-economic characteristic or variables of a population, such as age, Gender, education level, income level, marital status, occupation, religion, birth rate, death rate, average size of a family, average age at marriage. A census is a collection of the demographic factors associated with every member of a population.

Demographic environment

Demographic FactorsAGE STRUCTURE

NATIONALITYRELIGION

OCCUPATION EDUCATION

SOCIAL CLASS

INCOME DISTRIBUTION

GENDER

FAMILY SIZE

AGE STRUCTURE

Categorization of the population of communities or countries by age groups.

Gender comprises a range of differences between men and women.

GENDER

In economics, income distribution is how a nation’s total economy is distributed amongst its population.

INCOME DISTRIBUTION

FAMILY SIZE

Nuclear

Joint

Status hierarchy in which individuals and groups are classified on the basis of esteem and prestige acquired mainly through economic success and accumulation of wealth. Four common social classes (in their descending order) are:

Upper class

Middle class

Working class

Lower class.

SOCIAL CLASS

NATIONALITY

Geographic

Natural resources

Physical Factors/Enviornment