The Political, Legal, Economic &
outside the company, relating to the
Technological Environment
General Environment
 The general environment includes
economic, technological, political, legal,
sociocultural that generally affect all
organizations. They create opportunities
and threats to the organizations. The
general environment consists of broad
external forces that directly affect the
activities of an organization
INTERNATIONAL MANAGEMENT
Political, legal, and technological environments
can alter the landscape for global companies.
Now more than ever, international managers
need to be aware of how differing political,
legal, and technological environments are
affecting their business and how globalization,
security concerns, and other developments
influence these environments. Changes in
political, legal, and environmental conditions
also open up new business opportunities but
close some old ones. International management
involves understanding international
economics, leading change in international
corporations and creating global business
strategies
International Management Introduction
Google's China Gamble In early 2010, Google,
the most used search engine and a large,
increasingly diversified technology company,
reported that it had been the target of a
cyberattack emanating from China, the goal of
which was to penetrate the email accounts of
Chinese human rights activists. In response, the
company said it would no longer censor its
results in China, effectively closing down its
active operations in China.
Political Environment
 The political environment refers to factors
government or public affairs of a country,
influencing companies. The government,
here, has a broad meaning. It can refer to
the central, regional government,
government agencies, independent
government institutions.
Various Political Environment Related Factors
& Elements:
1. Stability - This is one of the most important
factors. The stability of political
environment is very conducive to the
economy and business in general. If a
country is not stable and government keeps
changing frequently, the country can never
be economically stable as well. The GDP,
stock exchange index all would go down
leading to a vicious circle.
2. Taxation - The taxation regime is very
important when it comes to political
environment. If a government is balanced in
terms of tax and budget, the companies are
motivated to produce more and grow.
3. Foreign Policies - Political Environment
should also balance the foreign investments
and growth in a particular country. If there
is no foreign investment, growth and
technical knowledge can be issues but if
there is too much foreign investment inflow
then it can lead to loss of domestic players.
MINIMIZING THE THREAT OF THE POLITICAL
ENVIRONMENT
In some cases, companies develop political
strategies to reduce risks and create
opportunities.
They play political games and devote enormous
resources to politics to influence government
decisions that are vital to their business.
They operate in private, through quiet
negotiations with politicians. They gather their
own employees, stakeholders, or the general
public to voice strategic issues to policymakers.
In building opinions, businesses can manage
through media campaigns or even
demonstrations.
Political Risk
 Political risks are risks associated with
changes that occur within a country's
policies, business laws, or investment
regulations.
 Political risk is the possibility that your
business could suffer because of instability
or political changes in a country
Types of political risk:
1. War, terrorism, and civil unrest They faced
the potential for damage to assets through
political violence and possible broader
expropriation measures.”
2. Jurisdictional risk Refers to the laws that
will govern the agreement you sign with
your partner. When that partner is in
another country, difficulties can arise
should the terms of the contract begin to
unravel.
3. Geopolitical decisions made by
governments international relations, as
influenced by geographical factors.
4. Sanctions A punitive or coercive measure or
action that results from failure to comply
with a law, rule, or order
Managing Political Risk
 The first step in managing political risk is
understanding that these risks are often
worth taking in order to maintain a
diversified portfolio.
 Investors should maintain a diversified
portfolio in order to avoid any specific
political risk significantly impacting the
overall portfolio. Diversification should
include hedging the risk that is inherent to
international investments.
INTERNATIONAL LEGAL ENVIRONMENT
These are the rules and principles that nation-
states consider binding among themselves and
the area in which business interacts with the
legal system
It pertains to property, trade, immigration, and
other areas
Legal Factors:
 Consumer Law
 Import and Export Law
 Employment Law
 Health and Safety Law
These are factors which refer to how the
law affects the business operate and
how the consumers behave
Foundations on which laws are based around
the world:
Islamic Law this is law derived from
interpretations of the Qur’an and the teachings
of Prophet Muhammad
Socialist Law this law comes from the Marxist
Socialist system and continues to influence
regulations in former communist countries.
