Chapter 3

1. Chapter 3 International Business Environment

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

3. International Business Environment • 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.

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 Foreign Environment Domestic Environment Micro Environment Internal Environment

7. Global Environment ( Uncontrollables) International Economic Environment Domestic Environment ( Uncontrollables) Competitive Structure Foreign Environment ( Uncontrollable) Geographic Environment Regional Economic Groups and Agreement Ecological Environment Domestic Environment ( Uncontrollable) Competitive Structure International Financial Institutions and System Economic and Financial Environment • (Controllable) • International Business • Decision • Production • Finance • Human Resource • Marketing Political and Legal Forces Economic Climate Social-Cultural Environment International Trade Organization and Agreements Legal Environment Political Environment

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 forces Economic Conditions Social-Cultural Environment Technological Environment Ecological Environment Geographic

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 Education Aesthetics Religions & Superstition Attitude & values Social groups & Organizations

15. 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. TechnologicalForces -Profound impact on organizations • Computer • Tele communications • Internet • eCommerce

18. 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

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 • 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.

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.