The Environment of International Business

Organizations

2

Chapter Outline The Organization’s Environments

The General Environment The Task Environment The Internal Environment

The Ethical and Social Environment of Management Individual Ethics in Organizations Social Responsibility and Organizations Managing Social Responsibility

3

Chapter Outline (cont’d)

The International Environment of Management Trends in International Business Managing the Process of Internationalization Levels of International Business Activity The Context of International Business

The Organization’s Culture The Importance of Organization Culture Determinants of Organization Culture Managing Organization Culture

4

The Organization’s Environment

External Environment General environment is everything outside an

organization’s boundaries—economic, legal, political, socio-cultural, international, and technical forces.

Task environment is composed of specific groups and organizations that effect the firm.

Internal Environment Conditions and forces within an organization.

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The Organization and Its Environments

OwnersEmployees

Physical environmentBoard of directors

Culture

Competitors

Internationaldimension

Political-legal

dimension

Technologicaldimension

Socioculturaldimension

Economicdimension

Regulators Customers

Strategicpartners

Suppliers

Internal environment

Task environment ExternalenvironmentGeneral environment

6

The External Environment

The General Environment The set of broad dimensions and forces in an

organization’s surroundings that create its overall context.

Economic dimension is the overall health and vitality of the economic system in which the organization operates.

Technological dimension refers to the methods available for converting resources into products or services.

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The External Environment

The General Environment (cont’d) Sociocultural dimension includes the

customs, mores, values, and demographic characteristics of the society in which the organization functions.

Political-legal dimension is the extent of government regulation of business and the general relationship between business and government.

International dimension is the extent to which the organization is affected by business in other countries.

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The External Environment The Task Environment

Specific groups affecting the organizationCompetitors seeking the same resources as the

organization.Customers who acquire an organization’s products

or resources.Suppliers that provide resources for the

organization.Regulators (agencies and interest groups) that

control, legislate, or influence the organization’s policies and practices.

Strategic partners (allies) who are in a joint venture or partnership with the organization.

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McDonald’s Task Environment

Figure 2.1

McDonald’s

Competitors• Burger King• Wendy’s• Subway• Dairy Queen

Customers• Individual

consumers• Institutional

customers

Suppliers• Coca-Cola• Wholesale food

processors• Packaging

manufacturers

Strategic Partners• Wal-Mart• Disney• Foreign partners

Regulators• Food and Drug

Administration• Securities and

ExchangeCommission

• EnvironmentalProtectionAgency

Internal environment

Task environment

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How Organizations

and Environments

Interact

11

How Business and Government

Influence Each Other

TheGovernment

Business

The government influences businessthrough direct and indirect regulation:

• Environmental protection legislation• Consumer protection legislation• Employee protection legislation• Securities legislation• The tax codes

Business influences the government through:

• Personal contacts and networks• Lobbying• Political action committees (PACs)• Favors and other influence tactics

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Five-Forces Analysis (Porter)

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The Internal Environment Conditions and stakeholder forces within an

organization Owners with legal property rights to a business. Board of directors elected by the stockholders

to oversee the general management of the firm to best serve the stockholders’ interest.

Employees who work for the firm and have a vested interest in its continued operation and existence.

Physical work environment of the organization and the work that people do.

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Individual Ethics In Organizations

Ethics An individual’s personal beliefs regarding what

is right and wrong or good and bad. Ethical Behavior

This behavior is in the eye of the beholder. However, it also refers to behavior that conforms to generally accepted social norms.

Examples of Unethical Behavior “Borrowing” office supplies for personal use. “Surfing the Net” on company time.

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Determinants of Individual Ethics

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Managerial Ethics Employees Organization

• Conflicts of interest• Secrecy and

confidentiality• Honesty

• Hiring and firing• Wages and working

conditions• Privacy and respect

Subject to ethical ambiguities• Advertising and promotions• Ordering and purchasing• Bargaining and negotiation• Financial disclosure• Shipping and solicitation• Other business relationships

Economic Agents• Customers• Competitors• Stockholders• Suppliers• Dealers• Unions

Three areas of concern for managerial ethics

•The relationships of the firm to the employee.

•The employee to the firm.

•The firm to other economic agents.

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Ethics in Organizations Managing Ethical Behavior

Begins with top management which establishes the organization’s culture and defines what will and will not be acceptable behavior.

Includes training on how to handle different ethical dilemmas.

Developing a code of ethics.Written statement of

the values and ethical standards that guide the firm’s actions.

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Social Responsibility and Organizations Social Responsibility

The set of obligations (to behave responsibly) that an organization has to protect and enhance the social context in which it functions.

Areas of Social Responsibility Stakeholders: customers, employees, and

investors. The natural environment: environmentally

sensitive products, recycling, and public safety. The general social welfare: charitable

contributions, and support for social issues such as child labor and human rights.