Common Law this comes from English Law, and
it is the foundation of the legal system in the
United States, Canada, England, Australia, New
Zealand, and other countries.
Civil/Code Law this law is derived from Roman
Law and is found in the nonIslamic and
nonsocialist countries
Basic principles of international law:
 Sovereignty and Sovereign Immunity
the principle of sovereignty holds that
governments have the right to rule themselves
as they see fit
 Doctrine of Comity
holds that there must be mutual respect for the
laws, institutions, and governments of other
countries in the matter of jurisdiction over their
own citizens.
 International Jurisdiction
Nationality Principle - holds that every country
has jurisdiction over its citizens no matter
where they are located.
Territoriality Principle - holds that every nation
has the right of jurisdiction within its legal
territory.
Protective Principle - holds that every country
has jurisdiction over behavior that adversely
affects its national security, even if that
occurred outside the country.
 Act of State Doctrine
all acts of other governments are considered to
be valid by U.S courts, even if such acts are
inappropriate in the United States
 Treatment and rights of aliens
countries have the legal right to refuse
admission of foreign citizens and to impose
special restrictions on their conduct, their right
of travel, where they can stay, and what
business they might conduct.
INTELLECTUAL PROPERTY RIGHTS
It is any product that includes intangible
creations of the human intellect that the law
protects from unauthorized use by others
Intellectual Property Rights:
 Patent gives an inventor exclusive right to
make, use, and sell an invention for a
specified period of time
 Trademarks distinctive mark, motto, device,
or emblem used to distinguish it from
competing products
 Copyright established ownership of a
written, recorded, performed, or filmed,
creative work.
 Licensing a contractual arrangement in
which a licensor allows a licensee to use
patents, trademarks, trade secrets,
technology, and other intangible assets in
return for royalty payments or other forms
of compensation
 Imitation product name differs slightly from
a well-known brand
 Piracy unauthorized publication or
reproduction of copyright work
 Antitrust laws are designed to combat
restrictive business practices and to
encourage competition
 Counterfeiting unauthorized copying and
production of product.
 Trade Secret are confidential information or
knowledge that has commercial value and is
not in the public domain and for which
steps have been taken to keep it secret.
 Bribery and Corruption bribery is the
corrupt business practice of demanding or
offering some type of consideration -
typically a cash payment - when negotiating
a cross-border deal.
ECONOMIC SYSTEM
What is an Economic System?
 An economic system is a means by which
societies or governments organize and
distribute available resources, services, and
goods across a geographic region or
country. Economic systems regulate the
factors of production, including land,
capital, labor, and physical resources.
Types of economic system:
 Traditional Economic System The
traditional economic system is based on
goods, services, and work, all of which
follow certain established trends
 Command Economic System In a command
system, there is a dominant centralized
authority – usually the government – that
controls a significant portion of the
economic structure.
 Market Economic System Market economic
systems are based on the concept of free
markets. In other words, there is very little
government interference
 Mixed System Mixed systems combine the
characteristics of the market and command
economic systems.
Economic Variables:
Gross Domestic Product The monetary value of
final goods and services produced by an
economy in a given period of time.
Inflation The proportional variation of the
Consumer Price Index over a period of time.
Unemployment The percentage of the labor
force currently unemployed and actively
seeking employment.
Interest Rate The cost of borrowing money.
BUSINESS ENVIRONMENT
Business Environment is sum or collection of all
internal and external factors such as employees,
customers’ needs and expectations, supply and
demand, management, clients, suppliers,
owners, activities by government, innovation in
technology, social trends, market trends,
economic changes, etc. These factors affect the
function of the company and how a company
works directly or indirectly. Sum of these factors
influences the companies or business
organizations environment and situation.
