3 International Business

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INTERNATIONAL BUSINESS

ENVIRONMENT.BASICS

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ENVIRONMENTAL EFFECTS

Culture: system of values, norms that are sharedamong a group of people and that taken togetherconstitute a design for living. (or)

Complex whole which includes knowledge, belief,art, law, custom & other capabilities acquired byman as a member of society.

Values-abstract ideas about what a groupbelieves to be good, right, desirable/sharedassumptions about how things ought to be.

Norms-social rules & guidelines that prescribeappropriate behavior in particular situations.

Society-group of people who share a common setof values & norms.



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Values & norms

Values-* form the bedrock of culture

*Provide context with in which a societysnorms are established & justified

*include a societys attitudes toward suchconcepts as individual freedom, justice,democracy, truth, honesty, loyalty, love,social obligations, collective responsibility,role of woman, sex & marriage.



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Norms

Norms-social rules that govern peoplesactions towards one another.

2 major categories-1.folkways-routineconventions of every day life, actions of

little moral significance.Ex-dress code, social manners, eating with

correct utensils, neighbor behavior,attitude towards time.

Mores-norms that are seen as central tothe functioning of society & to its sociallife.

Ex-act against thefts, adultery.



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Determinants of culture

ReligionSocial structure Political

CultureNorms &Value systems

Language EconomicEducation



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1.Social structure

Refers to basic social organization 2 important dimensions*degree to which the basic unit of social

organization is individual as opposed to group

*degree to which a society is stratified intoclasses/castes. Individuals & groups-group is an association of

2/more individuals who have a shared sense ofidentity & who interact with each other in

structured ways on the basis of common set ofexpectations about each other behavior.*individuals are the basic building blocks of social

organization.



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Social stratification (categories)

Social strata-typically defined on the basis of characteristicssuch as family income, background, occupation.

Social mobility-refers to the extent to which individuals canmove out of the strata into which they are born.

-varies from society to society

-the most rigid system of stratification is caste system. Class system-less rigid form of social stratification in which

social mobility is possible.-is a form of open stratification in which the position a person

has by birth can be changed through his/her ownachievements

Significance-class consciousness-refers to a conditionwhere people tend to perceive themselves in terms of theirclass background & this shapes their relationships withmembers of other classes.



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2.Religious & ethical systems

Religion-system of shared beliefs &rituals that are concerned with therealm of sacred.

Ethical systems-refer to a set ofmoral principles/values that are usedto guide & shape behavior & productof religions.

4 dominant religions-Christianity,Islam, Hinduism, Buddhism



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Religions

Christianity-wider practiced religion in theworld.

-roman catholic church (Catholicism)-orthodox church (Protestantism)

*by Weber-protestants believed in hardwork & wealth creation& absence ofinterest in worldly pleasures.



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Islam

-2nd largest, dates back to 610 AD.Characteristics:-respect to parents -not committing adultery-being generous -respecting rights of others-avoid killing equal dealing with other

-being of pure heart & mindbeing humble-safe guarding possessions of orphans Islamic fundamentalism-modernization in Islam in rich urban societies-impoverished urban & rural societies

Ex-killing of foreign tourist, WTO, Pentagon attacks Economic implications of Islam-free enterprise & earning of

profits-interest was a sin



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Hinduism

-believes in dharma, reincarnation,rebirth, karma, nirvana

Economic implications of Hinduism-Weber

-individuals should not be judge bymaterial achievements but byspiritual achievements

-supports caste system



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Buddhism

-6th century by Siddhartha Gauthama

-nirvana, spiritual enlightment

-life is comprised of suffering

-eight fold path: right seeing, thinking,speech, action, living, effort,meditation, mindfulness

-no support for caste system-believe in after life & spiritual

achievement



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Confucianism

-5th century by Confucius, china, Korea,Japan

-teaches the importance of attaining

personal salvation through right action Economic implications of Confucianism

-loyalty to ones superiors is regarded assacred duty, so it binds the employees to

the heads of their organization andreduces the conflict between management& labor



