17274208 critical forces of business environment ch 2

8/3/2019 17274208 Critical Forces of Business Environment Ch 2

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ChapterChapter-- 22

Critical Forces of BusinessCritical Forces of BusinessEnvironmentEnvironment


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Components of International Business EnvironmentComponents of International Business Environment

InternalEnvironment

Micro Environment

Domestic Environment

Foreign Environment

Global Environment


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External EnvironmentExternal Environment

Micro EnvironmentMicro Environment Macro EnvironmentMacro Environment

MicroMicro EnvironmentEnvironment:: Actors Actors inin thethe firmsfirmsimmediateimmediate environmentenvironment..

InfluenceInfluence thethe firmsfirms decisionsdecisions && operationsoperationsdirectlydirectly..

DoDo notnot affectaffect allall thethe firmsfirms inin anan industryindustry inin

thethe samesame wayway.. MacroMacro environmentenvironment:: WiderWider societalsocietal forces,forces,

whichwhich affectaffect thethe firmfirm andand alsoalso thethe playersplayers ininthethe firmsfirms micromicro environmentenvironment..


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Micro EnvironmentMicro Environment

Actors in the firms immediate environment.Actors in the firms immediate environment.

Suppliers

MarketingIntermediaries

FinancialInstitutions

Competitors

General Public

Customers


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Macro EnvironmentMacro Environment

Business

Economic Env

National Global

Non Economic

Env

Political

Socio-cultural

Demographic

Technological


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Macro EnvironmentMacro Environment

ForcesForces operateoperate atathomehome (domestic)(domestic) country,country,hosthost(foreign)(foreign) countrycountry andand globalglobal levelslevels..

ComprisesComprises ofof economiceconomic andand nonnon--economiceconomicenvironmentalenvironmental forcesforces..

EconomicEconomic environmentenvironment ofof businessbusiness bothbothnationalnational andand globalglobal isis of of strategicstrategicimportanceimportance..

1.1. AA firmfirm isis anan economiceconomic unitunit..

2.2. BusinessBusiness activitiesactivities areare economiceconomic activitiesactivities..

3.3. BusinessBusiness decisiondecision makingmaking areare economiceconomic ininnaturenature..


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Major Critical Economic ForcesMajor Critical Economic Forces

Economic indicators (GNI, GNI PPP, GDP,Economic indicators (GNI, GNI PPP, GDP,GNI Per Capita, GDP Growth Rate etc)GNI Per Capita, GDP Growth Rate etc)

Economic systemEconomic system

Economic plans and policiesEconomic plans and policies-- Monetary,Monetary,fiscal, trade and commerce.fiscal, trade and commerce.

Economic problems and prospectsEconomic problems and prospects


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CountryCountry GNIGNI($ billions)($ billions)

GNI, (PPP)GNI, (PPP)($ billions)($ billions)

IndiaIndia

PakistanPakistan

BangladeshBangladesh

Sri LankaSri Lanka

NepalNepal

BhutanBhutan

MaldivesMaldives

909.1909.1

126.7126.7

70.570.5

26.026.0

8.88.8

928 (mil)928 (mil)

903 (mil)903 (mil)

2726.2 (80.0%)2726.2 (80.0%)

382.8 (11.2%)382.8 (11.2%)

191.9 (5.6%)191.9 (5.6%)

74.2 (2.2%)74.2 (2.2%)

27.8 (0.8%)27.8 (0.8%)

2.6 (0.07%)2.6 (0.07%)

1.4 (0.04%)1.4 (0.04%)

SAARC TotalSAARC Total 1142.91142.9 3406.9 (5.7%)3406.9 (5.7%)

WorldWorld 48,694.148,694.1 60,209.9 (100.0%)60,209.9 (100.0%)

SourceSource:: CompiledCompiled fromfrom thethe LittleLittle DataData Book,Book, 20082008,, WBWB..

GNI and GNI, PPP for SAARC Nations, 2006GNI and GNI, PPP for SAARC Nations, 2006


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FF SAARCSAARC nationsnations togethertogether representsrepresents 55..77%%ofof thethe worldworld GNI,GNI, PPPPPP..

FF Among Among thethe sevenseven nations,nations, IndiaIndiaconcentratesconcentrates 8080%% ofof GNI,GNI, PPPPPP ofof thethe totaltotalSAARCSAARC nations,nations, whichwhich isis highesthighest..

FF ThreeThree countriescountries:: Nepal,Nepal, BhutanBhutan andandMaldivesMaldives havehave lessless thanthan 11%% ofof grossgrossincomeincome (PPP)(PPP) toto totaltotal SAARCSAARC GNI,GNI, PPPPPP..

