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BBK3363 |

International Business Environment by Dr Khairul Anuar

L1: Managing in a Global Environment

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Topics under International Business Environment

• The International Business Environment

• The Competitive Environment

• The International Economic Environment

• The Technological Environment

• The International Cultural, Demographic and Social

Environment

• The Ecological Environment

• The International Political Environment

• The Legal Environment

• Globalisation, challenges and changes

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Textbooks

• The International Business Environment

by Leslie Hamilton and Phlip Webster

• The International Business Environment: Challenges and

Changes,

by Ian Brooks, Jamie Weatherston and Graham Wilkinson

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Importance of International Business

If you are not thinking international,

you are not thinking business management

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Global Environment and International Managers

• Difficulties Operating in Borderless World

• Challenges

• Economic

• Legal-political

• Socio-cultural

• Multinational Corporations

• Foreign Markets - Entrance

Chapter 4

Topics

Managers’ Challenge: Wal-Mart Managers

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A Borderless World

• Business is becoming a unified, global field

• Companies that think globally have a

competitive edge

• Domestic markets are saturated for many

companies

• Consumers can no longer tell from which

country they are buying

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Four Stages of Globalization

Domestic stage:

market potential is limited to the home country

production and marketing facilities located at home

International stage:

exports increase

company usually adopts a multi-domestic approach

Multinational stage:

marketing and production facilities located in many countries

more than 1/3 of its sales outside the home country

Global (or stateless) stage:

making sales and acquiring resources in whatever country offers the best opportunities and lowest cost

ownership, control, and top management tend to be dispersed

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4 Stages of Globalization

1. Domestic 2. International 3. Multinational 4. Global

Strategic Orientation

Stage of Development

Cultural Sensitivity

Manager Assumptions

Domestically

Oriented

Export- Oriented

multi-domestic

Multinational Global

Global Initial foreign

involvement

Competitive

positioning

Explosion of

international

operations

Of little

importance

“One best

way”

Very important

“Many good

ways”

Somewhat

important

“The least-cost

way”

Critically

important

“Many good

ways”

SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, Ohio: South-Western, 2002), 8-

9.

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Global (stateless) Corporations

• Number is increasing

• Awareness of national borders decreasing

• Rising managers expected to know a 2nd or 3rd

language

• Corporate Example – Nestle (Swiss)

• CEO Peter Brabeck–Letmathe (Austrian)

• Half of general managers (non-Swiss)

• Strong faith in regional managers who are native to the

region

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The International Business Environment

• International management is management

of business operations conducted in more

than one country

• Fundamental tasks do not change

• Basic management functions

• are the same - domestic or international

• Greater difficulties and risks when performing on

an international scale

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International Environment Factors

Organization

Economic

•Economic

development

•Infrastructure

•Resource and

product markets

•Per capita

Income

•Exchange rates

•Economic

conditions

Legal-Political

•Political risk

•Government

takeovers

•Tariffs, quotas,

taxes

•Terrorism, political

instability

•Laws, regulations

Sociocultural

•Socio values, beliefs

•Language

•Religion (objects, taboos, holidays)

•Kinship patterns

•Formal education, literary

•Time orientation

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Economic Environment Factors

• Economic development

• Infrastructure

• Resource and product markets

• Exchange rates

• Inflation

• Interest rates

• Economic growth

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Economic Development

● Countries categorized as “developing” or “developed”

● Criterion used to classify is per capita income

● Developing countries have low per capita incomes

● LDCs located in Asia, Africa, and South America

● Developed are North America, Europe, & Japan

● Driving global growth in Asia, Eastern Europe, & Latin

America

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Infrastructure

A country’s physical facilities that support

economic activities

• Airports, highways, and railroads

• Energy-producing facilities

• Communication facilities

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Resource and Product Markets

When operating in another country...

