Lesson 1: Environmental Forces and Environmental

Scanning
The environment in which a business operates is a major consideration in
determining an organization’s design or structure. Considerations such as
uncertainty, procurement, and competition are linked with the external environment.
A company’s strategy and approach to operations must also be aligned with the
limitations of its environment.
 
Components of the External Business Environment; Generic and Specific
Systematic monitoring of the major external forces influencing organizations is
necessary to improve the management of companies. Failure to consider a
company’s general and specific business environments may affect the strategies that
management will make and use.
The general business environment includes the economic, sociocultural, politicolegal,
demographic, technological and world and ecological situations; all these must be
considered as managers plan, organize, staff, lead and control their organizations.
 
Inflation, rates of interest, changing options in stock markets, and people’s spending
habits are some examples of factors /elements of economic situations. Economic
situations may affect management practices in organizations. For example,
companies may postpone expansion plans if bank loan interests are too high.
 
Sociocultural situations include the customers’ changing values and preferences;
customs could affect management practices in companies. For example, Filipino
customers are now conscious about the importance of avoiding fatty foods, so many
food companies now make sure that the products they offer are cholesterol -free or
are low in cholesterol. In doing so, they avoid losing their customers.
 
Politicolegal situations refer to national or local laws, international laws, and rules
and regulations that influence organizational management. For example, labor laws
related to preventing employers from firing their employees without due process
require the former to allow the latter to exercise their right to present their position
during   disciplinary action before their employment can be terminated.
 
Demographic situations such as gender, age, educational level, income, number of
family members, geographic origin, etc., may also influence regarding hiring human
resources may be affected by an organization’s management policy that shows
prejudice to the hiring of married females who are in the child -bearing age. This may
be because they would like to minimize payment of maternity leave benefits.
 
The technological situations of companies involve the use of varied type of
electronic gadgets and advanced technology such as computers, robotics,
microprocessors, and others that have revolutionized business management; e-
commerce, teleconferencing, and sophisticated information systems have rapidly
changed the ways that business is conducted in the 21st century.
 
World and ecological situations are related to the increasing number of global
competitions and markets, as well as the nature and conditions of the changing
natural environment. Products produce by companies, of course, must cater to the
changing needs of people in the global community, while, at the same time,
considering their impact on the natural environment. For example, car manufacturing
managers must give the go signal for development of vehicles that are
environmentally friendly instead of only being focused on the products speed, fuel
economy, and design.
 
Meanwhile, the specific business environment focuses on stakeholders, customers,
pressure groups, and investors or owners and their employees.
 
Stakeholders are parties likely ti be affected by the activities of the organization,
while customers are those who patronize the organizations’ products and services.
Increasing customer sophistication makes it necessary for managers of organizations
to make crucial decisions regarding the development of products with higher value
and the improvement of their services to meet their patrons increasing demands.
Also, this has prompted companies to solicit feedback from their customers to avoid
dissatisfaction that may lead them to patronize another company offering similar
products and services instead.
 
Suppliers are those who ensure the organization’s continuous flow of needed and
reasonably priced inputs or materials required for producing their goods and
rendering their services. Inputs mentioned also include financial and labor supply.
Managers decide what, where and when to buy their supplies an which supplier to
favor with their organization’s supply order.
 
Pressure groups are special interest groups that try to exert influence on the
organizations’ decisions or actions. For instance, pressure from the Food and Drug
Administration on some department stores and drug store sled them to stop selling
beauty products containing lead and to stop ordering or importing such products from
their suppliers.
 
The organization’s investors or owners provide the company with the financial
support it needs. The company, of course, cannot exist without them; thus, they
greatly influence organizational management. Top-level, middle-level and lower-level
managerial decisions are all influenced, in one way or another, by the investors or
owners of organizations. Branching out, offering new products and services, and
applying for needed loans are all affected by the investors’ or owners’ way of
thinking.
 
Employees are comprised of those who work for another or for an employer in
exchange of salaries or wages or other considerations. Employees execute the
company’s strategies and are important for the maintenance of the company’s
stability. For example, managerial decisions are influenced by the company’s
knowledge workers.
 
Components of the Internal Business Environment
An organization’s internal business environment is composed of its resources,
research and development, production, procurement of supplies and the products
and services it offers.
 
The organization’s internal environment must also be subjected to internal analyses.
Internal strengths and weaknesses, opportunities and threats with regards to its
resources (financial, physical, mechanical, technological, and human resources),
research and development endeavors, production of goods, procurement of supplies
(materials, inputs, and finance), and products and services must all be considered
prior to organizational planning.
 
Components of Environmental Scanning: Developing a Competitive Mindset,
Considering Future Business Scenarios, Business Prediction and
Benchmarking
 
Adapting to environmental uncertainties must start with a developing a competitive
mindset. Ignorance to present-day realities may cause individuals or organizations to
do certain things that they may regret in the future; hence, environmental scanning is
necessary. By seeking for and sorting through data about the environment, you may
be able to understand and predict the various changes, opportunities and threats that
may affect organizations in the future. Knowing the present-day competitors, the
possible number of barriers to entering your chosen business industry, the existence
or nonexistence of substitute to your planned product or service, and possible
dependence on powerful suppliers and customers will be helpful in developing a
competitive mindset.
 