FF Among Among thethe SAARCSAARC nations,nations, whilewhile IndiaIndiarepresentsrepresents thethe biggestbiggest inin sizesize andandeconomiceconomic activityactivity,, thethe casecase ofof MaldivesMaldives isis

thethe smallestsmallest..


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CountryCountry GNIGNI

($ billions)($ billions)

GNI, (PPP)GNI, (PPP)


SingaporeSingapore

PhilippinesPhilippines

MalaysiaMalaysia

BruneiBruneiVietnamVietnam

CambodiaCambodia

Lao PDRLao PDR

MyanmarMyanmar

ThailandThailandIndonesiaIndonesia

128.8128.8

120.2120.2

146.8146.8

10.310.358.558.5

7.07.0

2.92.9

--

193.7193.7315.8315.8

194.1 (8.6%)194.1 (8.6%)

296.2 (13.1%)296.2 (13.1%)

317.4 (14.0%)317.4 (14.0%)

19.1 (0.8%)19.1 (0.8%)194.4 (8.6%)194.4 (8.6%)

22.1 (1.0%)22.1 (1.0%)

10.0 (0.4%)10.0 (0.4%)

--

472.2 (20.9%)472.2 (20.9%)737.2 (32.6%)737.2 (32.6%)

ASEAN Total ASEAN Total 984.0984.0 2262.7 (3.7%)2262.7 (3.7%)

WorldWorld 48,694.148,694.1 60,209.9 (100.0%)60,209.9 (100.0%)

SourceSource:: CompiledCompiled fromfrom thethe LittleLittle DataData Book,Book, 20082008,, WBWB..

GNI and GNI, PPP for Countries of ASEAN, 2006GNI and GNI, PPP for Countries of ASEAN, 2006


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FF ASEANASEAN totaltotal representsrepresents 33..77%% ofof thethe worldworldGNI,GNI, PPPPPP..

FF Among Among thethe tenten countries,countries, thethe shareshare ofofIndonesiaIndonesia toto totaltotal ASEAN ASEAN GNI,GNI, PPPPPP isisaboutabout3333%%,, whichwhich isis thethe highesthighest..

FF BruneiBrunei thoughthough isis aa highhigh incomeincome country,country,representsrepresents lessless thanthan 11%% ofof itsits nationalnationalincomeincome toto GNI,GNI, PPPPPP ofof ASEANASEAN..

FF Among Among thethe ASEAN,ASEAN, LaoLao PDRPDR sizesize ofofeconomiceconomic activityactivity isis limitedlimited andand smallestsmallest..

FF NextNext toto Indonesia,Indonesia, ThailandThailand representsrepresents

aboutabout2121%%

shareshare ofof GNI,GNI, PPPPPP ofof ASEANASEAN..


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CountryCountry GDPGDP


GDP GrowthGDP Growth

(annual %)(annual %)

EconomyEconomy

TypeType

IndiaIndia

PakistanPakistan

BangladeshBangladeshSri LankaSri Lanka

NepalNepal

BhutanBhutan

MaldivesMaldives

911.8911.8

126.8126.8

61.961.927.027.0

8.98.9

0.90.9

0.90.9

9.29.2

6.96.9

6.66.67.47.4

2.82.8

8.58.5

23.523.5

LILI

LILI

LILILMILMI

LILI

LMILMI

LMILMI

WorldWorld 48,461.948,461.9 3.83.8 --

Note:Note: HIHI High Income, UMIHigh Income, UMI Upper Middle Income, LMIUpper Middle Income, LMI Lower Lower

Middle Income, LIMiddle Income, LI Low Income.Low Income.

Source:Source: Compiled from the Little Data Book, 2008, WB.Compiled from the Little Data Book, 2008, WB.

GDP and GDP Growth Rates for SAARCGDP and GDP Growth Rates for SAARC

Nations, 2006Nations, 2006


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FF ExceptExcept NepalNepal,, allall thethe sixsix SAARCSAARC nationsnationshavehave theirtheir economiceconomic growthgrowth ratesrates aboveabove thethe

raterate ofof growthgrowth ofof thethe worldworld asas aa wholewhole..

FF ExceptExcept Maldives,Maldives, amongamong thethe sixsix SAARCSAARCnations,nations, IndiaIndia hashas thethe highesthighest growthgrowth raterate

inin 20062006 approachingapproaching toto 1010%%..FF MaldivesMaldives hashas thethe highesthighest growthgrowth raterate ofof

doubledouble digitdigit approachedapproached toto 2424%%..

