MODULE III INTERNATIONAL BUSINESS International Business Environment Cultural
MODULE III INTERNATIONAL BUSINESS International Business Environment: Cultural, Social, Political and legal, technological, economic and trade environment, Free trade area, Customs Union, Common Market- Economic union, Bilateral and Multilateral Trade Agreement and WTO, IMF, World Bank, BRICS Bank etc- natural and demographic environment. Opportunities and threats of Indian companies in international market, Problems and prospects of foreign companies in Indian Market. 2 -1
What Is Business Environment? • The term Business Environment is composed of two words ‘Business’ and ‘Environment’. • Business- An organization where goods and services are exchanged for one another or for money. • International business comprises all commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundaries. • Business environment: It is the sum total of all external and internal factors which influence the development, performance and outcome of a business. 2 -2
COMPONENTS OF THE BUSINESS ENVIRONMENT 2 -3
Internal Environment • Refers to all the factors that are within an organization which impart strengths or cause weaknesses of strategic nature. • Controllable factors. These include: – Mission and Objectives -Physical – Management Structure and Nature Facilities – Human Resources -R & D and Technological – Company Image and Brand Equity Assets and Capabilities – Marketing Resources – Financial Resources 2 -4
External Environment • Includes all factors outside the organization which provide opportunities or pose threats to the organization • Uncontrollable factors • Consists of Micro and Macro environment 2 -5
I. Macro Environment • Sometimes called the general-environment. • Are external factors, such as inflation and demographics, that usually affect indirectly all or most organizations. 2 -6
I. Macro Environment • Cultural Environment – Social Customs & Rituals and practices – Lifestyle patterns – Family structure • Culture is the shared characteristics, values, and beliefs of a group that distinguishes them from another group • Such as religion, language, and heritage 2 -7
I. Macro Environment • Demographic Environment – Growth of population – Age Composition – Life Expectancy – Sex Ratio – Fertility and Mortality rates – Inter-state migration • Characteristics of a population such as age, race, gender, ethnic origin, and social class. • determine the characteristics of work groups, organizations, specific markets, or nations population. • Demographics influence marketing, advertising, and human resources decisions. 2 -8
I. Macro Environment • Technological Environment – Sources of technology – Technological development – Impact of technology • 2 -9
I. Macro Environment Political Environment • The government acts as a watchdog over business • Provides direction in areas such as: • antitrust, • monetary policy, • defense, • human rights • environmental matters 2 -10
I. Macro Environment The Economic System • privately controlled markets • supply and demand • free market competition • private contracts • profit incentives • technological advancement – Tax Systems – Exchange Rates – Commodity Prices – oil, energy, metals – Monetary and Fiscal Policies – interest rates, tax regimes, government aid 2 -11
II Micro Environment “It consists of the factors in the company’s Ø immediate environment that affect the performance of the company”. Suppliers Ø Customers Ø Marketing Intermediaries Ø Competitors Ø Publics Ø Financial Community 2 -12
ENVIRONMENTAL SCANNING • Identification and forecasting phenomena in the environment • Ongoing environmental scanning is essential for strategy formulation • Enterprises continuously engage in identifying and forecasting opportunities and threats • Enterprises need to proactively or reactively respond to changing conditions in the environment 2 -13
International Trade Ø What is international trade? – Exchange of raw materials and manufactured goods (and services) across national borders 14 2 -14
Benefits of Trade – Increased choice – Greater potential for growth – Increase international economies of scale – Greater employment opportunities 2 -15
Disadvantages of Trade – Increase in gap between the rich and the poor – Dominance of global trade by the rich countries – Lack of opportunities for the poor to have access to markets – Exploitation of workers and growers 2 -16
FREE TRADE AREA • A free trade area is a group of countries that have few or no price controls in the form of tariffs or quotas between each other. • Free trade areas allow the agreeing nations to focus on their comparative advantages and to produce the goods they are comparatively more efficient at making, thus increasing the efficiency and profitability of each country. 2 -17
FREE TRADE AREA • One of the most well-known and largest free trade areas was created by the signing of the North American Free Trade Agreement (NAFTA) on January 1, 1994. • Thus the agreement between Canada, United States and Mexico encourages trade between these North American countries. • Free trade areas, benefit the consumers who have increased access to : less expensive and higher quality foreign goods and who will see price decreases as governments reduce or eliminate tariffs. 2 -18
FREE TRADE AREA • As producers may struggle with increased competition, they may also acquire a greatly expanded market of potential customers. • Free trade areas can also encourage economic development in countries as a whole, benefiting everyone who resides there through increased living standards 2 -19
Customs union • A group of states that have agreed to charge the same import duties as each other and usually to allow free trade between themselves. , is termed as Customs Union. (OR) • Agreement between two or more (usually neighbouring) countries to remove trade barriers, and reduce or eliminate customs duty on mutual trade. • A customs union (unlike a free trade area) generally imposes a common external-tariff (CTF) on imports from non-member countries and (unlike a common market) generally does not allow free movement of capital and labor among member 2 -20 countries.