Economic Factor Affecting Business
Environment:
 Demand and Supply Demand and supply
affect business i.e customers willingness to
purchase business products and
responsibility of business to provide to
those products
 Income and Employment Purchasing power
of individuals depends on rate of income
and employment for demand in company
and country General Price Level Cost of raw
materials, production & transportation
rates in any economy can alter profit
generated by business
 Recession Recession in any economy drive
down sales for companies of all sizes
 Money and Banking Money facilitates
demand and banking policy facilitates
borrowing capacity for business which all
together affects price of goods in country
 Trade Cycles Changes in trade policies can
alter the costs of raw materials and the
import and export tariffs to which they're
subject. This will change their price and
profitability on business markets
TECHNOLOGICAL ENVIRONMENT
Technology is the making, modification, usage,
and knowledge of tools, machines, techniques,
crafts, systems, methods of organization, in
order to solve a problem, improve a pre-existing
solution to a problem, achieve a goal or perform
a specific function. It can also refer to the
collection of such tools, machinery,
modifications, arrangements, and procedures.
Technological Environment means the
development in the field of technology which
affects business by new inventions of
productions and other improvements in
techniques to perform the business work. Those
technological factors which impact the business
operation are called technological environment.
TYPES OF TECHNOLOGY
Technology can be classified in several ways.
For example, blueprints, machinery, equipment,
and other capital goods are sometimes referred
to as hard technology while soft technology
includes management knowhow, finance,
marketing, and administrative techniques.
When a relatively primitive (traditional)
technology is used in the production process,
the technology is usually referred to as labor
intensive. A highly advanced technology, on the
other hand, is generally termed capital-
intensive.
TECHNOLOGICAL TRANSFER
Technology transfer, also called transfer of
technology (TOT) refers to the process of
moving (disseminating) technology from one
person or entity to another. These transfers
may be made by universities, businesses (of all
sizes), governments, across national
boundaries, both formally and informally
TYPES:
1. Technology Push
2. Market Pull
3. Technological Spillover
Benefits of Technology Transfer:
Technology transfer has benefits for
universities, companies, regional and national
economies, and society at large.
International Socio-cultural
Environment
Socio-Cultural Environment
 is a set of customs, beliefs, behavior, and
practices that exists within a population
 part of the firm's external marketing
environment in which social or cultural
changes act to affect the firm's marketing
effort
 Socio-cultural factors are customs,
lifestyles, and values that characterize a
society
National Cultural Characteristics
is the set of norms, behaviors, beliefs, customs,
and values shared by the population of a
sovereign nation
specific characteristics such as language,
religion, ethnic and racial identity, and cultural
history and traditions
National culture differences can be expressed as
values on a number of dimensions: power
distance, masculinity-femininity, individualism
collectivism, and uncertainty-avoidance
Dimensions of National Culture Professor Geert
Hofstede
 Conducted one of the most comprehensive
studies of how values in the workplace are
influenced by culture
 Defines culture as “the collective
programming of the mind distinguishing the
members of one group or category of
people from others”
 The cultural dimensions represent
independent preferences for one state of
affairs over another that distinguish
countries from each other
Power Distance Index (PDI)
 Expresses the degree to which the less
powerful members of a society accept and
expect that power is distributed unequally
 People in societies exhibiting a large degree
of Power Distance accept a hierarchical
order in which everybody has a place and
which needs no further justification
Individualism versus Collectivism (IDV)
 Individualism - a preference for a loosely-
knit social framework in which individuals
are expected to take care of only
themselves and their immediate families
 Collectivism - a preference for a tightly-knit
framework in society in which individuals
can expect their relatives or members of a
 particular ingroup to look after them in
exchange for unquestioning loyalty
Masculinity versus Femininity (MAS)
 Masculinity - a preference in society for
achievement, heroism, assertiveness, and
material rewards for success. Society at
large is more competitive
 Femininity - a preference for cooperation,
modesty, caring for the weak and quality of
life. Society at large is more consensus-
oriented
Uncertainty Avoidance Index (UAI)
 The degree to which the members of a
society feel uncomfortable with uncertainty
and ambiguity
 How a society deals with the fact that the
future can never be known: should we try
to control the future or just let it happen?
Long term Orientation versus Short term
Normative Orientation
 Every society has to maintain some links
with its own past while dealing with the
challenges of the present and the future.
