Chapter 3

International Business

Environment

2

International Business Environment

Environment- everything around us.everything around us.

Business environment: Sum total of all Sum total of all the forces surrounding & influencing the the forces surrounding & influencing the life and development of the firm.life and development of the firm.

Internal Environment Strengths Weakness of the Org.

Business Decision

External Environment Business OpportunityThreats to Business

3

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.

International Business Environment

4

Environmental Characteristics Factors and Forces are external to the firm. Essentially uncontrollable. Environmental factors are dynamic-they

continuously change over time.NEED ?

Anticipate, respond and 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 the environmental factors.

5

Components of International Business Environment

Internal Environment

Micro Environment

Domestic Environment

Foreign Environment

6

7

Domestic Environment

( Uncontrollables)Competitive Structure

(Controllable)International Business Decision

- Production- Finance- Human Resource- Marketing

Domestic Environment

( Uncontrollable)

Competitive Structure

Polit

ical and L

egal Fo

rces

Eco

nom

ic Clim

ate

Foreign Environment ( Uncontrollable)

Geographic Environment

Economic and Financial

Environment

Socia

l-Cultu

ral

Enviro

nm

ent

Political Environment

Legal Environment

Ecol

ogical

Env

ironm

ent

Global Environment ( Uncontrollables)

International Economic Environment

International Financial Institutions

and System

International Trade Organization and

Agreements

Reg

iona

l Eco

nom

ic G

roup

s an

d

Agr

eem

ent

8

Internal Environment Represent firm’s business strategy and decision with regard to--

Production Finance Marketing Human Resources Research Activities

Firm can change them, but within the constraints of various environmental factors.

9

Microenvironment

Actors in the firm’s immediate environment which directly influence the firm’s decisions and operations. They are:

Potential of New Entrants Competition Power of Customers Power of Suppliers Potential of Substitute Products/Services

Are Semi-Controllable.

10

Macro Environment or Domestic environment

Competitive Structure Economic climate

Political & Legal forces

Uncontrollable

IMPACT ?

11

Macro Environment

Political & Legal forcesEconomic ConditionsSocial-Cultural EnvironmentTechnological EnvironmentEcological EnvironmentGeographic

12

Non-Economic Environment

Political Socio-Cultural Legal

Ecological Geographic

13

Political

Form of Government Political Party System

Political Ideology Role of Government

Political Stability

14

Socio-Cultural

Language EducationAesthetics Religions &

SuperstitionAttitude & values Social groups &

Organizations

15

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

Macro Environment- Indicators

16

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

17

Technological Forces

-Profound impact on organizations Computer Tele communications Internet eCommerce

18

-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

Technological Forces

19

Political-Legal Forces

-Key opportunities and Key Threats Antitrust legislation Tax rates Patent Laws Quota Lobbying efforts by International

20

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

21

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

22

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

23

Global or Foreign Environment

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)

24

Differences Exist 1. Between domestic & foreign

environments.2. Among the environments prevailing in

different foreign markets.

Business Strategies that are successful in one nation might fail miserably in another nation.

25

Relevance of International Business Environment

Central Issues in entering into international business -

Which market (s) to select? How to enter into those markets?- Decisions are strategic in nature and

influenced by the environmental forces.- Target markets should have enough

market potential.

26

Review 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.