Chapter 3 International Business Environment International Business Environment

Chapter 3 International Business Environment

International Business Environment n n Environment- everything around us. Business environment: Sum total of all the forces surrounding & influencing the life and development of the firm. Internal Environment Strengths Weakness of the Org. Business Decision External Environment Business Opportunity Threats to Business 2

International Business Environment n n Business Dynamics to a large extent depends on the environmental dynamics. Environmental understanding becomes more important in the area of international business in which the environmental forces of the home country interact with the foreign environment. 3

Environmental Characteristics n n n Factors and Forces are external to the firm. Essentially uncontrollable. Environmental factors are dynamic-they continuously change over time. NEED ? Anticipate, respond adapt to the complexity and rapid pace of various environmental forces changes globally. Being international environmental factors are given, the firms should adapt its business strategy to suit 4 the environmental factors.

Components of International Business Environment Foreign Environment Domestic Environment Micro Environment Internal Environment 5

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Global Environment ( Uncontrollables) gre e me nt International Economic Environment en t iro nm nv om ic ca l. E co n Ec l Forces a g e L d an Political olo gi l. E na gio Re Competitive Structure T al ion s at nt rn e te em In gre A Le ga iro de ra l. E nv (Controllable) International Business Decision Domestic Environment ( Uncontrollables) - Production Competitive - Finance Structure - Human Resource - Marketing vir ( Uncontrollable) En Gr ou ps Domestic Environment Ec an d. A Geographic Environment s on uti stit l In cia an Fin al l on cia ati S o c an ial-Cult ern stem ural Int Fin y E n d vironm d. S ent an an ic t om en on nm o Economic Climate Foreign Environment ( Uncontrollable) nm en ion at niz ga Or t Political Environment d an 7

Internal Environment Represent firm’s business strategy and decision with regard to-n Production n Finance n Marketing n Human Resources n Research Activities Firm can change them, but within the constraints of various environmental factors. 8

Microenvironment Actors in the firm’s immediate environment which directly influence the firm’s decisions and operations. They are: n Potential of New Entrants n Competition n Power of Customers n Power of Suppliers n Potential of Substitute Products/Services Are Semi-Controllable. 9

Macro Environment or Domestic environment Competitive Structure Economic climate Political & Legal forces Uncontrollable IMPACT ? 10

Macro Environment Political & Legal forces Economic Conditions Social-Cultural Environment Technological Environment Ecological Environment Geographic 11

Non-Economic Environment Political Socio-Cultural Ecological Legal Geographic 12

Political Form of Government Political Party System Political Ideology Role of Government Political Stability 13

Socio-Cultural Language Aesthetics Attitude & values Education Religions & Superstition Social groups & Organizations 14

Macro Environment- Indicators Economic Technological Political-legal Socio-cultural -GDP trends -Interest rate -Money supply -Inflation rate -Unemployment -Wages/prices -Energy availability/cost -Disposable income -Total government spending for R&D -Total industry spending for R&D -Focus technological efforts -New products -New development in technology -Productivity through automation -Monopoly regulation -Environmental protection laws -Tax law -Special incentives -Attitudes toward foreign company -Laws on hiring and promotion -Stability of government -Lifestyle change -Career expectation -Regional shifts in population -Consumer behavior -Rate of family formation -Growth rate of population -Age distribution of population -Life expectancy -Birth rate 15

Economic Forces § § § Availability of credit Interest rate Inflation rate GDP trends Consumption patterns Unemployment level Wage and price control Demand shift for goods/services Imports/Export factors Income difference by region/customer Monetary policies Fiscal policy 16

Technological Forces -Profound impact on organizations § § Computer Tele communications Internet e. Commerce 17

Technological Forces -Internet changes the nature of opportunities and threats § § § Alters life cycle of products Increases speed of distribution Creates new products and services Eases limitations of geographic markets Alters economies of scale Changes entry barriers 18

Political-Legal Forces -Key opportunities and Key Threats § § § Antitrust legislation Tax rates Patent Laws Quota Lobbying efforts by International 19

Political-Legal Forces -Key Political-Legal Variables § § § § Government regulation and deregulation) Tax law changes Special tariffs Changes in patent laws Environment protection laws Equal employment laws Level of government subsidies 20

Social-Cultural-Demographic Forces -Key Variables § § § § Life expectancy rates Per capita income Average disposable income Attitude toward business Buying habits Ethical concerns Attitude toward saving 21

Social-Cultural-Demographic Forces Monitor Key Variables § § § § Racial equality Average level of education Government regulation Attitude toward customer services Attitude toward product quality Social responsibility Waste management 22

Global or Foreign Environment n n n n World Economic Condition International Financial Systems Working of WTO, IMF, WB. . International Agreements Regional Economic Groupings World-wide Economic Recession Initiatives of Regional levels European Union (EU) North American Free Trade Association (NAFTA) Association of South East Asian Nations ( ASEAN) 23

Differences Exist 1. 2. Between domestic & foreign environments. Among the environments prevailing in different foreign markets. Business Strategies that are successful in one nation might fail miserably in another nation. 24

Relevance of International Business Environment Central Issues in entering into international business n Which market (s) to select? n How to enter into those markets? - Decisions are strategic in nature and influenced by the environmental forces. - Target markets should have enough market potential. n 25

Review n n How different political systems affect the international business? What are the implications of political, economical and legal differences among difference countries? Differentiate between socialism and individualism. Group discussion: Reading case CAMBODIA and answer the question. 26