MODULES IN INTERNATIONAL BUSINESS AND TRADE

BY : Nestor S. Asunto

CBM-05-12 Module/6th January 2020

 UNIT 2

INTERNATIONAL BUSINESS ENVIRONMENT

COMPETENCIES

1. To Identify the different International business environment

2. To find out the importance of each environment
3. To define the term business environment
4. To enumerate the types of international business environment

ENDURING UNDERSTANDING

The fundamental basis for strategy formulation is the environment analysis. Environment provides the opportunities to the business to
produce and sell a particular product and services. For example, the present day business environment provides wide opportunity for internet.
Similarly, environment in India provides opportunity for production and selling of fuel saving motor bicycles. European climatic condition
provides an opportunity for woollen and leather garments.

Study of environment helps the business to formulate strategies and run the business efficiently in the competitive global market. We
understand that environment has significant and crucial impact on the business Thus, business depends on environmental dynamics.

Having indicated the various classes and kinds of credit, we are now ready to take a comprehensive look at each by taking into account
their real nature and significance.

Essential Questions:

1. Describe the meaning of business environment;

2. Identify the scope of each kind of business environment;
3. Identify the factors that affect business environment of different countries;
4. Formulate strategies to run the business efficiently in the competitive global market.

CBM-05-12 Module/6th January 2020

 5. Describe the importance of business environment to international business and trade.

Values Integration:

1. Decision-making
2. Economic-Conscious
3. Dependability
4. Responsibility
5. Trustworthy

Teaching Strategies:

1. Lecture-Discussion
2. Reporting
3. Case Study
4. Self-directed learning

Materials Needed:

1. Hands-out
2. Modules
3. Online resource(internet connection)

UNIT OUTLINE
(A) SOCIAL AND CULTURAL ENVIRONMENT

(B) TECHNOLOGIAL ENVIRONMENT

(C) ECONOMIC ENVIRONMENT

(D) POLITICAL ENVIRONEMENT

ACTIVITY 1:
LESSON 1: SOCIAL AND CULTURAL ENVIRONMENT
CBM-05-12 Module/6th January 2020
As you go through this module, remember to search for the answers to the following questions:

1. In your own understanding, what is business environment ?

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ACTIVITY 2:

1. Read the text below and answer the questions that follows:

We have studied the introduction to international business in the first unit. Now, we shift our focus from macro aspects to micro aspects
of international business. A global company has to formulate strategies based on its missions, objectives and goals. Strategy formulation is a
must for global company to make decisions regarding the markets to enter, product/service range to introduce in the foreign countries and the
like. Further, the severe and intensified competition in the global market makes the strategy formulation a challenging task.

SOCIAL AND CULTURAL ENVIRONMENT

Social and cultural factors in various countries of the globe affect the international business. These factors include attitude of the people
to work, attitude to wealth, family, marriage, religion, education, ethics, human relations, social responsibilities etc.

Culture is, “ the thought and behaviour patterns that member of a society learns through language and other forms of symbolic
interaction - their customs, habits, beliefs and values, the common view points which bind them together as a social entity. Cultures change
gradually picking up new ideas and dropping old ones, but many of the cultures of the past have been so persistent and self contained that the
impact of such sudden change has torn them apart, uprooting their people psychologically”.

Characteristics of cultures are:

Culture is

- derived mostly from the climatic conditions of the geographical region and economic conditions of the country.

- a set of traditional beliefs and values which are transmitted and shared in a given society.
CBM-05-12 Module/6th January 2020
- a total way of life and thinking patterns that are passed from generation to generation

- norms, customs, art, values, etc.

CULTURE ATTITUDE AND INTERNATIONAL BUSINESS

Dressing habits, living styles, eating habits and other consumption patterns, priority of needs are dictated/influenced by culture. Some
Chinese and most of the Indians do not consume beef. Thailand Chinese believe that consumption of beef is improper and Indians (particularly
Hindus) believe that eating beef is a sin as they believe cow is sacred ( Kamadhenuvu).

The eating habits vary widely. Chinese eat fish stomachs, and bird’s nest soup, Japanese eat uncooked sea food, Iraqis eat dried, salted
locusts and snakes while drinking. The French eat snails, Americans and Europeans eat mostly non-vegetarian food. Indians eat mostly
vegetarian food. It was surprising to the rest of the world to know that there were pure vegetarians in India.

WHAT DO I REALLY KNOW?

1. What is social and cultural environment? Write your answers in the space provided below.
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2. Discuss and analyse the impact of social and cultural factors on the global business.
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LESSON ll : TECHNOLOGICAL ENVIRONMENT

Technological environment has significant and direct influence on business in general and international business in particular.
Technology is the application of knowledge. J.K. Galbraith defines technology as “ a systematic application of scientific or other organized
knowledge to particular tasks”. Technology advanced phenomenally during past 50 years.

Technology creates changes at a faster rate. In fact, it brings change in the society, economy, and politics. Technology affects all walks
of life, all countries and the entire globe.Technology flows from the advanced countries to the developing world through multinational
corporations (MNC’s) , joint ventures, technological alliances, licensing and franchising.

Investment in Technology

Advanced countries spend considerable amount on research and development for further advancement of technology. Germany spends
50% of its R & D budget on product innovation and the remaining 50% on process innovation. Japan spends only 30% on product innovation and

CBM-05-12 Module/6th January 2020

the remaining 70% on process innovation. In contrast, the USA spends 70% on product innovation and only 30% on process innovation. The
Japanese auto manufacturers gained incredible competitive advantage over US counterparts by reducing new product’s time to market.
Japanese companies introduce the product in three year whereas the US firms need five years for the same job.

