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INTERNATIONAL

BUSINESS ENVIRONMENT:Lecture 1

Introduction to IBE andIntroduction to IBE and

analyzing the IBE environment

(PEST, SWOT, 5 forces, C-

analysis)Matevž Rašković

Ljubljana, 21. 2. 2012

Expectations�

THE INTERNATIONAL BUSINESS THE INTERNATIONAL BUSINESS

ENVIRONMENT OF TODAY

Global balance of trade?

Global FDIs

A new FDI trend

The rise of China: Exports

China: eyeing the no. 1 place

China vs. US comparison

The rise of the BRIC(S)

BRIC(S) as a super power

BRIC(S) and Slovenia?

EU-27: > 71 %

Germany: > 19 %

Italy: > 12 %

France: > 8 %

Austria: > 8 %

Scandinavia

represents less than 5

% of EU exports

USA: < 2 %

Ex-YU: > 14 % (share

is slowly declining)

Former Soviet Union: < 5 %

(Russia < 3 % )

Arab markets (without Turkey): < 2 %

Turkey: + 1 %

Central & South

America: < 1 %

Mostly Mexico &

Brazil)

Australia & NZ: < 0,2%

Brazil: < 0.2 %

(196 million market )

China: < 0,5 %

(1.34 billion market)

India: < 0.5 %

(1.1 billion market) Total BRIC: < 4 %

(almost 3 billion

market)

?

Source: Statistical Office of the Republic of Slovenia, 2011

World of brands�

Top brands in 2011

Geographical distribution

Top brand changes

Top industry changes

The impact of the crisis

Top companies

2011

And the little ZARA dress you bought

last week�

• Fabric bought in Asia�

• cut in a factory in Spain�

• sown by seamstresses in

Portugal�

• printed in Tunisia�

• and sold in Ljubljana!

THE COMPLEXITY OF TODAY

http://www.youtube.com/watch?v=lUMf7FWGdCw

http://www.youtube.com/watch?v=sc4HxPxNrZ0&feature=fvw

http://www.youtube.com/watch?v=Nse09-dKATI

http://www.youtube.com/watch?v=Z4gt62uAasE&feature=related

MAIN DIFFERENCES: DOMESTIC vs.

INTERNATIONAL BUSINESS

• Geography & distance

• Information (cause & effect)

• Additional economic concepts

• Culture• Culture

• Markets- widespread & fragmented

• Volumes

• Politics

• Governments & regulations

• Technology

THE BASIC APPROACH IN IB

Seek &

look

Spot &

target

Understand

(information)

Manage /

interact

How to do good business?

ANALYZING THE IB ENVIRONMENT:

AN OVERVIEWAN OVERVIEW

WHY IS ANALYSIS IMPORTANT?

Ford Pinto

ANALYSIS LEVELS

• MACRO (COUNTRY) LEVEL:

• PEST / PESTL

• PORTER’S DIAMOND

• SWOT

• MEZZO (INDUSTRY) LEVEL:

3 KEY ISSUES:

1. APPLICABILITY &

RELEVANCE• MEZZO (INDUSTRY) LEVEL:

• PORTER’S 5 FORCES

• COMPETITIVE POSITIONING

• C-ANALYSIS

• MICRO (COMPANY) LEVEL:

• INTERNAL COMPANY ANALYSIS (capabilities, resources, etc)

• DUE DILLIGENCE�

RELEVANCE

2. RISK MITIGATION

3. SUPPORT FOR

DECISION-MAKING

EXAMPLE: PORTER’S DIAMONDWhat drives

demand?

Decision-making

factors

Elasticity?

Which factors are

key for your

business

venture?

Apply the data so it is relevant to your company and line of business!

PEST ANALYSIS 1/3

PEST ANALYSIS 2/3

PEST ANALYSIS 3/3

Always ask�

What? What do I need to know to make a better and informed

decision?

Why do I need to know this (cause & effect)?Why?

Where do I get this information and data?

How much resources are needed for this?

How will I be able to use and apply this info and data in

my business processes?

Where?

How

much?

How?