In preparation for future conditions that may influence your planned business
endeavor, you must also consider future business scenarios. By realistic
consideration of both worst-case scenario or unfavorable future conditions and best
scenario or favorable conditions, as well as middle -ground possible conditions, you
will have an idea of what to do in the future.
 
Meanwhile, business prediction, also known as business forecasting, is a method of
predicting how variables in the environment will alter the future of business. It could
be used in making decisions regarding offshoring, branching out locally, and
expanding or downsizing the company. However, the accuracy of such business
predictions cannot always be assured.
 
Another component of environmental scanning involves gauging the performance of
the organization in relation to those of others; this is called benchmarking.
 
Benchmarking is defined as the process of measuring or comparing one’s own
products, services and practices with those of the recognized industry leaders in
order to identify areas for improvement. Best practices of said industry leaders are
observed so that understanding their competitive advantage would be easier. This is
followed by gathering information about company’s own operations and those of the
other company in order to identify gaps; this in turn could be used to find out the
underlying reasons, a set of best practices in one’s own company will be listed down
and that, ultimately, leads to the company’s improved performance.
 

Lesson 2: The Local and International business

environment of the firm

A. Local Business Environment of the Firm

It is the business entity whose commercial activities are performed within a nation.
The producer and customers of the firm both reside in the country. In domestic trade,
the buyer and seller belong to the same country and so the trade agreement is based
on the practices, laws, and customs that are followed in the country.

The business operates within a complex network of political, legal, and institutional
framework conditions - the "so-called" business climate. A conducive local business
climate reduces the costs of doing business, unleashes economic potential, and
attracts investment. In contrast, if the local business climate is shaped by problematic
governance patterns, political guidelines, laws, and regulations, and ineffective
administration, private and public sectors pay enormous and unnecessary costs with
a negative impact on economic growth patterns.

In local businesses, communication is easier. Because it is a business entity whose

commercial activities are performed within a nation. The producer and customers of
the firm both reside in the country. In domestic trade, the buyer and seller belong to
the same country and so the trade agreement is based on the practices, laws, and
customs that are followed in the country.
Access to materials and labor may be limited in local businesses. There are many
privileges which a domestic business enjoys like low transaction cost, less 9 periods
between production and sale of goods, low transportation cost, encourages small-
scale enterprises, etc.

In different countries, sometimes even within a country, there are substantial

differences in attitudes, beliefs. motivation morality, superstition, and perception, and
as well as other characteristics. In 1928. Geert Hofstede developed a model in which
worldwide differences in culture are categorized according to five dimensions.

1.Power Distance – the degree to which a society accepts or rejects the unequal
distribution of power among people in organizations and the institutions of society.

2. Uncertainty Avoidance – the degree to which society is uncomfortable with risk,

change, and situational uncertainty.

3. Individualism-Collectivism – the degree to which a society emphasizes

individual accomplishments versus collective accomplishments.

3. Masculinity-Femininity – the degree to which a society values assertiveness and

feelings of material success versus concern for relationships.

5. Time Orientation – the degree to which a society emphasizes short-term thinking

versus greater concern for the future or long-term thinking

 B. The International Business of the Firm

International Business is one whose manufacturing and trade occur beyond the
borders of the home country. All the economic activities indulged in cross-border
transactions comes under international or external business. It includes all the
commercial activities like sales, investment, logistics, etc., in which two or more
countries are involved.

The internalization of management is an offshoot of the entire world become global,

with resources and technologies interacting harmoniously beyond national and
international boundaries. The economic and social benefits that come with
globalization are said to be among the positive outcomes. Globalization – refers to
changes in the dimensions of the external environment that result in increased
interdependence and integration among people and organizations around the world.
Globalization advocates, however, fail to realize the very serious challenges faced by
managers in adjusting to the cultural differences among different countries where
they intend to do business. The culture of different countries is rooted in their history,
religion, traditions, beliefs, and deep-seated values, and because of these, managing
globally can be very complicated, obviously has a major impact in the way business
operates all over the world.

Some of the components or factors of the global business environment include:

1. International Legal and Political System. The political system is the system of
politics and government in a country. It governs a complete set of rules, regulations,
institutions, and attitudes. The main differentiator of political systems is each
system’s philosophy on the rights of the individual and the group as well as the role
of government. Each political system’s philosophy impacts the policies that govern
the local economy and business environment.

2. Trade Agreements and Trade Barriers Between Countries. A trade agreement

is a wide-ranging taxes, tariff, and trade treaty that often includes investment
guarantees. It exists when two or more countries agree on terms that help them trade
with each other. Trade barriers are government-induced restrictions on international
trade.
Economists generally agree that trade barriers are detrimental and decrease overall
economic efficiency; this can be explained by the theory of comparative advantage.

3. Regional Economic Alliances. It is a treaty that is signed by two or more

countries to encourage the free movement of goods and services across the borders
of its members. The agreement comes with internal rules that member countries
follow among themselves.

