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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)
($ billions)($ billions)
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
($ billions)($ billions)
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
($ billions)($ billions)
GDP GrowthGDP Growth
(annual %)(annual %)
EconomyEconomy
TypeType
SingaporeSingapore
PhilippinesPhilippines
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 --
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 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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CountryCountry GNIGNI
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 --
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.
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 $$ 905905 oror lessless..
FF Countries,Countries, suchsuch asas Luxembourg,Luxembourg, US,US,NorwayNorway etcetc.. areare amongamong thethe richestrichest,, whilewhilelargelarge economyeconomy likelike IndiaIndia isis poorpoor..
FF DespiteDespite itsits largelarge numbernumber ofof poorpoor people,people,IndiaIndia hashas aa fairlyfairly wealthywealthy middlemiddle classclassaroundaround 300300--400400 millionmillion peoplepeople whichwhich showsshowsitsits attractivenessattractiveness..
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CountryCountry GNIGNI
Per Capita ($)Per Capita ($)
GNI Per CapitaGNI Per Capita
PPP ($)PPP ($)
EconomyEconomy
TypeType
SingaporeSingapore
PhilippinesPhilippines
MalaysiaMalaysia
BruneiBrunei
VietnamVietnam
CambodiaCambodia
Lao PDRLao PDR
MyanmarMyanmar
ThailandThailand
IndonesiaIndonesia
28,73028,730
1,3901,390
5,6205,620
26,93026,930
700700
490490
500500
--
3,0503,050
1,4201,420
43,30043,300
3,4303,430
12,16012,160
49,90049,900
2,3102,310
1,5501,550
1,7401,740
--
7,4407,440
3,3103,310
HIHI
LMILMI
UMIUMI
HIHI
LILI
LILI
LILI
LILI
LMILMI
LMILMI
WorldWorld 7,4487,448 9,2099,209 --
Note:Note: HIHI High Income, UMIHigh Income, UMI Upper Middle Income, LMIUpper Middle Income, LMI Lower Lower
Middle Income, LIMiddle Income, LI Low Income.Low Income.
Source:Source: Compiled from the Little Data Book, 2008, WB.Compiled from the Little Data Book, 2008, WB.
GNI Per Capita and GNI PC, PPP for Countries of ASEAN,GNI Per Capita and GNI PC, PPP for Countries of ASEAN,
20062006
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FF Among Among tenten nations,nations, Vietnam, Vietnam, Cambodia,Cambodia,LaoLao PDRPDR andand MyanmarMyanmar areare thethe lowlow incomeincome
countriescountries..FF SingaporeSingapore andand BruneiBrunei areare thethe highhigh incomeincome
countriescountries asas theirtheir GNIGNI PCPC isis aboveabove $$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?