PEST: GINI coefficient

PEST: example of population structure

Variables:

Gender

Age

Education level

Literacy

Religion

Ethnicity

Marital status

Children

Size of family

PEST: example quality of life

http://www.youtube.com/watch?v=Dbqzbxyd9y4

http://www.youtube.com/watch?v=ZpHpz4rTA04

PEST: example CPI (Transparency Int.)

http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

Example: Doing Business (World Bank)

www.doingbusiness.org

12 pillars of competitiveness

World Economic Forum, 2010/20101

EXAMPLE: WEF (Competitiveness)

2 views:

1) Absolute progress and 2) relative progress

World Economic Forum, 2010/20101World Economic Forum, 2010/20101

WEF: Slovenia

World Economic Forum, 2010/2011

EXAMPLE: Innovation Scoreboard

Pro Inno Europe: 2011.

EXAMPLE: Innovation Scoreboard

Pro Inno Europe: 2011.

EXAMPLE: socio-cultural environment

• Hofstede’s indices

• PDI

• UAI

• IND

• MAS

• LTO

• World Values Survey

• GLOBE project

• Country of origin effect (COO) & consumer ethnocentrism

• CET-SCALE (between 17 and 119; i.e. Slovenia: 53.74)

• Consumer profiles

Schwartz: values

Schwartz, 2008/2009.

Culture & national character

Terracciano et al. (2005): National Character Survey.

PORTER’S 5 FORCES (quick recap)

EXAMPLE: Slovene retail market

PORTER’S 5 FORCES TOOLBOX

The bargaining power of suppliers •supplier switching costs •ddifferentiation of inputs •presence of substitute inputs •supplier concentration •threat of forward integration •cost of inputs

•importance of volume to supplier

The intensity of competitive rivalry•number of competitors •rate of industry growth •intermittent industry

The bargaining power of customers• bargaining leverage • buyer volume •buyer switching costs •buyer information availability •ability to backward integrate •availability of substitutes•buyer price sensitivity

•importance of volume to supplier

The threat of new entrants•barriers to entry •brand equity•switching costs •capital requirements •access to distribution •absolute cost advantages •learning curve advantages •expected retaliation

•government policies

•intermittent industry overcapacity •exit barriers •diversity of competitors •informational complexity •brand equity •fixed cost allocation

•level of ad expense

•price of total purchase

The threat of substitutes•buyer propensity to substitute •relative price performance of substitutes •buyer switching costs •perceived level of product differentiation

C-ANALYSIS

• Doing a profile of your main competitors

• SWOT of your main competitors

• Brand image

• Positioning

• Capabilities

• Competitive advantage• Competitive advantage

• Skills

• Human capital

Understanding the value chain

Understanding global value chains

EXAMPLE: COMPETITIVE POSITIONING

Valicon, 2009.

EXAMPLE: Gorenje positioning

Gorenje, 2008.

MARKET SCREEING MODEL:

DECIDING WHICH MARKETS TO

ENTER

WHICH MARKET TO

ENTER?

WHICH INDUSTRY

TO ENTER?

WHICH SEGMENT?

ENTER? TO ENTER?

EXAMPLE: IDEAS

Rank Country Consumption

1 Czech Republic 156.9

2 Ireland 131.3

3 Germany 115.8

4 Australia 109.9

Highest per capita BEER

consumption in liters

Highest per capita COFFEE

consumption in kilograms

5 Austria 108.3

6 United Kingdom 99.0

7 Slovenia 93.3

8 Belgium 93.0

9 Denmark 89.9

10 Finland 85.0

EXAMPLE: IDEASHighest per capita GUN

ownership in # guns per 100

• 1st USA: 90 guns per 100 people

• 2nd Yemen: 61 guns per 100 people

• 3rd Finland: 56 guns per 100 people

• 4th Switzerland: 46 guns per 100 people

Top 20 countries in terms of

frequency of sex

• 5th Iraq: 39 guns per 100 people

• 6th Serbia: 38 guns per 100 people

INFORMATION RESOURCES

• Alibaba: www.alibaba.com

• Transparency international: www.transparency.org

• CIA factbook: www.cia.gov/library/publications/the-world-

factbook/

• WTO:http://stat.wto.org/CountryProfile/WSDBCountryPFVie

w.aspx?Language=E&Country=SI

• World Bank – Doing business: www.doingbusiness.org

• Innovation Scoreboard: www.proinno-europe.eu