FF KeepingKeeping itsits sizesize andand growth,growth, IndiaIndia isisexpectedexpected toto bebe oneone ofof thethe leadingleadingeconomieseconomies andand hothot marketsmarkets inin thethe worldworld ininfuturefuture..


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CountryCountry GDPGDP


GDP GrowthGDP Growth

(annual %)(annual %)

EconomyEconomy

TypeType

SingaporeSingapore


MalaysiaMalaysia

BruneiBrunei

VietnamVietnamCambodiaCambodia

Lao PDRLao PDR

MyanmarMyanmar

ThailandThailand

IndonesiaIndonesia

132.2132.2

117.6117.6

150.7150.7

11.611.6

61.061.07.37.3

3.43.4

--

206.3206.3

364.8364.8

7.97.9

5.45.4

5.95.9

5.15.1

8.28.210.810.8

7.67.6

5.05.0

5.05.0

5.55.5

HIHI

LMILMI

UMIUMI

HIHI

LILILILI

LILI

LILI

LMILMI

LMILMI

WorldWorld 48,461.948,461.9 3.83.8 --




GDP and GDP Growth Rates for Countries of ASEAN, 2006GDP and GDP Growth Rates for Countries of ASEAN, 2006


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FF Among Among thethe ASEAN, ASEAN, thethe growthgrowth raterate ofof

CambodiaCambodia isis thethe highesthighest ((1010..88%%))..

FF DespiteDespite CambodiasCambodias limitedlimited marketmarket size,size, itsits

highhigh growthgrowth representsrepresents futurefuture expansionexpansion ofof

marketmarket andand marketsmarkets forfor thethe productsproducts ofof

internationalinternational businessbusiness..

FF AllAll thethe economieseconomies ofof ASEAN ASEAN havehave theirtheir

economiceconomic growthgrowth ratesrates aboveabove thethe worldworld

economiceconomic growthgrowth raterate..


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Per Capita ($)Per Capita ($)

GNI Per Capita,GNI Per Capita,

PPP ($)PPP ($)

EconomyEconomy

TypeType

IndiaIndia

PakistanPakistan

BangladeshBangladesh

Sri LankaSri Lanka

NepalNepal

BhutanBhutan

MaldivesMaldives

820820

800800

450450

1,3101,310

320320

1,4301,430

3,0103,010

2,4602,460

2,4102,410

1,2301,230

3,7303,730

1,0101,010

4,0004,000

4,7404,740

LILI

LILI

LILI

LMILMI

LILI

LMILMI

LMILMI

WorldWorld 7,4487,448 9,2099,209 --




GNI Per Capita and GNI PC, PPP for SAARCGNI Per Capita and GNI PC, PPP for SAARC

Nations, 2006Nations, 2006


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FF Among Among SAARCSAARC nations,nations, NepalNepal showsshows thethelowestlowestGNIGNI PCPC andand PPPPPP..

FF FourFour SAARCSAARC nations,nations, India,India, Pakistan,Pakistan,Bangladesh,Bangladesh, NepalNepal areare thethe lowlow incomeincomecountries,countries, asas theirtheir GNIGNI PCPC isis $$ 905905 oror lessless..

FF Countries,Countries, suchsuch asas Luxembourg,Luxembourg, US,US,NorwayNorway etcetc.. areare amongamong thethe richestrichest,, whilewhilelargelarge economyeconomy likelike IndiaIndia isis poorpoor..

FF DespiteDespite itsits largelarge numbernumber ofof poorpoor people,people,IndiaIndia hashas aa fairlyfairly wealthywealthy middlemiddle classclassaroundaround 300300--400400 millionmillion peoplepeople whichwhich showsshowsitsits attractivenessattractiveness..


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Per Capita ($)Per Capita ($)

GNI Per CapitaGNI Per Capita

PPP ($)PPP ($)

EconomyEconomy

TypeType

SingaporeSingapore


MalaysiaMalaysia

BruneiBrunei

VietnamVietnam

CambodiaCambodia

Lao PDRLao PDR

MyanmarMyanmar

ThailandThailand

IndonesiaIndonesia

28,73028,730

1,3901,390

5,6205,620

26,93026,930

700700

490490

500500

--

3,0503,050

1,4201,420

43,30043,300

3,4303,430

12,16012,160

49,90049,900

2,3102,310

1,5501,550

1,7401,740

--

7,4407,440

3,3103,310

HIHI

LMILMI

UMIUMI

HIHI

LILI

LILI

LILI

LILI

LMILMI

LMILMI

WorldWorld 7,4487,448 9,2099,209 --




GNI Per Capita and GNI PC, PPP for Countries of ASEAN,GNI Per Capita and GNI PC, PPP for Countries of ASEAN,

20062006


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FF Among Among tenten nations,nations, Vietnam, Vietnam, Cambodia,Cambodia,LaoLao PDRPDR andand MyanmarMyanmar areare thethe lowlow incomeincome

countriescountries..FF SingaporeSingapore andand BruneiBrunei areare thethe highhigh incomeincome

countriescountries asas theirtheir GNIGNI PCPC isis aboveabove $$1111,,116116..