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3.Language

Both spoken & unspoken means ofcommunication

Spoken language-enable people tocommunicate with each other

-direct the attention of its members tocertain features of the world

-English commonin IB



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5.Culture & work place

4 dimensions

-power distance: people are unequal inphysical & intellectual capabilities

-individualism vs. collectivism

-uncertainty avoidance

-masculinity vs. femininity

Cultural change-changes in valuesystems can be slow & painful for asociety



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Implications for business

1.Cross cultural literacy-ethnocentrism, polycentrism,regiocentrism, geocentrism

2.Culture & competitive advantage

3.Culture & business ethics

-respect for core human values-respect for local tradition

-respect for freedomhttp://www.facebook.com/mr.fortyseven


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Cultural awareness

1.Problem areas that hinder managers are-subconscious reactions to circumstances-the assumption that all societal subgroups

are similar2.A companys need for cultural knowledge

increases as-its number of foreign functions increases-the number of countries of operations

increases-its moves from externalto internal

handling of operations



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Identification & dynamics ofculture

The nation as a point of reference

Cultural formation & dynamics

* choice/imposition* contact with other cultures

Language as a cultural stabilizer

Religion as a cultural stabilizer



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Social & cultural

Culture facilitates communication

Cultural attitude & IB

Culture & thinking process

Cross cultural communication process &negotiations

Cultural universals

Communication through languages

Time & culture (appointment)

Space & culture



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Social & cultural

Culture & agreement Culture of friendship Culture & superstition

Culture & color Culture & gifts Culture prescriptive-the kinds of behavior

considered acceptable in the society

EX-consumption of wine-US acceptable-India socially not acceptable-Saudi socially & legally unacceptable



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Behavioral practices affectingbusiness

1.Social stratification systems -group affiliation*Performance orientation*Gender based groups*Age based groups

*Family based groups*Occupation 2.Motivation*Materialism & leisure

*Expectation of success & reward*Assertiveness*Need hierarchy (recognition, attention,

appreciation, maslows hierarchy)



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3.Relationship preferences

*Power distance

*Individualism vs. collectivism

4.Risk taking behavior

*Uncertainty avoidance

*Trust

*Future orientation

*Fatalism



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5.Information & task processing

*Perception of cues, obtaininginformation

*Information processing

-monochromic: people like to finish

work one after one-polychromic: people concentrate onall tasks at one time



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Strategies for dealing withcultural differences

Making little/no adjustment

Communication

Silent language Culture shock (expatriate)



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Company & Managementorientations

Polycentrism-control is decentralized Ethnocentrism-superiority Geocentrism

Strategies for instituting changeValue system -the more a change upsetsimportant values, the more resistance itwill encounter

Cost benefit of change Economic cost Psychic cost



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Strategies for instituting change

Resistance to too much change

Participation

Reward sharing Opinion leaders

Timing

Learning abroad



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Political environment

Political process functions include

*interest articulation-politicians,individuals, businesses, interestgroups

*policy making

*interest aggregation

*policy implementation & adjudication



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a. Basic political ideologies

b. Impact of ideological differences onnational boundaries

*a political spectrum*political rights & civil liberties

*stability in democracy

c. Impact of political system onmanagement decisions

*political risk



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Types & causes of political risk

*Opinions of political leadership

*Civil disorder

*External relations

*Micro&macro political risks

d. Government intervention in the economy

*individualistic paradigm-minimal governmentintervention, democratic & economically free

*communitarian paradigm-authoritative &prestigious government, defines needs &priorities



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Formulating & implementingpolitical strategies

Identify the issue

Define the political aspect of the issue

Assess the potential political action of

other companies & special interest groups Identify important institutions & key

individuals

Formulate strategies

Determine the impact of implementation Select the most appropriate strategy &

implement it



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Collectivism & individualism

