CHAPTER TWO

INTERNATIONAL BUSINESS(IB)
ENVIRONMENT
International Business(IB) Environment

Chapter Components
2.1 IB Environment: Overview

2.2 IB(From internal environment factors/angles

stand)

2.3 IB(From external environment factors/angles

stand)
2.1 International Business Environment
 Refers to area where a given business is to be conducted.
 Consist of factors that may: positively or negatively affect a
business activities

E.g. Rising fuel costs in airline are threats.

E.g. Rising demand for airline travel can be seen as an opportunity.

2.2 IB(from Internal Environment Factors/ Angles Stand)

 Everything inside the firm that might affect the ability of

managers to pursue certain actions or strategies. Includes the
organization of the firm:
o (its structure, organizational culture, incentives), financial
capability, the employees of the firm (its human capital)
o the resources of the firm (its tangible & intangible assets),
company location.
IB(from Internal Environment Factors…

 Internal business environment can be audited

from what is going on in the
1)HRM

2)Research and development

3)Production section of a company and

4)Company’s business competency areas

IB(from Internal Environment Factors)…

1)HRM

What is going on in the HRM section of an organization(quality/mode

of employees recruitment, selection, training, appraisal, compensation,
treatment, Motivation scheme etc.

2)Research and Development

What is being undertaken in the research & development section of
an organization, reliable and non stop research over customers level of
demand, market share, technology in use, new product
development, etc.
IB(from Internal Environment Factors)…

3) Production Section of a Company

What is going on in the production section of an organization (quality
levels and dimensions, conformances to set rules and regulations, TQM.
4) Company’s Business Competency Areas:
 Flexibility, cost, time, quality, location, technology, resource
utilization efficiencies, promotional, pricing and distribution
activities, operations capability, financial capability, tangible &
intangible assets.
2.3 IB From External Environment Factors

 International business environment can be seen from set of

external factors points of view like:

1.Political Factors

2.Economic Factors

3.Legal Factors

4. Cultural Factors

5.Technological Factors
IB From External Environment Factors …
1.Political Environment Systems
Refers to the system/ ideology of government of a nation and affects
on going business activities.
Can be studied using criteria like citizenship/domestication
requirements, business risks (expropriation & confiscation risks) ,
boycott, tariffs, incentives, political stability, etc..
Example of confiscation/elimination is the Chinese government’s
seizure of American property after the Chinese communists took power
in 1949.
Eg Domestication. Pepsi sold its South African bottling operation to
local investors
USA imposed economic sanction against Vietnam/Iran.
IB From External Environment Factors/angles …

POLITICAL SYSTEM & IB

Either Collectivism or
 Individualism
Political systems
1. Collectivism
2. Individualism
 Collectivism refers to a political system that stresses the primacy
of collective goals over individual goals.

The needs of society are viewed as more important than individual

freedom or rights,
E.g. Socialism and Communists
 Great Britain, France, Germany, Norway, Sweden, Spain, Australia.

 Individualism refers to a philosophy that an individual should

have freedom in his or her economic and political pursuits.

Individualism is built on two tenets:

 Democracy and Totalitarianism
Democracy and Totalitarianism
Democracy refers to a political system in which government is by
the people, exercised either directly or through elected representatives.
 is relevant to the effective conduct of global business is an
individual’s right to freedom of expression and organization.

 eg. USA

Totalitarianism is a form of government in which one person or

political party exercises absolute control over all spheres of human
life. E.g. China
2.Economic Environment/System
 Economic environment of a given nation

 Economic growth, remittances/transfers, income levels,

saving/spending levels/patterns,

 e.g.
 GDP, GNP, PCI, foreign exchange rate, interest
rates/
 Inflation, economic development, industrial policy, fiscal
policy/government spending & revenue collection, monetary
policy/supply of money, foreign investment policy, export -
import policy etc.
 2.Economic Environment/System…

 Three broad types of economic systems have been

identified:
1. Market Economy/Capitalism

2. Command Economy

3. Mixed Economy
 3. Legal Systems
 It refers to the rules, or laws that regulate behaviour, the
processes by which the laws are enforced.
 the rights and obligations of those involved in business
transactions.
 Differences in legal systems can affect the attractiveness of a
country as an investment site or market.
 There are many products that cannot be legally imported into
most countries.
 Examples: counterfeit/fake money, illicit drugs, pornographic
materials, espionage/spying equipment
 5.IB and Cultural Environment
 Culture is viewed as a system of values and norms that are shared
among a group of people.
 Values are abstract ideas about what a group believes to be good, right
and desirable.
 Norms are social rules and guidelines that prescribes appropriate
behaviour in a particular situations.
 Values may include a society’s attitudes toward such as individual
freedom, democracy, truth, justice, loyalty, love, social obligations and
collective responsibility.
 So, Cultural awareness should be applied in every aspect of marketing:
in selling, label-printing, advertising and promotion of products etc.
 Determinants of Culture

Religions and Ethical Systems

Religions are a major determinant of the moral and ethical values
and influence people's attitude, habits and outlook on life, which are
reflected in their consumption pattern. Example: Many religions of
the world have important teachings around food, alcohol.
Religious taboos/restrictions include pork & alcohol for Muslims,
beef for Hindus, and pork and shellfish for Jews.
Religious holidays and seasons are equally important and need to
be considered when planning marketing promotions.
Saudi Arabian publications will not accept & advertisement that
has a picture of a woman in it.
 Determinants of Culture
Language
Language (spoken and unspoken)
It is through language that most of the marketing communications take
place.
When literal translations are made of brand names or advertising
messages from one language to another by people who know the
language but not the culture, serious mistakes may occur.
For example: Ford marketed its Nova car in Latin America with
disastrous results “Nova” means “no go” doesn't go in Spanish Sales
were better when the name was changed.
Coca-Cola had problems in China which translates into ‘A thirsty
mouthful of candle wax’.
 Determinants of culture…

Personal space
It refers to the comfortable amount of distance between
people.
Eg South Africa : b/n white and black people
In some countries, particularly in the West, men avoid
excessive touching while in the Asian and Latin American
countries people tend to get too close to one another physically
when engaged in conversation.
 Determinants of Culture…

Power distance/status
Example:In the USA, Germany and Finland people are measured by
how successful they are in their jobs and what an individual has done.
Example: in Middle East, people would not like to be judged solely by
their material possessions but by family connections and friendships.

Time
In some cultures it is not necessary to be precisely on time at
appointments.
E.g. in Germany, Finland, USA and China time has a high value and
has to be precisely organized to keep business running.
 Determinants of Culture…
Education
One of the most important social institutions, affects all aspects
of the culture, from economic development to consumer behavior.
if consumers have different levels of literacy, advertising,
packaging, labels and instructions will need to be adapted.
In countries with low literacy levels, advertisers would avoid
communications which depended upon written copy, and would
favor radio advertising with an audio message or visual media
such as billboards.
 The labeling of products may also be an issue.
5.Technological environment
Factors like:
o the type of technology in use, the level of technological
developments, the speed with which new technologies are
adopted and diffused,
oExample: The introduction of computer has replaced the
typewriters; the color television has made the black and white

television out of fashion.

End of Chapter Two

Thanks