International Business

The Environmental Challenges

Prof Bharat Nadkarni

International Business : Prof Bharat Nadkarni

The Environmental challenges Substantial challenges face any organisation intent on getting to the future first. The first challenge, how to navigate from here to there arises as both public and private institutions struggle to plot a course through and increasingly inconsistent environment where experience is rapidly devalued and familiar landmarks no longer serve as guideposts. Never before has the institutional terrain been changing so quickly or have industry boundaries been so malleable. Never before have competitors, partners, suppliers and buyers been so indistinguishable. How, then, does one get to the future first even when there is no map?
(C K Prahalad and Gary Hamel in the preface to Competing for the future)

International Business : Prof Bharat Nadkarni

What makes business different are the differences in the environment and eventually may make the international business strategy different from the domestic one. A detailed analysis of the business environment of the foreign countries is, therefore, an essential prerequisite for formulating international business strategies. As Cateora point out the key to successful international business is adaptation to the differences in the environment that usually exist from one country to another. Adaptation is not a passive process but a conscious effort on the part of the international player to anticipate the influences of both the foreign and domestic uncontrollable environments on a business strategies and then to adjust the strategies to minimise their efforts.

International Business : Prof Bharat Nadkarni

The root cause of most international business problems is the Self Reference Criterion (SRC) in making decisions, that is, an unconscious reference to ones own cultural values, experiences and knowledge as the basis for decisions. The SRC is one of the most difficult to break Lee. Ex. P & G stormed into Japanese market with American products, American managers, American sales methods and promotion strategies. The results were disastrous until the company learnt how to adapt product and marketing styles to Japanese culture. Similarly, the American company, Texas Instruments which started making semi-conductors in Japan took an American approach to hiring, pay and benefits, dismissing the Japanese system of offering bonuses two times a year as impractical. The workers disagreed, morale crumbled and the company had trouble recruiting employees.

International Business : Prof Bharat Nadkarni

Later, when company adopted the Japanese methods of recruiting and reward including bonuses and a promotion system based on seniority, the situation vastly changed.

Key Environmental factors relevant to International Business

1. Social & Cultural environmental factors include Demographic factors 2. Technological environmental factors 3. Economic environmental factors 4. Political and Government environmental factors 5. International trading environmental factors 6. Natural environmental factors

International Business : Prof Bharat Nadkarni

1. Social & Cultural environment Religious factors Language Customs, Traditions & Beliefs Tastes & Preferences Buying and Consumption habits

International Business : Prof Bharat Nadkarni

Demographic environment Size of population, Growth rate Age composition Family size, Nature of families Income levels

International Business : Prof Bharat Nadkarni

2. Technological environment Type of technology in use Level of technological development Speed with which new technology is accepted and adopted Technology which is appropriate

International Business : Prof Bharat Nadkarni

3. Economic environment Nature and level of development of economy Economic resources

Size of economy
Economic system and policy

Trends in GNP growth rate, per capita income

Nature and trends of foreign trade

Domestic demand and supply conditions

(Out of 200 nations, 75% are developing nations having 80% of population. Only 54 nations have high income economies.)

International Business : Prof Bharat Nadkarni

4. Political & Government environment

Political parties Radical differences Fundamentalists Govt. system Liberal or Conservative policies

International Business : Prof Bharat Nadkarni

5. International trading environment Trade barriers Tariffs Non tariff barriers Import licensing, quotas, foreign regulations, canalisation, quantitative restrictions --- normally applied by developing countries. Voluntary export restraint (VER) which is normally applied by developed countries (protection for those companies who have lost international competitiveness)

International Business : Prof Bharat Nadkarni

6. Natural environmental factors Natural Resources Absolute advantages History: Learning and adaptation (ex North and South Indians)

Can Negative Perceptions Dampen International Business Relations? Japan and China would seem to be natural economic partners, given that they are geographically so close to each other. However, Japanese companies currently lag behind both the US and Europe in terms of trade with China. Although the Japanese auto industry has had enormous success in other countries, including US, the top selling foreign cars in China are produced by GM and Volkswagen and not Toyota or Nissan. Also, Japans booming electronics industry currently captures only 5 percent of the Chinese market. But who or what is to blame for the dismal business relationship between Japan and China? The perceptions of the people in both countries may be the answer. For example, many Chinese citizens are still angered about a report that employees of a Japanese construction company hired Chinese prostitutes for a corporate

party. And many Japanese citizens believe that Chinese immigrants are to blame for many of the violent crimes taking place in Japan. In addition to these recent events, historically relations between the two countries have been strained. Beijing is still upset about Japans military invasion of China in the 1930s and 1940s, for which Japan refuses to make amends. These negative perceptions may be difficult to reverse if perceptual errors such as fundamental attribution error and the halo effect are operating. That is, both countries blame each other for their behaviours and both countries tend to view each others actions negative. Because of these errors, future behaviours, even if they are ambiguous, may be perceived negatively by the other country.

International Business : Prof Bharat Nadkarni

Capitalism, Socialism and Communism Compared

Characteristics
Economic Markets

Capitalism

Socialism

Communism
Absence of competition with state owned markets and industries. Profits not allowed. Workers urged to work for the glory of the state. State provides all the resources to start business owned by the state.

Freedom to compete Limited competition with right to invest. with state owned industries. Profits and wages in relation to ones ability and willingness to work. Capital invested by owners who may also borrow on credit. Capital may be re-invested from profits. Profits recognised. Wages fairly in relation to efforts. Obtained from owners and from state issued bonds for state-owned industries.

Individual incentives

Capital Sources

International Business : Prof Bharat Nadkarni

Capitalism, Socialism and Communism Compared

Characteristics
Labour

Capitalism
Workers are free to select an employer and an occupation.

Socialism
Workers allowed to select occupation. State planning encourages employment.
Managers in stateowned industries are answerable to the state. Non monetary rewards emphasised State owns the basic industries. Other businesses may exist.

Communism
The state determines ones employer and employment.

Management

Managers are selected on the basis of ability. Managers have freedom to make decisions. Individuals have a right to own a business and to contract with others.

Key managres must be party members. Absence of freedom to make decisions.

Business Ownership

State owns all productive capacity.

International Business : Prof Bharat Nadkarni

Capitalism, Socialism and Communism Compared

Characteristics
Risk Assumption

Capitalism
Losses assumed by owners. May transfer business risks to other businesses through insurance.

Socialism
People assume risks of state-owned industries. Losses taken from taxes.

Communism
Economic production owned by the state. Risks assumed by the state. Losses reduce standard of living.

Thank you