• Managers must evaluate market demand

• To develop plants, resource markets must be

available – raw materials and labor

Corporate Example – McDonald

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Exchange Rates

• Rate at which one country’s currency is exchanged for another country’s

• Has become a major concern for companies doing business internationally

• Changes in the exchange rate can have major implications for profitability of international operations

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The Legal-Political Environment

• Political Risk– due to events or actions by host

governments

● Loss of assets

● Loss of earning power

● Loss of managerial control

● Government takeovers

● Acts of violence

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Political Instability

• Events such as riots, revolutions, or

government upheavals that affect the

operations of an international company

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Laws and Regulations

• Government laws and regulations differ from

country to country

• Make doing business a true challenge for

international firms

• Internet has increased impact of foreign laws

on U.S. companies – expands potential for

doing business on global basis

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Sociocultural Environment

• Culture – shared knowledge, beliefs, values, common modes of behavior, and ways of thinking among members of a society

• Intangible

• Pervasive

• Difficult for outsider to learn

• Managers need to understand difference in social values to comprehend local cultures and deal with them effectively

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Hofstede’s Value Dimensions

• Research = national value systems influence

organizational and employee working relationships

• Power distance (high = accept inequality)

• Uncertainty avoidance (uncomfortable with uncertainty)

• Individualism and collectivism (Individualism take care

of themselves)

• Masculinity/femininity (preference for

achievement/assertiveness; femininity for relationship)

• Long-term/short-term orientation = 5th dimension

Ethical Dilemma: The Problem in Asia

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Four Dimensions of National Value

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GLOBE Value Dimensions

• Assertiveness

• Future orientation

• Uncertainty avoidance

• Gender differentiation

• Power distance

• Societal collectivism

• Individual collectivism

• Performance orientation

• Humane orientation

Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural

similarities and differences

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International Cultural Influences

• Other Cultural Characteristics • Language

• Religion

• Attitudes

• Social Organization

• Education

• Linguistic pluralism – several languages exist

• Ethnocentrism – regard own culture superior

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International Trade Agreements

• Most visible changes in legal-political factors grow

out of international trade agreements:

• GATT

• WTO

• EU

• NAFTA

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International Trade Alliances

General Agreement on Tariffs and Trade (GATT)

Signed by 23 nations in 1947 as a set of rules

Ensured nondiscrimination, clear procedures, negotiation of disputes, and participation of lesser developed countries in international trade

Today, 147 member countries abide by the rules

Primary tools WTO uses on tariff concessions, countries agree to limit level of tariffs on imports from other WTO members

Most favored nation clause

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WTO

• Goal, is to guide and sometimes urge the

nations of the world toward free trade and

open markets

• Encompasses GATT and all of its agreements

• Has legal authority to arbitrate disputes on

400 trade issues

• Partly responsible for backlash against global

trade

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European Union

• Formed in 1957 to improve economic and social conditions

• Has grown to 25-nation alliance

• Initiative Europe ’92 called for creation of open markets for Europe’s 340 million consumers

• Biggest expansion in 2004 – 10 new members from southern and eastern Europe

• Observers feared EU would become a trade barrier

• EU’s monetary revolution, introduction of the Euro

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Nations of The EU

*

* *

*

*

*

*

*

* *

*Joined in

2004

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North American Free Trade Agreement

● Went into effect on January 1, 1994

● Merged the United States, Canada, and Mexico with

more that 421 million consumers

● Breaks down tariffs and trade restrictions on most

agriculture and manufactured products

● August 12, 1992 agreements in number of key areas

include: agriculture, autos, transport, & intellectual

property

● January, 2004 -10th anniversary = success and failure

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Strategies for Entering International Markets

Exporting

High

High Low Low

Ow

ne

rsh

ip o

f

Fo

reig

n O

pe

rati

on

s

Cost to Enter Foreign Operations

Licensing

Franchising

Joint Venture

Acquisition

Greenfield

Venture

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Multinational Corporations (MNC)

• Receives >25% total sales revenues from

operations outside parent company’s home

country

• Managed as integrated worldwide business system

• Controlled by single management authority

• Top managers exercise global perspective

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Managing in a Global Environment

Managers must be sensitive to cultural subtleties

• Personal challenges – culture shock

• Managing Cross-culturally • Leading

• Decision making

• Motivating

• Controlling

Managers must be culturally flexible and easily

adapt to new situations

Experiential Exercise: Rate your Global

Management Potential