BILATERAL TRADE • A Bilateral Trade is the exchange of goods between two countries that facilitates trade and investment by reducing or eliminating tariffs, import quotas, export restraints and other trade barriers • Ex: India & Pakistan ($ 822 US million/ yr) • A Bilateral Contract is a mutual arrangement between two parties where each promises to 2 -21 perform an act in exchange for the other party's
MULTILATERAL TRADE • The term Multilateral Trade negotiations initially applied to negotiations between General Agreement on Tariffs and Trade (GATT) member nations conducted under the auspices of the GATT and aimed at reducing tariff and nontariff trade barriers. 2 -22
IMF WORLD BANK Who? What? When? Where? Why? 2 -23
IMF & World Bank WHAT? IMF and World Bank are international organizations that provide financial assistance to countries in need. 189 countries are members of the IMF which uses a quota system to assign voting rights to each member. Each member’s assigned quota is based on the relative size of its economy. The top members of IMF are USA, Japan, China, 2 -24 Germany, UK, and 8 th place is for India (as of 2016).
IMF & world bank When? Established in 1944 at the Bretton Woods Conference Why? Initially, both were established to provide short-term financial assistance for reconstruction of European countries devastated by World War II. Where? Both are headquartered in Washington, D. C but have small overseas offices in some member countries 2 -25
IMF -AIM • To foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. 2 -26
IMF & world bank The World Bank is comprised of 5 agencies § The IBRD provides loans to middle-income and creditworthy low-income countries. The IDA provides interest-free loans (credits) and grants to the poorest countries. The IFC provides loans, equity and technical assistance to stimulate private sector investment in developing countries. The MIGA provides guarantees against losses to investors in developing countries. The ICSID provides international facilities for conciliation and arbitration of investment disputes. 2 -27
• The International Bank for Reconstruction and Development. • The International Development Association. - Together, IBRD and IDA make up the World Bank. • The International Finance Corporation. • The Multilateral Investment Guarantee Agency • International Centre for Settlement of Investment Disputes 2 -28
IMF & world bank EXAMPLE: In the 1970 s oil prices rose by as much as 400% causing prices of goods to soar Governments around the world, especially in developing countries found it extremely difficult to pay for goods and services IMF and World Bank were seen as an option for providing short-term liquidity and (possibly) longterm assistance for development. 2 -29
IMF & World bank - Differences • IMF exists primarily to stabilize exchange rates & provides technical assistance and training for countries requesting it. • IMF promotes monetary cooperation • World Bank’s goal is to reduce poverty. • Its purpose is to aid long-term economic development and internationally and offers advice and reduce poverty in developing assistance to facilitate building and countries maintaining a country’s economy • IMF also provides loans and helps countries develop policy programs that solve problems balance of payment
IMF & WB -ROLE To promote exchange stability assist with specific projects Provide much needed cash that can be used to address a country’s immediate financial needs Provide technical expertise to governments in various areas To facilitate the expansion and balanced growth of international trade To promote international monetary cooperation 2 -31
WTO 2 -32
World Trade Organization WHAT? The WTO is an international organization that focuses on the rules of trade among nations. Approximately 164 member countries (as of July 2016) WTO replaces GATT Organisation Difference b/t GATT and WTO: under GATT, US and other nations were able to block adverse rulings by arbitration panels, but cannot do so under WTO 2 -33
World Trade Organization Where? Headquartered in Geneva, Switzerland When? Established in 1 st January -1995 Why? The WTO facilitates trade negotiations, implements and monitors trade agreements, and arbitrates disputes. Result-Uruguay Round—the 8 th Round 2 -34
Evolution of the WTO • The GATT was the first major effort to establish international rules governing trade in goods. Though initially conceived as a provisional legal instrument, it endured for almost 50 years. AIM: • GATT’s primary focus was the mutual reduction of tariffs which later expanded to other trade related areas. • Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. ” 2 -35
WTO and its relevance for Indian companies The main guidelines of WTO are: • Trade without discrimination • Growing market access • Promotion of fair competition AIM: • Reduction of tariffs • Opening Indian markets for Global Players • Rationalizing industrial licensing and removal of controls on the size of operations 2 -36
WTO’s functions • Administers the WTO Agreements and facilitates their operation and implementation • Provides a forum for trade negotiations among member states and for further liberalization of trade amongst members • Responsible for the settlement of differences and disputes between members • Responsible for periodic reviews of the trade policies of members • Also provides technical assistance and training for developing countries • Cooperates with other international organisations. 2 -37
2 -38
Principles of WTO • Non discrimination- Most Favoured Nation (MFN) and National Treatment obligations • Freer trade – negotiations aimed at lowering trade barriers • Transparency - binding commitments, restrictions on the use of barriers to trade and transparent trade policies and regulatory frameworks (e. g. transparency in the major trade agreements and the Trade Policy Review Mechanism) • The promotion of fair treatment & competition- MFN, national treatment and rules against unfair trade practices (e. g. anti dumping) • Encouragement of development and economic reform 2 -39
WTO Benefits • • • Promotes peace Disputes are handled constructively Freer trade cuts cost of living More choice of products and qualities Trade stimulates economic growth and creates jobs 2 -40
2 -41
2 -42
2 -43
2 -44
2 -45
2 -46
2 -47
2 -48
2 -49
2 -50
2 -51
2 -52
2 -53
2 -54
The End 2 -55
- Slides: 55