the evolution of international business & its environment

1

The Evolution of International Business & its Environment

TOPIC-1

2

SUB-TOPICS

• Significance , nature & scope of International Business• Internal & External Environment• Social & Cultural Environment• Technological Environment• Economic Environment• Political Environment• Stages of Internationalization• Differences between Domestic business and

International Business• Goals of International Business• Problems of International Business

3

Growing relevance of International Business

• Competition a firm-local, national or foreign- is now global

• Liberalization has forced a company to challenging opportunity to improve its competitiveness- global sourcing of technology, materials, finance, human resources etc.

• Globalization is facilitating globalization

4

Peter Drucker

• “ All institutions have to make global competitiveness a strategic goal. No institution whether a business, a university, or a hospital, can hope to survive, let alone to succeed, unless it measures up to standards set by the leaders in its fields, any place in the world.”

5

AGM OF MRF ON MARCH 20, 2003

• CMD stated, that although the company is market leader in India, the increasing competition in the domestic market , from both Indian firms and MNCs, has prompted the company to give greater thrust to exports and the company , which was already exporting to 65 countries, might export 50 percent of its production.

6

Types of International Business

• Trading- import & export of goods & services. India- Export Houses, Trading Houses, Star trading Houses, and Super Star Trading Houses

• Manufacturing & Marketing• Sourcing & Marketing• Global Sourcing for production• Services• Investments- FDIs

7

Importance of IB to firms

• Pull Factors- forces of attraction that pull the business to the foreign markets.

• Proactive reasons

• - profitability & growth prospects

• Push factors- compulsions of domestic markets. Reactive in nature- saturation of domestic market

8

Basic Reasons

1.Profit Advantage

2.Growth opportunities

3.Domestic market constraints• Nestle- only 2 % from Switzerland• Phillips- 8 % from Holland

4.Competition

5.Government Policies & Regulation

6.Monopoly Power- monopolization of certain resources domestically

7.Spin- off benefits- “ white skin advantage”, economic incentives by govt

8. Strategic Vision

9

Business Environment

External environment

Internal Environment

Business

Decision

10

Internal Environment

• Promoter’s values• Mission/ Objectives• Management Structure• Internal Power relationship• Physical assets & facilities• Co. image/ brand equity• Human Resources• Financial capabilities• Technological capabilities• Marketing capabilities

11

Micro/ operating environment

• Financiers

• Customers

• Suppliers

• Competitors

• Marketing intermediaries

12

Macro/ General Environment

• Political Environment

• Legal Environment

• Global Environment

• Technological Environment

• Social/ Cultural Environment

• Demographic environment

13

FIG: INTERNATIONAL BUSINESS ENVIRONMENT FACTORS

B D

INTERNAL

MICRO

MACRO/ GLOBAL

14

YAHOO.COM

• Bejing, China.• “ We’re not looking to put provocative information on the

site”, admits Maury Zeff, regional director of production for Yahoo Asia. Its all up to the interpretation of the government.

• Although the story about human organ selling in China never appeared on Yahoo’s website in China but it did run on the company’s US website.

• China is the world’s second largest internet market after the USA.

• This was not the first time that Yahoo adapted itself to local market constraints.

15

Political Environment

• Democracy & Totalitarianism/ authoritarianism

• By year 2000:• 26- authoritarian• 39-Intermediate( partly Free- Russia, Mexico, Ethiopia,

Columbiaetc)• 82- Most Democratic- India, USA, Canada, S. Africa,

Australia

16

Political Risks

• Macro Risks: Barriers to profit repatriation, Confiscation of properties, mandatory labour legislation, civil wars, currency devaluations, inflations, loss of technology or other intellectual property etc.

• Micro Risks- Kidnappings, increased taxation, official’s dishonesty

17

Managing Risks

Direct Indirecti.Host operations dependent on i. risk insurance

home control ii. Home country govt. pressuring host country govt

ii.Diversification

Proactive

Joint ventures i. lobbying home & host govts.

ii.Licensing agreements ii. Corporate citizenship in host country

iii.Promote host goals

18

Legal Environment

• - refers to rules & laws that regulate behaviour of individual or organization.

• -failure to comply with the laws means penalties to be inflicted by the courts

• INDIA-• GE got back the entire investments of $115

million from Dabhol once the latter vent burst. Its CEO Scott Bayman admitted that nowhere else this would have been possible.

19

Systems of law

• Islamic Law

Legal Systems

Common law

Civil or coded law Marxist

Law

20

MNC & the legal environment

• -protection of IPRs

• -product liability & safety

• Competition laws bribery & corruption

• Advertising & sales promoition

• Contracts

• Shipping of goods

• Labour laws

21

MICROSOFT BATTLES SOFTWARE PIRACY IN CHINA

• China sales in 1996 nothing to $100m by 2000- a target fixed by MS

• -Over 96 % of the softwares used in China was pirated

• Also, Bejing is emerging as a mass exporter of counterfeit software

22

Elements of Culture

• -Language

• Customs & manners

• Attitudes

• Aethetics

• Religion

• Education

• Supernatural Beliefs

23

‘SINGLISH’ TO MAKE WAY FOR ENGLISH

• Tourism based economy

• Singapore Govt launched a “ speak good English movement”\

• Inhabitants are mostly Chinese, Indians, Tamil, Malaya people etc

24

Implications for IB

Multi cultarism

Culture & competitive advantage

Spread cross cultural literacy

Compatibility between strategy & culture

Managing diversity

25

Strategy – culture Fit

• P&G- In 1980s, modified its bulky diapers in Japan to ‘trim fit’

• Mc Donald - India, created vegMaharishi burger & non veg lamb minced burger

• Domino’s Pizza - In Banglore, Pizzas to contain curry paste

-

• Nokia- introduced Hindi SMS in India

26

Technological Environment

• Kind of technologies- emerging technologies, critical technologies,

• Technology Issues:• - Barriers

• -Foreign Technology Acquisition• -Creating Local capability• Choice of Technology• Terms of Technology Transfer• Globalization

27

Economic Environment

• elements:• Income wise classification of countries- LIG,

MIG, HIG• Economic policies• Economies in transition• Financial system • economic scenario• Region wise classification• Structural adjustments

28

Classification of economies by region

• LIG- < $735

• LMIG-$736-2935

• UMIG- <$ 2936--9075

• HIG >9076

• SOURCE : WORLD DEVELOPMENT REPORT 2004

29

COUNTRIES

• India- LIG

• CHINA-LIG

• USA - HIG

• UK -HIG

• SWITZERLAND -HIG

• MALAYSIA -UMIG

• RUSSIA- LMIG