FF MalaysiaMalaysia (upper(upper middlemiddle income)income) nownowpresentspresents oneone ofof thethe attractiveattractive marketsmarkets ininthethe regionregion..

FF CambodiaCambodia thoughthough aa leastleast developeddeveloped countrycountry((LDCLDC)) providesprovides anan attractiveattractive destinationdestination forforforeignforeign investorsinvestors duedue toto itsits economiceconomicgrowthgrowth..


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FF As As estimatedestimated (Goldman,(Goldman, 20032003)) ChinaChina

economyeconomy willwill overtakeovertake JapanJapan byby 20152015 andandUSUS byby 20412041..

FF IndiasIndias economyeconomy wouldwould bebe largerlarger thanthan

FranceFrance inin 20202020 andand JapanJapan 20322032..

FF ByBy 20502050,, ChinaChina willwill bebe thethe largestlargesteconomyeconomy

inin thethe worldworld followedfollowed byby USUS andand IndiaIndia..


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Domestic EnvironmentDomestic Environment

All All thethe uncontrollableuncontrollable forcesforces

originatingoriginating inin thethe homehome countrycountry thatthatsurroundssurrounds andand influenceinfluence thethe lifelife andanddevelopmentdevelopment ofof thethe firmfirm..


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Domestic EnvironmentDomestic Environment

Competitive Structure Economic climateCompetitive Structure Economic climate

Political & Legal forcesPolitical & Legal forces

UncontrollableUncontrollable

IMPACT ?IMPACT ?


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Domestic firms venture intoDomestic firms venture intointernational businessinternational business

Lack of domestic demand and/orLack of domestic demand and/or

Intense CompetitionIntense Competition

Export Promotion Measures and/orExport Promotion Measures and/or

Economic IncentivesEconomic Incentives


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Foreign EnvironmentForeign Environment

Geographical factorsGeographical factors

Economic conditionsEconomic conditions

SocioSocio--Cultural environmentCultural environmentPolitical environmentPolitical environment

Technological environmentTechnological environment

Legal forcesLegal forcesUncontrollable forces originating outside theUncontrollable forces originating outside the

home country that surround and influence thehome country that surround and influence thefirm.firm.


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Global EnvironmentGlobal Environment

World Economic ConditionsWorld Economic Conditions

International Financial SystemsInternational Financial Systems

Working of WTO, IMF, WB..Working of WTO, IMF, WB..

International Agreements & TreatiesInternational Agreements & Treaties

Regional Economic GroupingsRegional Economic Groupings

European Union (EU)European Union (EU)

North American Free Trade Association (NAFTA)North American Free Trade Association (NAFTA)

Association of South East Asian Nations ( ASEAN)Association of South East Asian Nations ( ASEAN)Association of South Asian Regional Cooperation (SAARC)Association of South Asian Regional Cooperation (SAARC)

Exerts influenceExerts influence over domestic as well asover domestic as well asforeign Countries.foreign Countries.


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NonNon--Economic EnvironmentEconomic Environment

Political Socio-Cultural Legal

Technological Geographical

Ecological


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PoliticalPolitical

Form of Government Political Party System

Political Ideology Role of Government

Political Stability


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SocioSocio--CulturalCultural

LanguageLanguage

Attitude & valuesAttitude & values

EducationEducation

Religions &Religions &

SuperstitionSuperstition

Social groups &Social groups &

OrganizationsOrganizations


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Environmental forces andEnvironmental forces andDecisions of a FirmDecisions of a Firm

WhatWhat shouldshould bebe thethe scalescale ofofproductionproduction??

ShouldShould thethe firmfirm employemploy laborlabor intensiveintensive oror

capitalcapital intensiveintensive techniques?techniques? HowHow toto financefinance firm'sfirm's foreignforeign operations?operations?

HowHow muchmuch toto repatriaterepatriate??

ShouldShould thethe firmfirm hirehire locallocal personspersons oror employemployforeignforeign nationals?nationals?

WhatWhat shouldshould bebe theirtheir compensationcompensation

package?package?

17274208 critical forces of business environment ch 2

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