2 Global Business Environment MKG 305 ChapterII BY

2 Global Business Environment (MKG 305) Chapter-II BY: Dr Fayaz Ahmad Lone 1

Business Environments are divided into two primary Categories External & Internal 2

Business Environments General External Competitive Environments Resources Internal Leadership 3

The external environment encompasses all issues, occurrences, trends, etc. that are peripheral to the corporation and beyond the control of the BUSINESS ORGANIZATION. The internal environment relates to all aspects within the confines of the organization and generally are within the control of the business organization. Both environments exert significant influence over the formation of a company's strategy and its degree of success. 4

Cross-Cultural Business Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 5

Chapter Objectives • Describe culture and explain the significance of national culture and subcultures • Identify the components of culture and describe their impact on international business • Describe cultural change and explain how companies and culture affect each other • Explain how the physical environment and technology influence culture • Describe two frameworks used to classify cultures and explain their practical use 2 -6

What is Culture? Set of values, beliefs, rules, and institutions held by a specific group of people Ethnocentricity Cultural literacy Belief that one’s own ethnic group or culture is superior to that of others Detailed knowledge of a culture that enables a person to function effectively within it X √ 2 -7

Culture Matters: Creating a Global Mindset Cultural Adaptability Bridging the Gap Building Global Mentality Flexibility Is Key 2 -8

National Culture Nation states build museums and monuments to preserve the legacies of important events and people Filmmaking and Broadcasting 2 -9

Subculture People who share a unique way of life within a larger culture (language, race, lifestyle, attitudes, etc. ) EXAMPLES Arabs Globally Goth, Punk, Emo China’s Dialects Groups in U. S. 2 - 10

Discussion Question Why should business people try to avoid ethnocentricity and develop cultural literacy? 2 - 11

Answer to Discussion Question Ethnocentricity distorts one’s views of other cultures and causes them to overlook important human and environmental differences among cultures. Cultural literacy improves the ability of managers to manage employees, develop and market products, and conduct negotiations in local markets. 2 - 12

Components of Culture Physical environments Education Aesthetics Culture Personal communication Values & attitudes Manners & customs Social structure Religion 2 - 13

Manners and Customs Manners Customs Appropriate behavior, speech, and dressing in general Traditional ways or behavior in specific circumstances 2 - 14

Customs Folk Assalam u alikum Gift Giving 2 - 15

Discussion Question Customs differ from _______ in that they define appropriate ways or behaviors in specific situations. a. Values b. Attitudes c. Manners 2 - 16

Answer to Discussion Question Customs differ from _______ in that they define appropriate ways or behaviors in specific situations. a. Values b. Attitudes c. Manners 2 - 17

Social Structure Social group Two or more people who identify and interact with each other Social stratification Process of ranking people into social layers Social mobility Ease of moving up or down a culture's "social ladder" 2 - 18

World Religions Christianity Islam Hinduism Origin of Human Values Buddhism Confucianism Judaism Shinto 2 - 19

Economic Systems v. Central Planned Economy v. Mixed Economy v. Market Economy

What is central Planned Economy? Centrally planned economies assume that the market does not work in the best interest of the people, and that in order for social and national objectives to be met a central authority needs to make decisions.

What is Mixed Economy? q. The economic system in which both public and private sectors co-exist is known as Mixed Economy. q Some factors of production are privately owned and some are owned by Government. There exists freedom of choice of occupation and consumption. Both private and public sectors play key roles in the development of the country.

Market Economy A market economy (also called free enterprise economy) is a type of economic system where supply and demand regulate the economy, rather than government intervention. Most economic decisions are made by buyers and sellers, not the government, so there is limited Government intervention.

Political Systems q. Democracies q. Theocracy q. Socialism qcommunism

Democracies q Democracy is a form of government in which all eligible citizens participate equally—either directly or through elected representatives—in the proposal, development, and creation of laws. q In international business, we study it so that to know the political system of the country for doing trade.

What is Theocracy q. A system of Government, where commandments of creator are accepted. q. An Islamic state is a state that has adopted Islam, specifically Sharia, as its foundations for political institutions, or laws, exclusively, and has implemented the Islamic ruling system khilafah (Arabic: )ﺧﻼﻓﺔ , and is therefore a theocracy.

What is Socialism q. Under socialism economic system, all the economic activities of the country are controlled and regulated by the Government in the interest of the public. q. An economic theory or system in which the means of production, distribution, and exchange are owned by the community collectively, usually through the state. It is characterized by production for use rather than profit.

What is Communism A system of social organization in which all property is owned by the community and each person contributes and receives according to their ability and needs. It is also called Marxism.

The best system is Islamic System 29

Political Risk Political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.

Globalization is the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology, and capital. 31

Globalization Involves Us All We experience international transactions daily Imports and exports reach even remote areas Technology and e-business promote trade Consumers and companies pull markets closer Chapter 1 - 32

International Business Chapter 1 - 33

Globalization Trend toward greater economic, cultural, political and technological interdependence among national institutions and economies Globalization of markets Globalization of production Convergence in buyer preferences in markets around the world Dispersal of production activities worldwide to minimize costs or maximize quality Chapter 1 - 34

Benefits of Globalization of markets Globalization of production • Reduces marketing costs • Access lower-cost labor • New market opportunities • Access technical expertise • Levels income stream • Access production inputs Chapter 1 - 35

Challenges to Business Physical security Digital security Reputational risk Examine company vulnerability and create a disaster recovery plan Guard proprietary information and confidential communications Require ethical and lawful behavior from all employees and business partners Chapter 1 - 36

Globalization Drivers I Remove barriers to trade and investment GATT (General Agreement on Tarrifs and Trade) WTO (World Trade Organization) Regional trade agreements Chapter 1 - 37

Globalization Drivers II Technological Innovation Email and video conferencing Better coordination and control Internet, intranets, and extranets Transportation advancements Improved communications and management More efficient, dependable shipping Chapter 1 - 38

Globalization Then and Now Highly mobile labor market Fear of jobs moving abroad Free-flowing capital and trade Backlash among the disaffected Chapter 1 - 39

Impact of Globalization on Jobs and Wages Opponents Supporters ê Eliminates jobs in developed nations é Increases wealth and efficiency everywhere ê Lowers wages in developed nations é Generates labor market flexibility in developed countries ê Exploits workers in developing nations é Advances economies of developing nations Chapter 1 - 40

Impact of Globalization on Labor and Environmental Regulations Opponents – Globalization lowers labor standards – Weakens protection of the environment – Exploits workers in poor nations Supporters + Investment raises labor standards + Open economies most environment friendly + Companies concerned about the environmental Laws Chapter 1 - 41