Socialism

*Communists *Social democrats

Democracy & totalitarianism*Communist totalitarianism-dictatorship

*Theocratic totalitarianism-by a party/group

*Tribal totalitarianism

*Rightwing totalitarianism-gives economicfreedom but restricts political freedom



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Legal environment

Kinds of legal systems

Common law-based on tradition,custom, usage & interpretation bycourts Ex. US,UK

Civil law-codified legal system, legalcodes Ex. Germany, France, Japan

Theocratic law-based on religiousprecepts Ex. Islamic countries



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Legal environment

Consumer safeguards-product liabilityissues

Legal profession

Legal issues in IB*national laws affect all local business

activities

*national laws affect cross border activities*international treaties, cross border

transactions



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Economic environment

Key economic forces

*general economic framework of acountry

*economic stability

*existence & influence of capitalmarkets

*market size

*availability of economic infrastructurehttp://www.facebook.com/mr.fortyseven


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An economic description of countries

Factor/production conditions-HR, physicalresources, knowledge resources, capitalresources, infrastructure

Demand conditions

*composition of home demand (quality ofdemand)

*size & growth of demand (quantity ofdemand)

*internalization of demand



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Countries classified by income1. Gross national income (GNI)2. Gross national product (GDP)3. World bank:

-5 closely associated institutions*IBRD (International bank for reconstruction &

development)*IDC (International development association)*IFC (International finance corporation)

*MIGA (Multilateral guarantee agency)*ICSID (International center for settlement of

investment disputes)



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Countries classified by region

East Asia & pacific

Latin America & the Caribbean

The Middle east & North Africa

South Asia

Sub-Sahara Africa

Importance of regional groupings of countries

Similar economic conditions

Mirrors the way companies organize their firmsgeographically



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Countries classified by economic system-every government struggles for ownership& control of economy

*Ownership-who own the resourcesengaged in economic activity

-can be public sector, private sector/both

*Control-whether resources are allocated &controlled by the public/private sector



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Factors that determine economic freedom Trade policy Fiscal burden of government Government intervention in the economy Monetary policy Capital flows & investment Banking & finance

Wages & prices Property rights & regulation Black market activity



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State capitalism-Japan, Korea Market economy-private sector*consumer sovereignty Command economy-public sector Mixed economy*Inflation-condition in which prices are

going up-inflation rate is the percentage increase in

the change in prices from one period tothe next, usually a year

-to measure inflation the following



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*consumer price index (CPI)

*surpluses & deficits

*balance of payments (BOP):

-current account: trade in goods & services& income from assets abroad

-merchandise trade balance: net balance of

exports minus imports of merchandise-deficit: imports exceed exports

-surplus: exports exceed imports



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External debt

Internal debt

Privatization Transition to a market economy-

includes liberalizing economicactivity & establishing legal &institutional framework



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Process of transition Russian transition*includes political & economic transition at the

same time

*initial transition steps resulted in steep economicdeclines*soft budgets, subsidies & other government

supporting activities have continued*hard administrative constraints have disappeared

& are being replaced with connections &corruption*debts & deficits-both internal & external area real

challenge



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Chinas transition

*Chinese growth has been far strongerthan for other countries in transition

*china has maintained totalitarianpolitical control while loosening theeconomy

*a major challenge is privatizing stateowned enterprises



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The future of transition

*continued macro stability

*maintaining economic growth*continued improvement ininstitutional & structural areas

*the solution of social issues such aspoverty, child welfare, HIV/AIDS



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Ethical issues in IB

Utilize natural resources optimally &appropriately

Benefit should accrue to the host country in thenature of production/export

Technology transfer, employment, training ofhost countrys personnel, equal treatment to bedone

Social segment responsibility to be discharged

Accounting should be transparent

Do not involve in host countrys politics

Avoid bribery


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