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Arguments For and AgainstSocial Responsibility

1. Business creates problems andshould therefore help solve them.

2. Corporations are citizens in oursociety.

3. Business often has the resourcesnecessary to solve problems.

4. Business is a partner in oursociety, along with the govern-ment and the general population.

Social

Responsibility

4. The purpose of business in U.S.society is to generate profitfor owners.

2. Involvement in social programsgives business too much power.

3. There is potential for conflictsof interest.

1. Business lacks the expertise tomanage social programs.

Arguments For Social Responsibility Arguments Against Social Responsibility

Figure 2.2

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Arguments Forand

AgainstSocial

Responsibility

21

Approaches to Social

Responsibility

Source: Barney, Jay B. and Ricky W. Griffin, The Management of Organizations. Copyright © 1992 by Houghton Mifflin Company. Used with permissions.

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Managing Social Responsibility:Formal Organizational Dimensions

Legal Compliance Extent to which the organization conforms to

local, state, federal, and international laws. Ethical Compliance

Extent to which members of the organization follow basic ethical/legal standards of behavior.

Philanthropic Giving Awarding of funds or gifts to charities and other

social programs.

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Managing Social Responsibility:Informal Organizational Dimensions

Organizational Leadership and Culture Leadership practices and the culture of the

organization can help define the social responsibility stance an organization and its members will adopt.

Whistle Blowing The organizational response to the disclosure

by an employee of illegal or unethical conduct on the part of others within the organization is indicative of the organization’s stance on social responsibility.

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Trends in International Business Economic Recovery

Industrialized nations in Europe and Asia have rebuilt their economic systems that were devastated in WWII.

Decreasing Isolation from Foreign Competition U.S. consumer goods markets are open to overseas

competitors. Increasing Globalization of World Markets

Volume of international trade has increased more than 3,000% from 1960 to 2000.

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Managing The Process of Globalization Exporting

Making a product in the firm’s domestic market and selling it in another country.

Importing Bringing a good, service, or capital into a home

country from abroad. Licensing

An arrangement whereby a firm allows a foreign company to manufacture or market the products and uses its brand name, trademark, technology, patent, copyright, or other assets.

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Managing The Process of Globalization Strategic Alliance and Joint Ventures

Two or more firms jointly cooperate for mutual gain, by sharing business costs and/or sharing ownership of a new enterprise.

Direct Investment Occurs when a firm headquartered in one

country builds or purchases operating facilities or subsidiaries in a foreign country.Maquiladoras are light-assembly plants built in

northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government.

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Managing The Process of Globalization

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Environmental Challenges of International Management

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Advantages and Disadvantages of Various Approaches to

InternationalizationApproaches to Internationalization Advantages Disadvantages

Importing or

Exporting

1. Small cash outlay

2. Little risk

3. No adaptation necessary

1. Tariffs and taxes

2. High transportation costs

3. Government restrictions

Licensing 1. Increased profitability

2. Extended profitability

1. Inflexibility

2. Helps competitors

Strategic Alliance/

Joint Venture

1. Quick market entry

2. Access to materials and technology

1. Shared ownership (limits

control and profits)

Direct Investment 1. Enhances control

2. Existing infrastructure

1. Complexity

2. Greater economic and

political risk

3. Greater uncertainty

Table 2.1

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Controls on International Trade Key Concepts

Tariffs are collected on goods shipped across national boundaries.

Quotas are limits placed on the number or value of goods that can be traded as exports or imports.

Export restraint agreements are voluntary limits on the volume or value of goods exported to, or imported from, another country.

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The Structure of the Global Economy

Economic Communities Sets of countries that engage in high levels

of trade with each other through the elimination of trade barriers such as quotas and tariffs.European Union (EU)North American Free Trade Agreement (NAFTA)Latin American Integration AssociationCaribbean Common Market

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European Union(EU)

Member Nations

Figure 2.3

Source: Lucas, George H., Robert P. Bush, and Larry R. Gresham, Retailing. Copyright © 1994 by Houghton Mifflin Company. Used with permissions.

33

The Cultural Environment Language

In Japanese the word “hai” can mean either “yes” or “I understand.”

General Motors’ brand name “Nova” pronounced as “no va” in Spanish means “doesn’t go.”

The Meaning of Colors Green is popular in Muslim countries, yet it signifies

death in other countries. Pink is associated with feminine characteristics in the

U.S.; yellow is the most feminine color in other countries.

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The Organization and Culture Organization Culture

The collection of values, beliefs, behaviors, customs, and attitudes that characterize a community of people.

The Importance of Organization Culture Culture determines the overall “feel” of the

organization, although it may vary across different segments of the organization.

Culture is a powerful force that can shape the firm’s overall effectiveness and long-term success.

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The Organization’s Culture Determinants of Organization Culture

Organization’s founder (personal values and beliefs).

Symbols, stories, heroes, slogans, and ceremonies that embody and personify the spirit of the organization.

Corporate success that strengthens the culture. Shared experiences that

bond organizational memberstogether.

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Organization Culture (cont’d) Managing Organization Culture

Understand the current culture to understand whether to maintain or change it.

Articulate the culture through slogans, ceremonies, and shared experiences.

Reward and promote people whose behaviors are consistent with desired cultural values.

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Organization Culture Changing Organization Culture

Develop a clear idea of what kind of culture you want to create.

Bring in outsiders to important managerial positions.

Adopt new slogans, stories, ceremonies, and purposely break with tradition.