 “(short-term) normative versus (long-term)
pragmatic” (PRA)
 Monumentalism versus Flexhumility
Indulgence versus Restraint (IVR)
 Indulgence - a society that allows relatively
free gratification of basic and natural
human drives related to enjoying life and
having fun
 Restraint - a society that suppresses
gratification of needs and regulates it by
means of strict social norms
Cultural Impacts on International Business
In international business, culture refers to an
organization's beliefs, values, practices, and
attitudes that influence company functions and
the strategic direction it takes. Management
and employee professional interactions within
and outside the corporation are influenced by
business culture.
Why is culture influential in International
Business?
Culture determines how multinational and
cross-cultural teams communicate and
collaborate in international business. It
establishes the values, etiquettes, thought
patterns, decision-making, procedures, and
processes of the corporate sector.
Communication
 Effective communication is vital to the
success of any business effort, but it is
more critical when your message is at
risk of being "lost in translation. "
Organizational Hierarchy
 The order of members in an
organization is determined by authority.
It refers to the progression of
individuals from entry-level to senior
managers or executives. Organizational
hierarchies often have numerous levels,
with people with greater power
occupying higher positions.
Workplace etiquette
 Workplace etiquette relates to good
workplace conduct in order to make the
atmosphere in which people work a
courteous, respectful, and enjoyable
place to be. This etiquette may vary
depending on the workplace, and many
firms will have particular guidelines for
workplace etiquette and professional
behaviour that they demand from their
employees.
National, Organizational and Occupational
Cultures
  National Culture represents the beliefs
and practices shared by the citizens of
the same nation. Within national
cultures, values are generally seen as
stable over time.
 Organizational culture refers to the
beliefs and behaviors that determine
how a company’s employees and
management interact and handle
outside business transactions.
 Occupational Culture is a means for
coping with the uncertainties arising
routinely in the course of doing a job.
An occupational culture is a reduced,
selective, and task-based version of
culture that includes history and
traditions, etiquette and routines, rules,
principles, and practices that serve to
buffer practitioners from contacts with
the public.
4 Types of Organizational Culture
1. The Clan culture - this culture is rooted in
collaboration. Members share
commonalities and see themselves are part
of the one big family who are active and
involved.
2. The Adhocracy culture - this culture is
based on energy and creativity. Employees
are encouraged to take risks, and leaders
are seen as innovators or entrepreneurs.
3. The Market culture - this culture is built
upon the dynamics of competition and
achieving concrete results.
4. The Hierarchy culture - this culture is
founded on structure and control. The work
environment is formal, with strict
institutional procedures in place for
guidance.
National and Organizational Cultural
Dimensions
Universalism vs. Particularism - In universal
cultures rules are favored over relationships.
Contractual agreements are considered of the
utmost importance, and logical, rational
analytical thinking and professionalism are of
great importance. In particularism cultures
there are greater obligations to friendship and
kinship and these are maintained through
personalism, saving face and paternalism
Dimensions of National Cultures:
 Individualism vs. Communitarianism - This
is almost identical to Hofstede’s dimension,
with cultures towards the former end of the
spectrum seen as reinforcing the role of the
individual and those towards the
communitarianism end of the spectrum
seen as emphasizing the role of groups and
larger systems.
 Achieving vs. ascribing- In achieving
societies the emphasis is on esteem related
to past achievements. In ascribing societies
achievement is a more collective affair and
organizations in these societies often justify
a high-power distance so that things get
done.
 Internal Direction vs. Outer Direction - This
concerns beliefs about nature’s ability to be
controlled. Inner-directed cultures want to
overcome nature and depend a great deal
on one’s own control, while outer-directed
cultures see themselves more as a product
of the outside world and external
environment.
 Sequential Time vs. Synchronous Time -
This reflects different attitudes to time:
synchronic and circular attitudes allow
parallel activities and are less concerned
with punctuality.