4. Global Outsourcing Global outsourcing is enabling business without barriers in a

borderless world. As enterprises think global, their outsourcing models have changed
to follow suit.

Outsourcing is no longer just a short term quick-fix to achieve cost reduction. Global
outsourcing uses a blend of onsite, offshore, and nearshore outsourcing solutions to
achieve strategic business objectives for the outsourcing company.

Benefits of Globalization Faced by Business Environment

1. Access to New Cultures Globalization makes it easier than ever to access

foreign culture, including food, movies, music, and art. This free flow of people,
goods, art, and information is the reason you can have Thai food delivered to your
apartment as you listen to your favorite UK-based artist or stream a Bollywood movie
or even the K-Pop styles.

2. The Spread of Technology and Innovation. Many countries around the world
remain constantly connected, so the knowledge and technological advances travel
quickly. Because knowledge also transfers so fast, this means that scientific
advances made in Asia can be at work in the United States in a matter of days.

3. Lower Costs for Products Globalization allows companies to find lower-cost

ways to produce their products. It also increases global competition, which drives
prices down and creates a larger variety of choices for consumers. Lowered costs
help people in both developing and already-developed countries live better on less
money.

 4. Higher Standards of Living Across the Globe Developing nations experience

an improved standard of living—thanks to globalization. According to the World Bank,
extreme poverty decreased by 35% since 1990. Further, the target of the first
Millennium Development Goal was to cut the 1990 poverty rate in half by 2015. This
was achieved five years ahead of schedule, in 2010. Across the globe, nearly 1.1
billion people have moved out of extreme poverty since that time.

 5. Access to New Markets Businesses gain a great deal from globalization,

including new customers and diverse revenue streams. Companies interested in
these benefits look for flexible and innovative ways to grow their business overseas.
International Professional Employer Organizations (PEOs) make it easier than ever
to employ workers in other countries quickly and compliantly. This means that, for
many companies, there is no longer the need to establish a foreign entity to expand
overseas. 

5. Access to New Talent. In addition to new markets, globalization allows

companies to find new, specialized talent that is not available in their current market.
For example, globalization allows companies to explore tech talent in booming
markets such as Berlin or Stockholm, rather than Silicon Valley. Again, International
PEO allows companies to compliantly employ workers overseas, without having to
establish a legal entity, making global hiring easier than ever. 

Challenges of Globalization Faced by Business Environment

1. International Recruiting. Recruiting across borders creates unknowns for HR

teams. First, companies create a plan for how they will interview thoroughly the
candidates to make sure they are qualified when thousands of miles separate them
from headquarters. To ensure successful hires, HR teams must factor in challenges
like time zones, cultural differences, and language barriers to find a good fit for the
company.

2. Managing Employee Immigration. Immigration challenges cause a lot of

headaches internally. Immigration laws change often, and in some countries, it is
extremely difficult to secure visas for employees that are foreign nationals.

3.Incurring Tariffs and Export Fees. Another challenge both U.S and UK leaders
said they face in the report is incurring tariffs and export fees—29% agreed this is a
challenge for their global businesses. For companies looking to sell products abroad,
getting those items overseas can be expensive, depending on the market.

4. Payroll and Compliance Challenges. Another common global expansion

obstacle is managing overseas payroll and maintaining compliance with changing
employment and tax laws. This management task gets even more difficult if you’re
trying to manage operations in multiple markets.

5. Loss of Cultural Identity. While globalization has made foreign countries easier

to access, it has also begun to meld unique societies together. The success of
certain cultures throughout the world caused other countries to emulate them. But
when cultures begin to lose their distinctive features, we lose our global diversity.

6. Foreign Worker Exploitation. Lower costs do benefit many consumers, but it

also creates tough competition that leads some companies to search for cheap labor
sources. Some western companies ship their production overseas to countries like
China and Malaysia, where lax regulation makes it easier to exploit workers.

 7.Global Expansion Difficulties. For businesses that want to go global and

discover the benefits of globalization, setting up a compliant overseas presence is
difficult. If companies take the traditional route of setting up an entity, they need
substantial upfront capital, sometimes up to $20,000, and costs of $200,000 annually
to maintain the business.

Additionally, global businesses must keep up with different and everchanging labor
laws in new countries. When expanding into new countries, companies must be
aware of how to navigate new legal systems. Otherwise, missteps lead to
impediments and severe financial and legal consequences.

8.Immigration Challenges and Local Job Loss. The political climates in the United
States and Europe show that there are different viewpoints on the results of
globalization. Many countries around the globe are tightening their immigration rules,
and it is harder for immigrants to find jobs in new countries. This rise in nationalism is
mainly due to anger from the perception that foreigners fill domestic jobs or at
companies moving their operations abroad to save money on labor costs.

Both the benefits and challenges of globalization change how a business operates in
different ways. When companies decide to go global, they must be ready and willing
to change internal processes. This helps to accommodate new markets and make
their global workforce feel comfortable and accepted at work.

 Companies see many aspects of their businesses change once they enter the global
marketplace. For example, globalization makes the workforce more diverse. This
diversity is an overall positive change, but it creates some challenges, such as
language barriers and differences in cultural expectations.