Technology and Economic Development

Technology is one of the significant factors which determines the level of economic development of a country. The difference between
the nations is mostly reflected by the level of technology. As such, developing countries allow MNC’s entry into their countries in order to have
benefits of the latest technology and to develop the domestic industry. But often, it is criticised that the MNC’s transfer obsolete technology to
developing countries.

Technology Transfer

Technology and global business are interdependent. International business spreads technology from advanced countries to
developing countries by:

- establishing the subsidiaries in developing countries

- establishing joint ventures with the host country’s companies

- acquiring the host country’s companies or by merging with the host country’s firms

- arranging technological transfer to the companies of developing countries through technological alliances.

Technology and Globalization

The Industrial revolution resulted large=scale production. Added to this, the recent technological revolution led to the production of
high quality products at lower cost. These factors forced the domestic companies to enter foreign countries in order to find markets for their
products, Thus, technology is one of the important cause for globalization.

ACTIVITY 3

LET’S ANSWERS

CBM-05-12 Module/6th January 2020

 1. In your OWN WORDSs, what is technology?

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2. Explain the role of technological changes in the global business.

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LESSON lll: ECONOMIC AND POLITICAL

ENVIRONMENT
CBM-05-12 Module/6th January 2020
 ECONOMIC ENVIRONMENT:

The economic environment of various countries mostly and directly influences international business. In fact, International economic
environment and global business interact with each other. Global economy has undergone a sex change during the last 50 years. The change
was revolutionary after 1990. The result of these changes are the emergence of global markets, establishment of World Trade Organizations,
emergence of global business houses and global competitions rather than local competitors. The major changes include:

- Capital flow rather than trade or product flow across the globe

- Establishment of production facilities in various countries

- Technological revolution delinked the relation between the size of production and level of employment

- Primary products are delinked from the industrial economies.

- The contest between ‘capitalism’ and ‘communism’ is over. Capitalism succeeded over communism/socialism as a model for the
organization of economic activity.

ECONOMIC SYSTEM

Economic system is an organization of institutions established to satisfy human needs/wants. There are three types of economic system,
viz. Capitalism, communism and mixed. Economic system are based on resource allocation in the system. They are market allocation in case of
capitalistics, command/central allocation in case of communistic and mixed allocation in case of mixed economic system.

ACTIVITY 4

Please read the text below and open the link with regards to political environment

POLITICAL ENVIRONMENT

CBM-05-12 Module/6th January 2020

 Government actions which affects the operations of a company or business. These actions may be on local, regional, national or
international level. Business owners and managers pay close attention to the political environment to gauge how government actions will
affect their company

Read more: http://www.businessdictionary.com/definition/political-environmental.html

There are many external environmental factors that can affect your business. It is common for managers to assess each of these
factors closely. The aim is always to take better decisions for the firm’s progress. Some common factors are political, economic,
social and technological (known as PEST analysis). Companies also study environmental, legal, ethical and demographical
factors.

The political factors affecting business are often given a lot of importance. Several aspects of government policy can affect
business. All firms must follow the law. Managers must find how upcoming legislations can affect their activities.

The political environment is perhaps among the least predictable elements in the business environment. A cyclical political
environment develops, as democratic governments have to pursue re-election every few years. This external element of business
includes the effects of pressure groups. Pressure groups tend to change government policies.

As political systems in different areas vary, the political impact differs. The country’s population democratically elects open
government system. In totalitarian systems, government’s power derives from a select group.

Corruption is a barrier to economic development for many countries. Some firms survive and grow by offering bribes to
government officials. The success and growth of these companies are not based on the value they offer to consumers.

Below is a list of political factors affecting business:

 Bureaucracy
CBM-05-12 Module/6th January 2020
  Corruption level
 Freedom of the press
 Tariffs
 Trade control
 Education Law
 Anti-trust law
 Employment law
 Discrimination law
 Data protection law
 Environmental Law
 Health and safety law
 Competition regulation
 Regulation and deregulation
 Tax policy (tax rates and incentives)
 Government stability and related changes
 Government involvement in trade unions and agreements
 Import restrictions on quality and quantity of product
 Intellectual property law (Copyright, patents)
 Consumer protection and e-commerce
 Laws that regulate environment pollution
There are 4 main effects of these political factors on business organizations. They are:

 Impact on economy
 Changes in regulation
 Political stability
 Mitigation of risk

ACTIVITY 5

CBM-05-12 Module/6th January 2020

 1. What is economic environment? Explain.

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2. Do you think that the economic status of the country influences the global business? Explain.

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3. Do you believe that political stability leads to business development and vice versa? If yes state your answer with examples.

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CBM-05-12 Module/6th January 2020

 REFLECTION

1. As a business student, what business environment greatly affect international business?

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2. As stated in the module, why technology is one of the important cause for globalization?

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CBM-05-12 Module/6th January 2020

 3. Filled up this table. Name five (5) countries and indicate what type of international business they are mostly engaged and indicate
what business environment is being applied of each type of business in each country.

NAME OF COUNTRY TYPE (KIND) OF INTERNATIONAL BUSINES BUSINESS ENVIRONMENT

REFERENCES:

Briones, Jose Glenn, ( 2005) Textbook on Credit and Collection Management

Miranda (2002) Textbook on Credit and Collections

CBM-05-12 Module/6th January 2020

CBM-05-12 Module/6th January 2020
CBM-05-12 Module/6th January 2020
CBM-05-12 Module/6th January 2020