Strategies for Developing Intercultural
Competence
Global business professionals require skills in
intercultural communication strategies or cross-
cultural communication, because they typically
exchange information with people from all over
the world. Without knowledge of other
cultures, people tend to make embarrassing
mistakes when conducting international
business. Effective intercultural communication
strategies prepare people to live or work in
other countries, and help business departments
understand each other better or prepare a
company for a merger or acquisition.
Developing intercultural competence is not
easy, it can be done through:
1. Intercultural trainings
2. Self -development trainings
3. Language lessons
4. Meetings of difference representative
of different cultures
5. Experience and practice
Development of Intercultural competence in
Business
1. Cognitive - development of knowledge,
skills, basic concepts and values that
important to individual to under.
2. Affective - pertains to the emergence of
the emotional capacity to experience,
recognize, and express a range of
emotions and to respond to others.
3. Behavioral - focuses on proper behavior
Poor or none intercultural competence can
lead to:
1. Misunderstanding
2. Misjudgments
3. Problems with communication and
cooperation with other people.
4. Lack of agreements, missing
opportunities
International Ethical and Ecological
Environment
Business Ethics
 Business ethics refers to the standard for
morally right and wrong conduct in business
industry. It promotes integrity among
employees & gain trust from key
stakeholders such as investors and
consumers.
Examples of Business Ethics:
 Accountability
 Care & Respect
 Honesty
 Healthy competition
 Loyalty
 Transparency
 Respect for the rule of law
Ethics and the Corporate Culture
Ethics
 Ethics is the decisions, choices, and actions
(behaviors) we make that reflect and enact
our values
 Ethics is what guides us to tell the truth,
keep our promises, or help someone in
need.
Corporate Culture
 It dictates how a company should act and
react to both internal and external parties
 Example: Hospitality, Warmth, and
Friendliness
Importance of Ethics in Corporate Culture:
1. Boosts Morale
2. Increases productivity
3. Misconduct Declines
4. Improves Compliance
Different Ethical Positions
 Utilitarianism The ethical theory of
utilitarianism holds that an action is right if
it results in the greatest amount of
happiness for the greatest number of
people.
 Deontology Holds that an action is right if it
is in accordance with a moral rule or duty
 Virtue Ethics The virtue ethical theory holds
that an action is right if it is in accordance
with the virtuous character of the person
performing the action.
 Moral Relativism The moral relativist
position holds that there is no one true
morality, but that morality is relative to the
individual or society
 Ethical Egoism The ethical egoist position
holds that an action is right if it is in the best
interest of the person performing the
action.
 Moral Nihilism The moral nihilist position
holds that there is no such thing as morality,
and that any claims about what is right or
wrong are unfounded.
 Divine Command Theory The divine
command theory of ethics holds that an
action is right if it is commanded by God.
 Social Contract Theory The social contract
theory of ethics holds that an action is right
if it is in accordance with the rules of a
society that we have agreed to live in.
 Environmental Ethics The environmental
ethics position holds that we have a moral
obligation to care for the environment and
non-human beings that inhabit it.
 Animal Rights The animal rights position
holds that animals have a right to be free
from exploitation and cruelty, and that we
have a moral obligation to protect their
welfare.
International Business Ethics
What is International Business Ethics?
International business ethics constitute a global
code of conduct – a set of principles that
establishes ethical standards for employees and
businesses. Though every business has an ethics
code, engaging in international business may
introduce gray areas where expectations for
employee conduct are unclear.
Why is it important?
The goal of ethics in international business is to
ensure the company gains a reputation for
ethical and responsible business practices in its
home country and overseas. The result is a
more equitable, principled marketplace,
strengthened by partnerships between
businesses that share high ethical standards.
Beyond presenting a code of ethical conduct for
employees, an international business ethics
policy must consider such practices as corporate
governance, bribery, discrimination, social
responsibility, and fiduciary duties. A definition
of international business ethics begins with a
moral code of right and wrong, but modern
business ethics has expanded to encompass
supporting social and environmental causes,
and being a responsible member of the
communities where the company operates.
Global Ethics Standards:
 The Global Alliance Code of Ethics is a set of
principles and statements regarding ethics
in international business communication
and public relations. Among its guiding
principles and principles of professional
practice are the following:
 Obey laws and respect local customs.
 Work in the public interest.
 Engage in honest, truthful, and fact-
based communication.
 Practice transparency and disclosure.
 Honor privacy.
 Act with integrity.
 Recognize freedom of speech,
assembly, and media.
 Avoid conflicts of interest.
 The IMA’s Statement of Ethical Professional
Practice was initially created in 2005 in the
wake of a series of global financial scandals
that shook public confidence in corporate
practices. It describes standards in four
areas.
 Competence includes maintaining a level of
professional leadership and expertise.
 Confidentiality extends beyond legally
required confidentiality to cover informing
partners of their duty of confidentiality.
 Integrity encompasses avoiding conflicts of
interest, acting in ways that promote the
profession, and contributing to a positive
ethical culture.
 Credibility requires that information is
communicated fairly and objectively, and
that all relevant information is
communicated to partners and
stakeholders in a timely manner.
Ecological/Environmental Issues:
 Air quality (air pollution, ozone pollution
and diesel emissions)
 Climate change (encompasses " global
warming", greenhouse effect, loss of
glaciers, climate refugees, equity)
 Endangered species (cites, loss of species,
impact of chemical use on species, species
extinction, invasive species)
 Waste (landfills, recycling, incineration,
various types of waste produced from
human endeavors)
 Water population (fresh water and ocean
pollution, great pacific garbage patch, river
and lake pollution, riparian issues)
 Natural disaster (linked to climate change,
desertification, deforestation, loss of
natural resources such as wetlands)
International efforts to improve business
ethics:
 Obey laws and respect local custom
 Working the public interest
 Engage in honest, truthful and fact-based
communication
 Practice transparency and disclosure
 Honor privacy
 Act with integrity
 Recognize freedom of speech, assembly and
media
 Avoid conflicts of interest
International Strategic Issues
Business Strategy
 It refers to the actions and decisions
that a company takes to reach its
business goals and be competitive in its
industry.
 The pattern of decisions in a company
determines and reveals its objectives,
purposes, or goals, produces the
principal policies and plans for
achieving those goals, and defines the
range of business the company pursues.
Business Strategy – Ideas and Concepts
 SWOT and PESTLE Analysis : A
framework for strategy formulation is
based on the premise that the final
strategy adopted by a company should
achieve a ‘fit’ between its internal
capabilities (strengths and weaknesses)
and the external situation
(opportunities and threats). This is
commonly known as SWOT analysis.
SWOT Analysis provides information that helps
in synchronizing the firm’s resources and
capabilities with the competitive environment
in which the firm operates:
 An external analysis should highlight the
general environmental influences a firm
must cope with, for example, the
political, economic, social,
technological, legal, and ecological
factors (PESTLE).
 An internal analysis of a firm should
identify the things the organization
does exceptionally well (strengths) and
 those features that inhibit its ability to
fulfill its purposes (weaknesses).
 Porter’s Five Forces Analysis: One of the
most renowned among managers
making strategic decisions is the five
competitive forces model that
determines industry structure.
According to Porter, the nature of competition
in any industry by the following five forces:
 The threat of new potential entrants
 The threat of substitute
products/services
 Bargaining power of suppliers
 Bargaining power of buyers
 Rivalry among current competitors
THE THREAT OF NEW POTENTIAL ENTRANTS
Potential competitors refer to firms that are not
currently competing in the industry but have
the potential to do so if given a choice.
The threats will be affected by the presence of
the following barriers:
 Economies of scale
 Differentiation of the product
 Capital requirements of entry
 Cost advantages
 Access to distribution channels
Government intervention
THE THREAT OF SUBSTITUTE
PRODUCTS/SERVICES
A new process or product may render an
existing product useless. For an individual firm,
the main issue is the extent to which there is a
danger that substitutes may encroach on its
activities.
BARGAINING POWER OF SUPPLIERS
Suppliers have the ability to squeeze industry
profits by raising prices or reducing the quality
of their products.
BARGAINING POWER OF BUYERS
In general, the greater the bargaining power of
buyers, the greater is their ability to depress
industry profitability.
RIVALRY AMONG CURRENT COMPETITORS
Rivalry is influenced by the above forces but
also depends on the concentration of firms in
the marketplace and their relative market
shares, the rate of industry growth, the degree
of product differentiation, and the height of exit
barriers.
CHOICE OF STRATEGY
 Product-market strategy - which
determines where the organization
competes and the direction of growth.
 Competitive strategy - which influence
the action/reaction patterns an
organization will pursue for competitive
advantage.
 Institutional strategy - which involve a
variety of formal and informal
relationships with other firms usually
directed towards the method of
growth.
CORPORATE STRATEGY IN A GLOBAL
ECONOMY
Corporate strategy will work to establish the
overall value of a business, set strategic goals
and motivate employees to achieve them. It is a
continuous process that should be carefully
tailored to respond appropriately to changing
conditions in the marketplace.
DIFFERENCE BETWEEN BUSINESS LEVEL
STRATEGY AND CORPORATE LEVEL STRATEGY
Business level strategy
 Related with single business unit
 Aims to gain competitive advantage
 Main strategies are cost leadership,
differentiation
Corporate level strategy
 Related with overall corporate
consisting of more than one businesses.
 Aims to gain corporate advantage
 Main strategies are expansion, stability
and Retrenchment
CORPORATE STRATEGY
Choices strategic managers should make:
 Deciding in which businesses and
industries a company should compete.
 Selecting which value creation activities
it should perform in those businesses.
 Determining how it should enter,
consolidate, or exit businesses or
industries to maximize long-term
profitability.
Four Fundamental types of corporate strategies
 Expansion strategy
 Stability strategy
 Retrenchment strategy
 Combination strategy
INTERNATIONAL BUSINESS AND VALUE CHAIN
International production is dominated by MNEs
that are increasingly transnational in operation,
including horizontally and vertically integrated
activities more widely dispersed on a
geographical basis. This brings into focus the
value chain, which breaks down the full
collection of activities that companies perform
into ‘ primary ’ and ‘ secondary ’ activities
Primary activities - to create the product,
sell the product, and distribute it to the
marketplace.
Secondary activities - a variety of functions
such as human resource management,
technological development, management
information systems, finance for
procurement, etc.
Sources of global synergies
- Expanding internationally may allow
firms to reconfigure their value
chains and raise overall corporate
profitability in ways that would not
otherwise be available within a
wholly domestic context.
International businesses may be
able to develop these ‘global
synergies’ from a variety of sources.
Value chain
 Localization on a global scale only
the international business can
disperse individual value-creating
activities, around the world to
locations where they can be
undertaken most efficiently (at least
cost) and effectively.
 Economies of scale it is only by
becoming an international business
that the firm can operate at such a
size that all available economies of
 scale are achieved for a particular  Less responsive to local
activity within the value chain. conditions
 Loss of market share of
 Economies of scope and experience consumer behavior becomes
only the international business can more responsive to localized
con- figure the most appropriate mix characteristics.
of activities within the value chain  Few opportunities for global
learning
consistent with efficient and
effective production.
 Non-organic growth on an  Transnational Strategy
international scale e the The transnational company has
characteristics of both the global and
international business recognizes
multidomestic firm. Its aim is to
that organic growth is insufficient to maximize local responsiveness but also
meet its key objectives and where to gain benefits from global
some form of institutional integration. 
arrangement with one or more
Advantages
overseas firm(s) is seen as the way  Economies of location via a
ahead. geographically- dispersed value
 Increase in geographical reach of chain
 Economies of experience
core competencies the international
 Global Learning Stemming from
business seeks to earn a still higher the sharing of core
return from its distinctive core competencies
competencies by applying those  Product differentiation, with
production and marketing
competencies to new geographic
responsive to local conditions
markets.
Disadvantages
 Complex coordination to
INTERNATIONAL BUSINESS STRATEGIES
implement strategy 
 Global Strategy
 Possible conflicts between cost
They offer a standardized
competitiveness and local
product worldwide and have the goal to
responsiveness
maximize efficiencies in order to reduce
costs as much as possible. 
 Multidomestic Strategy
Companies with a
Advantages
multidomestic strategy have an aim to
 Standardized products become
meet the needs and requirements of
highly cost competitive
the local markets worldwide by
 Economies of scale 
customizing and tailoring their products
 Economies of experience
and services extensively. 
 Emphasize Home Country core
competencies
Advantages
Disadvantages
  Highly Customized Production
and marketing, emphasizing
local responsiveness
 Most appropriate where the
minimum efficient size (MES) is
relatively low for key elements
of the value chain and strong
local/cultural preferences exist.

Disadvantages
 Loss of Location Economies
(which require a geographically-
dispersed value chain)
 Loss of experience economies 8 Steps for Putting Together a Successful
 Little global learning where core International Strategy 
competencies are not
transferred between foreign 1. Set Goals for Your International Strategy 
companies  2. Identify Your Product/ Service 
 Lack of corporate group 3. Research New Markets 
cohesion 4. Understand Your Competition 
5. Plan Your Marketing Strategy 
 International Strategy  6. Plan Your International Organizational
This strategy is also often Structure 
referred to as an exporting strategy. 7. Determine Your Distribution Strategy 
8. Assemble a Strategy Document
Advantages
 Core competencies transferred
INTERNATIONAL BUSINESS STRATEGIES AND
to foreign markets
 Economies of scale for POLITICAL PERSPECTIVE
centralized markets in ‘core  Politics is one of the main
architecture’ (e.g., product
environmental factors and is in general
development, R & D)
out of companies’ extent. When a
company launches a product or
Disadvantages
campaign in a foreign market. It can be
 Less responsive to local
conditions entangled in problem if the launch runs
 Less Location Economies into issues that are political in nature.
available, via retention of ‘core  PESTEL, with the addition of the legal
architecture’ and environmental factors,
 Less global learning as few core progressively became more important
competencies transferred from a business standpoint. These
 Less experience economies factors represent huge hurdles on both
available. domestic and foreign business.

ECONOMIC INTEGRATION-NATIONAL
RESPONSIVENESS FRAMEWORK
  National responsiveness: the horizontal
axis of the figure below corresponds to
an essentially political dimension,
namely national responsiveness. It
refers to the pressures on MNEs to
respond to different national or regional
standards imposed by governments and
agencies and to different consumer
tastes in segmented national markets.
 Economic integration: it refers to the
pressures on MNEs to develop
economies of scale, to develop location
economies, to develop experience
economies and to seek to benefit from
other efficiency advantages from
increased coordination and control of
geographically dispersed activities.
B. Revenue-based synergies – horizontal or
vertical acquisitions enable companies to
develop new competencies, which may in turn
enable them to command a price premium (via
increased market power, higher innovation
capabilities) or to increase sales volume (via
increased market leverage – both geographic
and product-line extension).
TECHNIQUES FOR STRATEGIC ANALYSIS
o SWOT Analysis
o PEST Analysis
o Porter’s Five Forces Analysis
o Four Corner’s Analysis
o Value Chain Analysis
o Early Warning Scan

INSTITUTIONAL STRATEGIES AND

INTERNATIONAL BUSINESS

Merger and Acquisition

 Merger takes place with the mutual

agreement of the management of both
companies, usually through an
exchange of shares of the merging firms
with shares of the new legal entity.
Additional funds are not usually
required for the act of merging, and the
new venture often reflects the name of
both the companies concerned.
 Acquisition occurs when the
management of Firm A makes a direct
offer to the shareholders of Firm B and
acquires a controlling interest.

TYPES OF SYNERGIES IN M&A

A. Cost-based synergies – horizontal

acquisitions have traditionally been considered
an effective means of achieving economies of
scale in production, in R & D and in
administrative, logistical and sales functions;